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, 2018 and 2017, 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, 2018, 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, petrochemicals, metals and agriculture.

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

•Ratings is an independent provider of credit ratings, research and analytics, offering investors and other market participants information, ratings and benchmarks.
•Market Intelligence is a global provider of multi-asset-class data, research and analytical capabilities, which integrate cross-asset analytics and desktop services.
•Platts is the leading independent provider of information and benchmark prices for the commodity and energy markets.We completed the sale of J.D. Power on September 7, 2016, with the results included in Platts 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.

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

Major Portfolio Changes

The following significant changes were made to our portfolio during the three years ended December 31, 2018:

2018

•In April of 2018, we acquired Kensho Technologies Inc. ("Kensho") for approximately $550 million, net of cash acquired, in a mix of cash and stock. Kensho is a leading-edge provider of next-generation analytics, artificial intelligence, machine learning, and data visualization systems to Wall Street's premier global banks and investment institutions, as well as the National Security community. The results of Kensho, an operating segment of the Company, are included in Corporate revenue and Corporate Unallocated for financial reporting purposes.

2016

Market 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.

Platts

•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 Platts 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 Platts energy analytical capabilities by strengthening its position in natural gas and enhancing its oil offering.

Increased Shareholder Return

During the three years ended December 31, 2018, we have returned approximately $5.1 billion to our shareholders through a combination of share repurchases and our quarterly dividends: we completed share repurchases of approximately $3.8 billion and distributed regular quarterly dividends totaling approximately $1.3 billion. Also, on January 30, 2019, the Board of Directors approved an increase in the quarterly common stock dividend from $0.50 per share to $0.57 per share.

Key Results

(in millions)Year ended December 31,% Change 1
201820172016’18 vs ’17’17 vs ’16
Revenue$6,258$6,063$5,6613%7%
Operating profit 2$2,790$2,583$3,3418%(23)%
% Operating margin45%43%59%
Diluted earnings per share from net income$7.73$5.78$7.9434%(27)%
1% changes in the tables throughout the MD&A are calculated off of the actual number, not the rounded number presented.
22018 includes legal settlement expenses of $74 million, Kensho retention related expense of $31 million, restructuring charges related to a business disposition and employee severance charges of $25 million and lease impairments of $11 million. 2017 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 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. 2018, 2017 and 2016 also includes amortization of intangibles from acquisitions of $122 million, $98 million, and $96 million, respectively.

2018

Revenue increased 3% with a 1 percentage point favorable impact from foreign exchange rates. Revenue growth was driven by increases at Market Intelligence, Indices and Platts, partially offset by a decrease at Ratings. The increase at Market Intelligence was driven by annualized contract value growth in the Market Intelligence Desktop and Global Risk Services products. Revenue growth at Indices was driven by higher levels of assets under management for exchange traded funds ("ETFs") and mutual funds, and higher exchange-traded derivative volumes. The increase at Platts was due to continued demand for market data and price assessment products. These increases were partially offset by a decrease at Ratings driven by lower corporate bond ratings revenue.

Operating profit increased 8% with a 2 percentage point favorable impact from foreign exchange rates. Excluding the unfavorable impact of higher legal settlement expenses in 2018 of less than 1 percentage point, Kensho retention related expense in 2018 of less than 1 percentage point, and higher deal-related amortization in 2018 of less than 1 percentage point, partially offset by the favorable impact of higher employee severance charges in 2017 of less than1 percentage point, the favorable impact of non-cash acquisition and disposition-related adjustments in 2017 of less than 1 percentage point, operating profit increased 8%. The increase was primarily due to revenue growth at Market Intelligence, Indices and Platts and decreased compensation costs at Ratings and Corporate primarily driven by reduced incentive costs as well as the decreased headcount from attrition and prior year restructuring actions. These increases were partially offset by a decrease in revenue at Ratings, increased expenses at Market Intelligence due to an increase in cost of sales as a result of royalties tied to annualized contract value growth and increased data costs, and higher compensation costs at Market Intelligence and Indices primarily driven by additional headcount.

2017

Revenue increased 7% and was unfavorably impacted by 6 percentage points from the net impact of acquisitions and dispositions. Revenue growth was driven by increases at Ratings, Indices and Market Intelligence, partially offset by a decrease at Platts. 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 ETFs and mutual funds. The increase at Market Intelligence was driven by annualized contract value growth in the Market Intelligence Desktop and Global Risk Services products, partially offset by the unfavorable impact of the disposition of non-core businesses in 2016. The decrease at Platts was driven by the unfavorable impact of the disposition of J.D. Power in 2016, partially offset by an increase due to continued demand for market data and price assessment products.

Operating profit decreased 23%. Excluding the unfavorable impact of the gain on dispositions in 2016 of 38 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 a technology-related impairment charge in 2016 of 1 percentage point and higher disposition-related costs in 2016 of 1 percentage point, operating profit increased 17%. This increase was primarily due to revenue growth at Ratings, Indices and Market Intelligence as discussed above, partially offset by higher compensation costs due to increased incentive costs and additional headcount.

Our Strategy

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

We seek to deliver an exceptional, differentiated customer experience across the globe. We strive for operational excellence, continuous innovation, and a high performance culture driven by our best-in-class talent. In 2019, we will strive to deliver on our strategic priorities in the following four categories by:

Finance

•Delivering revenue growth and EBITA margin targets and delivering on commitments to return capital to shareholders and create capacity to invest;
•Investing for mid- to long-term revenue growth that meets or exceeds market growth rates; and
•Pursuing a disciplined acquisition, investment and partnership strategy.

Customer

•Strengthening and growing the core businesses;
•Delivering a modern, digital, integrated platform and user experience that enhances customer value, accompanied by thoughtful user migration plans;
•Expanding our presence in China to capture market opportunities;
•Building and promoting new products to solve customer pain points and deliver new commercial propositions in ESG, data marketplace, and small and medium-sized enterprises; and
•Enhancing teamwork and adopting commercial tools and processes to improve the clarity and quality of insights we gather from customers, and improve revenue capture.

Operations

•Transforming technology infrastructure to support growth, improve cost efficiency and mitigate cyber risk;
•Adopting core management systems, tools and processes across the Company to improve priortization and agility, drive execution, and reduce complexity;
•Developing an enterprise-wide data strategy and execution plan, leveraging machine learning and data science; and
•Further enhancing our commitment to our robust risk, internal control and compliance culture.

People

•Creating an inclusive performance-driven culture that drives employee engagement;
•Promoting internal mobility and attracting and retaining the best people; and
•Improving diversity in overall representation through talent acquisition and retention.

There can be no assurance that we will achieve success in implementing any one or more of these strategies as a variety of factors could unfavorably impact operating results, including prolonged difficulties in the global credit markets and a change in the regulatory environment affecting our businesses. See Item 1a, Risk Factors, in this Annual Report on Form 10-K.

Further projections and discussion on our 2019 outlook for our segments can be found within “ – Results of Operations”.

RESULTS OF OPERATIONS

Consolidated Review

(in millions)Year ended December 31,% Change
201820172016’18 vs ’17’17 vs ’16
Revenue$6,258$6,063$5,6613%7%
Expenses:
Operating-related expenses1,7011,6951,773—%(4)%
Selling and general expenses1,5611,6051,467(3)%9%
Depreciation and amortization20618018114%(1)%
Total expenses3,4683,4803,421—%2%
Gain on dispositions——(1,101)N/MN/M
Operating profit2,7902,5833,3418%(23)%
Other income, net(25)(27)(28)8%5%
Interest expense, net134149181(10)%(18)%
Provision for taxes on income560823960(32)%(14)%
Net income2,1211,6382,22830%(27)%
Less: net income attributable to noncontrolling interests(163)(142)(122)15%16%
Net income attributable to S&P Global Inc.$1,958$1,496$2,10631%(29)%

N/M - not meaningful

Revenue

(in millions)Year ended December 31,% Change
201820172016’18 vs ’17’17 vs ’16
Subscription revenue$2,682$2,454$2,3649%4%
Non-subscription / transaction revenue1,4281,5991,460(11)%9%
Non-transaction revenue1,3811,3381,2593%6%
Asset-linked fees54248440012%21%
Sales usage-based royalties22518817819%6%
% of total revenue:
Subscription revenue43%41%42%
Non-subscription / transaction revenue23%26%26%
Non-transaction revenue22%22%22%
Asset-linked fees9%8%7%
Sales usage-based royalties3%3%3%
U.S. revenue$3,750$3,658$3,4613%6%
International revenue:
European region1,5431,4731,3305%11%
Asia6475945759%3%
Rest of the world318338295(6)%14%
Total international revenue$2,508$2,405$2,2004%9%
% of total revenue:
U.S. revenue60%60%61%
International revenue40%40%39%

chart-ae9d85336b3f5a66931.jpg chart-160aaf703b5c575c991.jpg

2018

Revenue increased 3% as compared to 2017. Subscription revenue increased primarily from growth in Market Intelligence's average contract values and continued demand for Platt's proprietary content. Non-transaction revenue grew at Ratings primarily due to an increase in surveillance fees, higher entity credit ratings revenue and an increase in royalty revenue. Non-subscription / transaction revenue decreased as a decline in corporate bond ratings revenue was partially offset by an increase in structured finance revenue and bank loan ratings revenue at Ratings. Asset-linked fees increased primarily due to the impact of higher levels of assets under management for ETFs and mutual funds at Indices. Sales usage-based royalties increased primarily driven by higher volumes for exchange-traded derivatives at Indices. See “Segment Review” below for further information.

Foreign exchange rates had a one percentage point favorable 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.

2017

Revenue increased 7% as compared to 2016. Subscription revenue increased primarily from growth in Market Intelligence's average contract values and continued demand for Platts’ proprietary content, partially offset by the unfavorable impact of the disposition of non-core businesses in 2016. Non-transaction revenue grew at Ratings primarily due to an increase in surveillance fees. Non-subscription / transaction revenue increased primarily due to an increase in 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. Asset-linked fees increased due to the impact of higher levels of assets under management for ETFs and mutual funds. 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, 2018 and 2017:

(in millions)20182017% Change
Operating- related expensesSelling and general expensesOperating- related expensesSelling and general expensesOperating- related expensesSelling and general expenses
Ratings 1$813$509$864$574(6)%(11)%
Market Intelligence 26635256244976%6%
Platts 32261812222032%(11)%
Indices101162951456%11%
Intersegment eliminations 4(125)—(110)—(14)%N/M
Total segments1,6781,3771,6951,419(1)%(3)%
Corporate Unallocated expense 523184—186N/M(1)%
$1,701$1,561$1,695$1,605—%(3)%

N/M - not meaningful

1In 2018, selling and general expenses include legal settlement expenses of $74 million and employee severance charges of $8 million. In 2017, selling and general expenses include legal settlement expenses of $55 million and employee severance charges of $25 million.
2In 2018, selling and general expenses include restructuring charges related to a business disposition and employee severance charges of $7 million. In 2017, selling and general expenses include employee severance charges of $7 million and a non-cash disposition-related adjustment of $4 million.

3 In 2017, selling and general expenses include a non-cash acquisition-related adjustment of $11 million, a charge to exit a leased facility of $6 million, an asset write-off of $2 million and employee severance charges of $2 million.

4Intersegment eliminations primarily relate to a royalty charged to Market Intelligence for the rights to use and distribute content and data developed by Ratings.
5In 2018, selling and general expenses include Kensho retention related expense of $31 million, lease impairments of $11 million and employee severance charges of $10 million. In 2017, selling and general expenses include a charge to exit leased facilities of $19 million and employee severance charges of $10 million.

Operating-Related Expenses

Operating-related expenses remained relatively unchanged as compared to 2017, increasing $6 million or less than 1%. Market Intelligence increased due to an increase in cost of sales as a result of royalties tied to annualized contract value growth and increased data costs, and higher compensation costs related to additional headcount. Additionally, operating-related expenses increased due to the acquisition of Kensho in April of 2018. These increases were partially offset by decreased compensation costs at Ratings primarily driven by reduced incentive costs as well as the decreased headcount from attrition and prior year restructuring actions.

Selling and General Expenses

Selling and general expenses decreased 3%. Excluding the favorable impact of higher employee severance charges in 2017 of 59 percentage points, non-cash acquisition and disposition-related adjustments in 2017 of 48 percentage points, higher lease impairment charges in 2017 of 43 percentage points and an asset write-off in 2017 of 7 percentage points, partially offset by the unfavorable impact of Kensho retention related expense in 2018 of 98 percentage points and higher legal settlement expenses in 2018 of 59 percentage points, selling and general expenses decreased 3%. The decrease is due to decreased compensation costs at Ratings primarily driven by reduced incentive costs, as well as the decreased headcount from attrition and prior year restructuring actions, and a reduction in Corporate Unallocated expense due to a reduction in vacant space, technology spend and professional fees. These decreases were partially offset by higher compensation costs at Market Intelligence and Indices, and increased expenses due to the acquisition of Kensho in April of 2018.

Depreciation and Amortization

Depreciation and amortization increased $26 million, or 14%, compared to 2017 due to an increase in amortization expense primarily related to the acquisition of Kensho in April of 2018.

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$864$574$797$4478%28%
Market Intelligence 2624497667532(7)%(7)%
Platts 3222203292246(24)%(17)%
Indices95145115103(17)%41%
Intersegment eliminations 4(110)—(98)—(12)%N/M
Total segments1,6951,4191,7731,328(4)%7%
Corporate Unallocated expense5—186—139N/M34%
$1,695$1,605$1,773$1,467(4)%9%

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 employee severance charges of $7 million and a non-cash disposition-related adjustment of $4 million. 2016 includes disposition-related costs of $43 million, a technology-related impairment charge of $24 million and an acquisition-related cost of $1 million.
3In 2017, selling and general expenses include a non-cash acquisition-related adjustment of $11 million, a charge to exit a leased facility of $6 million, an asset write-off of $2 million and employee severance charges of $2 million. In 2016, selling and general expenses include disposition-related costs of $5 million.
4Intersegment eliminations primarily relate to a royalty charged to Market Intelligence for the rights to use and distribute content and data developed by Ratings.
5In 2017, selling and general expenses include a charge to exit leased facilities of $19 million and employee severance charges of $10 million. In 2016, selling and general expenses include $3 million from a disposition-related reserve release.

Operating-Related Expenses

Operating-related expenses decreased $78 million, or 4%, as compared to 2016. The decrease was due to the disposition of non-core businesses at Market Intelligence and Platts in 2016. This decrease was partially offset by an increase at Ratings due to higher compensation costs related to increased incentive costs and additional headcount.

Selling and General Expenses

Selling and general expenses increased 9%. Excluding the unfavorable impact of higher net legal settlement expenses in 2017 of 4 percentage points, higher employee severance charges in 2017 of 2 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 5%. 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 Platts as a result of the sale of J.D. Power in 2016.

Depreciation and Amortization

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

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.

Operating Profit

We consider operating profit to be an important measure for evaluating our operating performance and we evaluate operating profit for each of the reportable business segments in which we operate.

We internally manage our operations by reference to operating profit with economic resources allocated primarily based on each segment's contribution to operating profit. Segment operating profit is defined as operating profit before Corporate Unallocated. Segment operating profit is not, however, a measure of financial performance under U.S. GAAP, and may not be defined and calculated by other companies in the same manner.

The table below reconciles segment operating profit to total operating profit:

(in millions)Year ended December 31,% Change
201820172016’18 vs ’17’17 vs ’16
Ratings 1$1,530$1,517$1,2561%21%
Market Intelligence 254545772919%(37)%
Platts 33833261,09018%(70)%
Indices 456347841318%16%
Total segment operating profit3,0212,7783,4889%(20)%
Corporate Unallocated 5(231)(195)(147)(19)%(33)%
Total operating profit$2,790$2,583$3,3418%(23)%
12018 includes legal settlement expenses of $74 million and employee severance charges of $8 million. 2017 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. 2018, 2017 and 2016 also includes amortization of intangibles from acquisitions of $2 million, $4 million and $5 million, respectively.
22018 includes restructuring charges related to a business disposition and employee severance charges of $7 million. 2017 includes employee severance charges of $7 million and a non-cash disposition-related adjustment of $4 million. 2016 includes a $373 million gain from our dispositions, disposition-related costs of $43 million, a technology-related impairment charge of $24 million and an acquisition-related cost of $1 million. 2018, 2017 and 2016 includes amortization of intangibles from acquisitions of $73 million, $71 million and $72 million, respectively.
32017 includes a non-cash acquisition-related adjustment of $11 million, a charge to exit a leased facility of $6 million, an asset write-off of $2 million and employee severance charges of $2 million. 2016 includes a $728 million gain from our disposition of J.D. Power and disposition-related costs of $5 million. 2018, 2017 and 2016 includes amortization of intangibles from acquisitions of $18 million, $18 million and $14 million, respectively.
42018, 2017 and 2016 includes amortization of intangibles from acquisitions of $6 million.
52018 includes Kensho retention related expense of $31 million, lease impairments of $11 million and employee severance charges of $10 million. In 2017, selling and general expenses include a charge to exit leased facilities of $19 million and employee severance charges of $10 million. In 2016, selling and general expenses include $3 million from a disposition-related reserve release. 2018 also includes amortization of intangibles from acquisitions of $23 million.

2018

Segment Operating Profit — Increased $243 million, or 9% as compared to 2017. Excluding the favorable impact of higher employee severance charges in 2017 of 1 percentage point and non-cash acquisition and disposition related adjustments of 1 percentage point, partially offset by the unfavorable impact of higher legal settlement charges in 2018 of 1 percentage point, segment operating profit increased 7%. This increase was primarily due to revenue growth at Market Intelligence, Indices and Platts as discussed above and decreased compensation costs at Ratings primarily driven by reduced incentive costs as well as the decreased headcount from attrition and prior year restructuring actions. These increases were partially offset by a decrease in revenue at Ratings, increased expenses at Market Intelligence due to an increase in cost of sales as a result of royalties tied to annualized contract value growth and increased data costs, and higher compensation costs at Market Intelligence and Indices primarily driven by additional headcount. See “ – Segment Review” below for further information.

Corporate Unallocated — Corporate Unallocated includes costs for corporate center functions, select initiatives and unoccupied office space, included in selling and general expenses, and the results for Kensho. Corporate Unallocated operating loss increased by $36 million or 19% as compared to 2017. Excluding the unfavorable impact of Kensho retention related expense in 2018 of 17 percentage points, higher deal-related amortization of 12 percentage points, partially offset by higher lease impairment charges in 2017 of 4 percentage points, Corporate Unallocated loss decreased 6% due to a reduction in vacant space, performance related incentive compensation and professional 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.

2017

Segment Operating Profit — Decreased $710 million, 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, Indices and Market Intelligence 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.

Corporate Unallocated — Corporate Unallocated includes costs for corporate center functions, select initiatives and unoccupied office space, included in selling and general expenses. Corporate Unallocated operating loss increased by $48 million or 33% as

compared to 2016. Excluding the unfavorable impact of a charge to exit leased facilities in 2017 of 13 percentage points, employee severance charges in 2017 of 7 percentage points and a disposition-related reserve release in 2016 of 2 percentage points, Corporate Unallocated operating loss increased 11%. 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.

Other Income, net

Other income, net for 2018, 2017 and 2016 was $25 million, $27 million and $28 million, respectively, and primarily includes the net periodic benefit cost for our retirement and postretirement.

Interest Expense, net

Net interest expense for 2018 decreased $16 million or 10% as compared to 2017, driven by the release of reserves for accrued interest related to the resolution of various tax audits in 2018.

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.

Provision for Income Taxes

Our effective tax rate was 20.9%, 33.4% and 30.1% for 2018, 2017 and 2016, respectively. The decrease in 2018 was primarily due to the reduction of the U.S. federal corporate tax rate as a result of the enactment of the Tax Cuts and Jobs Act ("TCJA"). Additionally, a one-time net tax charge of $149 million due to the TCJA was recorded in 2017, which included tax expense of approximately $173 million on the deemed repatriation of foreign earnings and a tax benefit of approximately $24 million in respect of the re-valuation of the 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. This increase related 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. In April 2018, the Company and the IRS formally agreed to a settlement for $14 million that had been fully reserved in prior periods.

Segment Review

Ratings

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

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

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

Non-transaction revenue primarily includes fees for surveillance of a credit rating, annual fees for customer relationship-based pricing programs, fees for entity credit ratings and global research and analytics. Non-transaction revenue also includes an intersegment royalty charged to Market Intelligence for the rights to use and distribute content and data developed by Ratings. Royalty revenue was 2018, 2017 and 2016 was $109 million, $100 million and $92 million, respectively.

The following table provides revenue and segment operating profit information for the years ended December 31:

(in millions)Year ended December 31,% Change
201820172016’18 vs ’17’17 vs ’16
Revenue$2,883$2,988$2,535(4)%18%
Non-transaction revenue$1,506$1,448$1,3574%7%
Transaction revenue$1,377$1,540$1,178(11)%31%
% of total revenue:
Non-transaction revenue52%48%54%
Transaction revenue48%52%46%
U.S. revenue$1,619$1,716$1,462(6)%17%
International revenue$1,264$1,272$1,073(1)%19%
% of total revenue:
U.S. revenue56%57%58%
International revenue44%43%42%
Operating profit 1$1,530$1,517$1,2561%21%
% Operating margin53%51%50%
12018 includes legal settlement expenses of $74 million and employee severance charges of $8 million. 2017 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. 2018, 2017 and 2016 also includes amortization of intangibles from acquisitions of $2 million, $4 million and $5 million, respectively.

2018

Revenue decreased 4% due to a decline in transaction revenue, partially offset by an increase in non-transaction revenue. Transaction revenue decreased due to a decline in corporate bond ratings revenue driven by lower corporate bond issuance in the U.S. and Europe, partially offset by an increase in structured finance revenue and bank loan ratings revenue. The increase in structured finance transaction revenue was driven by increased U.S. collateralized loan obligations ("CLO") issuance in the first half of the year. Non-transaction revenue grew due to an increase in surveillance fees, higher entity credit ratings revenue, an increase in royalty revenue, and an increase in Ratings Evaluation Service activity. Transaction and non-transaction revenue benefited from improved contract terms across product categories.

Operating profit increased 1%, with a 3 percentage point favorable impact from foreign exchange rates. Excluding the unfavorable impact of higher legal settlement expenses in 2018 of 6 percentage points, partially offset by the favorable impact of higher employee severance charges in 2017 of 5 percentage points and higher amortization of intangibles from acquisitions in 2017 of 1 percentage point, operating profit increased 1%. This increase was primarily due to the favorable impact of foreign exchange rates and a decrease in compensation costs related to lower incentive costs as well as the decreased headcount from attrition and prior year restructuring actions, partially offset by the decrease in revenue discussed above and an increase in costs related to the development of a global center for technology talent in India.

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.

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 and Dealogic market issuance views.

2018 Compared to 2017
Corporate Bond Issuance *U.S.EuropeGlobal
High-yield issuance(43)%(34)%(40)%
Investment grade(23)%4%(5)%
Total new issue dollars — Corporate issuance(26)%(2)%(10)%
*Includes Industrials and Financial Services.
•The 2018 decrease in global corporate issuance, primarily driven by a decline in high-yield issuance, was mainly due to increased market volatility, slowing global economic growth and higher interest rates in the U.S. compared to more favorable market conditions in 2017. Market conditions in 2017 were favorable due to tightening credit spreads and some issuers going to market in advance of expected interest rate increases. Additionally, increased liquidity provided to U.S. companies driven by tax reform is unfavorably impacting issuance growth.
2018 Compared to 2017
Structured FinanceU.S.EuropeGlobal
Asset-backed securities (“ABS”)6%16%11%
Structured credit(2)%21%2%
Commercial mortgage-backed securities (“CMBS”)(18)%54%(12)%
Residential mortgage-backed securities (“RMBS”)32%22%28%
Covered bonds**54%61%
Total new issue dollars — Structured finance1%38%18%

** Represents no activity in 2018 and 2017.

•ABS issuance was up in the U.S. due to an increase in auto and non-traditional asset transactions and Europe reflecting an increase in auto transactions.
•Issuance was up in the European structured credit markets mainly driven by new CLO transactions.
•CMBS issuance was down in the U.S. reflecting decreased market volume. European CMBS issuance was up, although from a low 2017 base.
•RMBS issuance was up in the U.S. and in Europe reflecting increased market volume.
•Covered bond (debt securities backed by mortgages or other high-quality assets that remain on the issuer's balance sheet) issuance in Europe was up partially due to the impact of new regulations bringing consistency across countries within Europe.

Industry Highlights and Outlook

Revenue decreased in 2018 due to a decrease in corporate bond ratings revenue driven by lower corporate bond issuance. In 2018, Ratings focused on international expansion particularly in China. In 2019, Ratings will continue to focus on strengthening analytical excellence to drive market relevance, executing on foundational technology and data initiatives, and entering new high-potential geographies with innovative products.

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 ("EU"), 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 EU, which became effective in 2010. CRA1 requires the registration, formal regulation and periodic inspection of credit rating agencies operating in the EU. Ratings was granted registration in October of 2011. In January of 2011, the EU established the European Securities and Markets Authority (“ESMA”), which, among other things, has direct supervisory responsibility for the registered credit rating industry throughout the EU.

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 EU.

Other Jurisdictions

Outside of the U.S. and the EU, 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. This includes the UK, which is in the process of establishing its own credit rating agencies oversight regime for its exit from the EU.

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 Intelligence

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

In January of 2017, we completed the sale of Quant House SAS ("QuantHouse"), included in our Market 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 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.

Market Intelligence includes the following business lines:

•Desktop — a product suite that provides data, analytics and third-party research for global finance professionals, which includes the Market Intelligence Desktop (which are inclusive of the S&P Capital IQ and SNL Desktop products);
•Data Management Solutions — integrated bulk data feeds and application programming interfaces that can be customized, which includes Compustat, GICS, Point In Time Financials and CUSIP; and
•Risk Services — commercial arm that sells Ratings' credit ratings and related data, analytics and research, which includes subscription-based offerings, RatingsDirect® and RatingsXpress®, and Credit Analytics.

Subscription revenue at Market Intelligence is primarily derived from distribution of data, analytics, third-party research, and credit ratings-related information primarily through web-based channels, including Market Intelligence Desktop, RatingsDirect®, RatingsXpress®, and Credit Analytics. Non-subscription revenue at Market Intelligence is primarily related to certain advisory, pricing and analytical services.

The following table provides revenue and segment operating profit information for the years ended December 31:

(in millions)Year ended December 31,% Change
201820172016’18 vs ’17’17 vs ’16
Revenue$1,833$1,683$1,6619%1%
Subscription revenue$1,773$1,614$1,54310%5%
Non-subscription revenue$40$46$99(13)%(54)%
Asset-linked fees$20$23$19(14)%19%
% of total revenue:
Subscription revenue97%96%93%
Non-subscription revenue2%3%6%
Asset-linked fees1%1%1%
U.S. revenue$1,180$1,114$1,1226%(1)%
International revenue$653$569$53914%6%
% of total revenue:
U.S. revenue64%66%68%
International revenue36%34%32%
Operating profit 1$545$457$72919%(37)%
% Operating margin30%27%44%
12018 includes restructuring charges related to a business disposition and employee severance charges of $7 million. 2017 includes employee severance charges of $7 million and a non-cash disposition-related adjustment of $4 million. 2016 includes a $373 million gain from our dispositions, disposition-related costs of $43 million, a technology-related impairment charge of $24 million and an acquisition-related cost of $1 million. 2018, 2017 and 2016 includes amortization of intangibles from acquisitions of $73 million, $71 million and $72 million, respectively.

Note - In 2018, Trucost plc ("Trucost") was integrated from Indices into Market Intelligence and historical reporting was retroactively revised to reflect the change.

2018

Revenue increased 9% and was favorably impacted by 1 percentage point from the impact of recent acquisitions. Excluding acquisitions, the revenue increase was driven by growth in annualized contract values in the Market Intelligence Desktop, RatingsXpress® and RatingsDirect® products from new and existing customers. The number of users and customers continued to grow for each of these products in 2018. Increases in annualized contract value for certain of our data feed products within Data Management Solutions also contributed to revenue growth. Both domestic and international revenue increased compared to 2017. In 2018, international revenue represented 36% of Market Intelligence's total revenue compared to 34% in 2017.

Operating profit increased 19%, with a 3 percentage point favorable impact from foreign exchange rates. Excluding the favorable impact of a non-cash disposition-related adjustment in 2017 of 8 percentage points and higher employee severance charges in 2017 of 2 percentage points, partially offset by the unfavorable impact of higher amortization in 2018 of 5 percentage points and disposition-related costs in 2018 of 2 percentage points, operating profit increased 16%. The increase was primarily due to revenue growth, partially offset by an increase in cost of sales as a result of royalties tied to annualized contract value growth and increased data costs, and higher compensation costs driven by additional headcount partially related to the acquisitions of Panjiva Inc. ("Panjiva") in February of 2018 and the RateWatch business ("RateWatch") in June of 2018. See Note 2 - Acquisitions and Divestitures to the Consolidated Financial Statements and Supplementary Data, in the Annual Report on Form 10-K for further discussion.

2017

Revenue increased 1% and was unfavorably impacted by 8 percentage points from the net impact of acquisitions and dispositions. Excluding these acquisitions and dispositions, the revenue increase was driven by growth in annualized contract values in the Market Intelligence Desktop, RatingsXpress® and RatingsDirect® products 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. International revenue increased and domestic revenue decreased slightly compared to 2016. In 2017, international revenue represented 34% of Market Intelligence's total revenue compared to 32% in 2016. Revenue growth was unfavorably impacted by the dispositions of SPSE and CMA in October of 2016, Equity Fund Research in October of 2016 and QuantHouse in January of 2017, and favorably impacted by the acquisition of Trucost in October of 2016. See Note 2 — Acquisitions and Divestitures to the Consolidated Financial Statements and Supplementary Data, in the Annual Report on Form 10-K for further discussion.

Operating profit decreased 37%. Excluding the unfavorable impact of the gain on dispositions in 2016 of 55 percentage points, higher employee severance charges in 2017 of 1 percentage point and a non-cash acquisition adjustment in 2017 of 1 percentage point, partially offset by the favorable impact of disposition-related costs in 2016 of 6 percentage points and a technology-related impairment charge in 2016 of 4 percentage points, operating profit increased 9%. The increase is due to margin improvement from existing businesses, partially offset by the unfavorable impact of the dispositions discussed above.

Industry Highlights and Outlook

In 2018, Market Intelligence continued to develop its desktop platform by enhancing its product offerings and developing its analytical capabilities. Market Intelligence released the latest version of the desktop platform with significant content, feature, and performance enhancements and introduced the initial release of Kensho-driven topic search. Additionally, the segment integrated and leveraged recent acquisitions to develop and expand its analytical capabilities and offerings. In 2019, Market Intelligence will continue to focus on leveraging its strong content heritage to expand the core business, streamlining and enriching the customer experience across all delivery platforms, and harnessing new data sources and technology to extend into new growth areas and geographies.

Legal and Regulatory Environment

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.

European Union

The EU enacted a package of legislative measures known as MiFID II ("MiFID II"), which revises and updates the existing EU Markets in Financial Instruments Directive framework, and the substantive provisions became applicable in all EU 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 EU 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.

Platts

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

Platts' revenue is generated primarily through the following sources:

•Subscription revenue — primarily from subscriptions to our real-time news, market data and price assessments, along with other information products;
•Sales usage-based royalties — primarily from licensing of our proprietary market price data and price assessments to commodity exchanges, and
•Non-subscription revenue — conference sponsorship, consulting engagements, and events.

We completed the sale of J.D. Power on September 7, 2016, with the results included in Platts results through that date. 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 millions)Year ended December 31,% Change
201820172016’18 vs ’17’17 vs ’16
Revenue$815$774$9255%(16)%
Subscription revenue$750$704$6896%2%
Sales usage-based royalties$54$57$53(5)%7%
Non-subscription revenue$11$13$183(12)%(93)%
% of total revenue:
Subscription revenue92%91%74%
Sales usage-based royalties7%7%6%
Non-subscription revenue1%2%20%
U.S. revenue$283$284$400—%(29)%
International revenue$532$490$5259%(7)%
% of total revenue:
U.S. revenue35%37%43%
International revenue65%63%57%
Operating profit 1$383$326$1,09018%(70)%
% Operating margin47%42%118%
12017 includes a non-cash acquisition-related adjustment of $11 million, a charge to exit a leased facility of $6 million, an asset write-off of $2 million and employee severance charges of $2 million. 2016 includes a $728 million gain from our disposition of J.D. Power and disposition-related costs of $5 million. 2018, 2017 and 2016 includes amortization of intangibles from acquisitions of $18 million, $18 million and $14 million, respectively.

2018

Revenue increased 5% due to continued demand for market data and price assessment products across all commodity sectors, led by petroleum, partially offset by a decrease in sales usage-based royalties from the licensing of our proprietary market price data and price assessments to commodity exchanges mainly due to a decline in oil trading volumes in the first nine months of 2018. Demand for market data and price assessment products was driven by international customers. While petroleum is still the biggest revenue driver, the proportional revenue mix continues to become more diversified as other sectors contributed to revenue growth including petrochemicals, metals and agriculture. International revenue increased and domestic revenue remained relatively

unchanged compared to 2017. In 2018, international revenue represented 65% of Platts total revenue compared to 63% in 2017.

Operating profit increased 18%. Excluding the favorable impact of a non-cash acquisition-related adjustment in 2017 of 4 percentage points, a charge to exit a leased facility in 2017 of 2 percentage points, an asset write-off in 2017 of 1 percentage point and employee severance charges in 2017 of 1 percentage point, operating profit increased 10%, with the increase largely driven by revenue growth.

2017

Revenue decreased 16% and was unfavorably impacted by 21 percentage points from the net impact of acquisitions and dispositions discussed below. Excluding these acquisitions and dispositions, revenue increased due to continued demand for market data and price assessment products across all commodity sectors, led by petroleum. Demand for market data and price assessment products was driven by international customers. While petroleum is still the biggest revenue driver, the proportional revenue mix continues to become more diversified as other sectors contributed to revenue growth including petrochemicals, metals and agriculture. Both domestic and international revenue decreased compared to 2016 due to the unfavorable impact from the disposition of J.D. Power. In 2017, international revenue represented 63% of Platts total revenue compared to 57% in 2016. Revenue was unfavorably impacted by the disposition of J.D. Power in September of 2016 and favorably impacted by the acquisitions of RigData and PIRA in June of 2016 and September of 2016, respectively. See Note 2 - Acquisitions and Divestitures to the Consolidated Financial Statements and Supplementary Data, in the Annual Report on Form 10-K for further discussion.

Operating profit decreased 70%. Excluding the unfavorable impact of the gain on dispositions in 2016 of 64 percentage points, a non-cash acquisition-related adjustment in 2017 of 1 percentage point and a charge to exit a leased facility of 1 percentage point, operating profit decreased 4% due to the unfavorable impact from the disposition of J.D. Power.

Industry Highlights and Outlook

In 2018, sustained demand for market data and price assessment products across all commodity sectors, led by petroleum, continued to drive revenue growth despite small declines in sales usage-based royalty revenue. In 2018, Platts set the groundwork for enhancing its commercial model and simplifying its customer facing and operating platforms for improved user experience. In 2019, Platts will continue to focus on extending the core business through innovation, simplifying its product and platform strategy, and driving commercial transformation.

Legal and Regulatory Environment

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 benchmark regulation in the EU (the “EU 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, 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.

European Union

The EU has enacted MiFID II, which revise and update the existing EU Markets in Financial Instruments Directive and the substantive provisions became applicable in all EU 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 MAR may impose additional regulatory burdens on Platts activities in the EU, although the exact impact and costs are not yet known.

In October of 2012, IOSCO issued its Principles for Oil Price Reporting Agencies ("PRA Principles"), which are intended to enhance the reliability of oil price assessments referenced in derivative contracts subject to regulation by IOSCO members. Platts has aligned 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.

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 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 sales usage-based royalties based on trading volumes of derivatives contracts listed on various exchanges;
•Index-related licensing fees — fixed or variable annual and per-issue asset-linked fees for over-the-counter derivatives and retail-structured products; and
•Data and customized index subscription fees — fees from supporting index fund management, portfolio analytics and research.

The following table provides revenue and segment operating profit information for the years ended December 31:

(in millions)Year ended December 31,% Change
201820172016’18 vs ’17’17 vs ’16
Revenue$837$728$63815%14%
Asset-linked fees$522$461$38113%21%
Sales usage-based royalties$171$131$12530%5%
Subscription revenue$144$136$1326%4%
% of total revenue:
Asset-linked fees62%63%60%
Sales usage-based royalties21%18%20%
Subscription revenue17%19%20%
U.S. revenue$719$601$52520%15%
International revenue$118$127$113(7)%12%
% of total revenue:
U.S. revenue86%83%82%
International revenue14%17%18%
Operating profit 1$563$478$41318%16%
Less: net income attributable to noncontrolling interests$151$129$10917%18%
Net operating profit$412$349$30418%15%
% Operating margin67%66%65%
% Net operating margin49%48%48%
12018, 2017 and 2016 includes amortization of intangibles from acquisitions of $6 million.

Note - In 2018, Trucost was integrated from Indices into Market Intelligence and historical reporting was retroactively revised to reflect the change.

2018

Revenue increased 15%, primarily driven by higher average levels of assets under management ("AUM") for ETFs and mutual funds, and higher exchange-traded derivative volumes due to market volatility. Average AUM for ETFs increased 20% to $1.399 trillion compared to 2017. Ending AUM for ETFs decreased 3% to $1.309 trillion compared to 2017 driven by the impact of market depreciation in the fourth quarter of 2018.

Operating profit grew 18%. The impact of revenue growth was partially offset by increased operating costs to support revenue growth and business initiatives at Indices and higher compensation costs from additional headcount.

2017

Revenue increased 14%, primarily driven by higher AUM for ETFs and mutual funds. 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 16%. 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.

Industry Highlights and Outlook

Indices continues to be the leading index provider for the ETF market space. In 2018, higher average levels of AUM for ETFs and higher volumes for exchange-traded derivatives contributed to revenue growth. In 2018, Indices continued to launch innovative indices, expand index product offerings and grow international partnerships. In 2019, Indices will continue to focus on growing the core business, expanding innovative offerings, and growing globally through collaborative client relationships.

Legal and Regulatory Environment

The financial benchmarks industry is subject to the new benchmark regulation in the European Union (the "EU Benchmark Regulation"), the new benchmark regulation in Australia (the "Australia Benchmark Regulation") and potential increased regulation in other jurisdictions.

The EU Benchmark Regulation was published June 30, 2016 and included provisions applicable to Indices and Platts, which became effective January 1, 2018. The EU Benchmark Regulation provides a two (2) year transitional period during which Indices and Platts are required 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 “Platts Legal and Regulatory Environment”, the EU 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 MAR may impose additional regulatory burdens on Indices activities in the EU, although the exact impact and costs are not yet known.

The Australian Benchmark Regulation was enacted in June of 2018 and included provisions applicable to Indices, designating the S&P ASX 200 a significant financial benchmark and therefore requiring Indices to obtain a license from the Australian Investment and Securities Commission (“ASIC”) as its administrator. Although narrower in scope, the requirements of the Australian Benchmark Regulation are similar to those of the E.U. Benchmark Regulation. 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.

In July of 2013, the 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 2019, cash on hand, cash flows from operations and availability under our existing credit facility are expected to be sufficient to meet any additional operating and recurring cash needs into the foreseeable future. We use our cash for a variety of needs, including but not limited to: ongoing investments in our businesses, strategic acquisitions, share repurchases, dividends, repayment of debt, capital expenditures and investment in our infrastructure.

Cash Flow Overview

Cash, cash equivalents, and restricted cash were $2.0 billion as of December 31, 2018, a decrease of $0.8 billion as compared to December 31, 2017, and consisted of approximately 40% of domestic cash and 60% of cash held abroad.

(in millions)Year ended December 31,
201820172016
Net cash provided by (used for):
Operating activities$2,064$2,016$1,560
Investing activities(513)(209)1,171
Financing activities(2,288)(1,507)(1,662)

In 2018, free cash flow remained relatively unchanged at $1.8 billion compared to 2017. 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 $2.1 billion in 2018 as compared to $2.0 billion in 2017. The increase is mainly due to higher results from operations in 2018 and lower estimated income tax payments in 2018 due to the reduction of the U.S. federal corporate tax rate as a result of the enactment of the TCJA, partially offset by legal settlement payments and settlement payments following the resolution of tax audits.

Cash provided by operating activities increased to $2.0 billion in 2017 as 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.

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 increased to $0.5 billion for 2018 as compared to $0.2 billion in 2017, primarily due to cash used for the acquisition of Kensho and the purchase of intellectual property in 2018.

Cash used for investing activities decreased to $0.2 billion 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.

Refer to Note 2 – Acquisitions and Divestitures to the Consolidated Financial Statements and Supplementary Data, in the Annual Report on Form 10-K for further information.

Financing activities

Our cash outflows from financing activities consist primarily of share repurchases, dividends and repayment of short-term and long-term 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 increased to $2.3 billion in 2018 from $1.5 billion in 2017. The increase is primarily attributable to higher cash paid for share repurchases in 2018.

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.

During 2018, we used cash to repurchase 8.4 million shares for $1.7 billion. We entered into an accelerated share repurchase ("ASR") agreement with a financial institution on October 29, 2018 to initiate share repurchases aggregating $500 million. We repurchased a total of 2.9 million shares under the ASR agreement for an average purchase price of $173.80 per share. We entered into an ASR agreement with a financial institution on March 6, 2018 to initiate share repurchases aggregating $1 billion. We repurchased a total of 5.1 million shares under that ASR agreement for an average purchase price of $197.49 per share.

During 2017, we used cash to repurchase 6.8 million shares for $1.0 billion. We entered into an 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.

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.

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, 2018, 10.6 million shares remained available under our current repurchase program.

We entered into an ASR agreement with a financial institution on February 11, 2019 to initiate share repurchases aggregating $500 million.

See Note 9 — Equity to the Consolidated Financial Statements and Supplementary Data, in the Annual Report on Form 10-K for further discussion related to our ASR agreements.

Additional Financing

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

Depending on our corporate credit rating, we pay a commitment fee of 8 to 17.5 basis points for our credit facility, whether or not amounts have been borrowed. We currently pay a commitment fee of 10 basis points. The interest rate on borrowings under our credit facility is, at our option, calculated using rates that are primarily based on either the prevailing London Inter-Bank Offer Rate, the prime rate determined by the administrative agent or the Federal Funds Rate. For certain borrowings under this credit facility, there is also a spread based on our corporate credit rating.

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

On August 8, 2018, Moody's Investors Service, Inc. upgraded our long-term debt ratings to A3 from Baa1, affirmed our P-2 short-term/commercial paper rating and the ratings outlook was maintained at stable. On October 12, 2018, Fitch Ratings upgraded our long-term debt rating to A- from BBB+, affirmed our F2 short-term/commercial paper rating and the ratings outlook was maintained at stable.

Dividends

On January 30, 2019, the Board of Directors approved an increase in the quarterly common stock dividend from $0.50 per share to $0.57 per share.

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 2019.

The following table summarizes our significant contractual obligations and commercial commitments as of December 31, 2018, 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$—$698$—$2,964$3,662
Interest payments1542772621,0961,789
Operating leases 2130187142400859
Purchase obligations and other 383573449223
Total contractual cash obligations$367$1,219$438$4,509$6,533
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, 2018, we had $147 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, 2018, we have recorded $1,620 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") has the right at any time to sell, and we are obligated to buy, at least 20% of their share in S&P Dow Jones Indices LLC. 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 2018, we contributed $9 million and $1 million to our retirement and postretirement plans, respectively. Expected employer contributions in 2019 are $46 million and $6 million for our retirement and postretirement plans, respectively. In 2019, 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, 2018 and 2017, we did not have any material 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
201820172016’18 vs ’17’17 vs ’16
Cash provided by operating activities$2,064$2,016$1,5602%29%
Capital expenditures(113)(123)(115)
Distributions to noncontrolling interest holders(154)(111)(116)
Free cash flow$1,797$1,782$1,3291%34%
Tax on gain from sale of J.D. Power——200
Tax on gain from sale of SPSE and CMA—67—
Payment of legal settlements1804150
Legal settlement insurance recoveries——(77)
Settlement of prior-year tax audits73——
Tax benefit from legal settlements(44)(2)(24)
Free cash flow excluding above items$2,006$1,851$1,5788%17%
(in millions)201820172016’18 vs ’17’17 vs ’16
Cash (used for) provided by investing activities(513)(209)1,171N/MN/M
Cash used for financing activities(2,288)(1,507)(1,662)52%(9)%

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.

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

We adopted Financial Accounting Standards Board Accounting Standards Codification ("ASC") 606 "Revenue from Contracts with Customers" using the modified retrospective transition method applied to our revenue contracts with customers as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior year amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 605 "Revenue Recognition". We recorded a net increase to opening retained earnings of $35 million as of January 1, 2018 due to the cumulative effect of adopting ASC 606, with the impact primarily related to our treatment of costs to obtain a contract and to a lesser extent, changes to the timing of the recognition of our subscription and non-transaction revenues. We recognized incremental revenue of $6 million for the year ended December 31, 2018 as a result of the adoption of this standard.

Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. Under ASC 605, revenue was recognized as it was earned and when services were rendered. See Note 1 - Accounting Policies to our consolidated financial statements for further information.

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 $15 million.

For the years ended December 31, 2018, 2017 and 2016, 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 2019.

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 Intelligence 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, 2018 and 2017, the carrying value of goodwill and other indefinite-lived intangible assets was $4.4 billion and $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 2018, based on our qualitative assessments, we determined that it is more likely than not that our reporting units’ fair values were 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, 2018, 2017, and 2016.

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 1201920182017201920182017
Discount rate4.40%3.68%4.14%4.15%3.40%3.69%
Return on assets6.00%6.00%6.25%
Weighted-average healthcare cost rate6.50%6.50%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, 2018
Risk-free average interest rate2.6 - 2.7%
Dividend yield1.1%
Volatility21.8 - 22.0%
Expected life (years)5.67 - 6.07
Weighted-average grant-date fair value per option$112.98

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.

In 2018, we made a one-time issuance of incentive stock options in connection with our acquisition of Kensho in April of 2018. There were no stock options granted in 2017 and 2016.

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, 2019. 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.

As of December 31, 2018, we have approximately $2.3 billion of undistributed earnings of our foreign subsidiaries, of which $784 million is reinvested indefinitely in our foreign operations.

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 expect the adoption of these recent accounting standards to have a material impact on our consolidated balance sheet; however, we do not expect that these standards will have a material impact on our consolidated statements of income or cash flows.

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