filings.toolsItem 1. Financial Statements
151K characters. Original on sec.gov · Markdown
Item 1. Financial Statements
S&P Global Inc.
Consolidated Statements of Income
(Unaudited)
| (in millions, except per share amounts) | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Revenue | $ | 3,084 | $ | 2,861 | $ | 9,345 | $ | 8,244 | |||||||||||||||
| Expenses: | |||||||||||||||||||||||
| Operating-related expenses | 995 | 989 | 3,109 | 2,745 | |||||||||||||||||||
| Selling and general expenses | 741 | 725 | 2,217 | 2,451 | |||||||||||||||||||
| Depreciation | 22 | 31 | 71 | 93 | |||||||||||||||||||
| Amortization of intangibles | 260 | 267 | 782 | 645 | |||||||||||||||||||
| Total expenses | 2,018 | 2,012 | 6,179 | 5,934 | |||||||||||||||||||
| Loss (gain) on dispositions | — | 2 | 69 | (1,897) | |||||||||||||||||||
| Equity in income on unconsolidated subsidiaries | (8) | (6) | (33) | (21) | |||||||||||||||||||
| Operating profit | 1,074 | 853 | 3,130 | 4,228 | |||||||||||||||||||
| Other income, net | (5) | (37) | (5) | (86) | |||||||||||||||||||
| Interest expense, net | 84 | 71 | 258 | 218 | |||||||||||||||||||
| (Gain) loss on extinguishment of debt, net | — | (4) | — | 15 | |||||||||||||||||||
| Income before taxes on income | 995 | 823 | 2,877 | 4,081 | |||||||||||||||||||
| Provision for taxes on income | 181 | 145 | 628 | 1,053 | |||||||||||||||||||
| Net income | 814 | 678 | 2,249 | 3,028 | |||||||||||||||||||
| Less: net income attributable to noncontrolling interests | (72) | (70) | (202) | (213) | |||||||||||||||||||
| Net income attributable to S&P Global Inc. | $ | 742 | $ | 608 | $ | 2,047 | $ | 2,815 | |||||||||||||||
| Earnings per share attributable to S&P Global Inc. common shareholders: | |||||||||||||||||||||||
| Net income: | |||||||||||||||||||||||
| Basic | $ | 2.34 | $ | 1.84 | $ | 6.41 | $ | 8.95 | |||||||||||||||
| Diluted | $ | 2.33 | $ | 1.84 | $ | 6.40 | $ | 8.91 | |||||||||||||||
| Weighted-average number of common shares outstanding: | |||||||||||||||||||||||
| Basic | 317.5 | 329.6 | 319.4 | 314.5 | |||||||||||||||||||
| Diluted | 318.0 | 330.9 | 319.9 | 315.7 | |||||||||||||||||||
| Actual shares outstanding at period end | 316.8 | 325.8 |
See accompanying notes to the unaudited consolidated financial statements.
S&P Global Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
| (in millions) | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net income | $ | 814 | $ | 678 | $ | 2,249 | $ | 3,028 | |||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||
| Foreign currency translation adjustments | (113) | (255) | (40) | (371) | |||||||||||||||||||
| Income tax effect | (6) | (15) | 2 | (42) | |||||||||||||||||||
| (119) | (270) | (38) | (413) | ||||||||||||||||||||
| Pension and other postretirement benefit plans | — | 4 | (12) | 5 | |||||||||||||||||||
| Income tax effect | — | (1) | 4 | (1) | |||||||||||||||||||
| — | 3 | (8) | 4 | ||||||||||||||||||||
| Unrealized gain on cash flow hedges | 115 | 54 | 115 | 283 | |||||||||||||||||||
| Income tax effect | (29) | (14) | (29) | (71) | |||||||||||||||||||
| 86 | 40 | 86 | 212 | ||||||||||||||||||||
| Comprehensive income | 781 | 451 | 2,289 | 2,831 | |||||||||||||||||||
| Less: comprehensive income attributable to nonredeemable noncontrolling interests | (7) | (6) | (19) | (18) | |||||||||||||||||||
| Less: comprehensive income attributable to redeemable noncontrolling interests | (65) | (64) | (183) | (195) | |||||||||||||||||||
| Comprehensive income attributable to S&P Global Inc. | $ | 709 | $ | 381 | $ | 2,087 | $ | 2,618 |
See accompanying notes to the unaudited consolidated financial statements.
S&P Global Inc.
Consolidated Balance Sheets
| (in millions) | September 30, 2023 | December 31, 2022 | |||||||||
| (Unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 1,645 | $ | 1,286 | |||||||
| Restricted cash | 1 | 1 | |||||||||
| Accounts receivable, net of allowance for doubtful accounts: 2023 - $51; 2022 - $48 | 2,547 | 2,494 | |||||||||
| Prepaid and other current assets | 611 | 588 | |||||||||
| Assets of a business held for sale | — | 1,298 | |||||||||
| Total current assets | 4,804 | 5,667 | |||||||||
| Property and equipment, net of accumulated depreciation: 2023 - $795; 2022 - $859 | 254 | 297 | |||||||||
| Right of use assets | 392 | 423 | |||||||||
| Goodwill | 34,785 | 34,545 | |||||||||
| Other intangible assets, net | 17,635 | 18,306 | |||||||||
| Equity investments in unconsolidated subsidiaries | 1,791 | 1,752 | |||||||||
| Other non-current assets | 900 | 794 | |||||||||
| Total assets | $ | 60,561 | $ | 61,784 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 458 | $ | 450 | |||||||
| Accrued compensation and contributions to retirement plans | 655 | 753 | |||||||||
| Short-term debt | 47 | 226 | |||||||||
| Income taxes currently payable | 59 | 116 | |||||||||
| Unearned revenue | 3,022 | 3,126 | |||||||||
| Other current liabilities | 977 | 1,094 | |||||||||
| Liabilities of a business held for sale | — | 234 | |||||||||
| Total current liabilities | 5,218 | 5,999 | |||||||||
| Long-term debt | 11,415 | 10,730 | |||||||||
| Lease liabilities — non-current | 543 | 577 | |||||||||
| Pension and other postretirement benefits | 183 | 180 | |||||||||
| Deferred tax liability — non-current | 3,671 | 4,065 | |||||||||
| Other non-current liabilities | 507 | 489 | |||||||||
| Total liabilities | 21,537 | 22,040 | |||||||||
| Redeemable noncontrolling interest (Note 8) | 3,510 | 3,267 | |||||||||
| Commitments and contingencies (Note 12) | |||||||||||
| Equity: | |||||||||||
| Common stock, $1 par value: authorized - 600 million shares; issued - 2023 and 2022 415 million shares | 415 | 415 | |||||||||
| Additional paid-in capital | 44,439 | 44,422 | |||||||||
| Retained income | 18,725 | 17,784 | |||||||||
| Accumulated other comprehensive loss | (846) | (886) | |||||||||
| Less: common stock in treasury | (27,314) | (25,347) | |||||||||
| Total equity — controlling interests | 35,419 | 36,388 | |||||||||
| Total equity — noncontrolling interests | 95 | 89 | |||||||||
| Total equity | 35,514 | 36,477 | |||||||||
| Total liabilities and equity | $ | 60,561 | $ | 61,784 |
See accompanying notes to the unaudited consolidated financial statements.
S&P Global Inc.
Consolidated Statements of Cash Flows
(Unaudited)
| (in millions) | Nine Months Ended | ||||||||||
| September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Operating Activities: | |||||||||||
| Net income | $ | 2,249 | $ | 3,028 | |||||||
| Adjustments to reconcile net income to cash provided by operating activities: | |||||||||||
| Depreciation | 71 | 93 | |||||||||
| Amortization of intangibles | 782 | 645 | |||||||||
| Provision for losses on accounts receivable | 19 | 18 | |||||||||
| Deferred income taxes | (430) | (155) | |||||||||
| Stock-based compensation | 143 | 160 | |||||||||
| Loss (gain) on dispositions | 69 | (1,897) | |||||||||
| Loss on extinguishment of debt, net | — | 15 | |||||||||
| Other | 151 | 249 | |||||||||
| Changes in operating assets and liabilities, net of effect of acquisitions and dispositions: | |||||||||||
| Accounts receivable | (64) | 291 | |||||||||
| Prepaid and other current assets | (128) | (66) | |||||||||
| Accounts payable and accrued expenses | (120) | (382) | |||||||||
| Unearned revenue | (71) | (188) | |||||||||
| Other current liabilities | (313) | (85) | |||||||||
| Net change in prepaid/accrued income taxes | 62 | (92) | |||||||||
| Net change in other assets and liabilities | (44) | (144) | |||||||||
| Cash provided by operating activities | 2,376 | 1,490 | |||||||||
| Investing Activities: | |||||||||||
| Capital expenditures | (95) | (61) | |||||||||
| Acquisitions, net of cash acquired | (293) | 242 | |||||||||
| Proceeds from dispositions | 1,004 | 3,510 | |||||||||
| Changes in short-term investments | (9) | (2) | |||||||||
| Cash provided by investing activities | 607 | 3,689 | |||||||||
| Financing Activities: | |||||||||||
| Payments on short-term debt, net | (188) | (219) | |||||||||
| Proceeds from issuance of senior notes, net | 744 | 5,395 | |||||||||
| Payments on senior notes | — | (3,684) | |||||||||
| Dividends paid to shareholders | (864) | (749) | |||||||||
| Proceeds from noncontrolling interest holders | — | 410 | |||||||||
| Distributions to noncontrolling interest holders | (211) | (197) | |||||||||
| Contingent consideration payments | (8) | — | |||||||||
| Repurchase of treasury shares | (2,001) | (11,003) | |||||||||
| Exercise of stock options | 12 | 4 | |||||||||
| Employee withholding tax on share-based payments | (86) | (85) | |||||||||
| Cash used for financing activities | (2,602) | (10,128) | |||||||||
| Effect of exchange rate changes on cash | (22) | (167) | |||||||||
| Net change in cash, cash equivalents, and restricted cash | 359 | (5,116) | |||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | 1,287 | 6,505 | |||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | 1,646 | $ | 1,389 |
See accompanying notes to the unaudited consolidated financial statements.
S&P Global Inc.
Consolidated Statements of Equity
(Unaudited)
| Three Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | Common Stock $1 par | Additional Paid-in Capital | Retained Income | Accumulated Other Comprehensive Loss | Less: Treasury Stock | Total SPGI Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | 415 | $ | 44,293 | $ | 18,279 | $ | (813) | $ | 26,706 | $ | 35,468 | $ | 91 | $ | 35,559 | |||||||||||||||||||||||||||||||
| Comprehensive income 1 | 742 | (33) | 709 | 7 | 716 | ||||||||||||||||||||||||||||||||||||||||||
| Dividends (Dividend declared per common share — $0.90 per share) | (286) | (286) | (2) | (288) | |||||||||||||||||||||||||||||||||||||||||||
| Share repurchases | 125 | 625 | (500) | (500) | |||||||||||||||||||||||||||||||||||||||||||
| Employee stock plans | 21 | (17) | 38 | 38 | |||||||||||||||||||||||||||||||||||||||||||
| Change in redemption value of redeemable noncontrolling interest | (10) | (10) | (10) | ||||||||||||||||||||||||||||||||||||||||||||
| Adjustment to noncontrolling interest | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Other | — | (1) | (1) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | 415 | $ | 44,439 | $ | 18,725 | $ | (846) | $ | 27,314 | $ | 35,419 | $ | 95 | $ | 35,514 |
| Three Months Ended September 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | Common Stock $1 par | Additional Paid-in Capital | Retained Income | Accumulated Other Comprehensive Loss | Less: Treasury Stock | Total SPGI Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | 415 | $ | 43,242 | $ | 17,298 | $ | (811) | $ | 20,711 | $ | 39,433 | $ | 73 | $ | 39,506 | |||||||||||||||||||||||||||||||
| Comprehensive income 1 | 608 | (227) | 381 | 6 | 387 | ||||||||||||||||||||||||||||||||||||||||||
| Dividends (Dividend declared per common share — $0.85 per share) | (277) | (277) | (2) | (279) | |||||||||||||||||||||||||||||||||||||||||||
| Share repurchases | 962 | 3,462 | (2,500) | (2,500) | |||||||||||||||||||||||||||||||||||||||||||
| Employee stock plans | 25 | 1 | 24 | 24 | |||||||||||||||||||||||||||||||||||||||||||
| Change in redemption value of redeemable noncontrolling interest | 106 | 106 | 106 | ||||||||||||||||||||||||||||||||||||||||||||
| Other | — | (4) | (4) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | 415 | $ | 44,229 | $ | 17,735 | $ | (1,038) | $ | 24,174 | $ | 37,167 | $ | 73 | $ | 37,240 | |||||||||||||||||||||||||||||||
See accompanying notes to the unaudited consolidated financial statements.
| Nine Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | Common Stock $1 par | Additional Paid-in Capital | Retained Income | Accumulated Other Comprehensive Loss | Less: Treasury Stock | Total SPGI Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | 415 | $ | 44,422 | $ | 17,784 | $ | (886) | $ | 25,347 | $ | 36,388 | $ | 89 | $ | 36,477 | |||||||||||||||||||||||||||||||
| Comprehensive income 1 | 2,047 | 40 | 2,087 | 19 | 2,106 | ||||||||||||||||||||||||||||||||||||||||||
| Dividends (Dividend declared per common share — $2.70 per share) | (864) | (864) | (11) | (875) | |||||||||||||||||||||||||||||||||||||||||||
| Share repurchases | 125 | 2,126 | (2,001) | (2,001) | |||||||||||||||||||||||||||||||||||||||||||
| Employee stock plans | (106) | (159) | 53 | 53 | |||||||||||||||||||||||||||||||||||||||||||
| Change in redemption value of redeemable noncontrolling interest | (247) | (247) | (247) | ||||||||||||||||||||||||||||||||||||||||||||
| Adjustment to noncontrolling interest | (2) | (2) | (2) | ||||||||||||||||||||||||||||||||||||||||||||
| Other | 5 | 5 | (2) | 3 | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | 415 | $ | 44,439 | $ | 18,725 | $ | (846) | $ | 27,314 | $ | 35,419 | $ | 95 | $ | 35,514 |
| Nine Months Ended September 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | Common Stock $1 par | Additional Paid-in Capital | Retained Income | Accumulated Other Comprehensive Loss | Less: Treasury Stock | Total SPGI Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | 294 | $ | 1,031 | $ | 15,017 | $ | (841) | $ | 13,469 | $ | 2,032 | $ | 75 | $ | 2,107 | |||||||||||||||||||||||||||||||
| Comprehensive income 1 | 2,815 | (197) | 2,618 | 18 | 2,636 | ||||||||||||||||||||||||||||||||||||||||||
| Dividends (Dividend declared per common share — $2.47 per share) | (749) | (749) | (12) | (761) | |||||||||||||||||||||||||||||||||||||||||||
| Acquisition of IHS Markit | 121 | 43,415 | 43,536 | 43,536 | |||||||||||||||||||||||||||||||||||||||||||
| Share repurchases | (313) | 10,690 | (11,003) | (11,003) | |||||||||||||||||||||||||||||||||||||||||||
| Employee stock plans | 96 | 15 | 81 | 81 | |||||||||||||||||||||||||||||||||||||||||||
| Change in redemption value of redeemable noncontrolling interest | 653 | 653 | 653 | ||||||||||||||||||||||||||||||||||||||||||||
| Other | (1) | (1) | (8) | (9) | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | 415 | $ | 44,229 | $ | 17,735 | $ | (1,038) | $ | 24,174 | $ | 37,167 | $ | 73 | $ | 37,240 |
1Excludes comprehensive income of $65 million and $64 million for the three months ended September 30, 2023 and 2022, respectively, and $183 million and $195 million for the nine months ended September 30, 2023 and 2022, respectively, attributable to our redeemable noncontrolling interest.
S&P Global Inc.
Notes to the Consolidated Financial Statements
(Unaudited)
1. Nature of Operations and Basis of Presentation
S&P Global Inc. (together with its consolidated subsidiaries, “S&P Global,” the “Company,” “we,” “us” or “our”) is a provider of credit ratings, benchmarks, analytics and workflow solutions in the global capital, commodity and automotive markets.
Our operations consist of six reportable segments: S&P Global Market Intelligence (“Market Intelligence”), S&P Global Ratings (“Ratings”), S&P Global Commodity Insights (“Commodity Insights”), S&P Global Mobility (“Mobility”), S&P Dow Jones Indices (“Indices” ) and S&P Global Engineering Solutions (“Engineering Solutions”).
-
Market Intelligence is a global provider of multi-asset-class data and analytics integrated with purpose-built workflow solutions.
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Ratings is an independent provider of credit ratings, research, and analytics, offering investors and other market participants information, ratings and benchmarks.
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Commodity Insights is a leading independent provider of information and benchmark prices for the commodity and energy markets.
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Mobility is a leading provider of solutions serving the full automotive value chain including vehicle manufacturers (OEMs), automotive suppliers, mobility service providers, retailers, consumers, and finance and insurance companies.
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Indices is a global index provider maintaining a wide variety of valuation and index benchmarks for investment advisors, wealth managers and institutional investors.
-
As of May 2, 2023, we completed the sale of Engineering Solutions, a leading provider of engineering standards and related technical knowledge, and the results are included through that date.
On May 2, 2023, we completed the sale of Engineering Solutions to Allium Buyer LLC, a Delaware limited liability company controlled by funds affiliated with Kohlberg Kravis Roberts & Co. L.P. (“KKR”). We received the full proceeds from the sale of $975 million in cash, subject to purchase price adjustments, which we expect to result in approximately $750 million in after-tax proceeds. The assets and liabilities of Engineering Solutions were classified as held for sale in our consolidated balance sheet as of December 31, 2022. During the nine months ended September 30, 2023, we recorded a pre-tax loss of $120 million in Loss (gain) on dispositions and disposition-related costs of $16 million in selling and general expenses in the consolidated statement of income ($182 million after-tax, net of a release of a deferred tax liability of $157 million) related to the sale of Engineering Solutions. Following the sale, the assets and liabilities of Engineering Solutions are no longer reported in our consolidated balance sheet as of September 30, 2023. The transaction followed our announced intent in November of 2022 to divest the business. Engineering Solutions became part of the Company following our merger with IHS Markit.
On February 28, 2022, we completed the merger with IHS Markit Ltd (“IHS Markit”), and as a result, IHS Markit and its subsidiaries became wholly owned consolidated subsidiaries of S&P Global, and the financial results include IHS Markit from the date of acquisition.
The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. Therefore, the financial statements included herein should be read in conjunction with the financial statements and notes included in our Form 10-K for the year ended December 31, 2022 (our “Form 10-K”). Certain prior-year amounts have been reclassified to conform with current presentation.
In the opinion of management, all normal recurring adjustments considered necessary for a fair statement of the results of the interim periods have been included. The operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the full year.
On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, business combinations, allowance for doubtful accounts, valuation of long-lived assets, goodwill and other intangible assets, pension plans, incentive compensation and stock-based compensation, income taxes, contingencies and redeemable noncontrolling
interests. Since the date of our Form 10-K, there have been no material changes to our critical accounting policies and estimates.
Restricted Cash
Restricted cash included in our consolidated balance sheets was $1 million as of September 30, 2023 and December 31, 2022.
Contract Assets
Contract assets include unbilled amounts from when the Company transfers service to a customer before a customer pays consideration or before payment is due. As of September 30, 2023 and December 31, 2022, contract assets were $104 million and $60 million, respectively, and are included in accounts receivable in our consolidated balance sheets.
Unearned Revenue
We record unearned revenue when cash payments are received in advance of our performance. The decrease in the unearned revenue balance at September 30, 2023 compared to December 31, 2022 is primarily driven by $2.6 billion of revenues recognized that were included in the unearned revenue balance at the beginning of the period, offset by cash payments received in advance of satisfying our performance obligations.
Remaining Performance Obligations
Remaining performance obligations represent the transaction price of contracts for work that has not yet been performed. As of September 30, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $3.7 billion. We expect to recognize revenue on approximately half and three-quarters of the remaining performance obligations over the next 12 and 24 months, respectively, with the remainder recognized thereafter.
We do not disclose the value of unfulfilled performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts where revenue is a usage-based royalty promised in exchange for a license of intellectual property.
Costs to Obtain Contracts
We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that the costs associated with certain sales commission programs are incremental to the costs to obtain contracts with customers and therefore meet the criteria to be capitalized. Total capitalized costs to obtain contracts were $202 million and $175 million as of September 30, 2023 and December 31, 2022, respectively, and are included in prepaid and other current assets and other non-current assets on our consolidated balance sheets. The capitalized asset will be amortized over a period consistent with the transfer to the customer of the goods or services to which the asset relates, calculated based on the customer term and the average life of the products and services underlying the contracts which has been determined to be approximately 5 years. The expense is recorded within selling and general expenses.
We expense sales commissions when incurred if the amortization period is one year or less. These costs are recorded within selling and general expenses.
Equity in Income on Unconsolidated Subsidiaries
The Company holds an investment in a 50/50 joint venture arrangement with shared control with CME Group that combined each company’s post-trade services into a joint venture, OSTTRA. The joint venture provides trade processing and risk mitigation operations and incorporates CME’s optimization businesses (Traiana, TriOptima, and Reset) and the Company’s MarkitSERV business. The combination is intended to increase operating efficiencies of both businesses to more effectively service clients with enhanced platforms and services for OTC markets across interest rate, FX, equity, and credit asset classes.
Other Income, net
The components of other income, net for the periods ended September 30 are as follows:
| (in millions) | Three Months | Nine Months | |||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Other components of net periodic benefit cost | $ | (6) | $ | (7) | $ | (18) | $ | (18) | |||||||||||||||
| Net loss (gain) from investments | 1 | (30) | 13 | (68) | |||||||||||||||||||
| Other income, net | $ | (5) | $ | (37) | $ | (5) | $ | (86) |
2. Acquisitions and Divestitures
Acquisitions
2023
On February 16, 2023, we completed the acquisition of Market Scan Information Systems, Inc. (“Market Scan”), a leading provider of automotive pricing and incentive intelligence, including Automotive Payments as a ServiceTM and its powerful payment calculation engine. The addition of Market Scan to Mobility will enable the integration of detailed transaction intelligence in areas that are complementary to existing services for dealers, OEMs, lenders, and other market participants. The acquisition of Market Scan is not material to our consolidated financial statements.
On January 3, 2023, we completed the acquisition of ChartIQ, a premier charting provider for the financial services industry. ChartIQ is a professional grade charting solution that allows users to visualize data with a fully interactive web-based library that works seamlessly across web, mobile and desktop. It provides advanced capabilities including trade visualization, options analytics, technical analysis and more. Additionally, ChartIQ allows clients to visualize vendor-supplied data combined with their own proprietary content, alternative datasets or analytics. The acquisition is part of our Market Intelligence segment and further enhances our S&P Capital IQ Pro platform, our digital investment solutions provider Markit Digital and other workflow solutions to provide the industry with leading visualization capabilities. The acquisition of ChartIQ is not material to our consolidated financial statements.
On January 4, 2023, we completed the acquisition of TruSight Solutions LLC (“TruSight”) a provider of third-party vendor risk assessments. The acquisition was integrated into our Market Intelligence segment and further expands the breadth and depth of S&P Global’s third party vendor risk management solutions by offering high-quality validated assessment data to clients designed to reduce further the vendor due diligence burden on service providers to the financial services industry. The acquisition of TruSight is not material to our consolidated financial statements.
2022
Merger with IHS Markit
On February 28, 2022, we completed the merger with IHS Markit. The fair value of the consideration transferred for IHS Markit was approximately $43.5 billion.
Allocation of Purchase Price
The merger with IHS Markit was accounted for as a business combination using the acquisition method of accounting in accordance with ASC 805, Business Combinations (“ASC 805”). The allocation of purchase price recorded for IHS Markit is as follows:
| (in millions) | February 28, 2022 | ||||
| Assets acquired | |||||
| Cash and cash equivalents | $ | 310 | |||
| Accounts receivable, net | 968 | ||||
| Prepaid and other current assets | 224 | ||||
| Assets of a business held for sale | 1,519 | ||||
| Property and equipment | 118 | ||||
| Right of use assets | 240 | ||||
| Goodwill | 31,456 | ||||
| Other intangible assets | 18,620 | ||||
| Equity investments in unconsolidated subsidiaries | 1,644 | ||||
| Other non-current assets | 54 | ||||
| Total assets acquired | $ | 55,153 | |||
| Liabilities assumed | |||||
| Account payable | $ | 174 | |||
| Accrued compensation | 90 | ||||
| Short-term debt | 968 | ||||
| Unearned revenue | 1,053 | ||||
| Other current liabilities | 581 | ||||
| Liabilities of a business held for sale | 72 | ||||
| Long-term debt | 4,191 | ||||
| Lease liabilities - non-current | 231 | ||||
| Deferred tax liability - non-current | 4,200 | ||||
| Other non-current liabilities | 57 | ||||
| Total liabilities assumed | $ | 11,617 | |||
| Total consideration transferred | $ | 43,536 |
Acquired Identifiable Intangible Assets
The following table sets forth the fair values of the components of the identifiable intangible assets acquired and their useful lives:
| (in millions) | Fair Value | Weighted Average Useful Lives | ||||||
| Customer relationships | $ | 13,596 | 25 years | |||||
| Trade names and trademarks | 1,469 | 14 years | ||||||
| Developed technology | 1,043 | 10 years | ||||||
| Databases | 2,512 | 12 years | ||||||
| Total Identified Intangible Assets | $ | 18,620 | 21 years |
Divestitures
2023
On May 2, 2023, we completed the sale of Engineering Solutions to Allium Buyer LLC, a Delaware limited liability company controlled by funds affiliated with Kohlberg Kravis Roberts & Co. L.P. (“KKR”). We received the full proceeds from the sale of $975 million in cash, subject to purchase price adjustments, which we expect to result in approximately $750 million in after-tax proceeds. The assets and liabilities of Engineering Solutions were classified as held for sale in our consolidated balance
sheet as of December 31, 2022. During the nine months ended September 30, 2023, we recorded a pre-tax loss of $120 million in Loss (gain) on dispositions and disposition-related costs of $16 million in selling and general expenses in the consolidated statement of income ($182 million after-tax, net of a release of a deferred tax liability of $157 million) related to the sale of Engineering Solutions. Following the sale, the assets and liabilities of Engineering Solutions are no longer reported in our consolidated balance sheet as of September 30, 2023. The transaction followed our announced intent in November of 2022 to divest the business. Engineering Solutions became part of the Company following our merger with IHS Markit.
In the first quarter of 2023, we received a contingent payment following the sale of Leveraged Commentary and Data (“LCD”) along with a related family of leveraged loan indices in June of 2022. The contingent payment was payable six months following the closing upon the achievement of certain conditions related to the transition of LCD customer relationships. During the nine months ended September 30, 2023, the contingent payment resulted in a pre-tax gain of $46 million ($34 million after-tax) related to the sale of LCD in our Market Intelligence segment and $4 million ($3 million after-tax) in Loss (gain) on dispositions related to the sale of a family of leveraged loan indices in our Indices segment.
2022
As a condition of securing regulatory approval for the merger, S&P Global and IHS Markit agreed to divest of certain of their businesses. S&P Global’s divestitures included CUSIP Global Services (“CGS”), its LCD business and a related family of leveraged loan indices while IHS Markit’s divestitures included Oil Price Information Services (“OPIS”); Coal, Metals and Mining; and PetroChem Wire businesses and its Base Chemicals business.
In June of 2022, we completed the previously announced sale of LCD along with a related family of leveraged loan indices, within our Market Intelligence and Indices segments, respectively, to Morningstar for a purchase price of $600 million in cash, subject to customary adjustments, and a contingent payment of up to $50 million which was payable six months following the closing upon the achievement of certain conditions related to the transition of LCD customer relationships. During the three and nine months ended September 30, 2022, we recorded a pre-tax loss of $15 million ($11 million after-tax) and a pre-tax gain of $505 million ($378 million after-tax) for the sale of LCD. During the three and nine months ended September 30, 2022 we recorded a pre-tax gain of $14 million ($12 million after-tax) and $52 million ($43 million after-tax) for the sale of a family of leveraged loan indices in Loss (gain) on dispositions in the consolidated statements of income.
In June of 2022, we completed the previously announced sale of the Base Chemicals business to News Corp for $295 million in cash. We did not recognize a gain on the sale of the Base Chemicals business.
In March of 2022, we completed the previously announced sale of CGS, a business within our Market Intelligence segment, to FactSet Research Systems Inc. for a purchase price of $1.925 billion in cash, subject to customary adjustments. During the three and nine months ended September 30, 2022, we recorded a pre-tax loss of $2 million ($2 million after-tax) and a pre-tax gain of $1.341 billion ($1.005 billion after-tax) in Loss (gain) on dispositions in the consolidated statements of income related to the sale of CGS.
In February of 2022, we completed the previously announced sale of OPIS to News Corp for $1.150 billion in cash. We did not recognize a gain on the sale of OPIS.
Assets and Liabilities Held for Sale
The components of assets and liabilities held for sale in the consolidated balance sheets consist of the following:
| (in millions) | September 30, | December 31, | ||||||
| 2023 | 2022 1 | |||||||
| Accounts Receivable, net | $ | — | $ | 88 | ||||
| Goodwill | — | 437 | ||||||
| Other intangible assets, net | — | 697 | ||||||
| Other assets | — | 76 | ||||||
| Assets of a business held for sale | $ | — | $ | 1,298 | ||||
| Accounts payable and accrued expenses | $ | — | $ | 59 | ||||
| Deferred tax liability | — | 27 | ||||||
| Unearned revenue | — | 148 | ||||||
| Liabilities of a business held for sale | $ | — | $ | 234 |
1 Assets and liabilities held for sale as of December 31, 2022 relate to Engineering Solutions.
The operating profit of our businesses that were disposed of for the periods ended September 30 is as follows:
| (in millions) | Three Months | Nine Months | |||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Operating profit 1 | $ | — | $ | — | $ | 19 | $ | 59 |
1 The operating profit presented includes the revenue and recurring direct expenses associated with businesses disposed of or held for sale. The nine months ended September 30, 2023 excludes a pre-tax loss related to the sale of Engineering Solutions of $120 million. The three months ended September 30, 2022 excludes a pre-tax loss of $15 million and a pre-tax gain of $14 million related to the sale LCD and a related family of leveraged loan indices, respectively. The nine months ended September 30, 2022 excludes pre-tax gains related to the sale LCD and a related family of leveraged loan indices of of $505 million and $52 million, respectively. The three and nine months ended September 30, 2022 also excludes a pre-tax loss of $2 million and a pre-tax gain of $1.3 billion related to the sale of CGS, respectively.
3. Income Taxes
The effective income tax rate was 18.2% and 21.8% for the three and nine months ended September 30, 2023, respectively, and 17.6% and 25.8% for the three and nine months ended September 30, 2022, respectively. The lower rate for the three months ended September 30, 2022 was primarily due to a combination of discrete adjustments including transaction costs. The higher rate for the nine months ended September 30, 2022 was primarily due to the tax charge on merger related divestitures and deal related non-deductible costs.
At the end of each interim period, we estimate the annual effective tax rate and apply that rate to our ordinary quarterly earnings. The tax expense or benefit related to significant unusual or infrequently occurring items that will be separately reported or reported net of their related tax effect, and are individually computed, is recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws or rates or tax status is recognized in the interim period in which the change occurs.
The Company is subject to tax examinations in various jurisdictions. As of September 30, 2023 and December 31, 2022, the total amount of federal, state and local, and foreign unrecognized tax benefits was $244 million and $223 million, respectively, exclusive of interest and penalties. We recognize accrued interest and penalties related to unrecognized tax benefits in interest expense and operating-related expense, respectively. As of September 30, 2023 and December 31, 2022, we had $50 million and $38 million, respectively, of accrued interest and penalties associated with unrecognized tax benefits. Based on the current status of income tax audits, we believe that the total amount of unrecognized tax benefits may decrease by approximately $20 million in the next twelve months as a result of the resolution of local tax examinations.
For tax years beginning after December 31, 2021, the Tax Cuts and Jobs Act of 2017 (“TCJA”) requires taxpayers to capitalize and amortize research and development costs pursuant to Internal Revenue Code (“IRC”) Section 174. Section 174 requires taxpayers to capitalize research and development costs and amortize them over 5 years for expenditures attributed to domestic research and 15 years for expenditures attributed to foreign research. This provision affects a significant proportion of the Company for the first time in 2023. The actual impact of Section 174 capitalization and amortization on the income tax payable and deferred tax asset will depend on multiple factors, including the amount of research and development expenses we will incur and whether we conduct our research and development activities inside or outside the United States. Although Congress is considering legislation that would defer, repeal or otherwise modify this capitalization and amortization requirement, the possibility that this will happen is uncertain. If legislation is not passed to defer, repeal, or otherwise modify the capitalization and amortization requirement we expect our cash taxes to be greater than in the prior year.
4. Debt
A summary of short-term and long-term debt outstanding is as follows:
| (in millions) | September 30, 2023 | December 31, 2022 | |||||||||
| 4.125% Senior Notes, due 2023 1 | $ | — | $ | 38 | |||||||
| 3.625% Senior Notes, due 2024 2 | 47 | 48 | |||||||||
| 4.75% Senior Notes, due 2025 3 | 4 | 4 | |||||||||
| 4.0% Senior Notes, due 2026 4 | 3 | 3 | |||||||||
| 2.95% Senior Notes, due 2027 5 | 497 | 496 | |||||||||
| 2.45% Senior Notes, due 2027 6 | 1,239 | 1,237 | |||||||||
| 4.75% Senior Notes, due 2028 7 | 814 | 823 | |||||||||
| 4.25% Senior Notes, due 2029 8 | 1,019 | 1,029 | |||||||||
| 2.5% Senior Notes, due 2029 9 | 497 | 497 | |||||||||
| 2.70% Sustainability-Linked Senior Notes, due 2029 10 | 1,235 | 1,233 | |||||||||
| 1.25% Senior Notes, due 2030 11 | 594 | 594 | |||||||||
| 2.90% Senior Notes, due 2032 12 | 1,474 | 1,472 | |||||||||
| 5.25% Senior Notes, due 2033 13 | 743 | — | |||||||||
| 6.55% Senior Notes, due 2037 14 | 291 | 290 | |||||||||
| 4.5% Senior Notes, due 2048 15 | 272 | 272 | |||||||||
| 3.25% Senior Notes, due 2049 16 | 590 | 590 | |||||||||
| 3.70% Senior Notes, due 2052 17 | 974 | 974 | |||||||||
| 2.3% Senior Notes, due 2060 18 | 683 | 682 | |||||||||
| 3.9% Senior Notes, due 2062 19 | 486 | 486 | |||||||||
| Commercial paper | — | 188 | |||||||||
| Total debt | 11,462 | 10,956 | |||||||||
| Less: short-term debt including current maturities | 47 | 226 | |||||||||
| Long-term debt | $ | 11,415 | $ | 10,730 |
1 We made a $38 million payment on the retirement of our 4.125% senior notes in the third quarter of 2023.
2 Interest payments are due semiannually on May 1 and November 1.
3 Interest payments are due semiannually on February 15 and August 15.
4 Interest payments are due semiannually on March 1 and September 1.
5 Interest payments are due semiannually on January 22 and July 22, and as of September 30, 2023, the unamortized debt discount and issuance costs total $3 million.
6 Interest payments are due semiannually on March 1 and September 1 and as of September 30, 2023, the unamortized debt discount and issuance costs total $11 million.
7 Interest payments are due semiannually on February 1 and August 1.
8 Interest payments are due semiannually on May 1 and November 1.
9 Interest payments are due semiannually on June 1 and December 1, and as of September 30, 2023, the unamortized debt discount and issuance costs total $3 million.
10 Interest payments are due semiannually on March 1 and September 1 and as of September 30, 2023, the unamortized debt discount and issuance costs total $15 million.
11 Interest payments are due semiannually on February 15 and August 15, and as of September 30, 2023, the unamortized debt discount and issuance costs total $6 million.
12 Interest payments are due semiannually on March 1 and September 1 and as of September 30, 2023, the unamortized debt discount and issuance costs total $26 million.
13 Interest payments are due semiannually on March 15 and September 15, beginning on March 15, 2024, and as of September 30, 2023, the unamortized debt discount and issuance costs total $7 million.
14 Interest payments are due semiannually on May 15 and November 15, and as of September 30, 2023, the unamortized debt discount and issuance costs total $2 million.
15 Interest payments are due semiannually on May 15 and November 15, and as of September 30, 2023, the unamortized debt discount and issuance costs total $11 million.
16 Interest payments are due semiannually on June 1 and December 1, and as of September 30, 2023, the unamortized debt discount and issuance costs total $10 million.
17 Interest payments are due semiannually on March 1 and September 1 and as of September 30, 2023, the unamortized debt discount and issuance costs total $26 million.
18 Interest payments are due semiannually on February 15 and August 15, and as of September 30, 2023, the unamortized debt discount and issuance costs total $17 million.
19 Interest payments are due semiannually on March 1 and September 1 and as of September 30, 2023, the unamortized debt discount and issuance costs total $14 million.
The fair value of our total debt borrowings was $9.6 billion and $9.3 billion as of September 30, 2023 and December 31, 2022, respectively, and was estimated based on quoted market prices.
On September 12, 2023, we issued $750 million of 5.25% senior notes due in 2033. The notes are fully and unconditionally guaranteed by our wholly-owned subsidiary, Standard & Poor's Financial Services LLC. In the third quarter of 2023, the Company used the net proceeds to repay its outstanding commercial paper borrowings.
On February 28, 2022, we completed the merger with IHS Markit in an all-stock transaction. In the transaction, we assumed IHS Markit's publicly traded debt, with an outstanding principal balance of $4.6 billion, which was recorded at fair value of $4.9 billion on the acquisition date. The adjustment to fair value of the Senior Notes of approximately $292 million on the acquisition date is being amortized as an adjustment to interest expense over the remaining contractual terms of the Senior Notes.
During the nine months ended September 30, 2022, we recognized a $15 million loss on extinguishment of debt which includes a $142 million tender premium paid to tendering note holders in accordance with the terms of the tender offer, offset by a $127 million non-cash write-off related to the fair market value step up premium on extinguished debt.
We have the ability to borrow a total of $2.0 billion through our commercial paper program, which is supported by our $2.0 billion five-year credit agreement (our “credit facility”) that will terminate on April 26, 2026. As of September 30, 2023, we had no outstanding commercial paper. As of December 31, 2022, there was $188 million of commercial paper outstanding.
Commitment fees for the unutilized commitments under the credit facility and applicable margins for borrowings thereunder are linked to the Company achieving three environmental sustainability performance indicators related to emissions, tested annually. We currently pay a commitment fee of 8 basis points. The credit facility contains customary affirmative and negative covenants and customary events of default. The occurrence of an event of default could result in an acceleration of the obligations under the credit facility.
The only financial covenant required is that our indebtedness to cash flow ratio, as defined in our credit facility, was not greater than 4 to 1, and this covenant level has never been exceeded.
5. Derivative Instruments
Our exposure to market risk includes changes in foreign exchange rates and interest rates. We have operations in foreign countries where the functional currency is primarily the local currency. For international operations that are determined to be
extensions of the parent company, the U.S. dollar is the functional currency. We typically have naturally hedged positions in most countries from a local currency perspective with offsetting assets and liabilities. As of September 30, 2023 and December 31, 2022, we have entered into foreign exchange forward contracts to mitigate or hedge the effect of adverse fluctuations in foreign exchange rates and cross currency swap contracts to hedge a portion of our net investment in a foreign subsidiary against volatility in foreign exchange rates. As of September 30, 2023 and December 31, 2022, we entered into a series of interest rate swaps to mitigate or hedge the adverse fluctuations in interest rates on our future debt refinancing. These contracts are recorded at fair value that is based on foreign currency exchange rates and interest rates in active markets; therefore, we classify these derivative contracts within Level 2 of the fair value hierarchy. We do not enter into any derivative financial instruments for speculative purposes.
Undesignated Derivative Instruments
During the nine months ended September 30, 2023 and twelve months ended December 31, 2022, we entered into foreign exchange forward contracts in order to mitigate the change in fair value of specific assets and liabilities in the consolidated balance sheets. These forward contracts do not qualify for hedge accounting. As of September 30, 2023 and December 31, 2022, the aggregate notional value of these outstanding forward contracts was $2.3 billion and $1.8 billion, respectively. The changes in fair value of these forward contracts are recorded in prepaid and other current assets or other current liabilities in the consolidated balance sheets with their corresponding change in fair value recognized in selling and general expenses in the consolidated statements of income. The amount recorded in prepaid and other current assets as of September 30, 2023 and December 31, 2022 was less than $1 million and $5 million, respectively. The amount recorded in other current liabilities as of September 30, 2023 and December 31, 2022 was $80 million and $37 million, respectively. The amount recorded in selling and general expense related to these contracts was a net loss of $82 million and $24 million for three and nine months ended September 30, 2023, respectively, and a net loss of $82 million and $151 million for three and nine months ended September 30, 2022, respectively.
Net Investment Hedges
As of September 30, 2023 and December 31, 2022, we held cross currency swaps to hedge a portion of our net investment in one of our European subsidiaries against volatility in the Euro/U.S. dollar exchange rate. These swaps are designated and qualify as a hedge of a net investment in a foreign subsidiary and are scheduled to mature in 2024, 2029 and 2030. As of September 30, 2023 and December 31, 2022, the notional value of our outstanding cross currency swaps designated as a net investment hedge was $1 billion. The changes in the fair value of these swaps are recognized in foreign currency translation adjustments, a component of other comprehensive income (loss), and reported in accumulated other comprehensive loss in our consolidated balance sheet. The gain or loss will be subsequently reclassified into net earnings when the hedged net investment is either sold or substantially liquidated. We have elected to assess the effectiveness of our net investment hedges based on changes in spot exchange rates. Accordingly, amounts related to the cross currency swaps recognized directly in net income for the three and nine months ended September 30, 2023 represent net periodic interest settlements and accruals, which are recognized in interest expense, net. We recognized net interest income of $6 million and $18 million for the three and nine months ended September 30, 2023 and net interest expense of $6 million and $24 million for the three and nine months ended September 30, 2022, respectively.
Cash Flow Hedges
Foreign Exchange Forward Contracts
During the nine months ended September 30, 2023 and the twelve months ended December 31, 2022, we entered into a series of foreign exchange forward contracts to hedge a portion of the Indian rupee, British pound, and Euro exposures through the third quarter of 2025 and the fourth quarter of 2024, respectively. These contracts are intended to offset the impact of movement of exchange rates on future revenue and operating costs and are scheduled to mature within twenty-four months. The changes in the fair value of these contracts are initially reported in accumulated other comprehensive loss in our consolidated balance sheet and are subsequently reclassified into revenue and selling and general expenses in the same period that the hedged transaction affects earnings.
As of September 30, 2023, we estimate that $3 million of pre-tax gain related to foreign exchange forward contracts designated as cash flow hedges recorded in other comprehensive income is expected to be reclassified into earnings within the next twelve months.
As of September 30, 2023 and December 31, 2022, the aggregate notional value of our outstanding foreign exchange forward contracts designated as cash flow hedges was $530 million and $529 million, respectively.
Interest Rate Swaps
As of September 30, 2023 and December 31, 2022, we held positions in a series of interest rate swaps. These contracts are intended to mitigate or hedge the adverse fluctuations in interest rates on our future debt refinancing and are scheduled to mature beginning in the first quarter of 2027. These interest rate swaps are designated as cash flow hedges. The changes in the fair value of these contracts are initially reported in accumulated other comprehensive loss in our consolidated balance sheet and will be subsequently reclassified into interest expense, net in the same period that the hedged transaction affects earnings.
As of September 30, 2023 and December 31, 2022, the aggregate notional value of our outstanding interest rate swaps designated as cash flow hedges was $813 million and $1.4 billion, respectively, with the current period reduction attributable to the issuance of $750 million 5.25% senior notes in September of 2023.
The following table provides information on the location and fair value amounts of our cash flow hedges and net investment hedges as of September 30, 2023 and December 31, 2022:
| (in millions) | September 30, | December 31, | ||||||||||||
| Balance Sheet Location | 2023 | 2022 | ||||||||||||
| Derivatives designated as cash flow hedges: | ||||||||||||||
| Prepaid and other current assets | Foreign exchange forward contracts | $ | 4 | $ | 3 | |||||||||
| Other current liabilities | Foreign exchange forward contracts | $ | — | $ | 7 | |||||||||
| Other non-current assets | Interest rate swap contracts | $ | 197 | $ | 145 | |||||||||
| Derivatives designated as net investment hedges: | ||||||||||||||
| Other non-current assets | Cross currency swaps | $ | 77 | $ | 84 | |||||||||
The following table provides information on the location and amounts of pre-tax gains (losses) on our cash flow hedges and net investment hedges for the periods ended September 30:
Three Months
| (in millions) | Gain (Loss) recognized in Accumulated Other Comprehensive Loss (effective portion) | Location of Gain (Loss) reclassified from Accumulated Other Comprehensive Loss into Income (effective portion) | Gain (Loss) reclassified from Accumulated Other Comprehensive Loss into Income (effective portion) | ||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||
| Cash flow hedges - designated as hedging instruments | |||||||||||||||||||||||||||||
| Foreign exchange forward contracts | $ | (5) | $ | (2) | Revenue, Selling and general expenses | $ | 2 | $ | (6) | ||||||||||||||||||||
| Interest rate swap contracts | $ | 120 | $ | 56 | Interest expense, net | $ | (1) | $ | (1) | ||||||||||||||||||||
| Net investment hedges - designated as hedging instruments | |||||||||||||||||||||||||||||
| Cross currency swaps | $ | 22 | $ | 70 | Interest expense, net | $ | (1) | $ | (1) | ||||||||||||||||||||
Nine Months
| (in millions) | Gain (Loss) recognized in Accumulated Other Comprehensive Loss (effective portion) | Location of Gain (Loss) reclassified from Accumulated Other Comprehensive Loss into Income (effective portion) | Gain (Loss) reclassified from Accumulated Other Comprehensive Loss into Income (effective portion) | ||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||
| Cash flow hedges - designated as hedging instruments | |||||||||||||||||||||||||||||
| Foreign exchange forward contracts | $ | 4 | $ | (20) | Revenue, Selling and general expenses | $ | 4 | $ | (4) | ||||||||||||||||||||
| Interest rate swap contracts | $ | 111 | $ | 303 | Interest expense, net | $ | (4) | $ | (3) | ||||||||||||||||||||
| Net investment hedges - designated as hedging instruments | |||||||||||||||||||||||||||||
| Cross currency swaps | $ | (9) | $ | 176 | Interest expense, net | $ | (3) | $ | (3) | ||||||||||||||||||||
The activity related to the change in unrealized gains (losses) in accumulated other comprehensive loss was as follows for the periods ended September 30:
| (in millions) | Three Months | Nine Months | |||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Cash Flow Hedges | |||||||||||||||||||||||
| Foreign exchange forward contracts | |||||||||||||||||||||||
| Net unrealized gains on cash flow hedges, net of taxes, beginning of period | $ | 7 | $ | (9) | $ | — | $ | 6 | |||||||||||||||
| Change in fair value, net of tax | (2) | (7) | 7 | (21) | |||||||||||||||||||
| Reclassification into earnings, net of tax | (2) | 5 | (4) | 4 | |||||||||||||||||||
| Net unrealized gains (losses) on cash flow hedges, net of taxes, end of period | $ | 3 | $ | (11) | $ | 3 | $ | (11) | |||||||||||||||
| Interest rate swap contracts | |||||||||||||||||||||||
| Net unrealized gains (losses) on cash flow hedges, net of taxes, beginning of period | $ | 41 | $ | (16) | $ | 48 | $ | (203) | |||||||||||||||
| Change in fair value, net of tax | 89 | 41 | 79 | 226 | |||||||||||||||||||
| Reclassification into earnings, net of tax | 1 | 1 | 4 | 3 | |||||||||||||||||||
| Net unrealized gains (losses) on cash flow hedges, net of taxes, end of period | $ | 131 | $ | 26 | $ | 131 | $ | 26 | |||||||||||||||
| Net Investment Hedges | |||||||||||||||||||||||
| Net unrealized gains (losses) on net investment hedges, net of taxes, beginning of period | $ | 32 | $ | 62 | $ | 56 | $ | (17) | |||||||||||||||
| Change in fair value, net of tax | 16 | 52 | (10) | 129 | |||||||||||||||||||
| Reclassification into earnings, net of tax | 1 | 1 | 3 | 3 | |||||||||||||||||||
| Net unrealized gains on net investment hedges, net of taxes, end of period | $ | 49 | $ | 115 | $ | 49 | $ | 115 |
6. Employee Benefits
We maintain a number of active defined contribution retirement plans for our employees. The majority of our defined benefit plans are frozen. As a result, no new employees will be permitted to enter these plans and no additional benefits for current participants in the frozen plans will be accrued.
We also have supplemental benefit plans providing senior management with supplemental retirement, disability and death benefits. Certain supplemental retirement benefits are based on final monthly earnings. In addition, we sponsor a voluntary 401(k) plan under which we may match employee contributions up to certain levels of compensation as well as profit-sharing plans under which we contribute a percentage of eligible employees' compensation to the employees' accounts.
We also provide certain medical, dental and life insurance benefits for active and retired employees and eligible dependents. The medical and dental plans and supplemental life insurance plan are contributory, while the basic life insurance plan is noncontributory. We currently do not prefund any of these plans.
We recognize the funded status of our retirement and postretirement plans in the consolidated balance sheets, with a corresponding adjustment to accumulated other comprehensive loss, net of taxes. The amounts in accumulated other comprehensive loss represent net unrecognized actuarial losses and unrecognized prior service costs. These amounts will be subsequently recognized as net periodic pension cost pursuant to our accounting policy for amortizing such amounts.
Net periodic benefit cost for our retirement and postretirement plans other than the service cost component are included in other income, net in our consolidated statements of income.
The components of net periodic benefit cost for our retirement plans and postretirement plans for the periods ended September 30 are as follows:
| (in millions) | Three Months | Nine Months | |||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Service cost | $ | — | $ | 1 | $ | 1 | $ | 2 | |||||||||||||||
| Interest cost | 19 | 12 | 56 | 36 | |||||||||||||||||||
| Expected return on assets | (26) | (22) | (76) | (65) | |||||||||||||||||||
| Amortization of prior service credit / actuarial loss | 1 | 3 | 2 | 9 | |||||||||||||||||||
| Net periodic benefit cost | $ | (6) | $ | (6) | $ | (17) | $ | (18) | |||||||||||||||
Net periodic benefit cost related to our postretirement plans reflected in the table above was not material for the three and nine months ended September 30, 2023 and 2022.
As discussed in our Form 10-K, we changed certain discount rate assumptions for our retirement and postretirement plans and our expected return on assets assumption for our retirement plans which became effective on January 1, 2023. The effect of the assumption changes on retirement and postretirement expense for the three and nine months ended September 30, 2023 did not have a material impact to our financial position, results of operations or cash flows.
In the first nine months of 2023, we contributed $7 million to our retirement plans and expect to make additional required contributions of approximately $3 million to our retirement plans during the remainder of the year. We may elect to make additional non-required contributions depending on investment performance or any potential deterioration of our pension plan status in the fourth quarter of 2023.
7. Stock-Based Compensation
We issue stock-based incentive awards to our eligible employees under the 2019 Employee Stock Incentive Plan and to our eligible non-employee members of the Board of Directors under a Director Deferred Stock Ownership Plan.
Total stock-based compensation expense related to restricted stock and other stock-based awards was $143 million for the nine months ended September 30, 2023 and $160 million for the nine months ended September 30, 2022. Stock-based compensation expense for the nine months ended September 30, 2022 primarily related to the early vesting of IHS Markit equity awards as a result of employee terminations and restructuring efforts. During the nine months ended September 30, 2023, the Company granted 0.5 million shares of restricted stock and other stock-based awards, which had a weighted average grant date fair value of $340.95 per share. Total unrecognized compensation expense related to unvested equity awards as of September 30, 2023 was $195 million, which is expected to be recognized over a weighted average period of 1.3 years.
8. Equity
On January 25, 2023, the Board of Directors approved an increase in the dividends for 2023 to a quarterly common stock dividend of $0.90 per share.
Stock Repurchases
On June 22, 2022, the Board of Directors approved a share repurchase program authorizing the purchase of 30 million shares (the “2022 Repurchase Program”), which was approximately 9% of the total shares of our outstanding common stock at that time. On January 29, 2020, the Board of Directors approved a share repurchase program authorizing the purchase of 30 million shares (the “2020 Repurchase Program”), which was approximately 12% of the total shares of our outstanding common stock at that time.
Our purchased shares may be used for general corporate purposes, including the issuance of shares for stock compensation plans and to offset the dilutive effect of the exercise of employee stock options. As of September 30, 2023, 21.5 million shares remained available under the 2022 Repurchase Program and the 2020 repurchase program was complete. Our 2022 Repurchase Program has no expiration date and purchases under this program may be made from time to time on the open market and in private transactions, depending on market conditions.
We enter into accelerated share repurchase (“ASR”) agreements with financial institutions to initiate share repurchases of our common stock. Under an ASR agreement, we pay a specified amount to the financial institution and receive an initial delivery of shares. This initial delivery of shares represents the minimum number of shares that we may receive under the agreement. Upon settlement of the ASR agreement, the financial institution delivers additional shares. The total number of shares ultimately delivered, and therefore the average price paid per share, is determined at the end of the applicable purchase period of each ASR agreement based on the volume weighted-average share price, less a discount. We account for our ASR agreements as two transactions: a stock purchase transaction and a forward stock purchase contract. The shares delivered under the ASR agreements resulted in a reduction of outstanding shares used to determine our weighted average common shares outstanding for purposes of calculating basic and diluted earnings per share. The repurchased shares are held in Treasury. The forward stock purchase contracts were classified as equity instruments.
The terms of each ASR agreement entered into during the nine months ended September 30, 2023 and 2022, structured as outlined above, are as follows:
| (in millions, except average price paid per share) | ||||||||||||||||||||||||||||||||||||||
| ASR Agreement Initiation Date | ASR Agreement Completion Date | Initial Shares Delivered | Additional Shares Delivered | Total Number of Shares Purchased | Average Price Paid Per Share | Total Cash Utilized | ||||||||||||||||||||||||||||||||
| August 7, 2023 1 | September 8, 2023 | 1.1 | 0.2 | 1.3 | $ | 387.36 | $ | 500 | ||||||||||||||||||||||||||||||
| May 8, 2023 2 | August 4, 2023 | 2.5 | 0.1 | 2.6 | $ | 384.75 | $ | 1,000 | ||||||||||||||||||||||||||||||
| February 13, 2023 3 | May 5, 2023 | 1.1 | 0.3 | 1.4 | $ | 341.95 | $ | 500 | ||||||||||||||||||||||||||||||
| August 9, 2022 4 | October 25, 2022 | 5.8 | 1.6 | 7.4 | $ | 337.94 | $ | 2,500 | ||||||||||||||||||||||||||||||
| May 13, 2022 5 | August 2, 2022 | 3.8 | 0.6 | 4.4 | $ | 343.85 | $ | 1,500 | ||||||||||||||||||||||||||||||
| March 1, 2022 6 | August 9, 2022 | 15.2 | 4.1 | 19.3 | $ | 362.03 | $ | 7,000 | ||||||||||||||||||||||||||||||
1 The ASR agreement was structured as an uncapped ASR agreement in which we paid $500 million and initially received shares valued at 85% of the $500 million at a price equal to the market price of the Company's common stock on August 7, 2023 when the Company received an initial delivery of 1.1 million shares from the ASR program.We completed the ASR agreement on September 8, 2023 and received an additional 0.2 million shares. The ASR agreement was executed under our 2022 Repurchase Program.
2 The ASR agreement was structured as an uncapped ASR agreement in which we paid $1 billion and initially received shares valued at 87.5% of the $1 billion at a price equal to the market price of the Company's common stock on May 8, 2023 when the Company received an initial delivery of 2.5 million shares from the ASR program.We completed the ASR agreement on August 4, 2023 and received an additional 0.1 million shares. The ASR agreement was executed under our 2022 Repurchase Program.
3 The ASR agreement was structured as an uncapped ASR agreement in which we paid $500 million and initially received shares valued at 85% of the $500 million at a price equal to the market price of the Company's common stock on February 13, 2023 when the Company received an initial delivery of 1.1 million shares from the ASR program. We completed the ASR agreement on May 5, 2023 and received an additional 0.3 million shares. The ASR agreement was executed under our 2022 Repurchase Program.
4 The ASR agreement was structured as an uncapped ASR agreement in which we paid $2.5 billion and initially received shares valued at 87.5% of the $2.5 billion at a price equal to the market price of the Company's common stock on August 9, 2022 when the Company received an initial delivery of 5.8 million shares from the ASR program. We completed the ASR agreement on October 25, 2022 and received an additional 1.6 million shares. The ASR agreement was executed under our 2022 and 2020 Repurchase Programs.
5 The ASR agreement was structured as an uncapped ASR agreement in which we paid $1.5 billion and initially received shares valued at 85% of the $1.5 billion at a price equal to the market price of the Company's common stock on May 13, 2022 when the Company received an initial delivery of 3.8 million shares from the ASR program. We completed the ASR agreement on August 2, 2022 and received an additional 0.6 million shares. The ASR agreement was executed under our 2020 Repurchase Program.
6 The ASR agreement was structured as an uncapped ASR agreement in which we paid $7 billion and initially received shares valued at 85% of the $7 billion at a price equal to the then market price of the Company's common stock on March 1, 2022 when the company received an initial delivery of 15.2 million shares from the ASR program. We completed the ASR agreement on August 9, 2022 and received an additional 4.1 million shares. The ASR agreement was executed under our 2020 Repurchase Program.
During the nine months ended September 30, 2023, we received 5.8 million shares, including 0.4 million shares received in February of 2023 related to our December 2, 2022 ASR agreement. During the nine months ended September 30, 2023, we purchased a total of 5.4 million shares for $2 billion of cash. During the nine months ended September 30, 2022, we purchased a total of 29.5 million shares for $11 billion of cash.
Redeemable Noncontrolling Interests
The agreement with the minority partners that own 27% of our S&P Dow Jones Indices LLC joint venture contains redemption features whereby interests held by minority partners are redeemable either (i) at the option of the holder or (ii) upon the occurrence of an event that is not solely within our control. Specifically, under the terms of the operating agreement of S&P Dow Jones Indices LLC, CME Group and CME Group Index Services LLC (“CGIS”) has the right at any time to sell, and we are obligated to buy, at least 20% of their share in S&P Dow Jones Indices LLC. In addition, in the event there is a change of control of the Company, for the 15 days following a change in control, CME Group and CGIS will have the right to put their interest to us at the then fair value of CME Group's and CGIS' minority interest.
If interests were to be redeemed under this agreement, we would generally be required to purchase the interest at fair value on the date of redemption. This interest is presented on the consolidated balance sheets outside of equity under the caption “Redeemable noncontrolling interest” with an initial value based on fair value for the portion attributable to the net assets we acquired, and based on our historical cost for the portion attributable to our S&P Index business. We adjust the redeemable noncontrolling interest each reporting period to its estimated redemption value, but never less than its initial fair value, using both income and market valuation approaches. Our income and market valuation approaches incorporate Level 3 fair value measures for instances when observable inputs are not available. The more significant judgmental assumptions used to estimate the value of the S&P Dow Jones Indices LLC joint venture include an estimated discount rate, a range of assumptions that form the basis of the expected future net cash flows (e.g., the revenue growth rates and operating margins), and a company specific beta. The significant judgmental assumptions used that incorporate market data, including the relative weighting of market observable information and the comparability of that information in our valuation models, are forward-looking and could be affected by future economic and market conditions. Any adjustments to the redemption value will impact retained income.
Noncontrolling interests that do not contain such redemption features are presented in equity.
Changes to redeemable noncontrolling interest during the nine months ended September 30, 2023 were as follows:
| (in millions) | |||||
| Balance as of December 31, 2022 | $ | 3,267 | |||
| Net income attributable to redeemable noncontrolling interest | 183 | ||||
| Distributions payable to redeemable noncontrolling interest | (187) | ||||
| Redemption value adjustment | 247 | ||||
| Balance as of September 30, 2023 | $ | 3,510 |
Accumulated Other Comprehensive Loss
The following table summarizes the changes in the components of accumulated other comprehensive loss for the nine months ended September 30, 2023:
| (in millions) | Foreign Currency Translation Adjustments | Pension and Postretirement Benefit Plans | Unrealized Gain (Loss) on Cash Flow Hedges | Accumulated Other Comprehensive Loss | |||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | (582) | $ | (349) | $ | 45 | $ | (886) | |||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (38) | 1 | (10) | 87 | 39 | ||||||||||||||||||||||||
| Reclassifications from accumulated other comprehensive income (loss) to net earnings | — | 2 | 2 | (1) | 3 | 1 | |||||||||||||||||||||||
| Net other comprehensive income (loss) | (38) | (8) | 86 | 40 | |||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | (620) | $ | (357) | $ | 131 | $ | (846) |
1Includes an unrealized gain related to our cross currency swaps. See Note 5 – Derivative Instruments for additional detail of items recognized in accumulated other comprehensive loss.
2Reflects amortization of net actuarial losses and is net of a tax benefit of $1 million for the nine months ended September 30, 2023. See Note 6 — Employee Benefits for additional details of items reclassed from accumulated other comprehensive loss to net earnings.
3See Note 5 — Derivative Instruments for additional details of items reclassified from accumulated other comprehensive loss to net earnings.
9. Earnings Per Share
Basic earnings per common share (“EPS”) is computed by dividing net income attributable to the common shareholders of the Company by the weighted-average number of common shares outstanding. Diluted EPS is computed in the same manner as basic EPS, except the number of shares is increased to include additional common shares that would have been outstanding if potential common shares with a dilutive effect had been issued. Potential common shares consist primarily of stock options and restricted performance shares calculated using the treasury stock method.
The calculation of basic and diluted EPS for the periods ended September 30 is as follows:
| (in millions, except per share amounts) | Three Months | Nine Months | |||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Amounts attributable to S&P Global Inc. common shareholders: | |||||||||||||||||||||||
| Net income | $ | 742 | $ | 608 | $ | 2,047 | $ | 2,815 | |||||||||||||||
| Basic weighted-average number of common shares outstanding | 317.5 | 329.6 | 319.4 | 314.5 | |||||||||||||||||||
| Effect of stock options and other dilutive securities | 0.5 | 1.3 | 0.5 | 1.2 | |||||||||||||||||||
| Diluted weighted-average number of common shares outstanding | 318.0 | 330.9 | 319.9 | 315.7 | |||||||||||||||||||
| Earnings per share attributable to S&P Global Inc. common shareholders: | |||||||||||||||||||||||
| Net income: | |||||||||||||||||||||||
| Basic | $ | 2.34 | $ | 1.84 | $ | 6.41 | $ | 8.95 | |||||||||||||||
| Diluted | $ | 2.33 | $ | 1.84 | $ | 6.40 | $ | 8.91 |
We have certain stock options and restricted performance shares that are potentially excluded from the computation of diluted EPS. The effect of the potential exercise of stock options is excluded when the average market price of our common stock is lower than the exercise price of the related option during the period or when a net loss exists because the effect would have been antidilutive. Additionally, restricted performance shares are excluded when the necessary vesting conditions have not been met or when a net loss exists. For the three and nine months ended September 30, 2023 and 2022, there were no stock options excluded. Restricted performance shares outstanding of 0.8 million and 0.7 million as of September 30, 2023 and 2022, respectively, were excluded.
10. Restructuring
We continuously evaluate our cost structure to identify cost savings associated with streamlining our management structure. Our 2023 and 2022 restructuring plan consisted of a company-wide workforce reduction of approximately 589 and 1,440 positions, respectively, and is further detailed below. The charges for the restructuring plans are classified as selling and general expenses within the consolidated statements of income and the reserves are included in other current liabilities in the consolidated balance sheets.
In certain circumstances, reserves are no longer needed because employees previously identified for separation resigned from the Company and did not receive severance or were reassigned due to circumstances not foreseen when the original plans were initiated. In these cases, we reverse reserves through the consolidated statements of income during the period when it is determined they are no longer needed.
The initial restructuring charge recorded and the ending reserve balance as of September 30, 2023 by segment is as follows:
| 2023 Restructuring Plan | 2022 Restructuring Plan | ||||||||||||||||||||||
| (in millions) | Initial Charge Recorded | Ending Reserve Balance | Initial Charge Recorded | Ending Reserve Balance | |||||||||||||||||||
| Market Intelligence | $ | 40 | $ | 32 | $ | 86 | $ | 17 | |||||||||||||||
| Ratings | 8 | 6 | 26 | 5 | |||||||||||||||||||
| Commodity Insights | 23 | 18 | 45 | 7 | |||||||||||||||||||
| Mobility | 6 | 5 | 2 | 1 | |||||||||||||||||||
| Indices | 4 | 3 | 13 | 3 | |||||||||||||||||||
| Engineering Solutions | — | — | 2 | — | |||||||||||||||||||
| Corporate | 19 | 12 | 109 | 14 | |||||||||||||||||||
| Total | $ | 100 | $ | 76 | $ | 283 | $ | 47 |
We recorded a pre-tax restructuring charge of $100 million primarily related to employee severance charges for the 2023 restructuring plan during the nine months ended September 30, 2023 and have reduced the reserve by $24 million. The ending reserve balance for the 2022 restructuring plan was $164 million as of December 31, 2022. For the nine months ended September 30, 2023, we have reduced the reserve for the 2022 restructuring plan by $117 million. The ending reserve balance for the 2021 restructuring plan was $1 million and $10 million as of September 30, 2023 and December 31, 2022, respectively. The reductions primarily related to cash payments for employee severance charges.
11. Segment and Related Information
We have six reportable segments: Market Intelligence, Ratings, Commodity Insights, Mobility, Indices, and Engineering Solutions. Our Chief Executive Officer is our chief operating decision-maker and evaluates performance of our segments and allocates resources based primarily on operating profit. Segment operating profit does not include Corporate Unallocated expense, equity in income on unconsolidated subsidiaries, other income, net, interest expense, net, or (gain) loss on extinguishment of debt, net, as these are amounts that do not affect the operating results of our reportable segments. As of May 2, 2023, we completed the sale of Engineering Solutions and the results are included through that date.
A summary of operating results for the periods ended September 30 is as follows:
| Revenue | Three Months | Nine Months | |||||||||||||||||||||||||||
| (in millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
| Market Intelligence | $ | 1,099 | $ | 1,016 | $ | 3,249 | $ | 2,774 | |||||||||||||||||||||
| Ratings | 819 | 681 | 2,494 | 2,345 | |||||||||||||||||||||||||
| Commodity Insights | 479 | 432 | 1,450 | 1,234 | |||||||||||||||||||||||||
| Mobility | 379 | 346 | 1,107 | 797 | |||||||||||||||||||||||||
| Indices | 354 | 334 | 1,042 | 995 | |||||||||||||||||||||||||
| Engineering Solutions | — | 95 | 133 | 224 | |||||||||||||||||||||||||
| Intersegment elimination 1 | (46) | (43) | (130) | (125) | |||||||||||||||||||||||||
| Total revenue | $ | 3,084 | $ | 2,861 | $ | 9,345 | $ | 8,244 |
| Operating Profit | Three Months | Nine Months | |||||||||||||||||||||||||||
| (in millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
| Market Intelligence 2 | $ | 195 | $ | 174 | $ | 599 | $ | 2,366 | |||||||||||||||||||||
| Ratings 3 | 459 | 377 | 1,422 | 1,352 | |||||||||||||||||||||||||
| Commodity Insights 4 | 184 | 141 | 527 | 440 | |||||||||||||||||||||||||
| Mobility 5 | 80 | 90 | 213 | 166 | |||||||||||||||||||||||||
| Indices 6 | 235 | 239 | 699 | 732 | |||||||||||||||||||||||||
| Engineering Solutions 7 | — | 1 | 19 | 3 | |||||||||||||||||||||||||
| Total reportable segments | 1,153 | 1,022 | 3,479 | 5,059 | |||||||||||||||||||||||||
| Corporate Unallocated expense 8 | (87) | (175) | (382) | (852) | |||||||||||||||||||||||||
| Equity in Income on Unconsolidated Subsidiaries 9 | 8 | 6 | 33 | 21 | |||||||||||||||||||||||||
| Total operating profit | $ | 1,074 | $ | 853 | $ | 3,130 | $ | 4,228 |
1Revenue for Ratings and expenses for Market Intelligence include an intersegment royalty charged to Market Intelligence for the rights to use and distribute content and data developed by Ratings.
2Operating profit for the three and nine months ended September 30, 2023 includes employee severance charges of $19 million and $41 million, respectively, IHS Markit merger costs of $11 million and $36 million, respectively, and an asset write-off of $1 million. Operating profit for the nine months ended September 30, 2023 includes a gain on dispositions of $46 million and an asset impairment of $5 million. Operating profit for the three and nine months ended September 30, 2022 includes a loss on dispositions of $17 million and a gain on dispositions of $1.8 billion, respectively, employee severance charges of $13 million and $44 million, respectively, IHS Markit merger costs of $6 million and $21 million, respectively, and acquisition-related costs of $1 million and $2 million, respectively. Additionally, operating profit includes amortization of intangibles from acquisitions of $140 million and $134 million for the three months ended September 30, 2023 and 2022, respectively, and $421 million and $331 million for the nine months ended September 30, 2023 and 2022, respectively.
3Operating profit for the three and nine months ended September 30, 2023 includes employee severance charges of $2 million and $8 million, respectively. Operating profit for the three and nine months ended September 30, 2022 includes employee severance charges of $2 million and $14 million, respectively. Additionally, operating profit includes amortization of intangibles from acquisitions of $2 million for the three months ended September 30, 2023 and 2022, and $6 million and $5 million for the nine months ended September 30, 2023 and 2022, respectively.
4Operating profit for the three and nine months ended September 30, 2023 includes IHS Markit merger costs of $8 million and $28 million, respectively, and employee severance charges of $7 million and $23 million, respectively. Operating profit for the three and nine months ended September 30, 2022 includes employee severance costs of $14 million and $38 million, respectively, and IHS Markit merger costs of $10 million and $16 million, respectively. Additionally, operating profit includes amortization of intangibles from acquisitions of $33 million and $32 million for the three months ended September 30, 2023 and 2022, respectively, and $99 million and $77 million for the nine months ended September 30, 2023 and 2022, respectively.
5Operating profit for the three and nine months ended September 30, 2023 includes employee severance charges of $3 million and $6 million, respectively, IHS Markit merger costs of $1 million and $2 million, respectively, and acquisition-related costs of $1 million and $2 million, respectively. Operating profit for the three and nine months ended September 30, 2022 includes acquisition-related benefit of $19 million and $15 million, respectively, and employee severance charges of $1 million and $3 million, respectively. Operating profit for the nine months ended September 30, 2022 includes IHS Markit merger costs of $1 million. Additionally, operating profit includes amortization of intangibles from acquisitions of $76 million for the three months ended September 30, 2023 and 2022, and $226 million and $176 million for the nine months ended September 30, 2023 and 2022, respectively.
6Operating profit for the three and nine months ended September 30, 2023 includes employee severance charges of $1 million and $4 million, respectively, and IHS Markit merger costs of $1 million and $3 million, respectively. Operating profit for the nine months ended
September 30, 2023 includes a gain on disposition of $4 million. Operating profit for the three and nine months ended September 30, 2022 includes a gain on disposition of $14 million and $52 million, respectively, employee severance charges of $1 million and $4 million, respectively, and IHS Markit merger costs of $1 million. Additionally, operating profit includes amortization of intangibles from acquisitions of $9 million for the three months ended September 30, 2023 and 2022, and $27 million and $22 million for the nine months ended September 30, 2023 and 2022, respectively.
7As of May 2, 2023, we completed the sale of Engineering Solutions and the results are included through that date. Operating profit for the three and nine months ended September 30, 2022 includes employee severance charges of $2 million and $4 million, respectively. Additionally, operating profit includes amortization of intangibles from acquisitions of $14 million for the three months ended September 30, 2022, and $1 million and $33 million for the nine months ended September 30, 2023 and 2022, respectively.
8Corporate Unallocated expense for the three and nine months ended September 30, 2023 includes IHS Markit merger costs of $37 million and $104 million, respectively, employee severance charges of $6 million and $20 million, respectively, disposition-related costs of $3 million and $19 million, respectively, and acquisition-related costs of $1 million and $3 million, respectively. Corporate Unallocated expense for the nine months ended September 30, 2023 includes a loss on disposition of $120 million and lease impairments of $15 million. Corporate Unallocated expense for the three and nine months ended September 30, 2022 includes IHS Markit merger costs of $127 million and $483 million, respectively, employee severance charges of $23 million and $87 million, respectively, acquisition-related costs of $1 million and $7 million, respectively, an asset impairment of $9 million and a gain on acquisition of $10 million. The nine months ended September 30, 2022 includes a S&P Foundation grant of $200 million, lease impairments of $5 million and an asset write-off of $3 million. Additionally, Corporate Unallocated expense includes amortization of intangibles from acquisitions of $2 million and $1 million for the nine months ended September 30, 2023 and 2022, respectively.
9Equity in Income on Unconsolidated Subsidiaries includes amortization of intangibles from acquisitions of $14 million and $13 million for the three months ended September 30, 2023 and 2022, respectively, and $42 million for the nine months ended September 30, 2023 and 2022.
The following table presents our revenue disaggregated by revenue type for the periods ended September 30:
| (in millions) | Market Intelligence | Ratings | Commodity Insights | Mobility | Indices | Engineering Solutions | Intersegment Elimination 1 | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Subscription | $ | 932 | $ | — | $ | 432 | $ | 296 | $ | 70 | $ | — | $ | — | $ | 1,730 | ||||||||||||||||||||||||||||||||||||||||
| Non-subscription / Transaction | 42 | 326 | 26 | 83 | — | — | — | 477 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Non-transaction | — | 493 | — | — | — | — | (46) | 447 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Asset-linked fees | — | — | — | — | 218 | — | — | 218 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Sales usage-based royalties | — | — | 21 | — | 66 | — | — | 87 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Recurring variable revenue | 125 | — | — | — | — | — | — | 125 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | 1,099 | $ | 819 | $ | 479 | $ | 379 | $ | 354 | $ | — | $ | (46) | $ | 3,084 | ||||||||||||||||||||||||||||||||||||||||
| Timing of revenue recognition | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Services transferred at a point in time | $ | 42 | $ | 326 | $ | 26 | $ | 83 | $ | — | $ | — | $ | — | $ | 477 | ||||||||||||||||||||||||||||||||||||||||
| Services transferred over time | 1,057 | 493 | 453 | 296 | 354 | — | (46) | 2,607 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | 1,099 | $ | 819 | $ | 479 | $ | 379 | $ | 354 | $ | — | $ | (46) | $ | 3,084 | ||||||||||||||||||||||||||||||||||||||||
| (in millions) | Market Intelligence | Ratings | Commodity Insights | Mobility | Indices | Engineering Solutions | Intersegment Elimination 1 | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Subscription | $ | 2,732 | $ | — | $ | 1,261 | $ | 870 | $ | 206 | $ | 125 | $ | — | $ | 5,194 | ||||||||||||||||||||||||||||||||||||||||
| Non-subscription / Transaction | 137 | 1,088 | 130 | 237 | — | 8 | — | 1,600 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Non-transaction | — | 1,406 | — | — | — | — | (130) | 1,276 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Asset-linked fees | — | — | — | — | 638 | — | — | 638 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Sales usage-based royalties | — | — | 59 | — | 198 | — | — | 257 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Recurring variable revenue | 380 | — | — | — | — | — | — | 380 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | 3,249 | $ | 2,494 | $ | 1,450 | $ | 1,107 | $ | 1,042 | $ | 133 | $ | (130) | $ | 9,345 | ||||||||||||||||||||||||||||||||||||||||
| Timing of revenue recognition | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Services transferred at a point in time | $ | 137 | $ | 1,088 | $ | 130 | $ | 237 | $ | — | $ | 8 | $ | — | $ | 1,600 | ||||||||||||||||||||||||||||||||||||||||
| Services transferred over time | 3,112 | 1,406 | 1,320 | 870 | 1,042 | 125 | (130) | 7,745 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | 3,249 | $ | 2,494 | $ | 1,450 | $ | 1,107 | $ | 1,042 | $ | 133 | $ | (130) | $ | 9,345 | ||||||||||||||||||||||||||||||||||||||||
| (in millions) | Market Intelligence | Ratings | Commodity Insights | Mobility | Indices | Engineering Solutions | Intersegment Elimination 1 | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Subscription | $ | 861 | $ | — | $ | 394 | $ | 269 | $ | 69 | $ | 89 | $ | — | $ | 1,682 | ||||||||||||||||||||||||||||||||||||||||
| Non-subscription / Transaction | 40 | 244 | 21 | 77 | — | 6 | — | 388 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Non-transaction | — | 437 | — | — | — | — | (43) | 394 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Asset-linked fees | — | — | — | — | 210 | — | — | 210 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Sales usage-based royalties | — | — | 17 | — | 55 | — | — | 72 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Recurring variable revenue | 115 | — | — | — | — | 115 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | 1,016 | $ | 681 | $ | 432 | $ | 346 | $ | 334 | $ | 95 | $ | (43) | $ | 2,861 | ||||||||||||||||||||||||||||||||||||||||
| Timing of revenue recognition | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Services transferred at a point in time | $ | 40 | $ | 244 | $ | 21 | $ | 77 | $ | — | $ | 6 | $ | — | $ | 388 | ||||||||||||||||||||||||||||||||||||||||
| Services transferred over time | 976 | 437 | 411 | 269 | 334 | 89 | (43) | 2,473 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | 1,016 | $ | 681 | $ | 432 | $ | 346 | $ | 334 | $ | 95 | $ | (43) | $ | 2,861 | ||||||||||||||||||||||||||||||||||||||||
| (in millions) | Market Intelligence | Ratings | Commodity Insights | Mobility | Indices | Engineering Solutions | Intersegment Elimination 1 | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Subscription | $ | 2,386 | $ | — | $ | 1,088 | $ | 618 | $ | 190 | $ | 208 | $ | — | $ | 4,490 | ||||||||||||||||||||||||||||||||||||||||
| Non-subscription / Transaction | 111 | 992 | 96 | 179 | — | 16 | — | 1,394 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Non-transaction | — | 1,353 | — | — | — | — | (125) | 1,228 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Asset-linked fees | — | — | — | — | 642 | — | — | 642 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Sales usage-based royalties | — | — | 50 | — | 163 | — | — | 213 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Recurring variable revenue | 277 | — | — | — | — | — | — | 277 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | 2,774 | $ | 2,345 | $ | 1,234 | $ | 797 | $ | 995 | $ | 224 | $ | (125) | $ | 8,244 | ||||||||||||||||||||||||||||||||||||||||
| Timing of revenue recognition | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Services transferred at a point in time | $ | 111 | $ | 992 | $ | 96 | $ | 179 | $ | — | $ | 16 | $ | — | $ | 1,394 | ||||||||||||||||||||||||||||||||||||||||
| Services transferred over time | 2,663 | 1,353 | 1,138 | 618 | 995 | 208 | (125) | 6,850 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total revenue | $ | 2,774 | $ | 2,345 | $ | 1,234 | $ | 797 | $ | 995 | $ | 224 | $ | (125) | $ | 8,244 | ||||||||||||||||||||||||||||||||||||||||
1 Intersegment eliminations primarily consists of a royalty charged to Market Intelligence for the rights to use and distribute content and data developed by Ratings.
The following provides revenue by geographic region for the periods ended September 30:
| (in millions) | Three Months | Nine Months | |||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| U.S. | $ | 1,853 | $ | 1,717 | $ | 5,644 | $ | 4,925 | |||||||||||||||
| European region | 693 | 645 | 2,108 | 1,911 | |||||||||||||||||||
| Asia | 344 | 322 | 1,023 | 912 | |||||||||||||||||||
| Rest of the world | 194 | 177 | 570 | 496 | |||||||||||||||||||
| Total | $ | 3,084 | $ | 2,861 | $ | 9,345 | $ | 8,244 |
See Note 2 — Acquisitions and Divestitures and Note 10 — Restructuring for additional actions that impacted the segment operating results.
12. Commitments and Contingencies
Leases
We determine whether an arrangement meets the criteria for an operating lease or a finance lease at the inception of the arrangement. We have operating leases for office space and equipment. Our leases have remaining lease terms of 1 year to 10 years, some of which include options to extend the leases for up to 15 years, and some of which include options to terminate the leases within 1 year. We sublease certain real estate leases to third parties which mainly consist of operating leases for space within our offices.
Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expenses for these leases on a straight line-basis over the lease term in operating-related expenses and selling and general expenses.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. Our future minimum based payments used to determine our lease liabilities include minimum based rent payments and escalations. As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
During three and nine months ended September 30, 2023 we a recorded pre-tax impairment charge of $3 million and $14 million related to the impairment and abandonment of operating lease related ROU assets. During the three and nine months ended September 30, 2022 we a recorded pre-tax impairment charge of $73 million and $98 million, respectively, related to the impairment and abandonment of operating lease related ROU assets. The pre-tax impairment charge recorded
during the three and nine months ended September 30, 2022 is primarily associated with consolidating our real estate facilities following the merger with IHS Markit. The impairment charges are included in selling and general expenses within the consolidated statements of income.
The following table provides information on the location and amounts of our leases on our consolidated balance sheets as of September 30, 2023 and December 31, 2022:
| (in millions) | September 30, | December 31, | ||||||||||||
| Balance Sheet Location | 2023 | 2022 | ||||||||||||
| Assets | ||||||||||||||
| Right of use assets | Lease right of use assets | $ | 392 | $ | 423 | |||||||||
| Liabilities | ||||||||||||||
| Other current liabilities | Current lease liabilities | 108 | 118 | |||||||||||
| Lease liabilities — non-current | Non-current lease liabilities | 543 | 577 | |||||||||||
The components of lease expense for the periods ended September 30 are as follows:
| (in millions) | Three Months | Nine Months | |||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||
| Operating lease cost | $ | 32 | $ | 39 | $ | 98 | $ | 111 | |||||||||||||||||||||
| Sublease income | (4) | (1) | (12) | (2) | |||||||||||||||||||||||||
| Total lease cost | $ | 28 | $ | 38 | $ | 86 | $ | 109 |
Supplemental information related to leases for the periods ended September 30 are as follows:
| (in millions) | Three Months | Nine Months | ||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Cash paid for amounts included in the measurement for operating lease liabilities | ||||||||||||||||||||||||||
| Operating cash flows for operating leases | $ | 36 | $ | 39 | $ | 113 | $ | 120 | ||||||||||||||||||
| Right of use assets obtained in exchange for lease obligations | ||||||||||||||||||||||||||
| Operating leases | 5 | 1 | 6 | 4 | ||||||||||||||||||||||
Weighted-average remaining lease term and discount rate for our operating leases are as follows:
| September 30, | December 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
| Weighted-average remaining lease term (years) | 6.3 | 6.6 | ||||||||||||
| Weighted-average discount rate | 3.33 | % | 3.17 | % | ||||||||||
Maturities of lease liabilities for our operating leases are as follows:
| (in millions) | |||||||||||||||||
| 2023 (Excluding the nine months ended September 30, 2023) | $ | 35 | |||||||||||||||
| 2024 | 121 | ||||||||||||||||
| 2025 | 106 | ||||||||||||||||
| 2026 | 99 | ||||||||||||||||
| 2027 | 93 | ||||||||||||||||
| 2028 and beyond | 283 | ||||||||||||||||
| Total undiscounted lease payments | $ | 737 | |||||||||||||||
| Less: Imputed interest | 86 | ||||||||||||||||
| Present value of lease liabilities | $ | 651 |
Related Party Agreements
In June of 2012, we entered into a license agreement (the “License Agreement") with the holder of S&P Dow Jones Indices LLC noncontrolling interest, CME Group, replacing the 2005 license agreement between Indices and CME Group. Under the terms of the License Agreement, S&P Dow Jones Indices LLC receives a share of the profits from the trading and clearing of CME Group's equity index products. During the three and nine months ended September 30, 2023, S&P Dow Jones Indices LLC earned $43 million and $132 million, respectively, of revenue under the terms of the License Agreement. During the three and nine months ended September 30, 2022, S&P Dow Jones Indices LLC earned $42 million and $130 million, respectively, of revenue under the terms of the License Agreement. The entire amount of this revenue is included in our consolidated statement of income and the portion related to the 27% noncontrolling interest is removed in net income attributable to noncontrolling interests.
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. For example, we are contractually committed to contracts for information-technology outsourcing, certain enterprise-wide information-technology software licensing and maintenance. In the first quarter of 2023, S&P Global and Amazon Web Services (“AWS”) entered into a multi-year strategic collaboration agreement with a purchase obligation of $1.0 billion, before incremental credits, over a five-year period. With AWS as its preferred cloud provider, S&P Global will enhance its cloud infrastructure, accelerate business growth, engineer new innovations for key industry segments, and help their customers navigate rapidly changing market conditions.
Legal and Regulatory Matters
In the normal course of business both in the United States and abroad, the Company and its subsidiaries are defendants in a number of legal proceedings and are often subjected to government and regulatory proceedings, investigations and inquiries.
A class action lawsuit was filed in Australia on August 7, 2020 against the Company and a subsidiary of the Company. A separate lawsuit was filed against the Company and a subsidiary of the Company in Australia on February 2, 2021 by two entities within the Basis Capital investment group. The lawsuits both relate to alleged investment losses in collateralized debt obligations rated by Ratings prior to the financial crisis. We can provide no assurance that we will not be obligated to pay significant amounts in order to resolve these matters on terms deemed acceptable.
From time to time, the Company receives customer complaints. The Company believes it has strong contractual protections in the terms and conditions included in its arrangements with customers. Nonetheless, in the interest of managing customer relationships, the Company from time to time engages in dialogue with such customers in an effort to resolve such complaints, and if such complaints cannot be resolved through dialogue, may face litigation regarding such complaints. The Company does not expect to incur material losses as a result of these matters.
Moreover, various government and self-regulatory agencies frequently make inquiries and conduct investigations into our compliance with applicable laws and regulations, including those related to ratings activities, antitrust matters and other matters, such as ESG. For example, as a nationally recognized statistical rating organization registered with the SEC under Section 15E of the Exchange Act, S&P Global Ratings is in ongoing communication with the staff of the SEC regarding compliance with its
extensive obligations under the federal securities laws. Although S&P Global seeks to promptly address any compliance issues that it detects or that the staff of the SEC or another regulator raises, there can be no assurance that the SEC or another regulator will not seek remedies against S&P Global for one or more compliance deficiencies. Any of these proceedings, investigations or inquiries could ultimately result in adverse judgments, damages, fines, penalties or activity restrictions, which could adversely impact our consolidated financial condition, cash flows, business or competitive position.
In view of the uncertainty inherent in litigation and government and regulatory enforcement matters, we cannot predict the eventual outcome of such matters or the timing of their resolution, or in most cases reasonably estimate what the eventual judgments, damages, fines, penalties or impact of activity (if any) restrictions may be. As a result, we cannot provide assurance that such outcomes will not have a material adverse effect on our consolidated financial condition, cash flows, business or competitive position. As litigation or the process to resolve pending matters progresses, as the case may be, we will continue to review the latest information available and assess our ability to predict the outcome of such matters and the effects, if any, on our consolidated financial condition, cash flows, business or competitive position, which may require that we record liabilities in the consolidated financial statements in future periods.
13. Recently Issued or Adopted Accounting Standards
In March of 2023, the Financial Accounting Standards Board (“FASB”) issued accounting guidance that requires all entities to amortize leasehold improvements associated with common control leases over the useful life to the common control group. The guidance is effective for reporting periods beginning after December 15, 2023, however, early adoption is permitted. We do not expect this guidance to have a significant impact on our consolidated financial statements.
In March of 2020, the FASB issued accounting guidance to provide temporary optional expedients and exceptions to the current contract modifications and hedge accounting guidance in light of the expected market transition from London Interbank Offered Rate (“LIBOR”) to alternative rates. The new guidance provides optional expedients and exceptions to transactions affected by reference rate reform if certain criteria are met. The transactions primarily include (1) contract modifications, (2) hedging relationships, and (3) sale or transfer of debt securities classified as held-to-maturity. In December of 2022, the FASB amended its guidance to defer the sunset date from December 31, 2022 to December 31, 2024. The Company may elect to adopt the amendments prospectively to transactions existing as of or entered into from the date of adoption through December 31, 2024. We do not expect this guidance to have a significant impact on our consolidated financial statements.
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