10-QPeriod: Q3 FY2008

S&P Global Inc. Quarterly Report for Q3 Ended Sep 30, 2008

Filed October 28, 2008For Securities:SPGI

Summary

S&P Global Inc. (SPGI) reported third quarter and nine-month results for 2008, demonstrating resilience amidst a challenging economic environment. Total revenue for the third quarter decreased by 6.4% to $2.05 billion, and for the first nine months, it decreased by 5.1% to $4.94 billion, primarily impacted by declines in the Financial Services and McGraw-Hill Education segments. Despite revenue headwinds, the company managed operating expenses, benefiting from reductions in incentive compensation. The Financial Services segment, particularly Credit Market Services, experienced significant revenue declines due to market volatility and investor confidence issues. However, the Information & Media segment showed growth, offsetting some of the overall decline. Net income for the quarter was $390.2 million, a decrease from $452.0 million in the prior year, and diluted EPS was $1.23, down from $1.34. For the first nine months, net income was $683.6 million, down from $872.9 million, with diluted EPS at $2.13, down from $2.50. The company also incurred restructuring charges totaling $23.4 million in the third quarter, primarily related to workforce reductions in the Information & Media and Financial Services segments, impacting earnings per share. Management highlighted continued focus on cost containment and strategic investments in growth areas. The company maintained a strong liquidity position and continued its share repurchase program, although at a reduced pace compared to the prior year.

Financial Highlights

52 data points
Beta

Revenue

$2.05B

63.1% Gross Margin

Net Income

$390.17M

19.0% Net Margin

EPS (Diluted)

$1.23

Total Assets

$6.57B

Cash & Equivalents

$485.23M

Free Cash Flow

$658.85M

Financial Statements
Beta
Revenue$2.05B
Cost of Revenue$755.09M
Gross Profit$1.29B
SG&A Expenses$596.95M
Operating Expenses$1.40B
Operating Income$652.92M
Interest Expense$22.00M
Net Income$390.17M
EPS (Basic)$1.25
EPS (Diluted)$1.23
Shares Outstanding (Basic)313.11M
Shares Outstanding (Diluted)317.20M

Key Highlights

  • 1Total revenue for Q3 2008 decreased by 6.4% to $2.05 billion, and for the first nine months by 5.1% to $4.94 billion, largely due to weakness in the Financial Services and McGraw-Hill Education segments.
  • 2Operating profit for Q3 2008 declined 15.5% to $655.9 million, and for the first nine months, it decreased by 20.1% to $1.23 billion, reflecting the revenue pressures.
  • 3The Financial Services segment, particularly Credit Market Services, was significantly impacted by market turbulence, seeing revenue declines of 14.2% in Q3 and 12.0% year-to-date.
  • 4The Information & Media segment demonstrated resilience, with Q3 revenue increasing 5.3% and year-to-date revenue increasing 5.1%, driven by its Business-to-Business Group.
  • 5The company incurred $23.4 million in pre-tax restructuring charges in Q3 2008, primarily related to workforce reductions across multiple segments, impacting net income.
  • 6Diluted EPS for Q3 2008 was $1.23, down from $1.34 in Q3 2007. Year-to-date diluted EPS was $2.13, down from $2.50 in the prior year.
  • 7The company maintained a strong liquidity position with $485.2 million in cash and equivalents as of September 30, 2008, and had undrawn credit facilities.

Frequently Asked Questions

The primary driver of the revenue decline in the third quarter of 2008 was the weakness in the Financial Services segment, specifically Credit Market Services, which was heavily impacted by turbulence in the global financial markets, frozen credit markets, and declining investor confidence. The McGraw-Hill Education segment also contributed to the decline due to softness in its School Education Group.

The company managed its expenses by implementing cost containment measures and benefiting from reductions in incentive compensation projections and the projected payout of restricted performance stock awards. These reductions helped to mitigate the impact of lower revenues on operating profit.

The outlook for the Financial Services segment remains challenging due to the ongoing turbulence in global financial markets, frozen credit markets, and shrinking investor confidence. The company anticipates that these conditions and reduced global issuance levels in structured finance and corporate issuance could persist. The performance of this segment is dependent on broader economic conditions, interest rates, credit quality, and market liquidity.

Yes, the company disclosed several significant legal proceedings, primarily related to allegations against Standard & Poor's concerning its ratings of mortgage-backed securities and structured finance products. These include actions from Parmalat, shareholder class actions, and investigations by state attorneys general. While the company believes these are without merit and intends to defend vigorously, they represent potential risks and ongoing legal expenses.