10-QPeriod: Q1 FY2008

S&P Global Inc. Quarterly Report for Q1 Ended Mar 31, 2008

Filed April 30, 2008For Securities:SPGI

Summary

S&P Global Inc. (SPGI) reported a decline in both revenue and operating profit for the first quarter of 2008 compared to the same period in 2007. Total revenue decreased by 6.1% to $1.22 billion, while operating profit saw a significant drop of 32.1% to $181.5 million. This downturn was primarily driven by weakness in the Financial Services segment, particularly in Credit Market Services, due to the prevailing credit market conditions. The McGraw-Hill Education segment experienced a slight revenue decrease, and the Information & Media segment showed modest revenue growth. Despite the overall decline, the company's balance sheet remains solid, with cash and equivalents at $396.7 million. However, cash flow from operating activities turned negative, using $112.3 million in the first quarter of 2008, a reversal from the $128.7 million generated in the prior year. This was largely due to a decline in operating income and changes in working capital. The company also continued its dividend payments and share repurchase programs, albeit at a reduced pace compared to the previous year.

Key Highlights

  • 1Total revenue for Q1 2008 declined 6.1% year-over-year to $1.22 billion.
  • 2Operating profit decreased significantly by 32.1% to $181.5 million, with the operating margin shrinking from 20.6% to 14.9%.
  • 3The Financial Services segment, heavily impacted by the credit market downturn, saw revenue decrease by 11.6% and operating profit by 25.3%.
  • 4Credit Market Services revenue experienced a sharp decline of 21.6% due to reduced issuance volumes in structured finance, RMBS, CMBS, and CDOs.
  • 5McGraw-Hill Education segment revenue was down 0.5%, with a slight improvement in operating loss.
  • 6Information & Media segment revenue grew by 3.2%, driven by the Business-to-Business Group.
  • 7Cash flow from operations turned negative, showing a usage of $112.3 million in Q1 2008, compared to a generation of $128.7 million in Q1 2007.

Frequently Asked Questions

The primary reason for the substantial decline in operating profit is the adverse impact of the deteriorating credit market conditions on the Financial Services segment, particularly its Credit Market Services division. This led to significant revenue decreases in areas like structured finance, mortgage-backed securities, and collateralized debt obligations.

The Financial Services segment experienced a notable decline in both revenue and operating profit. The McGraw-Hill Education segment saw a slight decrease in revenue but a slight improvement in its operating loss. The Information & Media segment showed positive growth in revenue, primarily driven by its Business-to-Business Group.

Cash flow from operating activities turned negative in the first quarter of 2008, with $112.3 million used, a significant shift from the $128.7 million generated in the same period of 2007. This was mainly due to lower operating income and changes in working capital, such as decreased accounts payable and accrued expenses.

The company is involved in several legal proceedings, including ongoing litigation related to Parmalat ratings and class-action lawsuits concerning Standard & Poor's ratings of subprime mortgage-backed securities. While the company believes these claims lack merit and intends to defend itself vigorously, potential future outcomes could impact the company. However, management does not believe that any pending proceedings will result in a material adverse effect on its financial condition or results of operations.