Attached files

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EX-32 - CEO/CFO CERTIFICATION - IHS Markit Ltd.ex32q118.htm
EX-31.2 - CFO CERTIFICATION - IHS Markit Ltd.ex312q118.htm
EX-31.1 - CEO CERTIFICATION - IHS Markit Ltd.ex311q118.htm
EX-10.5 - 2018 FORM OF PSU - IHS Markit Ltd.ex1052018psuformofaward.htm
EX-10.4 - 2018 FORM OF RSU - IHS Markit Ltd.ex1042018rsuformofaward.htm
EX-10.3 - GEAR EMPLOYMENT TERMS - IHS Markit Ltd.ex103geartermsofemployment.htm
EX-10.2 - KANSLER EMPLOYMENT TERMS - IHS Markit Ltd.ex102kanslertermsofemploym.htm
EX-10.1 - SECOND AMENDMENT UGGLA - IHS Markit Ltd.ex101secondamendment.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ___________________________________________________
FORM 10-Q
  ___________________________________________________
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2018

OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 001-36495
 ___________________________________________________
IHS MARKIT LTD.
(Exact name of registrant as specified in its charter) 
 ___________________________________________________
Bermuda
001-36495
98-1166311
(State or Other Jurisdiction of Incorporation or Organization)
(Commission File Number)
(IRS Employer Identification Number)

4th Floor, Ropemaker Place
25 Ropemaker Street
London, England
EC2Y 9LY
(Address of Principal Executive Offices)

+44 20 7260 2000
(Registrant’s telephone number, including area code)
 ___________________________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    o  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    o  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
x
Accelerated filer
 
o
 
 
 
 
Non-accelerated filer
 
o  (Do not check if a smaller reporting company)
Smaller reporting company
 
o
 
 
 
 
 
 
 
 
 
Emerging growth company
 
o



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    o  Yes    x  No
As of February 28, 2018, there were 399,825,076 Common Shares outstanding (excluding 25,219,470 outstanding common shares held by the Markit Group Holdings Limited Employee Benefit Trust).



TABLE OF CONTENTS
 

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). In this context, forward-looking statements often address expected future business and financial performance and financial condition, and often contain words such as “anticipate,” “intend,” “plan,” “goal,” “seek,” “aim,” “strive,” “believe,” “see,” “project,” “predict,” “estimate,” “expect,” “continue,” “strategy,” “future,” “likely,” “may,” “might,” “should,” “will,” “would,” “target,” similar expressions, and variations or negatives of these words. Examples of forward-looking statements include, among others, statements we make regarding: guidance and predictions relating to expected operating results, such as revenue growth and earnings; strategic actions, including acquisitions and dispositions, anticipated benefits from strategic actions including the merger between IHS Inc. and Markit Ltd., and our success in integrating acquired businesses; anticipated levels of capital expenditures in future periods; our belief that we have sufficient liquidity to fund our ongoing business operations; expectations of the effect on our financial condition of claims, litigation, environmental costs, contingent liabilities and governmental and regulatory investigations and proceedings; and our strategy for customer retention, growth, product development, market position, financial results, and reserves. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations, and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict and many of which are outside of our control. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: economic and financial conditions, including volatility in interest and exchange rates; our ability to develop new products and services; our ability to manage system failures or capacity constraints; our ability to successfully manage risks associated with changes in demand for our products and services; our ability to manage our relationships with third party service providers; legislative, regulatory and economic developments, including any new or proposed U.S. Treasury rule changes; the extent to which we are successful in gaining new long-term relationships with customers or retaining existing ones and the level of service failures that could lead customers to use competitors’ services; the anticipated tax treatment, unforeseen liabilities, future capital expenditures, revenues, expenses, earnings, synergies, economic performance, indebtedness, financial condition, losses, future prospects, business and management strategies for the management, expansion and growth of our operations; our ability to integrate the business successfully and to achieve anticipated synergies; our ability to retain and hire key personnel; our ability to satisfy our debt obligations and our other ongoing business obligations; and the occurrence of any catastrophic events, including acts of terrorism or outbreak of war or hostilities. These risks, as well as other risks, are more fully discussed under the caption “Risk Factors” in our Annual Report on Form 10-K, along with our other filings with the U.S. Securities and Exchange Commission (“SEC”). While the list of factors presented here is considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements. Consequences of material differences in results as compared with those anticipated

2


in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material adverse effect on our consolidated financial condition, results of operations, credit rating or liquidity. Therefore, you should not rely on any of these forward-looking statements.

Any forward-looking statement made by us in this Quarterly Report on Form 10-Q is based only on information currently available to us and speaks only as of the date of this report. We do not assume any obligation to publicly provide revisions or updates to any forward-looking statements, whether as a result of new information, future developments or otherwise, should circumstances change, except as otherwise required by securities and other applicable laws.

Website and Social Media Disclosure
 
We use our website (www.ihsmarkit.com) and corporate Twitter account (@IHSMarkit) as routine channels of distribution of company information, including news releases, analyst presentations, and supplemental financial information, as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor our website and our corporate Twitter account in addition to following press releases, SEC filings and public conference calls and webcasts. Additionally, we provide notifications of news or announcements as part of our investor relations website. Investors and others can receive notifications of new information posted on our investor relations website in real time by signing up for email alerts.

None of the information provided on our website, in our press releases, public conference calls and webcasts, or through social media channels is incorporated into, or deemed to be a part of, this quarterly report on Form 10-Q or in any other report or document we file with the SEC, and any references to our website or our social media channels are intended to be inactive textual references only.

 


3


PART I.   FINANCIAL INFORMATION
Item 1.
Financial Statements
IHS MARKIT LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except par value)
 
As of
 
As of
 
February 28, 2018
 
November 30, 2017
 
(Unaudited)
 
(Audited)
Assets

 

Current assets:

 

Cash and cash equivalents
$
156.0

 
$
133.8

Accounts receivable, net
802.7

 
693.5

Income tax receivable
34.4

 
31.9

Deferred subscription costs
78.0

 
62.8

Other current assets
94.7

 
93.0

Total current assets
1,165.8

 
1,015.0

Non-current assets:

 

Property and equipment, net
539.7

 
531.3

Intangible assets, net
4,128.6

 
4,188.3

Goodwill
8,810.4

 
8,778.5

Deferred income taxes
11.1

 
7.1

Other
41.1

 
34.2

Total non-current assets
13,530.9

 
13,539.4

Total assets
$
14,696.7

 
$
14,554.4

Liabilities and equity


 


Current liabilities:

 

Short-term debt
$
90.9

 
$
576.0

Accounts payable
50.1

 
53.4

Accrued compensation
59.7

 
157.4

Other accrued expenses
351.9

 
323.0

Income tax payable
8.5

 
5.5

Deferred revenue
919.3

 
790.8

Total current liabilities
1,480.4

 
1,906.1

Long-term debt, net
4,186.1

 
3,617.3

Accrued pension and postretirement liability
31.6

 
31.8

Deferred income taxes
691.0

 
869.8

Other liabilities
136.9

 
105.9

Commitments and contingencies

 

Redeemable noncontrolling interests
8.4

 
19.1

Shareholders' equity:

 

Common shares, $0.01 par value, 3,000.0 authorized, 472.2 and 468.7 issued, and 399.8 and 399.2 outstanding at February 28, 2018 and November 30, 2017, respectively
4.7

 
4.7

Additional paid-in capital
7,611.8

 
7,612.1

Treasury shares, at cost: 72.4 and 69.5 at February 28, 2018 and November 30, 2017, respectively
(1,889.3
)
 
(1,745.0
)
Retained earnings
2,464.8

 
2,217.6

Accumulated other comprehensive loss
(29.7
)
 
(85.0
)
Total shareholders' equity
8,162.3

 
8,004.4

Total liabilities and equity
$
14,696.7

 
$
14,554.4

See accompanying notes.

4


IHS MARKIT LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions, except for per-share amounts)
 
 
 
Three months ended February 28,
 
 
2018
 
2017
Revenue
 
$
932.1

 
$
844.2

Operating expenses:
 
 
 
 
Cost of revenue
 
342.9

 
327.0

Selling, general and administrative
 
290.3

 
268.0

Depreciation and amortization
 
130.6

 
120.8

Restructuring charges
 

 
(0.2
)
Acquisition-related costs
 
27.0

 
31.6

Net periodic pension and postretirement expense
 
0.2

 
0.4

Other expense, net
 
1.4

 
0.9

Total operating expenses
 
792.4

 
748.5

Operating income
 
139.7

 
95.7

Interest income
 
0.7

 
0.5

Interest expense
 
(46.3
)
 
(31.8
)
Non-operating expense, net
 
(45.6
)
 
(31.3
)
Income from continuing operations before income taxes and equity in loss of equity method investee
 
94.1

 
64.4

Benefit for income taxes
 
146.6

 
3.6

Equity in loss of equity method investee
 

 
(2.0
)
Net income
 
240.7

 
66.0

Net loss attributable to noncontrolling interest
 
0.6

 

Net income attributable to IHS Markit Ltd.
 
$
241.3

 
$
66.0

 
 
 
 
 
Basic earnings per share attributable to IHS Markit Ltd.
 
$
0.61

 
$
0.16

Weighted average shares used in computing basic earnings per share
 
398.0

 
406.2

 
 
 
 
 
Diluted earnings per share attributable to IHS Markit Ltd.
 
$
0.59

 
$
0.16

Weighted average shares used in computing diluted earnings per share
 
412.1

 
422.2


See accompanying notes.


5




IHS MARKIT LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In millions)

 
 
Three months ended February 28,
 
 
2018
 
2017
Net income
 
$
240.7

 
$
66.0

Other comprehensive income (loss), net of tax:
 
 
 
 
Net hedging activities (1)
 
4.8

 
3.0

Foreign currency translation adjustment
 
56.4

 
(24.9
)
Total other comprehensive income (loss)
 
61.2

 
(21.9
)
Comprehensive income
 
$
301.9

 
$
44.1

Comprehensive loss attributable to noncontrolling interest
 
0.6

 

Comprehensive income attributable to IHS Markit Ltd.
 
$
302.5

 
$
44.1

(1) Net of tax expense of $1.2 million and $0.8 million for the three months ended February 28, 2018 and 2017, respectively.


See accompanying notes.

6



IHS MARKIT LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
 
 
Three months ended February 28,
 
2018
 
2017
Operating activities:

 

Net income
$
240.7

 
$
66.0

Reconciliation of net income to net cash provided by operating activities:

 

Depreciation and amortization
130.6

 
120.8

Stock-based compensation expense
61.9

 
75.2

Net periodic pension and postretirement expense
0.2

 
0.4

Undistributed earnings of affiliates, net

 
1.4

Pension and postretirement contributions
(0.5
)
 
(0.6
)
Deferred income taxes
(187.9
)
 
8.8

Change in assets and liabilities:
 
 
 
Accounts receivable, net
(110.6
)
 
(16.7
)
Other current assets
(20.7
)
 
(40.9
)
Accounts payable
(1.1
)
 
(12.6
)
Accrued expenses
(67.2
)
 
(68.9
)
Income tax
29.3

 
(21.9
)
Deferred revenue
125.3

 
137.4

Other liabilities
2.9

 
2.3

Net cash provided by operating activities
202.9

 
250.7

Investing activities:

 

Capital expenditures on property and equipment
(55.2
)
 
(71.7
)
Intangible assets acquired
(3.1
)
 

Change in other assets
0.1

 
2.6

Settlements of forward contracts
3.1

 
2.7

Net cash used in investing activities
(55.1
)
 
(66.4
)
Financing activities:

 

Proceeds from borrowings
745.0

 
1,395.0

Repayment of borrowings
(657.0
)
 
(1,057.5
)
Payment of debt issuance costs
(7.0
)
 
(9.5
)
Payments for purchase of noncontrolling interests
(7.7
)
 

Proceeds from the exercise of employee stock options
56.9

 
97.3

Payments related to tax withholding for stock-based compensation
(76.6
)
 
(67.0
)
Repurchases of common shares
(172.5
)
 
(524.9
)
Net cash used in financing activities
(118.9
)
 
(166.6
)
Foreign exchange impact on cash balance
(6.7
)
 
(1.8
)
Net increase in cash and cash equivalents
22.2

 
15.9

Cash and cash equivalents at the beginning of the period
133.8

 
138.9

Cash and cash equivalents at the end of the period
$
156.0

 
$
154.8


See accompanying notes.

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IHS MARKIT LTD.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Unaudited)
(In millions)
 
 
Common Shares
 
Additional
Paid-In
Capital
 
 
 
 
 
Accumulated Other
Comprehensive
Loss
 
Total Shareholders’ Equity
 
 
Redeemable Noncontrolling Interests
 
Shares Outstanding
 
Amount
 
 
Treasury
Shares
 
Retained
Earnings
 
 
 
 
Balance at November 30, 2017 (Audited)
399.2

 
$
4.7

 
$
7,612.1

 
$
(1,745.0
)
 
$
2,217.6

 
$
(85.0
)
 
$
8,004.4

 
 
$
19.1

Repurchases of common shares
(3.9
)
 

 

 
(172.5
)
 

 

 
(172.5
)
 
 

Share-based award activity
2.1

 

 
(56.8
)
 
28.2

 

 

 
(28.6
)
 
 

Option exercises
2.4

 

 
56.5

 

 

 

 
56.5

 
 

Net income (loss)

 

 

 

 
241.3

 

 
241.3

 
 
(0.6
)
Impact of the Tax Cuts and Jobs Act of 2017

 

 

 

 
5.9

 
(5.9
)
 

 
 

Purchase of noncontrolling interests

 

 

 

 

 

 

 
 
(10.1
)
Other comprehensive income

 

 

 

 

 
61.2

 
61.2

 
 

Balance at February 28, 2018
399.8

 
$
4.7

 
$
7,611.8

 
$
(1,889.3
)
 
$
2,464.8

 
$
(29.7
)
 
$
8,162.3

 
 
$
8.4

See accompanying notes.


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IHS MARKIT LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1.
Basis of Presentation and Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements of IHS Markit have been prepared on substantially the same basis as our annual consolidated financial statements and should be read in conjunction with our Annual Report on Form 10-K for the year ended November 30, 2017. In our opinion, these condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented, and such adjustments are of a normal, recurring nature.

Our business has seasonal aspects. Our first quarter generally has our lowest quarterly levels of revenue and profit. We also experience event-driven seasonality in our business; for instance, CERAWeek, an annual energy conference, is typically held in the second quarter of each year. Another example is the biennial release of the Boiler Pressure Vessel Code (“BPVC”) engineering standard, which generates revenue for us predominantly in the third quarter of every other year. The most recent BPVC release was in the third quarter of 2017.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, which establishes a comprehensive new revenue recognition model designed to depict the transfer of goods or services to a customer in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In March, April, and May 2016, the FASB issued ASU 2016-08, ASU 2016-10, and ASU 2016-12, respectively, which provide further revenue recognition guidance related to principal versus agent considerations, performance obligations and licensing, and narrow-scope improvements and practical expedients. All of these standards will be effective for us in the first quarter of our fiscal year 2019. We have determined that we will use the modified retrospective transition method upon adoption. We are currently in the contract review and assessment phase of our implementation planning, and are continuing to evaluate the impact of these new standards on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, which requires that lease assets and lease liabilities be recognized on the balance sheet, and that key information about leasing arrangements be disclosed. The ASU requires the use of a modified retrospective transition method. The standard will be effective for us in the first quarter of our fiscal year 2020, although early adoption is permitted. We are currently evaluating the impact of this new standard on our consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, which clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The ASU should be applied using a retrospective transition method to each period presented. The standard will be effective for us in the first quarter of our fiscal year 2019, although early adoption is permitted. We are currently evaluating the impact of this new standard on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The standard will be effective for us in the first quarter of our fiscal 2019. We do not expect that the adoption of this ASU will have a significant impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, which removes Step 2 from the goodwill impairment test. The standard will be effective for us in the first quarter of our fiscal 2021, although early adoption is permitted. We do not expect that the adoption of this ASU will have a significant impact on our consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, which requires that the service cost component of pension expense be included in the same line item as other compensation costs arising from services rendered by employees, with the other components of pension expense being classified outside of a subtotal of income from operations. The standard will be effective for us in the first quarter of our fiscal year 2019. We do not expect that the adoption of this ASU will have a significant impact on our consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The standard will be effective for us in the first quarter of our fiscal year 2019. We do not expect that the adoption of this ASU will have a significant impact on our consolidated financial statements.

9



In August 2017, the FASB issued ASU 2017-12, which provides targeted improvements to the accounting for hedging activities to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The standard will be effective for us in the first quarter of our fiscal year 2020, although early adoption is permitted. We do not expect that the adoption of this ASU will have a significant impact on our consolidated financial statements.

In December 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) to provide guidance on the application of U.S. generally accepted accounting principles (“GAAP”) in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to finalize the calculations for the income tax effects of the U.S. Tax Cuts and Jobs Act of 2017 (“the Act”). SAB 118 provides entities with a one-year measurement period from the December 22, 2017 enactment date to complete the accounting for the effects of the Act - see Note 8.

In February 2018, the FASB issued ASU 2018-02, which provides entities with the option to eliminate the stranded tax effects associated with the change in tax rates under the Act through a reclassification of the stranded tax effects from accumulated other comprehensive income (“AOCI”) to retained earnings. This ASU is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. We have elected to early adopt this standard in the first quarter of our fiscal year 2018, which resulted in the reclassification of $5.9 million from AOCI to retained earnings.

2.
Business Combinations

In September 2017, we acquired automotiveMastermind Inc. (“aM”), a leading provider of predictive analytics and marketing automation software for the automotive industry. The purchase price consisted of initial cash consideration of approximately $433 million for 78 percent of aM, which includes an estimated $44 million contingent consideration payment based on underlying business performance through January 2018, to be paid in the second quarter of 2018. The contingent consideration liability is recorded within other current liabilities in our consolidated balance sheet. The acquisition of aM helps to fill out our existing automotive offerings by leveraging predictive analytics to improve the buyer experience in the new car dealer market. This acquisition is included in our Transportation segment.

In exchange for the remaining 22 percent of aM, we issued equity interests in aM’s immediate parent holding company to aM’s founders and certain employees. We will pay cash to acquire these interests over the next five years based on put/call provisions that tie the valuation to underlying adjusted EBITDA performance of aM. Since the purchase of the remaining 22 percent of the business requires continued service of the founders and employees, the arrangement will be treated as compensation expense that will be remeasured based on changes in the fair value of the equity interests; we have classified this expense as acquisition-related costs within the consolidated statements of operations and we have classified the associated accrued liability as other liabilities within the consolidated balance sheets. We have preliminarily estimated a range of $200 million to $225 million of unrecognized compensation expense related to this transaction that will be recognized over a weighted-average recognition period of approximately 4 years.

In September 2017, we also acquired Macroeconomic Advisers, a small independent research firm that specializes in monitoring, analyzing and forecasting developments in the U.S. economy. The purchase price allocation for these acquisitions is preliminary and may change upon completion of the determination of fair value of assets acquired and liabilities assumed. The following table summarizes the preliminary purchase price allocation, net of acquired cash, for these two acquisitions (in millions):


10


 
Total
Assets:
 
Current assets
$
7.3

Property and equipment
1.1

Intangible assets
113.8

Goodwill
370.7

Other long-term assets
0.9

Total assets
493.8

Liabilities:
 
Current liabilities
4.6

Deferred revenue
1.4

Deferred taxes
42.9

Total liabilities
48.9

Purchase price
$
444.9


3.
Intangible Assets

The following table presents details of our intangible assets, other than goodwill, as of February 28, 2018 and November 30, 2017 (in millions): 
 
As of February 28, 2018
 
As of November 30, 2017
 
Gross
 
Accumulated
Amortization
 
Net
 
Gross
 
Accumulated
Amortization
 
Net
Intangible assets subject to amortization:
 
 
 
 
 
 
 
 
 
 
 
Information databases
$
756.4

 
$
(360.5
)
 
$
395.9

 
$
753.7

 
$
(340.2
)
 
$
413.5

Customer relationships
2,977.3

 
(387.7
)
 
2,589.6

 
2,957.8

 
(348.6
)
 
2,609.2

Developed technology
836.7

 
(88.6
)
 
748.1

 
827.6

 
(73.4
)
 
754.2

Developed computer software
85.7

 
(56.6
)
 
29.1

 
85.6

 
(54.3
)
 
31.3

Trademarks
490.2

 
(125.7
)
 
364.5

 
488.9

 
(111.4
)
 
377.5

Other
8.3

 
(6.9
)
 
1.4

 
8.3

 
(5.7
)
 
2.6

Total intangible assets
$
5,154.6

 
$
(1,026.0
)
 
$
4,128.6

 
$
5,121.9

 
$
(933.6
)
 
$
4,188.3


Intangible assets amortization expense was $89.0 million for the three months ended February 28, 2018, compared to $84.7 million for the three months ended February 28, 2017. The following table presents the estimated future amortization expense related to intangible assets held as of February 28, 2018 (in millions):
Year
 
Amount
Remainder of 2018
 
$
260.4

2019
 
$
321.0

2020
 
$
313.7

2021
 
$
308.3

2022
 
$
289.2

Thereafter
 
$
2,636.0

Goodwill, gross intangible assets, and net intangible assets were all subject to foreign currency translation effects. The change in net intangible assets from November 30, 2017 to February 28, 2018 was primarily due to current year amortization.


11


4.
Debt

The following table summarizes total indebtedness, including unamortized premiums, as of February 28, 2018 and November 30, 2017 (in millions):
 
 
February 28, 2018
 
November 30, 2017
2016 revolving facility
 
$
990.0

 
$
886.0

2016 term loan:
 
 
 
 
Tranche A-1
 
606.8

 
615.0

Tranche A-2
 
508.8

 
515.6

2017 term loan
 

 
500.0

5.00% senior notes due 2022
 
750.0

 
750.0

4.75% senior notes due 2025
 
815.3

 
815.8

4.00% senior notes due 2026
 
500.0

 

Institutional senior notes:
 
 
 
 
Series A
 
95.7

 
95.8

Series B
 
53.7

 
53.7

Debt issuance costs
 
(47.0
)
 
(42.8
)
Capital leases
 
3.7

 
4.2

Total debt
 
$
4,277.0

 
$
4,193.3

Current portion
 
(90.9
)
 
(576.0
)
Total long-term debt
 
$
4,186.1

 
$
3,617.3


2016 revolving facility. In July 2016, we entered into a $1.85 billion senior unsecured revolving credit agreement (“2016 revolving facility”). Borrowings under the 2016 revolving facility mature in July 2021. The interest rates for borrowings under the 2016 revolving facility are the applicable LIBOR plus a spread of 1.00 percent to 1.75 percent, depending upon our Leverage Ratio, which is defined as the ratio of Consolidated Funded Indebtedness to rolling four-quarter Consolidated Earnings Before Interest Expense, Taxes, Depreciation and Amortization (“EBITDA”), as such terms are defined in the revolving facility agreement. A commitment fee on any unused balance is payable periodically and ranges from 0.13 percent to 0.30 percent based upon our Leverage Ratio. We had approximately $1.6 million of outstanding letters of credit under the 2016 revolving facility as of February 28, 2018, which reduces the available borrowing under the facility by an equivalent amount.

2016 term loan. In July 2016, we entered into a $1.206 billion senior unsecured amortizing term loan agreement (“2016 term loan”). The 2016 term loan has a final maturity date of July 2021. The interest rates for borrowings under the 2016 term loan are the same as those under the 2016 revolving facility.

Subject to certain conditions, the 2016 revolving facility and the 2016 term loan may be expanded by up to an aggregate of $500 million in additional commitments or term loans. The 2016 revolving facility and the 2016 term loan have certain financial and other covenants, including a maximum Leverage Ratio and a minimum Interest Coverage Ratio, which is defined as the ratio of Consolidated EBITDA to Consolidated Interest Expense, as such terms are defined in the agreements.

2017 term loan. On January 26, 2017, we entered into a 364-day $500 million senior unsecured term loan (“2017 term loan”). The 2017 term loan was structured as a non-amortizing loan with repayment of principal due at maturity. The interest rates for borrowings under the 2017 term loan were the same as those under the 2016 revolving facility. The 2017 term loan had certain financial covenants that were the same as the 2016 revolving facility and the 2016 term loan, including a maximum Leverage Ratio and minimum Interest Coverage Ratio, as such terms were defined in the agreement. The 2017 term loan was repaid in January 2018 using borrowings from the 2016 revolving facility.

As of February 28, 2018, we had approximately $990.0 million of outstanding borrowings under the 2016 revolving facility at a current annual interest rate of 3.11 percent and approximately $1.116 billion of outstanding borrowings under the 2016 term loans at a current weighted average annual interest rate of 3.59 percent, including the effect of the interest rate swaps described in Note 5.



12


5.00% senior notes due 2022 (“5% Notes”). In October 2014, IHS Inc. issued $750 million aggregate principal amount of senior unsecured notes due 2022 in an offering not subject to the registration requirements of the Securities Act of 1933, as amended (the Securities Act). In August 2015, we completed a registered exchange offer for the 5% Notes. In July 2016, in connection with the Merger, we completed an exchange offer for $742.8 million of the outstanding 5% Notes for an equal principal amount of new 5% senior unsecured notes issued by IHS Markit with the same maturity. Approximately $7.2 million of the 5% Notes did not participate in the exchange offer. The new 5% Notes are not, and will not be, registered under the Securities Act or the securities laws of any other jurisdiction. The new 5% Notes have been admitted for trading to the official list of the Channel Islands Securities Exchange Authority.

The 5% Notes bear interest at a fixed rate of 5.00 percent and mature on November 1, 2022. Interest on the 5% Notes is due semiannually on May 1 and November 1 of each year, commencing May 1, 2015. We may redeem the 5% Notes in whole or in part at a redemption price equal to 100 percent of the principal amount of the notes plus the Applicable Premium, as defined in the indenture governing the 5% Notes. Additionally, at the option of the holders of the notes, we may be required to purchase all or a portion of the notes upon occurrence of a Change of Control Triggering Event as defined in the indenture, at a price equal to 101 percent of the principal amount thereof, plus accrued and unpaid interest to the date of purchase. The indenture contains covenants that limit our ability to, among other things, incur or create liens and enter into sale and leaseback transactions. In addition, the indenture contains a covenant that limits our ability to consolidate or merge with another entity or to sell all or substantially all of our assets to another entity. The indenture contains customary default provisions. The fair value of the 5% Notes as of February 28, 2018 was approximately $778.1 million.

4.75% notes due 2025 (“4.75% Notes”). In February 2017, we issued $500 million aggregate principal amount of senior unsecured notes due 2025 in an offering not subject to the registration requirements of the Securities Act. In July 2017, we issued an additional $300 million aggregate principal amount of the 4.75% Notes at a $16.5 million premium, resulting in an effective interest rate of 3.88 percent. The 4.75% notes have been admitted for trading to the official list of the Channel Islands Securities Exchange Authority. The 4.75% Notes bear interest at a fixed rate of 4.75 percent and mature on February 15, 2025. Interest on the 4.75% Notes is due semiannually on February 15 and August 15 of each year, commencing August 15, 2017. We may redeem the 4.75% Notes in whole or in part at a redemption price equal to 100 percent of the principal amount of the notes plus the Applicable Premium, as defined in the indenture governing the 4.75% Notes. Additionally, at the option of the holders of the notes, we may be required to purchase all or a portion of the notes upon occurrence of a Change of Control Triggering Event as defined in the indenture, at a price equal to 101 percent of the principal amount thereof, plus accrued and unpaid interest to the date of purchase. The indenture contains covenants that limit our ability to, among other things, incur or create liens and enter into sale and leaseback transactions. In addition, the indenture contains a covenant that limits our ability to consolidate or merge with another entity or to sell all or substantially all of our assets to another entity. The indenture contains customary default provisions. The fair value of the 4.75% Notes as of February 28, 2018 was approximately $819.0 million.

4.00% notes due 2026 (“4% Notes”). In December 2017, we issued $500 million aggregate principal amount of senior unsecured notes due 2026 in an offering not subject to the registration requirements of the Securities Act. The 4% Notes have been admitted for trading to the official list of the Channel Islands Securities Exchange Authority. The 4% Notes bear interest at a fixed rate of 4.00 percent and mature on March 1, 2026. Interest on the 4% Notes is due semiannually on March 1 and September 1 of each year, commencing March 1, 2018. We may redeem the 4% Notes in whole or in part at a redemption price equal to 100 percent of the principal amount of the notes plus the applicable premium, as defined in the indenture governing the 4% Notes. Additionally, at the option of the holders of the notes, we may be required to purchase all or a portion of the notes upon occurrence of a change of control triggering event as defined in the indenture, at a price equal to 101 percent of the principal amount thereof, plus accrued and unpaid interest to the date of purchase. The indenture contains covenants that limit our ability to, among other things, incur or create liens and enter into sale and leaseback transactions. In addition, the indenture contains a covenant that limits our ability to consolidate or merge with another entity or to sell all or substantially all of our assets to another entity. The indenture contains customary default provisions. The fair value of the 4% Notes as of February 28, 2018 was approximately $485.0 million.

Institutional senior notes. In November 2015, Markit issued two series of senior unsecured notes having an aggregate principal amount of $500 million to certain institutional investors. In November 2016, we completed an offer to repurchase approximately $350 million of these notes. The Series A notes bear interest at a fixed rate of 3.73 percent and mature on November 4, 2022. The Series B notes bear interest at a fixed rate of 4.05 percent and mature on November 4, 2025. Interest is paid semiannually from the anniversary of issuance. The institutional senior notes have certain financial and other covenants, including a maximum Consolidated Leverage Ratio and a minimum Interest Coverage Ratio, as such terms are defined in the Note Purchase and Guarantee Agreement. We believe that the fair value of the outstanding institutional senior notes as of February 28, 2018 was approximately $146.7 million.


13


As of February 28, 2018, we were in compliance with all of our debt covenants. We have classified short-term debt based on scheduled term loan amortization payments and expected cash availability over the next 12 months.

The carrying value of our variable rate debt instruments approximate their fair value because of the variable interest rates associated with those instruments. The fair values of the 5% Notes, the 4.75% Notes, the 4% Notes, and the institutional senior notes were measured using observable inputs in markets that are not active; consequently, we have classified those notes within Level 2 of the fair value hierarchy.

5.
Derivatives

Our business is exposed to various market risks, including interest rate and foreign currency risks. We utilize derivative instruments to help us manage these risks. We do not hold or issue derivatives for speculative purposes.

Interest Rate Swaps

To mitigate interest rate exposure on our outstanding revolving facility debt, we utilize interest rate derivative contracts that effectively swap $400 million of floating rate debt at a 2.86 percent weighted-average fixed interest rate, plus the applicable spread on our floating rate debt. We entered into these swap contracts in November 2013 and January 2014, and the contracts expire between May and November 2020.

Because the terms of these swaps and the variable rate debt (as amended or extended over time) coincide, we do not expect any ineffectiveness. We have designated and accounted for these instruments as cash flow hedges, with changes in fair value being deferred in AOCI in our consolidated balance sheets.

Foreign Currency Forwards

To mitigate foreign currency exposure, we utilize short-term foreign currency forward contracts that manage market risks associated with fluctuations in balances that are denominated in currencies other than the local functional currency. We account for these forward contracts at fair value and recognize the associated realized and unrealized gains and losses in other expense, net, since we have not designated these contracts as hedges for accounting purposes. The notional amount of these outstanding foreign currency forward contracts was $220.8 million and $261.3 million as of February 28, 2018 and November 30, 2017, respectively.

Fair Value of Derivatives

Since our derivative instruments are not listed on an exchange, we have evaluated fair value by reference to similar transactions in active markets; consequently, we have classified all of our derivative instruments within Level 2 of the fair value measurement hierarchy. The following table shows the classification, location, and fair value of our derivative instruments as of February 28, 2018 and November 30, 2017 (in millions):

 
 
Fair Value of Derivative Instruments
 
Location on consolidated balance sheets
 
 
February 28, 2018
 
November 30, 2017
 
Assets:
 
 
 
 
 
 
Derivatives not designated as accounting hedges:
 
 
 
 
 
 
Foreign currency forwards
 
1.3

 
2.8

 
Other current assets
Total
 
$
1.3

 
$
2.8

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Derivatives designated as accounting hedges:
 
 
 
 
 
 
Interest rate swaps
 
$
2.9

 
$
8.9

 
Other liabilities
Derivatives not designated as accounting hedges:
 
 
 
 
 
 
Foreign currency forwards
 
1.5

 
1.7

 
Other accrued expenses
Total
 
$
4.4

 
$
10.6

 
 


14


The net (gain) loss on foreign currency forwards that are not designated as hedging instruments for the three months ended February 28, 2018 and the three months ended February 28, 2017, respectively, was as follows (in millions):

 
 
Amount of (gain) loss recognized in the consolidated statements of operations
 
 
 
 
Three months ended February 28,
 
Location on consolidated statements of operations
 
 
2018
 
2017
 
Foreign currency forwards
 
$
(1.9
)
 
$
3.6

 
Other expense, net

The following table provides information about the cumulative amount of unrecognized hedge losses recorded in AOCI, net of tax, as of February 28, 2018 and February 28, 2017, respectively, as well as the activity on our cash flow hedging instruments for the three months ended February 28, 2018 and the three months ended February 28, 2017, respectively (in millions):
 
 
Three months ended February 28,
 
 
2018
 
2017
Beginning balance
 
$
(3.9
)
 
$
(10.5
)
Amount of gain (loss) recognized in AOCI:
 
 
 
 
Interest rate swaps
 
3.6

 
1.2

Foreign currency forwards
 

 
0.4

Amount of loss (gain) reclassified from AOCI to income:
 
 
 
 
Interest rate swaps (1)
 
1.2

 
1.7

Foreign currency forwards (1)
 

 
(0.3
)
Amount of loss reclassified from AOCI to retained earnings
 
(4.2
)
 

Ending balance
 
$
(3.3
)
 
$
(7.5
)
 
 
 
 
 
(1) Pre-tax amounts reclassified from AOCI related to interest rate swaps are recorded in interest expense, and pre-tax amounts reclassified from AOCI into income related to foreign currency forwards are recorded in revenue.

Approximately $2.3 million of the $2.9 million unrecognized pre-tax losses relating to the interest rate swaps are expected to be reclassified into interest expense within the next 12 months.
 
6.
Acquisition-related Costs

During the three months ended February 28, 2018, we incurred approximately $27.0 million in costs associated with acquisitions, including employee severance charges and retention costs, contract termination costs for facility consolidations, legal and professional fees, and the performance compensation expense related to the aM acquisition described in Note 2. Approximately $6.3 million of the total charge was allocated to shared services, with $15.9 million of the charge recorded in the Transportation segment, $3.0 million in the Financial Services segment, $1.4 million in the CMS segment, and the remainder in the Resources segment.

The following table provides a reconciliation of the acquisition-related costs accrued liability, recorded in other accrued expenses, as of February 28, 2018 (in millions):
 
Employee
Severance and
Other
Termination
Benefits
 
Contract
Termination
Costs
 
Other
 
Total
Balance at November 30, 2017
$
13.9

 
$
17.6

 
$
23.7

 
$
55.2

Add: Costs incurred
8.3

 
0.2

 
17.3

 
25.8

Revision to prior estimates
1.0

 
0.2

 

 
1.2

Less: Amount paid
(14.8
)
 
(3.1
)
 
(4.8
)
 
(22.7
)
Balance at February 28, 2018
$
8.4

 
$
14.9

 
$
36.2

 
$
59.5



15


As of February 28, 2018, the $59.5 million remaining liability was primarily in the Transportation segment and in shared services. We expect that the significant majority of the remaining liability will be paid within the next 12 months except for the aM acquisition-related performance compensation liability, which was approximately $24.9 million as of February 28, 2018.

7.
Stock-based Compensation

Stock-based compensation expense for the three months ended February 28, 2018 and February 28, 2017 was as follows (in millions):
 
 
Three months ended February 28,
 
 
2018
 
2017
Cost of revenue
 
$
18.0

 
$
15.9

Selling, general and administrative
 
43.9

 
59.3

Total stock-based compensation expense
 
$
61.9

 
$
75.2

No stock-based compensation cost was capitalized during the three months ended February 28, 2018 and February 28, 2017.
As of February 28, 2018, there was $311.1 million of unrecognized stock-based compensation cost, adjusted for estimated forfeitures, related to unvested stock-based awards that will be recognized over a weighted-average period of approximately 2.0 years. Total unrecognized stock-based compensation cost will be adjusted for future changes in estimated forfeitures.
Restricted Stock Units (RSUs) and Restricted Stock Awards (RSAs). The following table summarizes RSU/RSA activity, including awards with performance and market conditions, during the three months ended February 28, 2018:
 
Shares
 
Weighted-
Average Grant
Date Fair Value
 
(in millions)
 
 
Balance at November 30, 2017
10.7

 
$
35.64

Granted
3.0

 
$
47.53

Vested
(4.5
)
 
$
33.89

Forfeited
(0.2
)
 
$
40.09

Balance at February 28, 2018
9.0

 
$
40.36

The total fair value of RSUs and RSAs that vested during the three months ended February 28, 2018 was $211.3 million.
Stock Options. The following table summarizes stock option award activity during the three months ended February 28, 2018, as well as stock options that are vested and expected to vest and stock options exercisable as of February 28, 2018:
 
Shares
 
Weighted-Average Exercise Price
 
Weighted-Average Remaining Contractual Term
 
Aggregate Intrinsic Value
 
(in millions)
 
 
 
(in years)
 
(in millions)
Balance at November 30, 2017
25.3

 
$
25.69

 
 
 
 
Exercised
(2.4
)
 
$
23.55

 
 
 
 
Forfeited

 
$

 
 
 
 
Balance at February 28, 2018
22.9

 
$
25.91

 
2.3
 
483.3

Vested and expected to vest at February 28, 2018
22.6

 
$
25.90

 
2.2
 
477.3

Exercisable at February 28, 2018
11.2

 
$
24.95

 
1.8
 
248.5

 
The aggregate intrinsic value amounts in the table above represent the difference between the closing price of our common shares on February 28, 2018 and the exercise price, multiplied by the number of in-the-money stock options as of that date. This represents the value that would have been received by stock option holders if they had all exercised their stock options on February 28, 2018. In future periods, this amount will change depending on fluctuations in our share price. The total intrinsic value of stock options exercised during the three months ended February 28, 2018 was approximately $56.3 million.


16


8.
Income Taxes

Our effective tax rate is estimated based upon the effective tax rate expected to be applicable for the full year.
Our effective tax rate for the three months ended February 28, 2018 was negative 156 percent, compared to negative 6 percent for the three months ended February 28, 2017. The negative 2018 tax rate is primarily due to the estimated one-time tax benefit associated with the Act of approximately $136 million, or 145 percentage points, and excess tax benefits on stock-based compensation of approximately $24 million, or 25 percentage points. The negative 2017 tax rate is primarily due to tax benefits associated with excess tax benefits on stock-based compensation of approximately $14 million, or 22 percentage points.

The Tax Cuts and Jobs Act was enacted on December 22, 2017, which significantly revises U.S. corporate tax law. Among other things, the Act reduces the U.S. federal corporation tax rate to 21 percent and implements a new system of taxation for non-U.S. earnings, including by imposing a one-time transition tax on the deemed repatriation of undistributed earnings of non-U.S. subsidiaries. Other significant changes include U.S. taxes on global intangible low-taxed income (“GILTI”) attributable to foreign subsidiaries and base erosion anti-abuse transactions, limitations on the deductibility of interest expense and executive compensation, and repeal of the deduction for domestic production activities. As a result of our current interpretation and estimated impact of the Act, we recorded adjustments totaling a net tax benefit of $136 million in the first quarter of 2018 to provisionally account for the estimated impact. This amount included a provisional estimate for the transition tax of $38 million, which will be payable over eight years, starting in 2019, and a provisional estimate decreasing net deferred tax liabilities by $174 million, resulting from the future reduction in the federal corporate income tax rate.

As of February 28, 2018, we have not completed our accounting for the tax effects of enactment of the Act because all of the necessary information is not currently available, prepared, or analyzed. As such, the amounts we have recorded are provisional estimates and as permitted by SAB 118, we will continue to assess the impacts of the Act and may record additional provisional amounts or adjustments to provisional estimates during fiscal year 2018. We expect to complete the accounting for these impacts of tax reform within the measurement period in accordance with SAB 118 as we complete our analysis and receive additional guidance from the Internal Revenue Service pertaining to the Act.

As a result of the Act, all previously undistributed foreign earnings have now been subjected to U.S. tax; however, we currently intend to continue to indefinitely reinvest these earnings outside the U.S. and accordingly, we have not provided non-U.S. deferred income taxes on these indefinitely reinvested earnings. It is not practicable to determine the amount of non-U.S. deferred taxes that might be required to be provided if such earnings were distributed in the future, due to complexities in the tax laws and in the hypothetical calculations that would have to be made.

We have not yet made a policy election with respect to our treatment of GILTI. We can either account for taxes on GILTI as incurred or recognize deferred taxes when basis differences exist that are expected to affect the amount of GILTI inclusion upon reversal. We are still in the process of analyzing the provisions of the Act associated with GILTI and the expected impact of GILTI on our consolidated financial statements.

9.
Commitments and Contingencies

From time to time, in the ordinary course of our business, we are involved in various legal, regulatory or administrative proceedings, lawsuits, government investigations, and other claims, including employment, commercial, intellectual property, and environmental, safety, and health matters. In addition, we may receive routine requests for information from governmental agencies in connection with their regulatory or investigatory authority. We review such proceedings, lawsuits, investigations, claims, and requests for information and take appropriate action as necessary. At the present time, we can give no assurance as to the outcome of any such pending proceedings, lawsuits, investigations, claims, or requests for information and we are unable to determine the ultimate resolution of or provide a reasonable estimate of the range of possible loss attributable to these matters or the effect they may have on us. However, we do not expect the outcome of such proceedings, lawsuits, claims, or requests for information to have a material adverse effect on our results of operations or financial condition. We have and will continue to vigorously defend ourselves in all matters.

On April 23, 2013 (prior to our acquisition of R.L. Polk & Co.), our CARFAX subsidiary (“CARFAX”) was served with a complaint filed in the U.S. District Court for the Southern District of New York, purportedly on behalf of certain auto and light truck dealers. The complaint alleges, among other things, that, in violation of antitrust laws, CARFAX entered into exclusive arrangements regarding the sale of CARFAX vehicle history reports with certain auto manufacturers and owners of two websites providing classified listings of used autos and light trucks. The complaint seeks three times the actual damages that a jury finds the plaintiffs have sustained, injunctive relief, costs and attorneys’ fees. On October 25, 2013, the plaintiffs served a

17


second amended complaint with similar allegations purporting to name approximately 469 auto dealers as plaintiffs, and counsel for plaintiffs indicated that there may be additional claimants. On September 30, 2016, the District Court granted CARFAX’s motion for summary judgment, dismissing all claims in the complaint. The plaintiffs have appealed the decision. On January 13, 2017, another group of auto and light truck dealers filed a complaint in the U.S. District Court for the Southern District of New York on substantially the same claims as described above. The complaint seeks three times the actual damages that a jury finds the plaintiffs have sustained, injunctive relief, costs, and attorneys’ fees. The court has stayed the case pending the outcome of the appeal of the first case described above.

In October 2015, the Division of Enforcement of the SEC opened a non-public civil investigation related to certain of our current and former securitized product indices, and requested that we provide certain documents and information. We responded to these inquiries in late 2015 and early 2016, and, to the extent the SEC has further inquiries, will continue to cooperate in this matter.

10.
Common Shares and Earnings per Share
Weighted-average shares outstanding for the three months ended February 28, 2018 and February 28, 2017 were calculated as follows (in millions):
 
Three months ended February 28,
 
2018
 
2017
Weighted-average shares outstanding:
 
 
 
Shares used in basic EPS calculation
398.0

 
406.2

Effect of dilutive securities:
 
 
 
RSUs/RSAs
4.5

 
5.7

Stock options
9.6

 
10.3

Shares used in diluted EPS calculation
412.1

 
422.2


Share Repurchase Programs

Our Board of Directors has authorized a share repurchase program of up to $3.25 billion of IHS Markit common shares through November 30, 2019, 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. This repurchase program does not obligate us to repurchase any set dollar amount or number of shares and may be modified, suspended, or terminated at any time without prior notice. Under this program, we are authorized to repurchase our common shares on the open market from time to time, in privately negotiated transactions, or through accelerated share repurchase (ASR) agreements, subject to availability of common shares, price, market conditions, alternative uses of capital, and applicable regulatory requirements, at management’s discretion. As of February 28, 2018, we had $1.507 billion remaining available to repurchase under the program.

In August 2016, our Board of Directors separately and additionally 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.

For the three months ended February 28, 2018, we repurchased approximately $249 million of common shares under these programs.

In March 2018, we funded a $500 million ASR agreement with a scheduled termination date in the second quarter of 2018. Upon funding of the ASR, we received an initial delivery of 8.5 million shares. The total number of shares ultimately to be repurchased under this ASR will generally be based on the daily volume-weighted average price of the shares during the calculation period for the ASR, less an agreed discount. At final settlement, we may be entitled to receive additional shares, or, under certain limited circumstances, be required to deliver shares to the relevant ASR counterparty.

Employee Benefit Trust (EBT) Shares

We have approximately 25.2 million outstanding common shares that are held by the Markit Group Holdings Limited Employee Benefit Trust. The trust is under our control using the variable interest entity model criteria; consequently, we have consolidated and classified the trust shares as treasury shares within our consolidated balance sheets.

18



11.
Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in AOCI by component (net of tax) for the three months ended February 28, 2018 (in millions):
 
 
Foreign currency translation
 
Net pension and OPEB liability
 
Unrealized losses on hedging activities
 
Total
Balance at November 30, 2017
 
$
(68.1
)
 
$
(13.0
)
 
$
(3.9
)
 
$
(85.0
)
Other comprehensive income (loss) before reclassifications
 
56.4

 

 
3.6

 
60.0

Reclassifications from AOCI to income
 

 

 
1.2

 
1.2

Reclassifications from AOCI to retained earnings
 

 
(1.7
)
 
(4.2
)
 
(5.9
)
Balance at February 28, 2018
 
$
(11.7
)
 
$
(14.7
)
 
$
(3.3
)
 
$
(29.7
)

12.
Segment Information

We prepare our financial reports and analyze our business results within our four operating segments: Resources, Transportation, CMS, and Financial Services. We evaluate revenue performance at the segment level and also by transaction type. No single customer accounted for 10 percent or more of our total revenue for the three months ended February 28, 2018 and February 28, 2017. There are no material inter-segment revenues for any period presented. Our shared services function includes corporate transactions that are not allocated to the reportable segments, including net periodic pension and postretirement expense, as well as certain corporate functions such as investor relations, procurement, corporate development, and portions of finance, legal, and marketing.

We evaluate segment operating performance at the Adjusted EBITDA level for each of our four segments. We define Adjusted EBITDA as net income before net interest, provision for income taxes, depreciation and amortization, stock-based compensation cost, restructuring charges, acquisition-related costs, exceptional litigation, net other gains and losses, pension mark-to-market and settlement expense, the impact of joint ventures and noncontrolling interests, and discontinued operations. Information about the operations of our four segments is set forth below (in millions).

19



 
 
Three months ended February 28,
 
 
2018
 
2017
Revenue
 
 
 
 
Resources
 
$
205.3

 
$
196.9

Transportation
 
269.6

 
224.9

CMS
 
137.6

 
126.5

Financial Services
 
319.6

 
295.9

Total revenue
 
$
932.1

 
$
844.2

 
 
 
 
 
Adjusted EBITDA
 
 
 
 
Resources
 
$
84.9

 
$
80.0

Transportation
 
109.7

 
89.8

CMS
 
31.8

 
28.6

Financial Services
 
145.4

 
129.2

Shared services
 
(12.5
)
 
(7.4
)
Total Adjusted EBITDA
 
$
359.3

 
$
320.2

 
 
 
 
 
Reconciliation to the consolidated statements of operations:
 
 
 
 
Interest income
 
0.7

 
0.5

Interest expense
 
(46.3
)
 
(31.8
)
Benefit for income taxes
 
146.6

 
3.6

Depreciation
 
(41.6
)
 
(36.1
)
Amortization related to acquired intangible assets
 
(89.0
)
 
(84.7
)
Stock-based compensation expense
 
(61.9
)
 
(75.2
)
Restructuring charges
 

 
0.2

Acquisition-related costs
 
(12.1
)
 
(31.6
)
Acquisition-related performance compensation
 
(14.9
)
 

Share of joint venture results not attributable to Adjusted EBITDA
 

 
0.4

Adjusted EBITDA attributable to noncontrolling interest
 
0.5

 
0.5

Net income attributable to IHS Markit Ltd.
 
$
241.3

 
$
66.0

Revenue by transaction type was as follows (in millions):
 
 
Three months ended February 28,
 
 
2018
 
2017
Recurring fixed revenue
 
$
683.3

 
$
617.1

Recurring variable revenue
 
117.1

 
106.4

Non-recurring revenue
 
131.7

 
120.7

Total revenue
 
$
932.1

 
$
844.2



20



Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the financial condition and results of operations of IHS Markit Ltd. (“IHS Markit,” “we,” “us,” or “our”) as of and for the periods presented. The following discussion should be read in conjunction with our 2017 Annual Report on Form 10-K and the Condensed Consolidated Financial Statements and accompanying notes included in this Quarterly Report on Form 10-Q. References to 2018 are to our fiscal year 2018, which began on December 1, 2017 and ends on November 30, 2018.

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 leading financial institutions. Headquartered in London, we are committed to sustainable, profitable growth.

To best serve our customers, we are organized into the following four industry-focused segments:

Resources, which includes our Energy and Chemicals product offerings;
Transportation, which includes our Automotive; Maritime & Trade; and Aerospace, Defense & Security product offerings;
Consolidated Markets & Solutions, which includes our Product Design; Technology, Media & Telecom; and Economics & Country Risk product offerings; and
Financial Services, which includes our financial Information, Processing, and Solutions product offerings.

We believe that this organization helps our customers do business with us by providing a cohesive, consistent, and effective product, sales, and marketing approach by segment.

Our recurring fixed revenue and recurring variable revenue represented approximately 86 percent of our total revenue for the three months ended February 28, 2018 and February 28, 2017. Our recurring revenue is generally stable and predictable, and we have long-term relationships with many of our customers.

For 2018, we continue to focus our efforts on the following actions:

Integrate organizational structure. We have completed a significant portion of our key merger integration activities, primarily related to our shared services and corporate organization. We intend to continue to integrate our people, platforms, processes, and products in a manner that allows us to take advantage of revenue and cost synergies that will strengthen the effectiveness and efficiency of our business operations.

Innovate and develop new product offerings. We expect to continue to create new commercial offerings from our existing data sets, converting core information to higher value analytics. Our investment priorities for new product offerings are primarily in energy, automotive, financial services, and product design, and we intend to continue to invest across the business to increase our customer value proposition.

Balance capital allocation. In 2018, we expect to focus our capital allocation strategy primarily on returning capital to shareholders through share repurchases. Longer term, we expect to balance capital allocation between share repurchases and acquisitions, focused primarily on targeted transactions in our core end markets that will allow us to continue to build out our strategic position.

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 prepared in accordance with U.S. generally accepted accounting principles (“non-GAAP”).


21


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 through the sale of 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 growth 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:

Recurring fixed revenue represents revenue generated from contracts specifying a relatively fixed fee for services delivered over the life of the contract. 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, and the revenue is usually recognized over the life of the contract. The initial term of these contracts is typically annual and non-cancellable for the term of the subscription and may contain provisions for minimum monthly payments.

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. Many of these contracts do not have a maturity date, while the remainder have an initial term ranging from one to five years. Recurring variable revenue was derived entirely from the Financial Services segment for all periods presented.

Non-recurring revenue represents consulting (e.g., research and analysis, modeling, and forecasting), services, single-document product sales, software 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 many of our investors, research analysts, investment bankers, and lenders to assess our operating performance. For example, a measure similar to Adjusted EBITDA is required by the lenders under our term loan and revolving credit agreements. 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 charges, acquisition-related costs and performance compensation, exceptional litigation, net other

22


gains and losses, pension mark-to-market and settlement expense, the impact of joint ventures and noncontrolling interests, and discontinued operations).

Free Cash Flow. We define free cash flow as net cash provided by operating activities less 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

Approximately 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 certain 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. However, the impact on operating income is diminished due to certain operating expenses denominated in currencies other than the U.S. dollar. Our largest foreign currency exposures are the British Pound, Euro, Canadian Dollar, Singapore Dollar, and Indian Rupee.

Results of Operations

Total Revenue

First quarter 2018 revenue increased 10 percent compared to the first quarter of 2017. The table below displays the percentage change in revenue due to organic, acquisitive, and foreign currency factors when comparing the three months ended February 28, 2018 to the three months ended February 28, 2017.
 
Change in Total Revenue
 
Organic
 
Acquisitive
 
Foreign
Currency
First quarter 2018 vs. first quarter 2017
6
%
 
2
%
 
2
%

We saw broad-based organic revenue growth across all four of our segments for the three months ended February 28, 2018, compared to the three months ended February 28, 2017, with particular strength in Transportation and Financial Services and improving performance in Resources and CMS.

Acquisitive revenue growth for the three months ended February 28, 2018, compared to the three months ended February 28, 2017, was primarily due to the aM acquisition in the fourth quarter of 2017.

Foreign currency effects had a 2 percent impact on revenue growth for the three months ended February 28, 2018, compared to the same respective period in 2017. Due to the extent of our global operations, foreign currency movements could continue to positively or negatively affect our results in the future.


23


Revenue by Segment
 
 
Three months ended February 28,
 
Percentage
Change
(In millions, except percentages)
 
2018
 
2017
 
Revenue:
 
 
 
 
 
 
Resources
 
$
205.3

 
$
196.9

 
4
%
Transportation
 
269.6

 
224.9

 
20
%
CMS
 
137.6

 
126.5

 
9
%
Financial Services
 
319.6

 
295.9

 
8
%
Total revenue
 
$
932.1

 
$
844.2

 
10
%

The percentage change in revenue for each segment was due to the factors described in the following table.
 
Increase (decrease) in revenue
 
First quarter 2018 vs. first quarter 2017
 
Organic
 
Acquisitive
 
Foreign
Currency
Resources
3
%
 
%
 
1
%
Transportation
10
%
 
7
%
 
2
%
CMS
5
%
 
1
%
 
2
%
Financial Services
6
%
 
%
 
3
%

Resources revenue for the three months ended February 28, 2018, compared to the three months ended February 28, 2017, experienced positive organic revenue growth as our upstream energy results continue to improve and our chemicals, PGCR, and downstream pricing results remain strong. Our Resources annual contract value (“ACV”), which represents the annualized value of recurring revenue contracts, was approximately flat compared to the beginning of the year.

Transportation revenue for the three months ended February 28, 2018, compared to the three months ended February 28, 2017, continued to experience solid organic recurring and non-recurring growth, led primarily by our automotive product offerings. We continue to see strong organic growth in our automotive product category for both our new and used car offerings. Specific drivers of the strong performance in automotive includes our vehicle history report and used car listing services, supply chain forecasting, vehicle emissions analytics, digital marketing, and recall services.

CMS revenue for the three months ended February 28, 2018, compared to the three months ended February 28, 2017, increased as we see benefits from improving end markets and operational changes we have made over the past two years.

Financial Services revenue for the three months ended February 28, 2018, compared to the three months ended February 28, 2017, experienced strength across our Information product offerings and our Solutions product offerings, with some moderation in our Processing product offerings. Within our Information product offerings, revenue growth was led by our indices offerings, with solid growth in our valuation services, equities and bond pricing offerings as well. Solutions product offerings growth was driven by our regulatory and compliance solutions, as well as loan servicing platform growth. Our Processing product offerings declined slightly during the three months ended February 28, 2018, compared to the three months ended February 28, 2017, with decreased derivatives processing more than offsetting slight increases in loan processing due to a difficult comparison to the strong results in the prior year.


24


Revenue by Transaction Type
 
Three months ended February 28,
 
Percent change
(in millions, except percentages)
2018
 
2017
 
Total
 
Organic
Revenue:
 
 
 
 
 
 
 
Recurring fixed
$
683.3

 
$
617.1

 
11
%
 
6
%
Recurring variable
117.1

 
106.4

 
10
%
 
7
%
Non-recurring
131.7

 
120.7

 
9
%
 
8
%
Total revenue
$
932.1

 
$
844.2

 
10
%
 
6
%
 
 
 
 
 
 
 
 
As a percent of total revenue:
 
 
 
 
 
 
 
Recurring fixed
73
%
 
73
%
 
 
 
 
Recurring variable
13
%
 
13
%
 
 
 
 
Non-recurring
14
%
 
14
%
 
 
 
 

Recurring fixed revenue organic growth increased measurably for the three months ended February 28, 2018, compared to the three months ended February 28, 2017, with Transportation and Financial Services recurring offerings providing the largest contribution to the growth, good results in CMS, and improving growth in the Resources segment. Recurring variable revenue was composed entirely of Financial Services revenue, with strong organic growth coming from our Information and Solutions product offering categories, offset by lower Processing revenue.

Non-recurring organic revenue increases for the three months ended February 28, 2018, compared to the three months ended February 28, 2017, were primarily due to continued strength in the Transportation segment and positive contributions from the Resources and CMS segments.

Operating Expenses

The following table shows our operating expenses and the associated percentages of revenue.
 
Three months ended February 28,
 
Percentage
Change
(In millions, except percentages)
2018
 
2017
 
Operating expenses:
 
 
 
 
 
Cost of revenue
$
342.9

 
$
327.0

 
5
%
SG&A expense
290.3

 
268.0

 
8
%
Total cost of revenue and SG&A expense
$
633.2

 
$
595.0

 
6
%
 
 
 
 
 
 
Depreciation and amortization expense
$
130.6

 
$
120.8

 
8
%
 
 
 
 
 
 
As a percent of revenue:
 
 
 
 
 
Total cost of revenue and SG&A expense
68
%
 
70
%
 
 
Depreciation and amortization expense
14
%
 
14
%
 
 

Cost of Revenue and SG&A Expense

In managing our business, we evaluate our costs by type (e.g., salaries) rather than by income statement classification. The increases in absolute total cost of revenue and SG&A expense was primarily due to the aM acquisition and foreign currency effects. As a percentage of revenue, total cost of revenue and SG&A expense declined primarily because of strong organic revenue growth in 2018, as well as ongoing cost management and rationalization efforts associated with acquisition integration.

Within our cost of revenue and SG&A expense, stock-based compensation expense decreased by approximately $13 million for the three months ended February 28, 2018, compared to the same period in 2017, as a result of fewer award grants in 2018, limited acceleration of share awards associated with severance activities, and fewer shares still vesting from pre-Markit merger awards.

25



Depreciation and Amortization Expense

For the three months ended February 28, 2018, compared to the three months ended February 28, 2017, depreciation and amortization expense increased on an absolute basis primarily because of the aM acquisition, but was relatively flat on a percentage of revenue basis.

Acquisition-related Costs

Please refer to Note 6 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for a discussion of costs associated with our integration and other acquisition-related activities. During the three months ended February 28, 2018, we recorded approximately $27 million of direct and incremental costs associated with acquisition-related activities, including employee severance charges and retention costs, contract termination costs for facility consolidations, legal and professional fees, and performance compensation expense related to the aM acquisition.

Segment Adjusted EBITDA
 
 
Three months ended February 28,
 
Percentage
Change
(In millions, except percentages)
 
2018
 
2017
 
Adjusted EBITDA:
 
 
 
 
 
 
Resources
 
$
84.9

 
$
80.0

 
6
%
Transportation
 
109.7

 
89.8

 
22
%
CMS
 
31.8

 
28.6

 
11
%
Financial Services
 
145.4

 
129.2

 
13
%
Shared services
 
(12.5
)
 
(7.4
)
 
 
Total Adjusted EBITDA
 
$
359.3

 
$
320.2

 
12
%
 
 
 
 
 
 
 
As a percent of segment revenue:
 
 
 
 
 
 
Resources
 
41
%
 
41
%
 
 
Transportation
 
41
%
 
40
%
 
 
CMS
 
23
%
 
23
%
 
 
Financial Services
 
46
%
 
44
%
 
 

For the three months ended February 28, 2018, compared to the three months ended February 28, 2017, Adjusted EBITDA increased primarily due to the leverage in our business model, as incremental revenue drives higher margins. We also continue to focus our efforts on cost management to improve overall margins. Resources segment Adjusted EBITDA increased due to a return to revenue growth. Transportation segment Adjusted EBITDA continued to increase because of high revenue growth that flowed through to segment Adjusted EBITDA. Financial Services segment Adjusted EBITDA growth was primarily due to the margin flow-through from strong revenue growth.

As a percentage of revenue, Adjusted EBITDA continued to improve due to margin expansion from revenue growth and continued integration and business leveraging efforts. Transportation’s Adjusted EBITDA margin increase was compressed by low aM margins.

Provision for Income Taxes

Our effective tax rate is estimated based upon the effective tax rate expected to be applicable for the full year.
Our effective tax rate for the three months ended February 28, 2018 was negative 156 percent, compared to negative 6 percent for the three months ended February 28, 2017. The negative 2018 tax rate is primarily due to the estimated one-time tax benefit associated with the Act of approximately $136 million, or 145 percentage points, and excess tax benefits on stock-based compensation of approximately $24 million, or 25 percentage points. The negative 2017 tax rate is primarily due to tax benefits associated with excess tax benefits on stock-based compensation of approximately $14 million, or 22 percentage points.


26


The Tax Cuts and Jobs Act was enacted on December 22, 2017, which significantly revises U.S. corporate tax law. Among other things, the Act reduces the U.S. federal corporation tax rate to 21 percent and implements a new system of taxation for non-U.S. earnings, including by imposing a one-time transition tax on the deemed repatriation of undistributed earnings of non-U.S. subsidiaries. Other significant changes include U.S. taxes on global intangible low-taxed income (“GILTI”) attributable to foreign subsidiaries and base erosion anti-abuse transactions, limitations on the deductibility of interest expense and executive compensation, and repeal of the deduction for domestic production activities. As a result of our current interpretation and estimated impact of the Act, we recorded adjustments totaling a net tax benefit of $136 million in the first quarter of 2018 to provisionally account for the estimated impact. This amount included a provisional estimate for the transition tax of $38 million, which will be payable over eight years, starting in 2019, and a provisional estimate decreasing net deferred tax liabilities by $174 million, resulting from the future reduction in the federal corporate income tax rate.

As of February 28, 2018, we have not completed our accounting for the tax effects of enactment of the Act because all of the necessary information is not currently available, prepared, or analyzed. As such, the amounts we have recorded are provisional estimates and as permitted by SAB 118, we will continue to assess the impacts of the Act and may record additional provisional amounts or adjustments to provisional estimates during fiscal year 2018. We expect to complete the accounting for these impacts of tax reform within the measurement period in accordance with SAB 118 as we complete our analysis and receive additional guidance from the Internal Revenue Service pertaining to the Act. Resolution of the provisional estimates of the Act’s effects different from our assumptions could have a material impact on our financial condition and results of operations.

As a result of the Act, all previously undistributed foreign earnings have now been subjected to U.S. tax; however, we currently intend to continue to indefinitely reinvest these earnings outside the U.S. and accordingly, we have not provided non-U.S. deferred income taxes on these indefinitely reinvested earnings. It is not practicable to determine the amount of non-U.S. deferred taxes that might be required to be provided if such earnings were distributed in the future, due to complexities in the tax laws and in the hypothetical calculations that would have to be made.

We have not yet made a policy election with respect to our treatment of GILTI. We can either account for taxes on GILTI as incurred or recognize deferred taxes when basis differences exist that are expected to affect the amount of GILTI inclusion upon reversal. We are still in the process of analyzing the provisions of the Act associated with GILTI and the expected impact of GILTI on our consolidated financial statements.





27


EBITDA and Adjusted EBITDA (non-GAAP measures)

The following table provides reconciliations of our net income to EBITDA and Adjusted EBITDA for the three months ended February 28, 2018 and February 28, 2017.
 
 
Three months ended February 28,
 
Percentage
Change
(In millions, except percentages)
 
2018
 
2017
 
Net income attributable to IHS Markit Ltd.
 
$
241.3

 
$
66.0

 
266
%
Interest income
 
(0.7
)
 
(0.5
)
 
 
Interest expense
 
46.3

 
31.8

 
 
(Benefit) Provision for income taxes
 
(146.6
)
 
(3.6
)
 
 
Depreciation
 
41.6

 
36.1

 
 
Amortization
 
89.0

 
84.7

 
 
EBITDA
 
$
270.9

 
$
214.5

 
26
%
Stock-based compensation expense
 
61.9

 
75.2

 
 
Restructuring charges
 

 
(0.2
)
 
 
Acquisition-related costs
 
12.1

 
31.6

 
 
Acquisition-related performance compensation
 
14.9

 

 
 
Share of joint venture results not attributable to Adjusted EBITDA
 

 
(0.4
)
 
 
Adjusted EBITDA attributable to noncontrolling interest
 
(0.5
)
 
(0.5
)
 
 
Adjusted EBITDA
 
$
359.3

 
$
320.2

 
12
%
Adjusted EBITDA as a percentage of revenue
 
38.6
%
 
37.9
%
 
 

Our Adjusted EBITDA margin performance for the three months ended February 28, 2018, compared to the three months ended February 28, 2017, increased primarily because of margin flow-through on our organic revenue growth, as well as our continued integration and cost management efforts. The expansion was negatively impacted by changes in foreign currency exchange rates, which resulted in higher revenue and expense amounts, as well as low aM margins. We expect to continue to drive margin improvement through continued revenue growth and cost management activities.

Financial Condition
(In millions, except percentages)
As of February 28, 2018
 
As of November 30, 2017
 
Dollar change
 
Percent change
Accounts receivable, net
$
802.7

 
$
693.5

 
$
109.2

 
16
 %
Accrued compensation
$
59.7

 
$
157.4

 
$
(97.7
)
 
(62
)%
Deferred revenue
$
919.3

 
$
790.8

 
$
128.5

 
16
 %

The increase in accounts receivable was due to increased billing activity in the first quarter of 2018. The decrease in accrued compensation was primarily due to the 2017 bonus payout made in the first quarter of 2018, partially offset by the current year accrual. The increase in deferred revenue was due to increased billings in the first quarter of 2018.


28


Liquidity and Capital Resources

As of February 28, 2018, we had cash and cash equivalents of $156 million, of which approximately $133 million was held by our non-U.K. subsidiaries. Cash held by our legacy IHS non-U.S. subsidiaries could be subject to non-U.S. income tax if we were to decide to repatriate any of that cash to the U.S.; however, our intent is to permanently reinvest these funds outside of the U.S. and our current plans do not indicate a need to repatriate them to fund our U.S. operations. Our principal sources of liquidity include funds generated by operating activities, available cash and cash equivalents, and amounts available under our revolving credit facility. We had approximately $4.28 billion of debt as of February 28, 2018, consisting primarily of $990 million of revolving facility debt, $1.12 billion of term loan debt, $2.07 billion of senior notes, and $149 million of institutional senior notes. As of February 28, 2018, we had approximately $858 million available under our revolving credit facility, which was partially used to fund our $500 million ASR entered into in March 2018.

Our interest expense for the three months ended February 28, 2018, compared to the three months ended February 28, 2017, increased primarily because of a higher average debt balance due to acquisitions and share repurchases, as well as a higher effective interest rate due to an increased amount of fixed-rate debt.

Our Board of Directors has authorized a share repurchase program of up to $3.25 billion of IHS Markit common shares through November 30, 2019, 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. This repurchase program does not obligate us to repurchase any set dollar amount or number of shares and may be modified, suspended, or terminated at any time without prior notice. Under this program, we are authorized to repurchase our common shares on the open market from time to time, in privately negotiated transactions, or through accelerated share repurchase agreements, subject to availability of common shares, price, market conditions, alternative uses of capital, and applicable regulatory requirements, at management’s discretion. As of February 28, 2018, we had repurchased approximately $1.74 billion under this authorization.

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. Such repurchases have been authorized in addition to the share repurchase program described above.

Because of our cash, debt, and cash flow positions, we believe we will have sufficient liquidity to meet our ongoing working capital and capital expenditure needs. Our future capital requirements will depend on many factors, including the number and magnitude of future acquisitions and share repurchase programs, 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.

Cash Flows
 
Three months ended February 28,
 
 
 
 
(In millions, except percentages)
2018
 
2017
 
Dollar change
 
Percent change
Net cash provided by operating activities
$
202.9

 
$
250.7

 
$
(47.8
)
 
(19
)%
Net cash used in investing activities
$
(55.1
)
 
$
(66.4
)
 
$
11.3

 
(17
)%
Net cash used in financing activities
$
(118.9
)
 
$
(166.6
)
 
$
47.7

 
(29
)%

The decrease in net cash provided by operating activities was primarily due to higher interest, tax, and incentive compensation payments, as well as increased working capital use.

The decrease in net cash used in investing activities was principally due to lower capital expenditures in the first quarter of 2018 compared to the prior year.

The decrease in net cash used in financing activities in the first quarter of 2018 was primarily due to fewer share repurchases in 2018 compared to the prior year.

29


Free Cash Flow (non-GAAP measure)

The following table reconciles our non-GAAP free cash flow measure to net cash provided by operating activities.
 
Three months ended February 28,
 
 
 
 
(In millions, except percentages)
2018
 
2017
 
Dollar change
 
Percent change
Net cash provided by operating activities
$
202.9

 
$
250.7

 
 
 
 
Capital expenditures on property and equipment
(55.2
)
 
(71.7
)
 
 
 
 
Free cash flow
$
147.7

 
$
179.0

 
$
(31.3
)
 
(17
)%

The decrease in free cash flow was primarily due to lower net cash provided by operating activities, partially offset by decreased capital expenditure activity. 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.

Credit Facility and Other Debt

Please refer to Note 4 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for a discussion of the current status of our debt arrangements.

Share Repurchase Programs

Please refer to Note 10 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q and to Part II, Item 2 in this Quarterly Report on Form 10-Q for a discussion of our share repurchase programs.

Off-Balance Sheet Transactions

We have no off-balance sheet transactions.

Critical Accounting Policies

Our management makes a number of significant estimates, assumptions and judgments in the preparation of our financial statements. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our 2017 Annual Report on Form 10-K for a discussion of the estimates and judgments necessary in our accounting for revenue recognition, business combinations, goodwill and other intangible assets, income taxes, pensions, and stock-based compensation.

Recent Accounting Pronouncements

Please refer to Note 1 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements and their anticipated effect on our business.

Item 3.
Quantitative and Qualitative Disclosures About Market Risk

For information regarding our exposure to certain market risks, see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk,” in our 2017 Annual Report on Form 10-K.

Borrowings under the 2016 revolving facility and 2016 term loans are subject to variable interest rates. We use interest rate swaps in order to fix a portion of our variable rate debt as part of our overall interest rate risk management strategy. As of February 28, 2018, we had approximately $2.106 billion of floating-rate debt at a 3.36 percent weighted-average interest rate, of which $400 million was subject to effective floating-to-fixed interest rate swaps. A hypothetical increase in interest rates of 100 basis points applied to our floating rate indebtedness would increase our annual interest expense by approximately $17 million ($21 million without giving effect to any of our interest rate swaps).


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Item 4.
Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act, as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act are effective at a reasonable assurance level to ensure that information required to be disclosed in the reports required to be filed or submitted under the Securities Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

(b) Changes in internal control over financial reporting.

There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.   OTHER INFORMATION

Item 1.
Legal Proceedings

Please refer to Note 9 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for information about legal proceedings.

Item 1A. Risk Factors

There have been no material changes to the risk factors associated with our business previously disclosed in “Item 1A. Risk Factors,” in our 2017 Annual Report on Form 10-K.


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Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides detail about our share repurchases during the three months ended February 28, 2018.
 
Total Number of Shares
Purchased
 
Average
Price Paid
per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in millions)
December 1 - December 31, 2017:
 
 
 
 
 
 
 
Share repurchase programs (1)
2,020,320

 
$
43.18

 
2,020,320

 
$
1,592.2

Employee transactions (2)
11,220

 
$
45.09

 
N/A

 
N/A

January 1 - January 31, 2018:
 
 
 
 
 
 
 
Employee transactions (2)
546,599

 
$
45.93

 
N/A

 
N/A

February 1 - February 28, 2018:
 
 
 
 
 
 
 
Share repurchase programs (1)
1,866,947

 
$
45.66

 
1,866,947

 
$
1,506.9

Employee transactions (2)
1,074,837

 
$
47.47

 
N/A

 
N/A

Total share repurchases
5,519,923

 
$
45.13

 
3,887,267

 
 

For the first quarter of 2018, we repurchased approximately $249 million of common shares, including approximately $172 million in open market share repurchases (described in note (1) below), and approximately $77 million in employee transactions (described in note (2) below).

(1) In August 2016, our Board of Directors authorized a share repurchase program of up to $1.5 billion of IHS Markit common shares from September 29, 2016 through November 30, 2017, 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. In January 2017, our Board of Directors increased the size of the program to up to $2.25 billion of IHS Markit common shares and extended the program’s termination date to May 31, 2018. In October 2017, our Board of Directors increased the size of the program to up to $3.25 billion of IHS Markit common shares and extended the program’s termination date to November 30, 2019. This current repurchase program does not obligate us to repurchase any set dollar amount or number of shares and may be modified, suspended, or terminated at any time without prior notice. Under this program, we are authorized to repurchase our common shares on the open market from time to time, in privately negotiated transactions, or through accelerated share repurchase agreements, subject to availability of common shares, price, market conditions, alternative uses of capital, and applicable regulatory requirements, at management’s discretion.

(2) Amounts represent common shares repurchased from employees in an amount equal to the statutory tax liability associated with the vesting of their equity awards. We then pay the statutory tax on behalf of the employee. Our Board of Directors has approved this program in an effort to reduce the dilutive effects of employee equity grants. This program is separate and additional to the repurchase program described in note (1).

Item 5.    Other Information

Iran Threat Reduction and Syria Human Rights Act Disclosure
 
Under the Iran Threat Reduction and Syrian Human Rights Act of 2012, which added Section 13(r) of the Securities Exchange Act, we are required to include certain disclosures in our periodic reports if we or any of our affiliates knowingly engaged in certain specified activities during the period covered by the report. Disclosure is generally required even if the transactions or dealings were conducted in compliance with applicable law and regulations. During the third quarter of 2014, we acquired Global Trade Information Services, a Virginia corporation (“GTIS”). GTIS publishes the Global Trade Atlas (the “GTA”), an online trade data system offering global merchandise trade statistics such as import and export data from official sources in more than 65 countries. Included in the GTA is certain trade data sourced from Iran for which GTIS pays an annual fee of approximately $30,000. The procurement of this information is exempt from applicable economic sanctions laws and regulations as a funds transfer related to the exportation or importation of information and informational materials. Sales attributable to this Iranian trade data represented approximately $75,000 in gross revenue for GTIS in the first quarter of 2018 and would have represented approximately 0.01 percent of our first quarter 2018 consolidated revenues and gross profits. Subject to any changes in the exempt status of such activities, we intend to continue these business activities as permissible under applicable export control and economic sanctions laws and regulations.


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Item 6.
Exhibits

(a)
Index of Exhibits
Exhibit
Number
 
Description
10.1+*
 
10.2+*
 
10.3+*
 
10.4+*
 
10.5+*
 
31.1*
 
31.2*
 
32*
 
101.INS
 
XBRL Instance Document
101.SCH
 
XBRL Taxonomy Extension Schema Document
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF  
 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB  
 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE  
 
XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.
+ Compensatory plan or arrangement.


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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 27, 2018.
 
IHS MARKIT LTD.
 
 
By:
 
/s/ Michael Easton
 
 
Name:
 
Michael Easton
 
 
Title:
 
Senior Vice President and Chief Accounting Officer


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