Real-time Form 4 intelligence. Smarter insider tracking.
YoY shift: Neutral
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.07pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-0.09pp
Flat
Net-tone change vs last year's 10-K.
MD&A
-0.05pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
defects+1
vulnerabilities+1
harmful+1
undetected+1
suspend+1
Positive rising
No words rose this year.
Risk Factors (Item 1A)
13,092 words
Item 1A. Risk Factors
In addition to the other information provided in this Annual Report on Form 10-K, you should carefully consider the risks described below. They are not the only risks that could adversely affect our business; other risks currently deemed immaterial
Table of Contents
or additional risks not currently known to us could also adversely affect us. If any of the following risks actually occurs, our business, financial condition, or results of operations could be materially and adversely affected. You should also read the section titled “Cautionary Note Regarding Forward-Looking Statements.”
Risks Related to Our Business
The COVID-19 pandemic has had and could continue to have a material adverse effect on our business, financial condition, results of operations, or cash flows.
The COVID-19 pandemic and the mitigation efforts by governments to attempt to control its spread, including travel bans and restrictions, social distancing, quarantines, and business shutdowns, have caused significant economic disruption and adversely impacted the global economy, to reduced consumer spending and and in the global financial and commodities markets. Even though some measures may currently be relaxed, they may be put back into place or increased if the spread of the pandemic continues or increases in the future. Continued economic may also lower activity levels in the end markets we service or cause financial performance of our customers, which could result in lower demand, , reductions, or for our products and services. A return to more ordinary course economic activity is dependent on the duration and of the COVID-19 pandemic, which are in turn dependent on a series of evolving factors, including the and transmission rate of the virus, the extent and effectiveness of containment efforts, and future policy decisions made by governments across the globe as they react to evolving local and global conditions. We continue to work with our stakeholders (including customers, employees, suppliers, business partners, and local communities) to attempt to mitigate the impact of the global pandemic on our business, including implementing our business continuity program to transition to a global work-at-home model and gradually allowing employees to return to the office according to local regulations and employee readiness to return. However, we cannot you that these mitigation efforts will continue to be or . To the extent the COVID-19 pandemic affects our business, results of operations, financial condition, or cash flows, it may also have the effect of heightening many of the other risks described in “Risk Factors” set forth in this Annual Report on Form 10-K.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
divestiture+4
impairment+3
negatively+3
restructuring+2
closing+2
Positive rising
strong+4
improved+4
gain+3
strength+1
improvements+1
MD&A (Item 7)
9,296 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and operating results should be read in conjunction with other information and disclosures elsewhere in this Form 10-K, including our consolidated financial statements and accompanying notes, as well as “Website and Social Media Disclosure.” The following discussion includes forward-looking statements as described in “Cautionary Note Regarding Forward-Looking Statements” in this Form 10-K. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is outlined under “Item 1A. Risk Factors” in this Form 10-K.
Executive Summary
Business Overview
We are a world leader in critical information, analytics, and solutions for the major industries and markets that drive economies worldwide. We deliver next-generation information, analytics, and solutions to customers in business, finance, and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions. We have more than 50,000 business and government customers, including 80 percent of the Fortune Global 500 and the world’s financial institutions. Headquartered in London, we are committed to sustainable, growth.
We operate in competitive markets, which may adversely affect our financial results.
While we do not believe that we have a direct competitor across all of the industries we serve, we face competition across all markets for our products and services, including from larger and smaller competitors that may be able to adopt new or emerging technologies to address customer requirements more quickly than we can, from incumbent companies with strong market share in specific markets, or from organizations that have not traditionally competed with us but could adapt their products and services or use their significant resources or expertise to begin competing. We believe that competitors are continuously investing, developing, and enhancing their products, services, and technology, and acquiring new businesses to better serve existing customers and attract new customers. In addition, the internet, widespread availability of sophisticated search engines, and public sources of free or relatively inexpensive information and solutions have simplified the process of locating, gathering, and disseminating data, potentially diminishing the perceived value of our offerings. While we believe our offerings are distinguished by such factors as complex compilation, standardization and analytical processes, currency, accuracy and completeness, and other added value, our customers could choose to obtain the information and solutions they need from public, regulatory, governmental, or other sources. An increase in our capital investments, price reductions for our offerings, reduced spending, or increased self-sufficiency by our customers due to competition could negatively impact our business, financial condition, and results of operations.
We may be unsuccessful in achieving our guidance, growth and profitability objectives.
We provide public, full-year financial guidance based upon assumptions regarding our expected financial performance, including our ability to grow revenue, our planned expenses and tax rates, and our ability to achieve our profitability targets. We seek to achieve our growth objectives by: organically developing our offerings to meet the needs of our customers; cross selling our products and services to existing customers; acquiring new customers; entering into strategic partnerships and acquisitions; and implementing operational efficiency initiatives. Most of our revenue is recurring, typically based on subscriptions to our offerings, and our operating results depend on our ability to achieve and sustain high renewal rates on our existing subscription base and to enter into new subscriptions at commercially acceptable terms. In addition, a proportion of our revenue in our Financial Services segment is variable and depends upon transaction volumes, investment levels (i.e., assets under management), or the number of positions we value. We devote significant resources to establish relationships with our customers, and our strategies depend on our ability to persuade customers to maintain and grow their relationship with us over time. Many of our products and services, particularly in our resources and financial end-markets, are also dependent upon the robustness of the core end-markets in which we operate, as well as the financial health of the participants in those markets and the general economy. Customers are focused on controlling or reducing their operating costs, and may use strategies that result
Table of Contents
in a reduction in their spending on our products and services, such as by consolidating their spending with fewer or lower cost vendors, by deferring capital spending, or by internally developing functionality. In addition, mergers or consolidations among our customers could reduce the number of our customers and potential customers, which could cause them to discontinue or reduce their use of our products and services. All such developments could lower demand or reduce the prices for our products and services or require us to offer additional products or services to compete. If we are unable to successfully execute on our strategies to achieve our growth objectives, retain existing customers, or if we experience higher than expected operating costs or taxes, our growth rates, profitability and operating results could be materially adversely affected and we may fail to meet the full-year financial guidance that we provide, or find it necessary to revise such guidance during the year.
If we are unable to identify opportunities, develop successful new products and services, or adapt to rapidly changing technology, our business could sufferseriousharm.
The information services industry is characterized by significant and rapidly changing technology, evolving industry standards, and changing regulatory requirements, and our growth and success depend on our ability to meet our changing customer needs. The process of developing and enhancing our products and services is complex and may become increasingly complex and expensive in the future due to the introduction of new platforms, operating systems, technologies, and customer expectations. Current areas of significant technological change include artificial intelligence, mobility, cloud-based computing, blockchain, speed of availability of data, and the storing, processing, and analysis of large amounts of data. We may find it difficult or costly to enhance our current products and services and to develop new products and services quickly enough to keep the pace with evolving technologies, industry standards or regulations, or to meet our customers’ needs, in which case we may not grow our business as quickly as we anticipate.
Fraudulent or unpermitted access to our data, services, or systems, or other cyber-security or privacy breaches may negatively impact our business and harm our reputation.
Many of our products and services and systems involve the collection, storage, use, and transmission of proprietary information and sensitive or confidential data, including data from our employees, customers and suppliers, intellectual property, proprietary business information, personally identifiable information, and information that may be confidential, sensitive, or material and nonpublic. Similar to other global companies that provide services online, we experience cyber-threats, cyber-attacks, and security breaches of varying degrees of severity on our products and our information technology systems and applications, which can include unauthorized attempts to access, disable, improperly modify or degrade our information, systems, and networks, the introduction of computer viruses and other malicious codes, and fraudulent “phishing” e-mails that seek to misappropriate data and information or install malware onto users’ computers and our systems generally. Cyber-threats vary in technique and sources, are persistent, and increasingly are more sophisticated, targeted, and difficult to detect and prevent.
We rely on a system of physical and technological security measures, internal processes and controls, contractual precautions and business continuity plans, and policies, procedures, and training to protect the confidentiality of such data. We have dedicated resources at our company that are responsible for maintaining, and training our business teams on, appropriate levels of cyber-security, and we utilize third-party technology products and services to help identify, protect, and remediate our information technology systems and infrastructure against security breaches and cyber-incidents. Our information systems must also be constantly updated, patched, and upgraded to protect against known vulnerabilities and optimize performance. We may be required to incur significant costs to minimize or alleviate the effects of cyber-attacks or other security vulnerabilities and to protect againstdamage caused by future disruptions, security breaches, or cyber-attacks. However, our responsive and precautionary measures may not be adequate or effective to prevent, identify, or mitigate attacks by hackers, foreign governments, or other actors or breaches, disruptions, slowdowns or misconduct caused by employee error, malfeasance, or other third parties. In addition, if a customer or a third party provider experiences a data security breach that results in the misappropriation of our proprietary business information, our reputation could be harmed, even if we were not responsible for the breach.
Any fraudulent, malicious, or accidentalbreach of data security controls can impact our ability to provide our products and services to customers, prevent authorized access to our systems by customers, suppliers, and employees or result in unintentional disclosure of, or unauthorized access to, or misappropriation or misuse of, customer, vendor, employee, or other confidential or sensitive data or information, which could potentially result in additional costs to our company to enhance security or to respond to occurrences, lost sales, loss of confidence in our processes and reliability, damages to our brand and reputation, violations of regulations or laws relating to the privacy of personal or payment card information, sanctions, fines, penalties, or litigation. Similarly, if any confidential or embargoed data is inadvertentlydisclosed or deliberatelymisused prior to our authorization, customers and financial markets could be negatively affected, and any resulting need to change our procedures for handling and sharing this data may diminish the value of such offerings. In addition, media or other reports of
Table of Contents
perceived security vulnerabilities to our systems or those of our third-party suppliers, even if no breach has been attempted or occurred, could also adversely impact our reputation. We are also dependent on security measures that some of our customers and suppliers are taking to protect their own systems and infrastructures. For example, our outsourcing of certain functions requires us to sometimes grant network access to third-party suppliers. If our suppliers do not maintain adequate security measures, do not require their sub-contractors to maintain adequate security measures, do not perform as anticipated and in accordance with contractual requirements, or become targets of cyber-attacks, we may experience the same impacts as described above. If any of these were to occur, it could have a material adverse effect on our business and results of operations. While we maintain what we believe is sufficient insurance coverage that may (subject to certain policy terms and conditions, including deductibles) cover certain aspects of third-party security and cyber-risks and business interruption, our insurance coverage may not always cover all costs or losses.
We could experience system failures or capacity constraints that could negatively impact our business.
Our ability to provide reliable service largely depends on the efficient and uninterrupted operation of complex systems, relying on people, processes, and technology to function effectively. Most of our products and services are delivered electronically, and our customers rely on our ability to process and deliver substantial quantities of information and other services on computer-based networks. Some elements of these systems have been outsourced to third-party providers, including critical data inputs or software received from third-party suppliers and data systems stored on cloud-based computing infrastructure. Some of our systems have been consolidated for the purpose of enhancing scalability and efficiency, which increases our dependency on a smaller number of systems. Any failure of, or significant interruption, delay, or disruption to, our systems could result in: disruption to our operations; significant expense to repair, replace, or remediate systems, equipment or facilities; a loss of customers; legal or regulatory claims, proceedings, or fines; damage to our reputation; and harm to our business.
System interruptions or failures could result from a wide variety of causes, including: human error, natural disasters (such as hurricanes and floods), infrastructure or network failures (including failures at third-party data centers, by third-party cloud-computing providers, or of aging technology assets), disruptions to the internet, malicious attacks or cyber incidents such as unauthorized access, ransomware, loss or destruction of data (including confidential and/or personal customer information), account takeovers, computer viruses or other malicious code, and the loss or failure of systems over which we have no control. In addition, significant growth of our customer base or increases in the number of products or services or in the speed at which we are required to provide products and services may also strain our systems in the future. We may also face significant increases in our use of power and data storage and may experience a shortage of capacity and increased costs associated with such usage. We may also face additional strain on our systems and networks due to aging or end-of-life technology that we have not yet updated or replaced. While we generally have disaster recovery and business continuity plans that utilize industry standards and best practices for much of our business, including back-up facilities for our primary data centers, a testing program, and staff training, our systems are not always fully redundant and such plans may not always be sufficient or effective. In the past when we have experienced system interruptions or failures, some of our products or services have been unavailable for a limited period of time, but none of these occurrences have been material to our business. However, any of the above factors could individually or in the aggregate adversely affect our business and results of operations, and our insurance may not be adequate to compensate us for all failures, interruptions, delays, or disruptions.
Our transition to cloud-based technologies could expose us to operational disruptions.
We are transitioning our technology to cloud-based infrastructure, which is complex, time consuming, and can involve substantial expenditures. Our utilization of cloud services is critical to developing and providing products and services to our customers, scaling our business for future growth, accurately maintaining data and otherwise operating our business; any such implementation involves risks inherent in the conversion to a new system, including loss of information and potential disruption to our normal operations. We may discover deficiencies in our design or implementation or maintenance of the new cloud-based systems that could adversely affect our business. Upon implementation of the new cloud-based solutions, failure of cloud infrastructure providers to maintain adequate physical, technical and administrative safeguards to protect the security of our confidential information and data could result in unauthorized access to our systems or a system or network disruption that could lead to improper disclosure of confidential information or data, regulatory penalties and remedial costs. There may also be a discrepancy between the contractual liability profile that the cloud service provider has agreed to and our contractual liability profile with our customers. Any disruption to either the outsourced systems or the communication links between us and the outsourced suppliers could negatively affect our ability to operate our data systems, and could impair our ability to provide services to our customers. As we increase our reliance on these third-party systems, our exposure to damage from service disruptions may increase. We may incur additional costs to remedy the damages caused by these disruptions.
Design defects, errors, failures, or delays associated with our products or services could negatively impact our business.
Table of Contents
Software, products, and services that we develop, license, or distribute, or use to develop or provide our products and services, may contain errors or defects when first released or when major new updates or enhancements are released that cause the software, product or service to operate incorrectly or less effectively. We may also experience delays while developing and introducing new products and services for various reasons, such as difficulties in licensing data inputs or adapting to particular operating environments. Defects, errors, or delays in our products or services that are significant, or are perceived to be significant, could result in rejection or delay in market acceptance, damage to our reputation, loss of revenue, a lower rate of license renewals or upgrades, diversion of development resources, product liability claims or regulatory actions, or increases in service and support costs. We may also need to expend significant capital resources to eliminate or work around defects, errors, failures, or delays. In each of these ways, our business, financial condition, or results of operations could be materially adversely impacted.
We depend on externally obtained software, content, and services to support our offerings, and the interruption or cessation of important third-party content or services could prove harmful to our business.
We obtain data from a wide variety of external sources that we transform into critical information and analytics and use to create integrated product and service offerings for our customers. Many of our offerings include externally obtained software, content, and information that is purchased or licensed from third parties, including from public record sources or parties that are our customers or our competitors, or obtained using independent contractors. For instance, our industry standards offerings that are part of our Product Design workflow rely on information licensed from standards developing organizations, and many of our financial institution customers provide us with data that is a critical input for many of our Financial Services offerings. We believe that the content licensed from many of these third parties might not be able to be obtained from alternate sources on favorable terms, if at all. Externally obtained software that is incorporated into our products or that supports our offerings may also contain defects or vulnerabilities that if undetected, could be harmful to our business.
Our license agreements with these third parties are often nonexclusive and many are terminable on less than one year’s notice. In addition, many of these third parties compete with one another and with us, including by providing data to our competitors, consolidating with each other, or becoming competitors themselves, which may cause them to reduce their willingness to supply, or increase the price of, data and content that are important to our products and services. Our competitors could also enter into exclusive contracts with, or acquire, our data sources, which may preclude us from receiving data from such sources or restrict our use of such data. Our business, data sources, or content could become subject to legislative, regulatory, judicial, or contractual restrictions that limit or prohibit the way we collect, process, or use content or data sources in our products and services. Contracts with third-party content providers are increasingly subject to information and physical security and compliance audits. We also collect data for our products and services through independent service providers. We are limited in our ability to monitor and direct the activities of our independent contractors and customers, but if any actions or business practices of these individuals or entities violate our policies or procedures or are otherwise deemed inappropriate or illegal, we could lose access to content, as well as be subject to litigation, regulatory sanctions, or reputational damage. If we lose access to, or are restricted in receiving, a significant number of data sources and cannot replace the data through alternative sources, or we are unable to obtain information licensed to us consistently, in a timely manner, or on terms commercially reasonable to us, specific products, services, and customer solutions may be impacted or disrupted and our business, reputation, financial condition, operating results, and cash flow could be materially adversely affected.
Our relationships with third-party service providers may change, which could adversely affect our results of operations.
We have commercial relationships with third-party service providers whose capabilities complement our own for integral services, software, and technologies. Many of our products and services are developed or are made available to our customers using integral infrastructure, information, and technology solutions provided by third-party service providers. For example, we outsource certain functions involving our data transformation process and data hosting functions to business partners, including cloud-computing providers, who we believe offer us deep expertise in these areas, as well as scalability and cost-effective services. In addition, we sometimes rely on third-party dealers to sell or distribute some of our offerings, such as in locations where we do not maintain a sales office or sales teams or for methods of distribution to which we do not have direct access. In some cases, these providers are also our competitors or may in the future become our competitors, which could impact our relationships. The priorities and objectives of these providers may differ from ours, which may make us vulnerable to changes in, or terminations of, our third-party relationships and could reduce our access over time to infrastructure, information, and technology. We have little control over these third-party providers, which increases our vulnerability to errors, defects, failures, interruptions, or disruptions or problems with their services or technologies. We also face risks that one or more service providers may perform work that deviates from our standards or that we may not be able to adequately protect our intellectual property or protect the security of our confidential information and data. Any errors, failures to perform, interruptions, delays, breaches, or terminations of service experienced in connection with these third-party providers, or if we do not obtain the
Table of Contents
expected benefits from our relationships with third-party service providers, we may be less competitive, our products and services may be negatively affected, and our results of operations could be adversely impacted.
Failure to comply with customer contracts or requirements could adversely affect our business, results of operations, and cash flows.
Contracts with customers increasingly include performance requirements as customers seek to increase the liability profile taken by third-party providers like us. For example, contracts with customers are increasingly subject to audits, which may include a review of performance on contracts, pricing practices, cost structure, information and physical security, and compliance with applicable laws and regulations. Contracts with governmental customers are also generally subject to various procurement regulations and other requirements relating to their performance. Many of our customers, particularly in the financial services sector, are also subject to regulations and requirements to adopt risk management processes commensurate with the level of risk and complexity of their third-party relationships, and provide rigorous oversight of relationships that involve certain “critical activities,” some of which may be deemed to be provided by us. Any failure on our part to comply with the specific provisions in customer contracts, policies or processes, or any violation of government contracting regulations or requirements, could result in the imposition of various penalties, which may include termination of contracts, forfeiture of profits, suspension of payments, and, in the case of government contracts, fines and suspension from future government contracting. Any negative publicity with respect to customer contracts or any related proceedings, regardless of accuracy, may damage our business by harming our ability to compete for new contracts. While no one customer contract is material to our business as a whole, if a significant number of our customer contracts are terminated, or our ability to compete for new contracts is adversely affected, our financial performance could suffer.
The loss of, or the inability to attract and retain, qualified personnel could impair our future success.
Our future success depends to a large extent on the continued service of our highly skilled, educated, and trained employees, including our experts in research and analysis, information technology, and the industries in which we operate, and colleagues in sales, marketing, product development, operations, technology, and management, including our executive officers. We do not carry any “key person” insurance policies that could offset potential loss of service under applicable circumstances. We must maintain our ability to attract, motivate, compensate, and retain highly qualified and diverse colleagues in order to support our customers and achieve business results. The markets we serve are highly competitive and competition for skilled and diverse employees in our industry is intense for both onshore and offshore locales, and uncertainty around future employment opportunities, facility locations, organizational and reporting structures, acquisitions and divestitures, and other related concerns may impair our ability to attract and retain qualified personnel. The loss of the services of qualified personnel and any inability to recruit effective replacements or to otherwise attract, motivate, train, or retain highly qualified and diverse personnel could have a material adverse effect on our business, financial condition, and operating results.
We also must manage leadership development and succession planning throughout our business. Any significant leadership change and accompanying senior management transition involves inherent risk, and any failure to ensure a smooth transition could hinder our strategic planning, execution, and future performance. While we strive to mitigate the negative impact associated with changes to our senior management team, such changes may cause uncertainty among investors, employees, customers, creditors, and others concerning our future direction and performance. If we fail to effectively manage our leadership changes, including ongoing organizational and strategic changes, our business, financial condition, operating results, and ability to successfully attract, motivate and retain highly qualified colleagues, could be harmed.
We may not be able to protect our intellectual property rights and confidential information.
Our success depends in part on our proprietary technology, processes, methodologies, and information. We rely on a combination of copyright, trademark, trade secret, patent, and other intellectual property laws and nondisclosure, license, assignment, and confidentiality arrangements to establish, maintain, and protect our proprietary rights, as well as the intellectual property rights of third parties whose assets we license. However, the steps we have taken to protect our intellectual property rights, and the rights of those from whom we license intellectual property, may not be adequate to prevent unauthorized use, misappropriation, or theft of our intellectual property. Intellectual property laws differ in various jurisdictions in which we operate and are subject to change at any time, which could further restrict our ability to protect our intellectual property and proprietary rights. In particular, a portion of our revenues is derived from jurisdictions where adequately protecting intellectual property rights may prove more challenging or impossible. We may also not be able to detect unauthorized uses or take timely and effective steps to remedy unauthorized conduct. To prevent or respond to unauthorized uses of our intellectual property, we might be required to engage in costly and time-consuming litigation or other proceedings and we may not ultimately prevail. Courts, in particular, may be reluctant to enforce our proprietary rights against individual employees or contractors. Any failure
Table of Contents
to establish, maintain, or protect our intellectual property or proprietary rights could have a material adverse effect on our business, financial condition, or results of operations.
We may be exposed to litigation related to products we make available to customers and we may face legal liability or damage to our reputation.
Companies in our industry have increasingly pursued patent and other intellectual property protection for their data, technologies, and business methods. As we do not actively monitor third-party intellectual property, if any of our data, technologies, or business methods are covered or become covered by third-party intellectual property protection and used without license or if we misuse data, technologies or business methods outside the terms of our licenses, we may be subject to claims or threats of infringement, misappropriation, or other violation of intellectual property rights, or have the use of our data, technologies, and business methods otherwise challenged. We have also in the past been, and may in the future be, called upon to defend partners, customers, suppliers, or distributors against such third-party claims under indemnification clauses in our agreements. Responding to such claims or threats, regardless of merit, can consume valuable time and resources, result in costly or unfavorablelitigation or settlements that could exceed the limits of applicable insurance coverage, delay operations of our business, require redesign of our products and services, or require new royalty and licensing agreements. It could also damage our reputation for any reason, which could adversely affect our ability to attract and retain customers, employees, and information suppliers. Any such factors could have a material adverse effect on our financial condition or results of operations.
We are subject to litigation and investigation risks which could adversely affect our business, results of operations, and financial condition.
We are from time to time involved in various litigation matters and claims, including regulatory proceedings, administrative proceedings, lawsuits, governmental investigations, and contract disputes, as they relate to our products, services, and business. We may face potential claims or liability for, among other things, breach of contract, defamation, libel, fraud, antitrust, or negligence, with respect to the use of our offerings by our customers, particularly if the information in our offerings was incorrect for any reason, or if it were misused or used inappropriately. We may also face employment-related litigation and investigations, including claims of age discrimination, sexual harassment, gender discrimination, racial discrimination, immigration violations, or other local, state, and federal labor, environmental, health, and safety violations. In addition, we may receive routine requests for information from governmental agencies in connection with their regulatory or investigatory authority or from private third parties pursuant to subpoena. In the past, certain of our business practices have been investigated by government antitrust or competition agencies, and we have on multiple occasions been sued by private parties for allegedviolations of the antitrust and competition laws of various jurisdictions, and there is a risk based upon the leading position of certain of our business operations or the relationships between our customers in using our products and services that we could, in the future, be the target of investigations by government entities or actions by private parties challenging the legality of our business practices. Because of the uncertain nature of litigation, investigations, and insurance coverage decisions, we cannot predict the outcome of these matters, which could have a material adverse effect on our business, results of operations, and financial condition. Litigation and investigations are very costly, and the costs associated with prosecuting and defendinglitigation and investigation matters could have a material adverse effect on our business, results of operations, and financial condition. Depending on the outcome of future claims or investigations, we may also be required to change the way we offer, and how other parties purchase or interact with, particular products or services, which could result in material disruptions to and costs incurred by our business. In light of the potential time, expense, and uncertainty involved in litigation and investigations, including fines, penalties, damages, or injunctions or other equitable remedies, we may settle matters even when we believe we have a meritorious defense. We are unable to estimate precisely the ultimate dollar amount of exposure to loss or the amounts we actually pay in connection with litigation and investigation matters, due to inherent uncertainties and the inherent shortcomings of the estimation process, the uncertainties involved in litigation, and other factors.
Our use of open source software could result in litigation or impose unanticipated restrictions on our ability to commercialize our products and services.
We use open source software in our technology, most often as small components within a larger product or service. Open source code is also contained in some third-party software we rely on. The terms of many open source licenses are ambiguous and have not been interpreted by U.S. or other courts, and these licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to commercialize our products and services, license the software on unfavorable terms, require us to re-engineer our products and services or take other remedial actions, any of which could have a material adverse effect on our business. We could also be subject to suits by parties claimingbreach of the terms of licenses, which could be costly for us to defend.
Table of Contents
Our brand and reputation are key assets and competitive advantages of our company and our business may be affected by how we are perceived in the marketplace.
The integrity and external perceptions of our brand and reputation are key to our ability to remain a trusted source of products and services and to attract and retain customers. We also enter into redistribution arrangements that allow other firms to represent certain of our products and services as partners or agents. Reputational damage from negative perceptions or publicity, or actual, alleged, or perceived issues regarding any of our products or services, or misrepresentation of our products and services by third parties, could damage our reputation and relationships with customers, prospects, and the public generally. Although we monitor developments, including social media, for areas of potential risk to our brand and reputation, negative perceptions or publicity or misrepresentations by third parties may adversely impact our credibility as a trusted source for critical information, analytics, and insight and may have a negative impact on our brand, reputation, and our business.
Failure to operate our pricing and valuation services, benchmarks, and indices in a manner that maintains their independence and integrity could adversely affect our reputation and our business.
We operate multiple global pricing and valuation services, benchmark products, and indices across a broad range of commodities and asset classes, many of which depend on contributions or inputs from third parties or market participants. To ensure continued use of such products and services, our customers expect us to be able to demonstrate that they are not readily subject to manipulation. We believe our products and services are designed with appropriate methodologies, processes, and procedures to maintain independence and integrity; however, we may not be able to prevent third parties or market participants from working together or colluding to try to manipulate their inputs and thus the resulting outputs of our products and services. We may also become involved in third-party investigations or litigation related to the commodities and asset classes our products and services serve. Any failures, negative publicity, investigations, or lawsuits that implicate the independence and integrity of our pricing and valuation services, benchmarks, and indices could result in a loss of confidence in the administration of these products and services and could harm our reputation and our business.
Some of our products and services typically face long selling cycles to secure new contracts, which require significant resource commitments and result in long lead times before we receive revenue.
For certain products and services, and especially for complex products and services, we often face long selling cycles to secure new contracts and customers, and there can be a long preparation period before we commence providing products and services. For instance, some of our Financial Services products and services can require active engagement with potential customers and can take 12 months or more to reach deal closure. Some products’ success is also dependent on building a network of users and may not be profitable while such a network is developing. We can incur significant business development expenses during the selling cycle, and we may not succeed in winning a new customer’s business, in which case we receive no revenue and may receive no reimbursement for such expenses. Selling cycle periods could lengthen, causing us to incur even higher business development expenses with no guarantee of winning a new customer’s business. Even if we succeed in developing a relationship with a potential new customer, we may not be successful in obtaining contractual commitments after the selling cycle or in maintaining contractual commitments after the implementation cycle, and our business, financial condition, and results of operations could be adversely affected.
Our international operations are subject to exchange rate fluctuations.
We operate in many countries around the world and a significant part of our revenue comes from international sales. In 2021, we transacted approximately 40 percent of our revenues outside the United States and approximately 20 percent of our revenue was transacted in currencies other than the U.S. dollar. We earn revenues, pay expenses, own assets, and incur liabilities in countries using currencies other than the U.S. dollar, including, but not limited to, the British Pound, the Euro, the Canadian Dollar, the Singapore Dollar, and the Indian Rupee. As we continue to leverage our global delivery model, more of our expenses will likely be incurred in currencies other than those in which we bill for the related products and services. An increase in the value of certain currencies against the U.S. dollar could increase costs for delivery of services at offshore sites by increasing labor and other costs that are denominated in local currency. Because our consolidated financial statements are presented in U.S. dollars, we must translate revenues, income, expenses, and the value of assets and liabilities into U.S. dollars at exchange rates in effect during or at the end of each reporting period. We may use derivative financial instruments to reduce our net exposure to currency exchange rate fluctuations. Nevertheless, increases or decreases in the value of the U.S. dollar against other major currencies can materially affect our net operating revenues, operating income, and the value of balance sheet items denominated in other currencies.
International hostilities, terrorist or cyber-terrorist activities, natural disasters, pandemics, and infrastructure disruptions could prevent us from effectively serving our customers and thus adversely affect our results of operations.
Table of Contents
Acts of terrorism, cyber-terrorism, political unrest, war, civil disturbance, armed regional and international hostilities and international responses to these hostilities, natural disasters (including hurricanes or floods), global health risks or pandemics, or the threat of or perceived potential for these events could have a negative impact on us. These events could adversely affect our customers’ levels of business activity and precipitate sudden significant changes in regional and global economic conditions and cycles. These events also pose significant risks to our employees, information systems, and our physical facilities and operations around the world, whether the facilities are ours or those of our third-party service providers or customers. By disrupting communications and travel and increasing the difficulty of obtaining and retaining highly skilled and qualified personnel, these events could make it difficult or impossible for us to deliver products and services to our customers. Extended disruptions of electricity, other public utilities, or network services at our facilities, as well as system failures at our facilities or otherwise, could also adversely affect our ability to serve our customers. We may be unable to protect our employees, facilities, and systems against all such occurrences. We generally do not have insurance for losses and interruptions caused by terrorist attacks, conflicts, and wars. If these disruptions prevent us from effectively serving our customers, our results of operations could be adversely affected.
Acquisitions, joint ventures, or similar strategic relationships, or dispositions of our businesses, and the related integration or separation risks, may require significant resources or result in unanticipated costs or liabilities or fail to deliver anticipated benefits, and may disrupt or otherwise have a material adverse effect on our business and financial results.
As part of our business strategy, we pursue selective acquisitions of complementary businesses, products or technologies, or joint ventures, partnerships, alliances, or similar strategic transactions and relationships with third parties, to support our business. We may also undertake dispositions of certain of our businesses or products. We seek to be disciplined in a highly competitive market and we may not be able to identify suitable candidates on favorable terms to successfully complete such strategic transactions. In addition, we typically fund our acquisitions through our credit facilities. Although we have capacity under our credit facilities, those may not be sufficient. Therefore, future acquisitions or strategic relationships may require us to obtain additional financing through debt or equity, which may not be available on favorable terms or at all and could result in shareholder dilution.
If such strategic transactions are completed, the anticipated growth and other strategic objectives of such transactions may not be fully realized, and a variety of factors may adversely affect any anticipated benefits. Their success depends on, among other things, our ability to integrate businesses in a manner that realizes anticipated synergies and exceeds cost savings and revenue growth trends we have identified, which is a complex, costly, and time-consuming process. We expect to benefit from cost synergies driven by certain strategies, such as integrating corporate functions, using cost-competitive locations, optimizing IT infrastructure, real estate, and other costs, as well as greater tax efficiencies from global cash movement. We may also enjoy revenue synergies, including cross-selling of products and services, an expanded product offering, and balance across geographic regions. We may not be successful in integrating acquired businesses, and completed strategic transactions may not perform at the levels we anticipate or achieve our expected cost or revenue synergies.
The completion of such transactions may have material unanticipated risks, difficulties, costs, liabilities, competitive response, and diversion of management focus and attention, such as: difficulties, delays, and expenses in integrating, separating, or remediating operations, systems, and technology and maintaining institutional knowledge and procedures; challenges in conforming standards, controls, procedures, accounting and other policies, business cultures, and compensation structures; challenges in keeping and developing business relationships; difficulties in managing the expanded operations of the company; impairments of goodwill and other intangible assets; disruption of operations; unexpected regulatory and operating difficulties and expenditures; contingent liabilities (including contingent tax liabilities) that are larger than expected; and adverse tax consequences pursuant to changes in applicable tax laws, regulations, or other administrative guidance. The anticipated benefits from strategic transactions may take longer to realize than expected or may not be fully realized. We may also have difficulty integrating and operating businesses in countries and geographies where we do not currently have a significant presence, and could increase our exposure to risks of conducting operations in international markets. Similarly, any divestitures will be accompanied by risks commonly encountered in the sale of businesses or assets. As a result, the failure of any strategic transactions to perform as expected could have a material adverse effect on our business, financial condition, or results of operations.
Our indebtedness could adversely affect our business, financial condition, and results of operations.
Our indebtedness could have significant consequences on our future operations, including: making it more difficult for us to satisfy our indebtedness obligations and our other ongoing business obligations, which may result in defaults; events of default if we fail to comply with the financial and other covenants contained in the agreements governing our debt instruments, which could result in all of our debt becoming immediately due and payable or require us to negotiate an amendment to
Table of Contents
financial or other covenants that could cause us to incur additional fees and expenses; sensitivity to interest rate increases on our variable rate outstanding indebtedness, which could cause our debt service obligations to increase significantly; reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes; limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industries in which we operate, and the overall economy; placing us at a competitive disadvantage compared to any of our competitors that have less debt or are less leveraged; and increasing our vulnerability to the impact of adverse economic and industry conditions.
Our ability to meet our payment and other obligations under our debt instruments depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative, and regulatory factors as well as other factors that are beyond our control. We cannot be certain that our business will generate cash flow from operations, or that future borrowings will be available to us under our existing or any future credit facilities or otherwise, in an amount sufficient to enable us to meet our indebtedness obligations and to fund other liquidity needs. We may incur substantial additional indebtedness, including secured indebtedness, for many reasons, including to fund acquisitions. If we add additional indebtedness or other liabilities, the related risks that we face could intensify.
A downgrade to our credit ratings would increase our cost of borrowing under our credit facility and adversely affect our ability to access the capital markets.
We are party to a $1.25 billion senior unsecured revolving credit agreement that matures in November 2024 (the “Senior Credit Facility”). The cost of borrowing under the Senior Credit Facility and our ability to, and the terms under which we may, access the credit markets are affected by credit ratings assigned to us by the major credit rating agencies. These ratings are premised on our performance under assorted financial metrics and other measures of financial strength, business and financial risk, and other factors determined by the credit rating agencies. Our current ratings have served to lower our borrowing costs and facilitate access to a variety of lenders. However, there can be no assurance that our credit ratings or outlook will not be lowered in the future in response to adverse changes in these metrics and factors caused by our operating results or by actions that we take that reduce our profitability, that require us to incur additional indebtedness or that allow us to return excess cash to shareholders through dividends or under our share repurchase program. A downgrade of our credit ratings would increase our cost of borrowing under the Senior Credit Facility, negatively affect our ability to access the capital markets on advantageous terms, or at all, negatively affect the trading price of our securities, and have a significant negative impact on our business, financial condition, and results of operations.
We cannot provide any guaranty of future dividend payments or that we will authorize a new share repurchase program to repurchase our common shares.
In October 2019, the Board approved the initiation of a quarterly cash dividend that began in the first quarter of 2020. Quarterly cash dividends constitute a component of our capital allocation strategy, which we fund with free operating cash flow and borrowings. However, we are not required to declare dividends and any determination by the Board to pay cash dividends on our common shares in the future will be based upon our financial condition, results of operations, business requirements, and the continuing determination from the Board that the declaration of dividends complies with all applicable laws and agreements. As a result, in the future we may not choose or be able to declare or pay a cash dividend, and we may not achieve an annual dividend rate in any particular amount.
In addition, the Board previously authorized a share repurchase program of up to $2.5 billion in common shares with a termination date of November 30, 2021. Our merger agreement with S&P Global required us to suspend share repurchases in December 2020 through the closing of our merger with S&P Global. As a result, our outstanding program terminated on November 30, 2021 with $1.6 billion in remaining authorization and the Board did not authorize a new share repurchase program. The elimination of our share repurchase program could adversely affect the market price of our common shares and there is no guarantee that the Board will authorize a new share repurchase program in the future.
We have anti-takeover provisions in our bye-laws that may discourage a change of control.
Our bye-laws contain provisions that could make it more difficult for a third party to acquire us without the consent of our Board of Directors. These provisions provide for: directors only to be removed for cause; restrictions on the time period in which directors may be nominated; our Board of Directors to determine the powers, preferences, and rights of our preference shares and to issue the preference shares without shareholder approval; and an affirmative vote of 66-2/3% of our voting shares for certain “business combination” transactions which have not been approved by our Board of Directors. These provisions could make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many shareholders. As a result, shareholders may be limited in their ability to obtain a premium for their shares.
Table of Contents
Risks Related to Legal, Regulatory, and Compliance Matters
Changes in the legislative, regulatory, and commercial environments in which we operate may adversely impact our ability to collect, compile, use, transfer, publish, or sell data, subject us to increased regulation or decreased demand of our products and services, or prevent us from offering certain products or services, which could adversely affect our financial condition and operating results.
Certain types of information we collect, compile, store, use, transfer, publish and/or sell, and certain of our products and services, are subject to laws and regulations in various jurisdictions in which we operate. There is an increasing public concern regarding, and resulting regulations of, privacy, data, and consumer protection issues. Laws and regulations in jurisdictions in which we operate pertain primarily to personally identifiable information relating to individuals, constrain the collection, use, storage, and transfer of such data, as well as other obligations with which we must comply. If we fail to comply with these laws or regulations, we could be subject to significant litigation and civil or criminalpenalties (including monetary damages, regulatory enforcement actions or fines) in one or more jurisdictions and reputational damage resulting in the loss of data, brand equity and business. To conduct our operations, we also move data across national borders and consequently are subject to a variety of continuously evolving and developing laws and regulations regarding privacy, data protection, and data security in an increasing number of jurisdictions. Many jurisdictions have passed laws in this area, such as the European Union General Data Protection Regulation (the “GDPR”), the cyber-security law adopted by China in 2017, and the 2020 California Privacy Act, and other jurisdictions are considering imposing additional restrictions. These laws and regulations are increasing in complexity and number, change frequently, and increasingly conflict among the various countries in which we operate, which has resulted in greater compliance risk and cost for us. It is possible that we could be prohibited or constrained from collecting, transferring, or disseminating certain types of data or from providing certain products or services. If we fail to comply with these laws or regulations, we could be subject to significant litigation, civil or criminalpenalties, monetary damages, regulatory enforcement actions or fines in one or more jurisdictions. For example, a failure to comply with the GDPR could result in fines up to the greater of €20 million or 4% of annual global revenues.
Many of our customers rely on our products and services to meet their operational, regulatory, or compliance needs. Our financial industry customers, for example, operate within a highly regulated environment and must comply with governmental and quasi-governmental legislation, regulations, directives, and standards. In addition, our benchmark administration services have recently become regulated by the U.K. Financial Conduct Authority and the Dutch Authority for the Financial Markets, and we have been developing new products and services that will require regulatory approval and oversight in various jurisdictions. Complex and ever-evolving legislative and regulatory changes around the world that impact our customers’ industries may impact how we provide products and services to our customers and may affect the development, structure and regulation of, and possibly the demand for, products and services we offer or develop, such as indices, benchmark administration, settlement, intermediating and clearing services, and offerings in which we function as a “third-party service provider.” Changes in laws, rules, regulations or standards may have a material adverse effect on our business, financial condition, or results of operations. If we fail to comply with applicable laws, rules, regulations, or standards, or fail to obtain regulatory approval to conduct certain operations or provide certain products or services, we could be limited in the types of products and services we provide or subject to fines or other penalties. Additionally, we may be required to comply with multiple and potentially conflicting laws, rules, or regulations in various jurisdictions, or investigate, defend, or remedy actual or allegedviolations, which could, individually or in the aggregate, result in materially higher compliance costs to us. New legislation, or a significant change in laws, rules, regulations, or standards could also result in some of our products and services becoming obsolete or prohibited, reduce demand for our products and services, increase expenses as we modify or develop products and services to comply with new requirements and retain relevancy, impose limitations on our operations, and increase compliance or litigation expense, each of which could have a material adverse effect on our business, financial condition, and results of operations.
Our operations are subject to risks relating to worldwide operations, and our compliance and risk management methods might not be effective and may result in outcomes that could adversely affect our reputation, financial condition, and operating results.
Operating in many jurisdictions around the world, we may be affected by numerous, and sometimes conflicting, legal and regulatory regimes, including: changes in law or their interpretation (including trade protection laws, policies and measures, and other regulatory requirements affecting trade and investment, including export controls and economic sanctions laws); changes in tax rates, holidays, incentives and laws, or their interpretation; unexpected changes in regulatory requirements; and political conditions and events. Different liability standards and legal systems that may be less developed and less predictable than those in the United States and the United Kingdom, could limit our ability to provide services in specific countries and subject us to potential noncompliance with a wide variety of laws and regulations. We must also manage social, political, labor, or economic
Table of Contents
conditions in a specific country or region; restrictive actions by governments, including embargoes; difficulties in staffing and managing local operations; difficulties with local or grassroots activism; difficulties in penetrating new markets because of established and entrenched competitors; uncertainties of obtaining data and creating products and services that are relevant to particular geographic markets; lack of recognition of our brands, products, or services; unavailability of local joint venture partners; restrictions or limitations on outsourcing contracts or services abroad; potential adverse tax consequences on the repatriation of funds and from taxation reform affecting multinational companies; and exposure to adverse government action in countries where we may conduct reporting activities. Because of the varying degrees of development of the legal systems of the countries in which we operate, local laws might be insufficient to protect our rights. Compliance with diverse legal and regulatory requirements is costly and time-consuming, and requires significant resources. Violations could result in significant fines or monetary damages, criminal and civil sanctions, including the restriction, suspension or revocation of an authorization, regulatory approval, license, recognition, exemption or registration that we rely on in order to conduct our business, and damage to our reputation.
As we operate our business around the world, we must manage the potential conflicts between locally accepted business practices in any given jurisdiction and our obligations to comply with laws and regulations, including anti-corruption laws or regulations applicable to us, such as the U.K. Bribery Act 2010, the U.S. Foreign Corrupt Practices Act and regulations established by the U.S. Office of Foreign Assets Control. Government agencies and authorities have a broad range of civil and criminalpenalties they may seek to impose against companies for violations of export controls, anti-corruption laws or regulations, and other laws, rules, sanctions, embargoes, and regulations. For example, the United States, the European Union, and other countries have imposed significant sanctions measures targeting the energy, defense, and financial sectors of Russia’s economy and specific Russian officials and businesses. There is also significant uncertainty about the future relationship between the United States and various other countries, most significantly China, with respect to trade policies, treaties, government regulations and tariffs. Although we believe all our business activities are permissible under all current applicable laws, rules, sanctions, embargoes, and regulations, we may be required to discontinue or limit our business activities in the future. Further, the implementation of new trade policies, treaties, tariffs, legislation or regulations, or changes in or unfavorable interpretations of existing regulations by courts or regulatory bodies, could require us to incur significant compliance costs and impede our ability to operate, expand, and enhance our products and services as necessary to remain competitive and grow our business.
Our ability to comply with applicable complex and changing laws and rules, including anti-corruption laws, is largely dependent on our establishment and maintenance of compliance, surveillance, audit, and reporting systems, as well as our ability to attract and retain qualified compliance and other risk management personnel. We have developed and instituted a corporate compliance program intended to promote and facilitate compliance with all applicable laws, which includes employee training and the creation of appropriate policies and procedures defining employee behavior. We also have policies, procedures, and controls designed to comply with all applicable laws, rules, sanctions, embargoes, and regulations and measure the compliance of our third-party providers. However, these measures may not always be effective, and we may fail to appropriately monitor or evaluate the risks to which we are or may be exposed or identify business activities that violate laws, rules, sanctions, embargoes, and regulations. In addition, we may not always be successful in detecting if our employees, contractors, agents, and suppliers, including independent companies to which we outsource certain business operations, are engaging in misconduct, fraud, or otherwise taking actions in violation of our policies, procedures, and controls. In addition, some of our risk management methods depend upon evaluation of public information that may not be accurate, complete, up-to-date, or properly evaluated. In such cases, we could be subject to investigations and proceedings that may be very expensive to defend and may result in criminal enforcement actions, penalties for non-compliance, or civil actions or lawsuits, including by customers, for damages that could be significant.
Any of these outcomes could adversely affect our business, reputation, financial condition, and operating results.
Legal, political, and economic uncertainty surrounding the exit of the United Kingdom from the European Union are a source of instability and uncertainty.
We are headquartered and tax domiciled in the United Kingdom and conduct business throughout the European Union primarily through our U.K. subsidiaries. The United Kingdom ceased to be a member state of the European Union on January 31, 2020 commonly referred to as “Brexit,” and the transition period provided for in the withdrawal agreement entered by the United Kingdom and the European Union ended on December 31, 2020. In December 2020, the United Kingdom and the European Union agreed on a trade and cooperation agreement. The trade and cooperation agreement covers the general objectives and framework of the relationship between the United Kingdom and the European Union, including as it related to trade, transport, visas, judicial, law enforcement and security matters, and provides for continued participation in community programs and mechanisms for dispute resolution. Notably, under the trade and cooperation agreement, UK service suppliers no longer benefit from automatic access to the entire EU single market, UK goods no longer benefit from the free movement of
Table of Contents
goods and there is no longer the free movement of people between the United Kingdom and the European Union. Although the long-term impact of the trade and cooperation agreement on our business is currently unclear, we could face new regulatory costs and challenges as a result of divergent national laws and regulations as the United Kingdom determines which E.U. laws to replace or maintain, including U.K. competition laws. Changes to U.K. immigration policy related to Brexit could also affect our business. Although the United Kingdom would likely retain its diverse pool of talent, London’s role as a global financial center may decline. Any adjustments we make to our business and operations as a result of Brexit could result in significant time and expense to complete. Any of the foregoing factors could have a material adverse effect on our business, results of operations, or financial condition.
Audits, investigations, tax proceedings and future changes in tax laws could have a material adverse effect on our results of operations and financial condition.
We are subject to direct and indirect taxes in numerous jurisdictions, and tax laws, including tax rates, in the jurisdictions in which we operate may change as a result of macroeconomic, political, or other factors. We calculate and provide for such taxes in each tax jurisdiction in which we operate. The amount of tax we pay is subject to our interpretation of applicable tax laws in the jurisdictions in which we file. In complex transactions or jurisdictions, we regularly utilize third-party advisers to help us make judgments about the proper application of tax law. We have taken and will continue to take tax positions based on our interpretation of tax laws, but tax accounting often involves complex matters and judgment is required in determining our worldwide provision for taxes and other tax liabilities. Although we believe that we have complied with all applicable tax laws, we have been and expect to continue to be subject to ongoing tax audits in various jurisdictions, and tax authorities have disagreed, and may in the future disagree, with some of our interpretations of applicable tax law. We regularly assess the likely outcomes of these audits to determine the appropriateness of our tax provisions. However, our judgments may not be sustained on completion of these audits, and the amounts ultimately paid could be different from the amounts previously recorded.
Our tax liabilities and effective tax rate in the future could be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, and changes in tax laws. For example, the U.S. Congress, the Organisation for Economic Co-operation and Development (“OECD”), and other government agencies have had an extended focus on issues related to the taxation of multinational corporations, such as the comprehensive plan set forth by the OECD to create an agreed set of international rules for fighting base erosion and profit shifting. The tax laws in the United States, the United Kingdom, and other countries in which we operate could change on a prospective or retroactive basis, and changes in tax laws, treaties, or regulations, or their interpretation or enforcement, may be unpredictable, particularly in less developed markets, and could become more stringent. Any of these occurrences could materially adversely affect our tax position and have a material adverse effect on our results of operations and financial condition.
Bermuda law differs from the laws in effect in the United States and may afford less protection to holders of our common shares, including enforcing judgments against us or our directors and executive officers.
We are organized under the laws of Bermuda as a Bermuda exempted company. As a result, our corporate affairs and the rights of holders of our common shares are governed by Bermuda law, including the Companies Act 1981 (the “Companies Act”), which differs in some material respects from laws typically applicable to U.S. corporations and shareholders, including the provisions relating to interested directors, amalgamations, mergers and acquisitions, takeovers, shareholder lawsuits, and indemnification of directors. Generally, the duties of directors and officers of a Bermuda company are owed to the company only. Shareholders of Bermuda companies typically do not have rights to take action against directors or officers of the company and may only do so in limited circumstances. Class actions are not available under Bermuda law. The circumstances in which derivative actions may be available under Bermuda law are substantially more proscribed and less clear than they would be to shareholders of U.S. corporations. The Bermuda courts, however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong to the company where the act complained of is alleged to be beyond the corporate power of the company or illegal, or would result in the violation of the company’s memorandum of association or bye-laws. Furthermore, consideration would be given by a Bermuda court to acts that are alleged to constitute a fraudagainst the minority shareholders or, for instance, where an act requires the approval of a greater percentage of the company’s shareholders than that which actually approved it.
When the affairs of a company are being conducted in a manner that is oppressive or prejudicial to the interests of some shareholders, one or more shareholders may apply to the Supreme Court of Bermuda, which may make such order as it sees fit, including an order regulating the conduct of the company’s affairs in the future or ordering the purchase of the shares of any shareholders by other shareholders or by the company. Additionally, under our bye-laws and as permitted by Bermuda law, each shareholder has waived any claim or right of action against our directors or officers for any action taken by directors or officers in the performance of their duties, except for actions involving fraud or dishonesty. In addition, the rights of holders of
Table of Contents
our common shares and the fiduciary responsibilities of our directors under Bermuda law are not as clearly established as under statutes or judicial precedent in existence in jurisdictions in the United States, particularly the State of Delaware. It is also doubtful whether courts in Bermuda will enforce judgments obtained in other jurisdictions, including the United States, against us or our directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against us or our directors or officers under the securities laws of other jurisdictions. Therefore, holders of our common shares may have more difficulty protecting their interests than would shareholders of a corporation incorporated in a jurisdiction within the United States.
Risks Related to the Merger
The merger is subject to conditions, some or all of which may not be satisfied, or completed on a timely basis, if at all. Failure to complete, or unexpecteddelays in completing, the merger or any termination of the merger agreement could have material adverse effects on us.
On November 29, 2020, we, S&P Global Inc., a New York corporation (“S&P Global”), and Sapphire Subsidiary, Ltd., a Bermuda exempted company limited by shares and a wholly-owned subsidiary of S&P Global (“Merger Sub”), entered into an Agreement and Plan of Merger (as amended on January 20, 2021, the “merger agreement”), pursuant to which Merger Sub will merge with and into IHS Markit, with IHS Markit surviving such merger as a wholly-owned, direct subsidiary of S&P Global (the “merger”). The completion of the merger is subject to a number of conditions, including, among other things, the receipt of certain regulatory approvals, which make the completion and timing of the merger uncertain. The failure to satisfy all of the required conditions could delay the completion of the merger for a significant period of time or prevent it from occurring at all. There can be no assurance that the conditions to the completion of the merger will be satisfied or waived or that the merger will be completed.
In addition, either S&P Global or IHS Markit may terminate the merger agreement under certain circumstances, including if the merger is not completed by the outside date determined pursuant to the merger agreement. In addition, in certain circumstances, upon termination of the merger agreement, IHS Markit would be required to pay a termination fee of $1.075 billion to S&P Global, and in certain circumstances, upon termination of the merger agreement, S&P Global would be required to pay a termination fee of $2.380 billion to IHS Markit, each as contemplated by the merger agreement.
If the merger is not completed, IHS Markit may be materially adversely affected and, without realizing any of the benefits of having completed the merger, will be subject to a number of risks, including the following: the market price of IHS Markit shares could decline; if the merger agreement is terminated and the IHS Markit board seeks another business combination, IHS Markit shareholders cannot be certain that IHS Markit will be able to find a party willing to enter into a transaction on terms equivalent to or more attractive than the terms that S&P Global has agreed to in the merger agreement; time and resources, financial and otherwise, committed by IHS Markit’s management to matters relating to the merger could otherwise have been devoted to pursuing other beneficialopportunities; IHS Markit may experience negative reactions from the financial markets or from their respective customers, suppliers or employees; and IHS Markit will be required to pay its expenses relating to the merger, such as legal, accounting and financial advisory fees, whether or not the merger is completed.
In addition, if the merger is not completed, IHS Markit could be subject to litigation related to any failure to complete the merger or related to any enforcement proceeding commenced against such party to perform its obligations under the merger agreement. Any of these risks could materially and adversely impact IHS Markit’s ongoing business, financial condition, results of operations and the market price of IHS Markit shares. Similarly, delays in the completion of the merger could, among other things, result in additional transaction costs, loss of revenue or other negative effects associated with delay and uncertainty about completion of the merger and could materially and adversely impact IHS Markit’s ongoing business, financial condition, results of operations and the market price of IHS Markit shares.
The merger agreement contains provisions that limit our ability to pursue alternatives to the merger, could discourage a potential competing transaction counterparty from making a favorable alternative transaction proposal to us, and provide that, in specified circumstances, we would be required to pay a termination fee.
The merger agreement contains provisions that make it more difficult for IHS Markit to be acquired by, or enter into certain combination transactions with, a third party. The merger agreement contains certain provisions that restrict IHS Markit’s ability to, among other things, solicit, initiate or knowingly encourage, or knowingly take any other action designed to facilitate, any alternative transaction, or participate in any discussions or negotiations, or cooperate in any way with any person, with respect to any alternative transaction. In addition, following receipt by either of S&P Global or IHS Markit of any alternative transaction proposal that constitutes a “superior proposal,” each of IHS Markit or S&P Global, respectively, will have an opportunity to offer to modify the terms of the merger agreement before the S&P Global board or the IHS Markit board,
Table of Contents
respectively, may withdraw, qualify or modify its recommendation with respect to the S&P Global share issuance proposal or the IHS Markit merger proposal, respectively, in favor of such superior proposal.
These provisions could discourage a potential third-party acquiror or merger partner that might have an interest in acquiring or combining with all or a significant portion of IHS Markit or pursuing an alternative transaction from considering or proposing such a transaction. In some circumstances, upon termination of the merger agreement, IHS Markit would be required to pay a termination fee of $1.075 billion to S&P Global, as contemplated by the merger agreement. If the merger agreement is terminated and IHS Markit determines to seek another business combination transaction, IHS Markit may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the merger.
We are subject to business uncertainties and contractual restrictions while the merger is pending, which could adversely affect our business and operations.
In connection with the pendency of the merger, it is possible that some customers, suppliers, partners and other persons with whom IHS Markit has a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationships with IHS Markit as a result of the merger or otherwise, which could negatively affect IHS Markit’s respective revenues, earnings and/or cash flows, as well as the market price of IHS Markit shares, regardless of whether the merger is completed. Under the terms of the merger agreement, IHS Markit is subject to certain restrictions on the conduct of its business prior to completing the merger, which may adversely affect its ability to execute certain of its business strategies, including the ability in certain cases to acquire or dispose of assets or pay dividends or incur capital expenditures above a certain amount. In addition, IHS Markit is restricted in its ability in certain cases to enter into or amend contracts, incur indebtedness or settle claims. Such limitations could adversely affect IHS Markit’s business and operations prior to the completion of the merger. Each of the risks described above may be exacerbated by delays or other adverse developments with respect to the completion of the merger.
The combined company may be unable to successfully integrate the businesses of S&P Global and IHS Markit or realize the anticipated benefits of the merger.
The success of the merger will depend, in part, on the combined company’s ability to successfully combine and integrate the businesses of S&P Global and IHS Markit, and realize the anticipated benefits, including synergies, cost savings, innovation and technological opportunities and operational efficiencies from the merger in a manner that does not materially disrupt existing customer, supplier and employee relations and does not result in decreased revenues due to losses of, or decreases in demand by, customers. The ability of the combined company to realize these anticipated benefits is subject to certain risks, including whether the combined business will perform as expected, the possibility that S&P Global paid more for IHS Markit than the value the combined company will derive from the merger and the assumption of known and unknown liabilities of IHS Markit. If the combined company is unable to achieve these objectives within the anticipated time frame, or at all, the anticipated benefits may not be realized fully or at all, or may take longer to realize than expected, and the value of the combined company common stock may decline. The combined company may fail to realize some or all of the anticipated benefits of the merger if the integration process takes longer than expected or is more costly than expected.
The integration of the two companies may result in material challenges, including: managing a larger, more complex combined business; maintaining employee morale and retaining key management and other employees; retaining existing business and operational relationships, including customers, suppliers and employees and other counterparties, as may be impacted by contracts containing consent and/or other provisions that may be triggered by the merger, and attracting new business and operational relationships; consolidating corporate and administrative infrastructures and eliminating duplicative operations, including unanticipated issues in integrating financial reporting, information technology infrastructure, data and content management systems and product platforms, communications and other systems; coordinating geographically separate organizations, including consolidating offices of S&P Global and IHS Markit that are currently in or near the same location; harmonizing the companies’ operating practices, employee development and compensation programs, internal controls, compliance programs and other policies, procedures and processes; addressing possible differences in business backgrounds, corporate cultures and management philosophies; and unforeseen expenses or delays associated with the merger.
Many of these factors will be outside of S&P Global’s and/or IHS Markit’s control, and any one of them could result in delays, increased costs, decreases in the amount of expected revenues and other adverse impacts, which could materially affect the combined company’s business, financial condition and results of operations. Due to legal restrictions, S&P Global and IHS Markit are currently permitted to conduct only limited planning for the integration of the two companies following the merger. The actual integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized on a timely basis, if at all.
Table of Contents
We expect to incur substantial expenses related to the completion of the merger and the integration of the S&P Global and our businesses.
We expect to incur substantial expenses in connection with the completion of the merger and the integration of a large number of processes, policies, procedures, operations, technologies and systems of S&P Global and IHS Markit in connection with the merger. The management of the combined company may face significant challenges in implementing such integration, many of which may be beyond the control of management and which may result in increased costs and diversion of management’s time and energy, as well as materially adversely impact the anticipated synergies of the merger and the business, financial condition and results of operations of the combined company. The integration process and other disruptions resulting from the merger may also adversely affect the combined company’s relationships with employees, suppliers, customers, distributors and others with whom S&P Global and IHS Markit have business or other dealings, and difficulties in integrating the businesses or S&P Global and IHS Markit could harm the reputation of the combined company.
These incremental transaction-related costs may exceed the savings the combined company expects to achieve from the elimination of duplicative costs and the realization of other efficiencies related to the integration of the businesses, particularly in the near term and in the event there are material unanticipated costs. Factors beyond the parties’ control could affect the total amount or timing of these expenses, many of which, by their nature, are difficult to estimate accurately. Some of these expenses have already been incurred or may be incurred regardless of whether the merger is completed.
leading
profitable
To best serve our customers, we are organized into the following four industry-focused segments:
• Financial Services , which includes our financial Information, Solutions, and Processing product offerings;
• Transportation, which includes our Automotive and Maritime & Trade product offerings;
• Resources , which includes our Upstream and Downstream product offerings; and
• Consolidated Markets & Solutions, which includes our Product Design, Economics & Country Risk, and TMT benchmarking product offerings (until we divested our TMT offerings in December 2021).
Our recurring revenue streams represented approximately 87 percent of our total revenue in 2021. Our recurring revenue is generally stable and predictable, and we have long-term relationships with many of our customers.
During 2021, we focused our efforts on increasing revenue and Adjusted EBITDA profit margin, innovating and developing new product offerings, and responding effectively to the COVID-19 pandemic, including the following results and activities:
• Our total organic revenue increased 9 percent, as our recurring and non-recurring revenue streams recovered from the COVID-19 pandemic effects on our 2020 revenue.
• Our Adjusted EBITDA profit margin increased by 80 basis points, primarily as a result of improved revenue growth that allows us to leverage our cost base.
• We continued to introduce or enhance many of our product offerings, including our IHS Markit Data Lake.
• We contributed our MarkitSERV derivatives processing business to OSTTRA, a new 50/50 corporate joint venture with CME Group, in September 2021.
• We increased our quarterly dividend from $0.17 per share in 2020 to $0.20 per share in 2021.
For 2022, we expect to focus our efforts on the following actions:
• Closing the merger with S&P Global Inc. and integration activities.
• Increase in geographic, product, and customer penetration. We believe there are continued opportunities to add new customers and to increase the use of our products and services by existing customers. We plan to add new customers and build our relationships with existing customers by leveraging our existing sales channels, broad product portfolio, global footprint, and industry expertise to anticipate and respond to the changing demands of our end markets.
• Introduce innovative offerings and enhancements. In recent years, we have launched several new product offerings addressing a wide array of customer needs, and we expect to continue innovating using our existing data sets and industry expertise, converting core information to higher value advanced analytics. We also intend to continue to invest across our business to increase our customer value proposition.
• Improveefficiency, productivity, and financial strength. We are striving to strengthen our operational excellence by consistently improving productivity and efficiency, particularly as we work through the effects of the COVID-19
Table of Contents
pandemic. We also continue to build on our strong financial foundation, balancing capital allocation between returning capital to shareholders (targeting an annual capital return of 50 to 75 percent of our annual capital capacity through share repurchases and cash dividends) and completing mergers and acquisitions, focused primarily on targeted transactions in our core end markets that will allow us to continue to build out our strategic position. The merger agreement restricts our ability to purchase our shares and therefore our share repurchase program, which had been suspended during 2021, expired on November 30, 2021, other than for the repurchase of shares associated with tax withholding requirements for share-based compensation; consequently, our cash balance is higher than we would typically strive to maintain.
On November 29, 2020, we, S&P Global Inc., a New York corporation (“S&P Global”), and Sapphire Subsidiary, Ltd., a Bermuda exempted company limited by shares and a wholly-owned subsidiary of S&P Global (“Merger Sub”), entered into an agreement and plan of merger, which was subsequently amended on January 20, 2021, pursuant to which Merger Sub will merge with and into IHS Markit, with IHS Markit surviving such merger as a wholly-owned, direct subsidiary of S&P Global (the “merger”). The merger intends to bring together a unique portfolio of highly complementary assets, as well as innovation and technology capability to accelerate growth and enhance value creation. At the completion of the merger, each IHS Markit share that is issued and outstanding (other than dissenting shares and shares held by IHS Markit in treasury) will be converted into the right to receive 0.2838 fully paid and nonassessable shares of S&P Global common stock, and, if applicable, cash in lieu of fractional shares, without interest, and less any applicable withholding taxes. If the merger is completed, IHS Markit shares will cease to be listed on the New York Stock Exchange and IHS Markit shares will be deregistered under the Securities Exchange Act. The merger was approved by IHS Markit and S&P Global shareholders on March 11, 2021, but is still subject to antitrust and regulatory approval requirements, as well as other customary closing conditions. As a result of regulatory feedback, we decided to sell our Oil Price Information Services; Coal, Metals and Mining; and Petrochem Wire businesses (collectively, the “OPIS group”) and have entered into an agreement to sell the OPIS group to News Corp for approximately $1.15 billion in cash. We also decided to sell our Base Chemicals business in response to regulatory feedback and in December 2021, we entered into an agreement to sell that business to News Corp for approximately $295 million in cash. The OPIS group sale is expected to be completed at the close of the merger between IHS Markit and S&P Global, and the Base Chemicals business sale is expected to be completed shortly thereafter. We currently anticipate closing the merger with S&P Global during the calendar first quarter of 2022.
Key Performance Indicators
We believe that revenue growth, Adjusted EBITDA (both in dollars and margin), and free cash flow are key financial measures of our success. Adjusted EBITDA and free cash flow are financial measures that are not recognized terms under U.S. generally accepted accounting principles (“non-GAAP”).
Revenue growth . We review year-over-year revenue growth in our segments as a key measure of our success in addressing customer needs. We measure revenue growth in terms of organic, acquisitive, and foreign currency impacts. We define these components as follows:
• Organic – We define organic revenue growth as total revenue growth from continuing operations for all factors other than acquisitions and foreign currency movements. We drive this type of revenue growth through value realization (pricing), expanding wallet share of existing customers through up-selling and cross-selling efforts, securing new customer business, and selling new or enhanced product offerings.
• Acquisitive – We define acquisitive revenue as the revenue generated from acquired products and services from the date of acquisition to the first anniversary date of that acquisition. This type of growth comes as a result of our strategy to purchase, integrate, and leverage the value of assets we acquire. We also include the impact of divestitures in this metric.
• Foreign currency – We define the foreign currency impact on revenue as the difference between current revenue at current exchange rates and current revenue at the corresponding prior period exchange rates. Due to the significance of revenue transacted in foreign currencies, we believe it is important to measure the impact of foreign currency movements on revenue.
In addition to measuring and reporting revenue by segment, we also measure and report revenue by transaction type. Understanding revenue by transaction type helps us identify and address broad changes in product mix. We summarize our transaction type revenue into the following three categories:
Table of Contents
• Recurring fixed revenue represents revenue generated from contracts specifying a relatively fixed fee for services delivered over the life of the contract. The initial term of these contracts is typically annual (with some longer-term arrangements) and non-cancellable for the term of the subscription, and may contain provisions for minimum monthly payments. The fixed fee is typically paid annually or more periodically in advance. These contracts typically consist of subscriptions to our various information offerings and software maintenance, which provide continuous access to our platforms and associated data over the contract term. Subscription revenue is usually recognized ratably over the contract term or, for term-based software license arrangements, annually on renewal.
• Recurring variable revenue represents revenue from contracts that specify a fee for services, which is typically not fixed. The variable fee is usually paid monthly in arrears. Recurring variable revenue is based on, among other factors, the number of trades processed, assets under management, or the number of positions we value, and revenue is recognized based on the specific factor used (e.g., for usage-based contracts, we recognize revenue in line with usage in the period). Most of these contracts have an initial term ranging from one to five years, with auto-renewal periods thereafter. Recurring variable revenue was derived entirely from the Financial Services segment for all periods presented.
• Non-recurring revenue represents consulting, services, single-document product sales, perpetual license sales and associated services, conferences and events, and advertising. Our non-recurring products and services are an important part of our business because they complement our recurring business in creating strong and comprehensive customer relationships.
Non-GAAP measures . We use non-GAAP financial measures such as EBITDA, Adjusted EBITDA, and free cash flow in our operational and financial decision-making. We believe that such measures allow us to focus on what we deem to be more reliable indicators of ongoing operating performance (Adjusted EBITDA) and our ability to generate cash flow from operations (free cash flow). We also believe that investors may find these non-GAAP financial measures useful for the same reasons, although we caution readers that non-GAAP financial measures are not a substitute for U.S. GAAP financial measures or disclosures. None of these non-GAAP financial measures are recognized terms under U.S. GAAP and do not purport to be an alternative to net income or operating cash flow as an indicator of operating performance or any other U.S. GAAP measure. Throughout this MD&A, we provide reconciliations of these non-GAAP financial measures to the most directly comparable U.S. GAAP measures.
EBITDA and Adjusted EBITDA . EBITDA and Adjusted EBITDA are used by securities analysts, investors, and other interested parties to assess our operating performance. For example, a measure similar to Adjusted EBITDA is required by the lenders under our revolving credit agreement. We define EBITDA as net income plus or minus net interest, plus provision for income taxes, depreciation, and amortization. Our definition of Adjusted EBITDA further excludes primarily non-cash items and other items that we do not consider to be useful in assessing our operating performance (e.g., stock-based compensation expense, restructuring and impairment charges, acquisition-related costs and performance compensation, exceptionallitigation, net other gains and losses, pension mark-to-market and settlement expense, the impact of equity-method investments and noncontrolling interests, and discontinued operations).
Free Cash Flow . We define free cash flow as net cash provided by operating activities less payments for acquisition-related performance compensation and capital expenditures.
Non-GAAP measures are frequently used by securities analysts, investors, and other interested parties in their evaluation of companies comparable to us, many of which present non-GAAP measures when reporting their results. These measures can be useful in evaluating our performance against our peer companies because we believe the measures provide users with valuable insight into key components of U.S. GAAP financial disclosures. For example, a company with higher U.S. GAAP net income may not be as appealing to investors if its net income is more heavily comprised of gains on asset sales. Likewise, excluding the effects of interest income and expense moderates the impact of a company’s capital structure on its performance. However, non-GAAP measures have limitations as an analytical tool. Because not all companies use identical calculations, our presentation of non-GAAP financial measures may not be comparable to other similarly titled measures of other companies. They are not presentations made in accordance with U.S. GAAP, are not measures of financial condition or liquidity, and should not be considered as an alternative to profit or loss for the period determined in accordance with U.S. GAAP or operating cash flows determined in accordance with U.S. GAAP. As a result, these performance measures should not be considered in isolation from, or as a substitute analysis for, results of operations as determined in accordance with U.S. GAAP.
Global Operations
Table of Contents
Approximat ely 40 percent of our revenue is transacted outside of the United States; however, only about 20 percent of our revenue is transacted in currencies other than the U.S. dollar. As a result, a strengthening U.S. dollar relative to ce rtain currencies has historically resulted in a negative impact on our revenue; conversely, a weakening U.S. dollar has historically resulted in a positive impact on our revenue. The largest foreign currency exposures for revenue are the British Pound, Euro, and Canadian Dollar.
The impact of foreign currency movements on operating income is mitigated due to offsetting revenue and operating expense exposures denominated in currencies other than the U.S. dollar. Our largest net foreign currency exposures are the Indian Rupee, Euro, Canadian Dollar, and Singapore Dollar. See “Quantitative and Qualitative Disclosures About Market Risk – Foreign Currency Exchange Rate Risk” for additional discussion of the impacts of foreign currencies on our operations.
Pricing Information
We customize many of our sales offerings to meet individual customer needs and base our pricing on a number of factors, including various price segmentation models which utilize customer attributes, value attributes, and other data sources. Attributes can include a proxy for customer size (e.g., barrels of oil equivalent and annual revenue), industry, users, usage, breadth of the content to be included in the offering, and multiple other factors. Because of the level of offering customization we employ, it is difficult for us to evaluate pricing impacts on a period-to-period basis with absolute certainty. This analysis is further complicated by the fact that the offering sets purchased by customers are often not constant between periods. As a result, we are not able to precisely differentiate between pricing and volume impacts on changes in revenue comprehensively across the business.
Other Items
Cost of operating our business. We incur our cost of revenue primarily through acquiring, managing, and delivering our offerings. These costs include personnel, information technology, data acquisition, and occupancy costs, as well as royalty payments to third-party information providers. Our selling, general and administrative expense includes wages and other personnel costs, commissions, corporate occupancy costs, and marketing costs. A large portion of our operating expenses are not directly commensurate with volume sold, particularly in our recurring revenue business model.
Stock-based compensation expense. We issue equity awards to our employees primarily in the form of restricted stock units and performance stock units, for which we record cost over the respective vesting periods. The typical vesting period is three years. As of November 30, 2021, we had approximately 6.0 million unvested RSUs.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. In applying U.S. GAAP, we make significant estimates and judgments that affect our reported amounts of assets, liabilities, revenue, and expense, as well as disclosure of contingent assets and liabilities. We believe that our accounting estimates and judgments are reasonable when made, but in many instances, alternative estimates and judgments would also be acceptable. In addition, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected. We base our estimates on historical experience and other assumptions that we believe are reasonable, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which are discussed further below.
Revenue Recognition. Most of our offerings are provided under agreements containing standard terms and conditions. Approximately 87 percent of our 2021 revenue was derived from recurring revenue arrangements, which generally are initially deferred and then recognized ratably over the contract term. These recurring revenue arrangements typically do not require any significant judgments about when revenue should be recognized.
A limited number of recurring revenue arrangements and certain non-recurring revenue arrangements contain multiple performance obligations. We apply judgment in identifying the separate performance obligations to be delivered under the arrangement and allocating the transaction price based on the estimated standalone selling price of each performance obligation.
Business Combinations. We apply the purchase method of accounting to our business combinations. All of the assets acquired, liabilities assumed, and contingent consideration are allocated based on their estimated fair values. Fair value determinations involve significant estimates and assumptions about several highly subjective variables, including future cash flows, discount rates, and expected business performance. There are also different valuation models and inputs for each
Table of Contents
component, the selection of which requires considerable judgment. Our estimates and assumptions may be based, in part, on the availability of listed market prices or other transparent market data. These determinations will affect the amount of amortization expense recognized in future periods. We base our fair value estimates on assumptions we believe are reasonable, but recognize that the assumptions are inherently uncertain. Depending on the size of the purchase price of a particular acquisition, the mix of intangible assets acquired, and expected business performance, the purchase price allocation could be materially impacted by applying a different set of assumptions and estimates. In 2021, 2020, and 2019, we recorded approximately $42.1 million, $3.7 million, and $61.5 million, respectively, of intangible assets associated with business combinations.
The structure of certain business combinations may also require the application of significant assumptions and estimates. For example, in 2017, we acquired 78 percent of automotiveMastermind (“aM”); in exchange for the remaining 22 percent, we issued equity interests in aM’s immediate parent holding company to aM’s founders and certain employees. The acquisition of these interests over the five years post-acquisition is based on put/call provisions that tie the valuation to the underlying adjusted EBITDA performance of aM. Since the purchase of these interests requires continued service of the founders and employees, we are accounting for the arrangement as compensation expense that is remeasured based on changes in the fair value of the equity interests. We had preliminarily estimated a range of $200 million to $225 million of unrecognized compensation expense related to this transaction, to be recognized over a weighted-average remaining recognition period of approximately four years. In November 2019, the option holders exercised 62.5 percent of their remaining 22 percent for $76 million, which was paid in December 2019, and we estimated the compensation expense associated with the remaining equity interests to be approximately $70 to $75 million. In subsequent periods during 2020 and 2021, upon reassessment of near-term financial expectations and their impact on the earn-out calculations, we further reduced our estimated compensation expense range for the remaining equity interests to $55 million to $60 million. As of November 30, 2021, approximately $47 million of compensation expense has been recognized, with the remaining amount to be recognized through September 2022. We will acquire the remaining 8 percent of aM no later than December 2022 based on an earn-out mechanic tied to preceding year Adjusted EBITDA performance.
Goodwill and Other Intangible Assets. We make various assumptions about our goodwill and other intangible assets, including their estimated useful lives and whether any potential impairment events have occurred. We perform impairment analyses on the carrying values of goodwill and other intangible assets at least annually. Additionally, we review the carrying value of goodwill and other intangible assets whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Examples of such events or changes in circumstances, many of which are subjective in nature, include the following:
• Significant negative industry or economic trends;
• A significant change in the manner of our use of the acquired assets or our strategy;
• A significant divestiture or other disposition activity;
• A significant decrease in the market value of the asset;
• A significant change in legal factors or in the business climate that could affect the value of the asset; and
• A change in segments.
If an impairment indicator is present, we perform an analysis to confirm whether an impairment has actually occurred and if so, the amount of the required charge.
As of November 30, 2021 and 2020, we had approximately $3.0 billion and $3.8 billion, respectively, of finite-lived intangible assets. For finite-lived intangible assets, we review the carrying amount at least annually to determine whether current events or circumstances indicate a triggering event which could require an adjustment to the carrying amount. A finite-lived intangible asset is considered to be impaired if its carrying value exceeds the estimated future undiscounted cash flows to be derived from it. We exercise judgment in selecting the assumptions used in the estimated future undiscounted cash flows analysis. Any impairment is measured by the amount that the carrying value of such assets exceeds their fair value.
As of November 30, 2021 and 2020, we had approximately $9.4 billion and $9.9 billion, respectively, of goodwill. For goodwill, we use both qualitative and quantitative analysis to determine whether we believe it is more likely than not that goodwill has been impaired. In 2021, we used a qualitative analysis for each reporting unit in determining that no impairment indicators were present. In 2020, we used a quantitative analysis in evaluating each of our reporting units, determining that we had a material excess of fair value over carrying value for each reporting unit. Our qualitative and quantitative analyses require a number of significant assumptions and judgments, including assumptions about future economic conditions, revenue growth, and operating margins, among other factors. The use of different estimates or assumptions could result in significantly different fair values for our goodwill and other intangible assets.
Table of Contents
Income Taxes. We exercise significant judgment in determining our provision for income taxes, current tax assets and liabilities, deferred tax assets and liabilities, future taxable income (for purposes of assessing our ability to realize future benefit from our deferred tax assets), our permanent reinvestment assertion regarding foreign earnings, and recorded reserves related to uncertain tax positions. A valuation allowance is established to reduce our deferred tax assets to the amount that is considered more likely than not to be realized through the generation of future taxable income and other tax planning opportunities. To the extent that a determination is made to establish or adjust a valuation allowance, the expense or benefit is recorded in the period in which the determination is made.
If actual results differ from estimates we have used, or if we adjust these estimates in future periods, our operating results and financial position could be materially affected.
We monitor and evaluate tax law changes; for example, the Tax Cuts and Jobs Act significantly changed existing U.S. tax law and included numerous provisions that affect our business. Subsequent regulations and interpretations can change our initial estimates and assumptions. We assess the impact of new guidance or regulations from U.K., U.S., and other tax authorities on our corporate structure and transactions between our consolidated entities. Adjustments to our consolidated financial statements are recognized as discrete income tax expense or benefit in the period the guidance is issued.
Stock-Based Compensation. Our stock plans provide for the grant of various equity awards, including performance-based awards. For time-based restricted stock unit grants, we calculate stock-based compensation cost by multiplying the grant date fair market value by the number of shares granted, reduced for estimated forfeitures. The estimated forfeiture rate is based on historical experience, and we periodically review our forfeiture assumptions based on actual experience.
For performance-based restricted stock unit grants, including those with a market-based adjustment factor, we calculate stock-based compensation cost by multiplying the grant date fair market value by the number of shares granted, reduced for estimated forfeitures. Each quarter, we evaluate the probability of the number of shares that are expected to vest and adjust our stock-based compensation expense accordingly.
Results of Operations
Total Revenue
Total revenue for 2021 increased 9 percent compared to the same period of 2020. Total revenue for 2020 decreased 3 percent compared to the same period of 2019. The table below displays the percentage point change in revenue due to organic, acquisitive, and foreign currency factors when comparing 2021 to 2020 and 2020 to 2019.
Increase (Decrease) in Total Revenue
(All amounts represent percentage points)
Organic
Acquisitive
Foreign
Currency
Organic revenue growth for 2021, compared to 2020, was led by strong performance in the Transportation segment as the economic environment continues to recover from the COVID-19 pandemic. Financial Services segment organic revenue growth was strong as well. We experienced negative organic revenue growth in the Resources segment for 2021, but organic revenue growth turned positive in the fourth quarter of 2021. CMS segment organic revenue growth accelerated in the fourth quarter of 2021, as well as benefiting from Boiler Pressure Vessel Code (“BPVC”) sales associated with the BPVC release in the third quarter of 2021.
Organic revenue growth in Financial Services for 2020, compared to 2019, was more than offset by either flat or negative organic revenue growth in the Resources, Transportation, and CMS segments, primarily due to the economic environment impacting Resources Upstream product offerings, the cancellations of Resources and Transportation events in the second quarter of 2020, and the off-year cycle of the BPVC biennial release. Additionally, our dealer-facing products in the Transportation segment were most negatively impacted in the second quarter of 2020, with recovery beginning in the third and fourth quarters of 2020.
The acquisition-related revenue decline for 2021 was primarily due to the divestiture of the Financial Services MarkitSERV business line to the OSTTRA joint venture on September 1, 2021. The acquisition-related revenue decline for 2020 was primarily due to the A&D business line divestiture that we completed at the beginning of 2020 and the TMT market
Table of Contents
intelligence assets divestiture in the third quarter of 2019, partially offset by the Agribusiness acquisition in the third quarter of 2019.
Foreign currency movements had a slightly positive effect on our 2021 revenue growth and a minimal effect on our 2020 revenue growth. Due to the extent of our global operations, foreign currency movements could continue to positively or negatively affect our results in the future.
Revenue by Segment
Year ended November 30,
% Change 2021 vs. 2020
% Change 2020 vs. 2019
(In millions, except percentages)
Revenue:
Financial Services
Transportation
Resources
CMS
Total revenue
As a percent of total revenue:
Financial Services
Transportation
Resources
CMS
The percentage change in revenue for each segment is due to the factors described in the following table.
(All amounts represent percentage points)
Organic
Acquisitive
Foreign
Currency
Organic
Acquisitive
Foreign
Currency
Financial Services revenue
Transportation revenue
Resources revenue
CMS revenue
Financial Services revenue experienced broad-based organic growth in both 2021 and 2020. Within our Information product offerings, we experienced 7 percent organic revenue growth in 2021 and 5 percent organic revenue growth in 2020, primarily due to continued strong demand for our pricing, reference data, and valuation offerings, as well as continued growth in our equities regulatory reporting and trading analytics platforms. Solutions organic revenue growth of 13 percent in 2021 benefited from robust market activity in equities and loan markets, combined with a broad-based rebound of investment by our customers in our software solutions and our corporate actions and regulatory and compliance offerings. Solutions organic revenue growth of 5 percent in 2020 was due to strength in global and private capital markets offerings, as well as in corporate actions offerings. Processing organic revenue growth of 9 percent for 2021 was driven by steady market activity in loan markets, partially offset by decreased derivative processing activity. Processing organic revenue growth of 2 percent in 2020 was primarily due to solid derivative processing activity in the second quarter of 2020 resulting from increased market volatility during that period.
Transportation revenue experienced very strong organic revenue growth in 2021. The dealer-facing portion of our automotive offerings experienced strong growth across CARFAX and automotiveMastermind, as we built back from the effects of the pandemic in 2020. Other parts of our automotive offerings, such as products supporting OEMs, parts manufacturers, and banking and insurance clients contributed organic revenue growth, albeit at a more stable pace. The Transportation organic revenue decline for 2020 was due to the onset of the COVID-19 pandemic in the second quarter of 2020. Revenue from the dealer-facing portion of our automotive offerings in the second quarter of 2020 was negatively impacted by our temporary price relief for dealer customers, a pause in new sales activity, and cancellations from financially distressed customers. Non-recurring Transportation organic revenue for 2020 declined significantly, primarily reflecting lower recall and marketing revenues. Our automotive product offerings continue to provide the largest contribution to Transportation revenue, and our diversification in used and new car product offerings allows for balanced opportunities for growth.
Table of Contents
Resources revenue declined slightly organically in 2021, with our Upstream product offerings continuing to be negatively impacted by constrained industry capital expenditure spend. The Upstream declines have been partially offset by the return of our CERAWeek energy conference, which we held virtually in March 2021, and organic growth from our Downstream offerings. The pronounced Resources organic revenue decline for 2020 was primarily a result of the COVID-19 pandemic, which resulted in significant pressure on the Upstream portion of our Resources revenue and the cancellation of our annual CERAWeek event in March 2020. Our Resources annual contract value (“ACV”), which represents the annualized value of recurring revenue contracts, increased $14 million during 2021, compared to a $74 million decrease during 2020.
CMS revenue experienced organic growth largely due to recurring revenue improvements in our Product Design offerings, as well as sales associated with the biennial release of the BPVC in the third quarter of 2021. CMS organic revenue growth for 2020 was flat compared to 2019, with recurring revenue improvements in Product Design offerings offset by the off-year cycle of the BPVC biennial release. The acquisitive revenue decline in 2020 was due to the TMT market intelligence assets divestiture.
Revenue by Transaction Type
Year ended November 30,
% Change 2021 vs. 2020
% Change 2020 vs. 2019
(In millions, except percentages)
Total
Organic
Total
Organic
Revenue:
Recurring fixed
Recurring variable
Non-recurring
Total revenue
As a percent of total revenue:
Recurring fixed
Recurring variable
Non-recurring
The recurring-based business represented 87 percent of total revenue in 2021, compared to 88 percent and 85 percent of total revenue in 2020 and 2019, respectively. Recurring revenue represents a steady and predictable source of revenue for us.
Recurring fixed revenue increased 7 percent and 2 percent organically for 2021 and 2020, respectively. Transportation recurring revenue increased 18 percent organically in 2021, compared to 3 percent in 2020, when growth was negatively affected by the effects of the COVID-19 pandemic. Financial Services offerings provided continued solid growth in 2021, with recurring fixed organic growth at 7 percent, compared to 6 percent in 2020. Resources recurring offerings declined 6 percent organically in 2021, compared to 3 percent in 2020, largely due to the effects of the COVID-19 pandemic on our customer base. CMS recurring offerings increased 4 percent in 2021, compared to 2 percent in 2020. Recurring variable revenue was comprised entirely of Financial Services revenue for all periods, and grew 12 percent organically in 2021 and 7 percent organically in 2020.
Non-recurring organic revenue increases for 2021 were primarily driven by strength in our Financial Services Solutions offerings, more normal activity in our Transportation offerings, the return of our annual conference events, and the BPVC release. Non-recurring revenue decreased 21 percent organically in 2020, due primarily to the COVID-19 pandemic that led to the cancellation of our large customer events in the second quarter of 2020, lower OEM activity within our Transportation segment, and lower energy consulting revenue, as well as a difficult year-over-year comparison in Financial Services and the off-year cycle of the BPVC biennial release.
Table of Contents
Operating Expenses
The following table shows our operating expenses and the associated percentages of revenue.
Year ended November 30,
% Change 2021 vs. 2020
% Change 2020 vs. 2019
(In millions, except percentages)
Operating expenses:
Cost of revenue
SG&A expense
Total cost of revenue and SG&A expense
Depreciation and amortization expense
As a percent of revenue:
Total cost of revenue and SG&A expense
Depreciation and amortization expense
Cost of Revenue and SG&A Expense
In managing our business, we evaluate our costs by type (e.g., salaries and benefits, facilities, IT) rather than by income statement classification. The decrease in absolute total cost of revenue and SG&A expense in 2020 was primarily due to the execution of cost reduction activities we put in place at the onset of the COVID-19 pandemic, with the 2021 increase in absolute total cost of revenue and SG&A returning to more normal levels as revenue improved. As a percent of revenue, cost of revenue and SG&A expense have been steadily decreasing, primarily because of the ongoing cost management and rationalization efforts associated with acquisition integration, as well as the incremental cost reduction efforts in 2020 to mitigate the effects of the COVID-19 pandemic, which cost reduction continued into 2021.
Within our cost of revenue and SG&A expense, stock-based compensation expense as a percentage of revenue was 5 percent, 6 percent, and 5 percent, respectively, for the years ended November 30, 2021, 2020, and 2019. The higher stock-based compensation percentage in 2020 was largely due to our higher share price, related employer tax impacts associated with the exercise of stock options, and accelerations for employees impacted by cost reduction activities.
Depreciation and Amortization Expense
Depreciation expense has been increasing primarily as a result of increases in capital expenditures for our various infrastructure and software development investments, while amortization expense has leveled off or decreased recently, as our last significant acquisition was in 2018.
Restructuring and Impairment Charges
Please refer to Note 11 to the Consolidated Financial Statements in this Annual Report on Form 10-K for a discussion of costs associated with our cost-reduction initiatives. In 2021, 2020, and 2019, we incurred approxim ately $31.4 million, $161.1 million, and $17.3 million, respectively, of direct and incremental costs associated with restructuring and impairment charges. The 2020 charges included employee severance and the abandonment or partial abandonment of various office locations around the world in response to the COVID-19 pandemic, which continued into 2021.
Acquisition-Related Costs
Please refer to Note 12 to the Consolidated Financial Statements in this Annual Report on Form 10-K for a discussion of our acquisition- and divestiture-related cost activities. In 2021, 2020, and 2019, we incurred $125.8 million, $45.3 million, and $70.3 million, respectively, of costs associated with acquisitions and divestitures, including employee severance charges and retention costs, contract termination costs for facility consolidations (prior to the adoption of ASC Topic 842), Synaps litigation settlement costs (in 2021), legal and professional fees, and compensation costs of $10.4 million in 2021, $6.9 million in 2020, and $41.5 million in 2019, related to the performance awards granted in connection with the purchase of aM. We expect to incur an additional $8 to $13 million of acquisition-related costs related to the aM performance awards over the next 12 months.
Other Income, Net
Table of Contents
Other income for 2021 includes an approximate $489 million gain on the divestiture of our MarkitSERV business line, with the remaining gain on sale coming from a small product-offering divestiture in November 2021. Other income for 2020 includes an approximate $377 million gain on sale of our Aerospace & Defense business line, and other income for 2019 includes an approximate $112 million gain on the sale of the majority of our Technology, Media & Telecom market intelligence assets portfolio.
Segment Adjusted EBITDA
Year ended November 30,
% Change 2021 vs. 2020
% Change 2020 vs. 2019
(In millions, except percentages)
Adjusted EBITDA:
Financial Services
Transportation
Resources
CMS
Shared services
Total Adjusted EBITDA
As a percent of segment revenue:
Financial Services
Transportation
Resources
CMS
Total Adjusted EBITDA for 2021 increased primarily due to strong Transportation and Financial Services revenue performance, as well as our cost containment efforts in the current COVID-19 pandemic environment, which containment efforts continued in 2021. We continue to focus our efforts on organic revenue growth and cost management to improve overall margins. Financial Services segment Adjusted EBITDA was largely flat, reflecting increased organic revenue growth, offset by increased investment in segment product offerings. The increase in Adjusted EBITDA for the Transportation segment was primarily due to organic revenue growth, which improved substantially compared to the prior year, when it was negatively impacted by the pandemic. Resources Adjusted EBITDA and associated margin decreased due to the organic revenue decline as a result of the COVID-19 pandemic, and CMS Adjusted EBITDA and margin declined slightly due to lower margins associated with BPVC sales, as well as product offering mix shift.
Total Adjusted EBITDA for 2020 increased primarily because of the leverage in our business model and cost reduction efforts, partially offset by the sale of our A&D business line and the impact of the COVID-19 pandemic and the associated economic disruption on our revenue growth. Financial Services segment Adjusted EBITDA and associated margin increased because of organic revenue growth, favorable product mix, and cost management activities related to the pandemic. Transportation segment Adjusted EBITDA was lower due to the negative organic revenue growth in 2020 as a result of the COVID-19 pandemic, as well as the first quarter 2020 divestiture of the A&D business line; however, Transportation Adjusted EBITDA margin increased as we carefully managed costs in a lower revenue environment. Resources Adjusted EBITDA and associated margin decreased due to the slowdown in organic revenue growth as a result of the COVID-19 pandemic.
Provision for Income Taxes
Our effective tax rate for continuing operations for the year ended November 30, 2021 was 10.1 percent, compared to 1.5 percent in 2020 and 32.7 percent in 2019.
The increase in our tax rate for 2021, compared to 2020, is primarily due to a decrease in excess tax benefits on stock-based compensation of approximately $68 million, partially offset by the tax-efficientdivestiture of the MarkitSERV business line (U.K. share sales are exempt from tax) and an increase in the R&D tax credit.
The decrease in our tax rate for 2020, compared to 2019, is primarily due to an increase in excess tax benefits on stock-based compensation of approximately $51 million and the tax-efficientdivestiture of the A&D business line (U.K. share sales are exempt from tax), partially offset by U.S. minimum tax and a U.K. tax rate change.
Table of Contents
Please refer to Note 1 3 to the Consolidated Financial Statements in this Annual Report on Form 10-K for further information about our income taxes.
EBITDA and Adjusted EBITDA (non-GAAP measure)
Year ended November 30,
% Change 2021 vs. 2020
% Change 2020 vs. 2019
(In millions, except percentages)
Net income attributable to IHS Markit Ltd.
Interest income
Interest expense
Provision (benefit) for income taxes
Depreciation
Amortization
EBITDA
Stock-based compensation expense
Restructuring and impairment charges
Acquisition-related costs
Acquisition-related performance compensation
Loss on debt extinguishment
Gain on sale of assets
Pension mark-to-market and settlement expense
Adjusted EBITDA impacts from equity-method investments and noncontrolling interests
Adjusted EBITDA
Adjusted EBITDA as a percentage of revenue
As a percentage of revenue, Adjusted EBITDA increased 80 basis points in 2021 and 250 basis points in 2020. The 2021 increase was primarily due to organic revenue growth without proportionate growth in expense as we continued to focus on cost management activities as a result of COVID-19 and the current economic environment. The 2020 increase was primarily due to cost reduction efforts to moderate the negative impact of revenue declines from COVID-19 and the economic environment.
Financial Condition
(In millions, except percentages)
As of November 30, 2021
As of November 30, 2020
Dollar change
Percent change
Accounts receivable, net
Accrued compensation
Deferred revenue
The increase in accrued compensation is primarily due to a higher current year accrual for employee bonuses due to improved financial results in 2021 after a difficult 2020. The deferred revenue increase was primarily due to year-over-year organic revenue growth.
Liquidity and Capital Resources
Our principal sources of liquidity include cash generated by operating activities, cash and cash equivalents on the balance sheet, and amounts available under a revolving credit facility. As of November 30, 2021, we had cash and cash equivalents of $293 million. In 2021, we generated nearly $1.5 billion in net cash from operating activities. As of November 30, 2021, we had approximately $1.3 billion available under our revolving credit facility.
We had approximately $4.65 billion of debt as of November 30, 2021, consisting almost entirely of senior notes. See “ Item 8 - Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 10 ” in Part II of this Form 10-K for additional information about our debt obligations, including maturity dates, interest rates, and other terms
Table of Contents
and conditions. In 2022, approximately $748.2 million of our senior notes will come due. We paid approximately $212.4 million in interest during 2021, and we anticipate paying slightly less in interest in 2022. Our interest expense decreased in 2021 and 2020, primarily due to lower floating interest rates and decreased borrowings on our revolving facility debt. Subject to certain exceptions, the merger agreement with S&P Global restricts our ability to borrow more than $500 million in the aggregate without the prior consent of S&P Global.
On November 16, 2021, S&P Global announced that, in connection with the merger, S&P Global Market Intelligence Inc. (“Market Intelligence”), a wholly owned subsidiary of S&P Global, commenced (i) offers to exchange (collectively, the “Exchange Offers”) any and all outstanding notes (the “IHS Markit Notes”) issued by IHS Markit for up to $4,642,848,000 aggregate principal amount of new notes to be issued by S&P Global and cash and (ii) the related solicitations of consents (collectively, the “Consent Solicitations”) to adopt the Amendments (as defined below) in each of the IHS Markit Indentures (as defined below) governing the IHS Markit Notes. On December 1, 2021, S&P Global announced that the requisite number of consents have been received to adopt the Amendments with respect to all outstanding series of IHS Markit Notes, which results were based on early tenders in the Exchange Offers and Consent Solicitations. Following the receipt of the requisite consents, on November 30, 2021, IHS Markit entered into supplemental indentures (the “Supplemental Indentures”) relating to each of (i) the senior notes indenture, dated as of July 28, 2016, among IHS Markit, the guarantors party thereto and Computershare Trust Company, N.A., as successor to Wells Fargo Bank, National Association, as trustee (in such capacity, the “Trustee”), (ii) the senior notes indenture, dated as of February 9, 2017, among IHS Markit, the guarantors party thereto and the Trustee, (iii) the senior notes indenture, dated as of December 1, 2017, among IHS Markit, the guarantors party thereto and the Trustee and (iv) the senior indenture, dated as of July 23, 2018, between IHS Markit and the Trustee (collectively, the “IHS Markit Indentures”) governing the IHS Markit Notes. The proposed amendments (the “Amendments”) contained in the Supplemental Indentures amend the IHS Markit Indentures to, among other things, eliminate from each IHS Markit Indenture (i) substantially all of the restrictive covenants, (ii) certain of the events which may lead to an “Event of Default”, (iii) the SEC reporting covenant, (iv) the restrictions on IHS Markit consolidating with or merging into another person or conveying, transferring or leasing all or any of its properties and assets to any person and (v) the obligation to offer to repurchase the IHS Markit Notes upon certain change of control transactions. The Supplemental Indentures provide that the Amendments become effective and binding upon execution and delivery thereof by the parties thereto, but will only become operative upon consummation and settlement of the Exchange Offers, which are conditioned upon, among other things, the consummation of the merger.
Our Board of Directors approved quarterly cash dividends of $0.20 per share during each quarter in 2021 and $0.17 per share during each quarter of 2020, which resulted in approximately $318.6 million and $270.4 million of cash payouts during 2021 and 2020, respectively. Any quarterly dividends paid in 2022 are limited by the merger agreement to $0.20 per share. Please refer to Part II, Item 5 of this Form 10-K for a discussion of our dividend policy.
Our Board of Directors authorized a share repurchase program of up to $2.5 billion of IHS Markit common shares through November 30, 2021, to be funded using our existing cash, cash equivalents, marketable securities, and future cash flows, or through the incurrence of short- or long-term indebtedness, at management’s discretion. The merger agreement with S&P Global restricted our ability to purchase our shares through this program through November 30, 2021. The repurchase program expired on November 30, 2021, and we do not intend to authorize a new share repurchase program due to the pending merger with S&P Global. Please refer to Part II, Item 5 and “ Item 8 - Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 17 ” in Part II of this Form 10-K for additional information about our share repurchase programs.
Our Board of Directors has separately authorized, subject to applicable regulatory requirements, the repurchase of our common shares surrendered by employees in an amount equal to the exercise price, if applicable, and statutory tax liability associated with the vesting of their equity awards, for which we pay the statutory tax on behalf of the employee and forgo receipt of the exercise price of the award from the employee, if applicable.
See “ Item 8 - Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 7 ” in Part II of this Form 10-K for information about our lease obligations, including maturities of operating lease obligations. In 2022, we expect to pay approximately $59.2 million for our operating lease obligations.
We also have material cash requirements for noncancellable purchase commitments and other executory contracts associated with the normal conduct of our business operations. As a result of the pending merger with S&P Global, we have been striving to manage our contract renewal periods to one year in order to minimize potential duplicative costs post-merger. For 2022 through 2026, we anticipate making annual payments of approximately $80-$90 million related to these commitments.
In 2022, we expect to pay cash to acquire the remaining aM equity interests. The amount of cash to be paid is based on put/call provisions that tie the valuation to underlying adjusted EBITDA performance of aM. Based on our current estimates, we believe that the purchase price for the remaining equity interests will be approximately $55 million to $60 million.
Table of Contents
Based on our cash, debt, and cash flow positions, we believe that we will have sufficient liquidity to meet our ongoing working capital and material cash requirements. We do not believe that the merger agreement restrictions related to borrowings, share repurchases, or dividends will impact our liquidity to meet our ongoing working capital and material cash requirements. Our future cash requirements will depend on many factors, including the number and magnitude of future acquisitions, amount of share repurchases and dividends, the need for additional facilities or facility improvements, the timing and extent of spending to support product development efforts, information technology infrastructure investments, investments in our internal business applications, and the continued market acceptance of our offerings. We could be required, or could elect, to seek additional funding through public or private equity or debt financings; however, additional funds may not be available on terms acceptable to us. We are focused on maintaining higher levels of liquidity and capital structure flexibility, particularly as we anticipate the close of our merger with S&P Global. We maintain a solid balance sheet, investment grade rating, a well-positioned debt maturity ladder, and a strong diversified bank group. We expect to continue to operate within our capital policy target range of 2.0x-3.0x gross leverage.
Cash Flows
Year ended November 30,
% Change 2021 vs. 2020
% Change 2020 vs. 2019
(In millions, except percentages)
Net cash provided by operating activities
Net cash (used in) provided by investing activities
Net cash used in financing activities
The increase in net cash provided by operating activities in 2021 was primarily due to improved working capital as we began recovering from the effects of the COVID-19 pandemic. In addition, we made various payments in 2020 that did not repeat in 2021: acquisition-related performance compensation associated with the aM acquisition, distributions associated with the settlement of our U.S. and U.K. pension plans, higher payroll tax payments on stock option exercises, and tax payments associated with divestiture activities. The decrease in net cash provided by operating activities in 2020 was primarily due to those same activities that were unique to 2020, as well as cash payments related to restructuring activities and negative impacts on working capital as a result of COVID-19 market conditions.
The decrease in net cash provided by investing activities in 2021 was primarily due to the current year acquisition of Cappitech, investment in Gen II, and incremental cash buy-up for the OSTTRA joint venture and no significant cash divestiture activities in 2021 (the A&D business line was divested in the first quarter of 2020). The increase in net cash provided by investing activities in 2020 was primarily due to the sale of the A&D business line.
The decrease in net cash used in financing activities is primarily due to the decrease in share repurchases in 2021, compared to 2020 (the merger agreement with S&P Global restricted our ability to repurchase our shares in 2021), partially offset by higher proceeds from stock option exercises in 2020 and higher dividend payouts in 2021. The increase in net cash used in financing activities in 2020 is primarily due to the $950 million in share repurchases that we made, as well as our $270 million in dividend payouts.
Free Cash Flow (non-GAAP measure)
The following table reconciles our non-GAAP free cash flow measure to net cash provided by operating activities.
Year ended November 30,
% Change 2021 vs. 2020
% Change 2020 vs. 2019
(In millions, except percentages)
Net cash provided by operating activities
Payments for acquisition-related performance compensation
Capital expenditures on property and equipment
Free cash flow
The increase in 2021 free cash flow was primarily due to increased operating performance and working capital balances, as well as the absence of one-time pension and tax payments that were paid in the prior year. The payments for acquisition-related performance compensation in 2020 are associated with the exercise of put provisions by aM equity interest holders. The decrease in free cash flow in 2020 was primarily due to distributions associated with the settlement of our U.S. and U.K.
Table of Contents
pension plans, cash payments related to restructuring activities, and negative impacts on working capital from COVID-19 market conditions.
Our free cash flow has historically been positive due to the robust cash generation attributes of our business model, and we expect that it will continue to be a significant source of funding for our business strategy of growth through organic and acquisitive means.
Recent Accounting Pronouncements
Please refer to “ Item 8 - Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 2 ” in Part II of this Form 10-K for a discussion of recent accounting pronouncements and their anticipated effect on our business.
