10-QPeriod: Q1 FY2006

S&P Global Inc. Quarterly Report for Q1 Ended Mar 31, 2006

Filed April 28, 2006For Securities:SPGI

Summary

S&P Global Inc. (SPGI) reported its first-quarter 2006 financial results, showing a year-over-year revenue increase of 10.9% to $1.14 billion. This growth was primarily driven by the Financial Services segment, bolstered by acquisitions in 2005, and the addition of J.D. Power and Associates. However, net income saw a slight decrease of 5.7% to $74.2 million, or $0.20 per diluted share, impacted by increased stock-based compensation expenses and a one-time charge related to the termination of the restoration stock option program. The company continues to invest in its core businesses and strategic acquisitions, demonstrating a commitment to long-term growth. Despite a challenging environment for educational publishing, the company's diversified business segments and ongoing share repurchase program signal confidence in its financial health and shareholder value.

Key Highlights

  • 1Total revenue increased by 10.9% to $1.14 billion for the three months ended March 31, 2006, compared to $1.03 billion in the prior year period.
  • 2Net income decreased by 5.7% to $74.2 million for the first quarter of 2006, down from $78.7 million in the same period of 2005.
  • 3Diluted earnings per share remained flat at $0.20 for the first quarter of 2006, consistent with the prior year.
  • 4Operating profit for the first quarter of 2006 was $118.2 million, a decrease from $125.0 million in the prior year, with operating margin decreasing to 13.7% from 14.4%.
  • 5The company adopted Statement of Financial Accounting Standards No. 123(R) (Share-Based Payment) in Q1 2006, leading to a significant increase in stock-based compensation expense to $54.0 million from $5.7 million in Q1 2005.
  • 6A one-time charge of $23.8 million related to the elimination of the restoration stock option program impacted Q1 2006 results.
  • 7Share repurchases were aggressive, with $525.7 million spent on treasury shares in Q1 2006, compared to $249.3 million in Q1 2005.

Frequently Asked Questions

Revenue growth was primarily driven by the Financial Services segment, supported by acquisitions made in 2005 (Vista Research, Inc. and CRISIL Limited), and the acquisition of J.D. Power and Associates in the Information & Media segment. The Financial Services segment saw increased demand in structured finance and corporate ratings.

Net income decreased due to a substantial increase in stock-based compensation expense following the adoption of SFAS 123(R) in Q1 2006. This was further impacted by a one-time $23.8 million charge related to the termination of the restoration stock option program.

The adoption of SFAS 123(R) required the company to recognize stock-based compensation costs at fair value over the vesting period. This resulted in a significant increase in reported stock-based compensation expenses in the first quarter of 2006, impacting profitability. The company also changed its accounting for excess tax benefits from stock options, reclassifying them to financing cash flows.

The company is vigorously contesting a lawsuit filed by Enrico Bondi, the Extraordinary Commissioner of Parmalat, in Milan, Italy. Bondi alleges that Standard & Poor's breached its duty by assigning inflated ratings to Parmalat, claiming damages of over 4 billion Euros. The company believes the allegations lack legal and factual merit. Standard & Poor's filed its answer and counterclaims in March 2006.