S&p Global Inc. · NYSE:SPGI
S&p Global — The McGraw-Hill Companies — Q1 2010 Earnings Presentation
49 slides from S&p Global's earnings presentation, Apr 27, 2010
Slide 1: 1Q 2010 Earnings Call
1Q 2010 Earnings Call April 27, 2010 Presenters: Harold McGraw III Chairman, President and CEO Robert J. Bahash Executive Vice President and CFO Donald S. Rubin Senior Vice President, Investor Relations Donald S. Rubin Senior Vice President, Investor Relations The McGraw-Hill Companies
Slide 2: Safe Harbor Statement Under The Private Securities Litigation Reform Act of 1995
“Safe Harbor” Statement Under The Private Securities Litigation Reform Act of 1995 This presentation includes certain forward-looking statements about our businesses and our prospects, new products, sales, expenses, tax rates, cash flows, prepublication investments and operating and capital requirem
Slide 3: MHP 1Q 2010 results
MHP 1Q 2010 results 65.0% increase in 1Q EPS • 1Q 2010: $0.33 • 1Q 2009: $0.20 1Q revenue increased 3.7% • Grew 6.7% excluding divestitures of BusinessWeek and Vista Research 2010 is off to a good start • 1Q is seasonally the smallest quarter of the year 4 Positive indicators of growth in 2010 Real
Slide 4: 1Q 2010 segment results at McGraw-Hill Education
McGraw-Hill Education Financial Services Information & Media 1Q 2010 segment results at McGraw-Hill Education Revenue +1.5% to $317.2 million • Higher Education, Professional and International Group: +8.3% to $205.7 million • School Education Group: (9.0%) to $111.6 million Operating Loss (19.3%) to
Slide 5: 1Q results for McGraw-Hill School Education Group
1Q results for McGraw-Hill School Education Group 1Q el-hi ordering is typically light • North Carolina did not order this year; usually makes substantial purchases before end of March Gains in open territories offset slight decline in adoption states • Increased supplemental, residual and intervent
Slide 6: Contra intuitive growth in elementary-high school market
Tracking buying patterns closely Timing issues: • Local school districts in some adoption states have two or more years to purchase materials 10 Contra intuitive growth in elementary-high school market Six consecutive monthly increases in total basal and supplemental K–12 net sales $400 Increases fr
Slide 7: Still expect 6% to 7% growth in 2010 el-hi market
Still expect 6% to 7% growth in 2010 el-hi market Now estimate 2010 state new adoption market to grow between $875 million and $925 million • Versus earlier forecast of $925 million to $975 million – New forecast represents about an 80% year-over- year increase for the market • No formal postponemen
Slide 8: Outlook for el-hi state new adoption market
Outlook for el-hi state new adoption market Budgetary pressures may drive more district- level postponements than originally anticipated • Forecasting lower spending in Georgia, California, Virginia and Kentucky • Florida K–5 math adoption looks solid, but some districts are delaying high school mat
Slide 9: The outlook for the testing market
The outlook for the testing market Gaining share in the formative testing market • Coming from district-level adoptions New opportunities: • Race to the Top grant winners beginning to implement plans for formative and summative testing • Movement toward Common Core standards and assessments gaining
Slide 10: Assessing the Common Core Standards Initiative
Assessing the Common Core Standards Initiative Department of Education will also award a total of $350 million to a multi-state consortia with winning proposals for developing new assessments based on the standards 18 Common Core Standards to create new opportunities Testing development will begin l
Slide 11: Outlook for higher education: Surge in enrollments driving growth
Outlook for higher education: Surge in enrollments driving growth Federal stimulus dollars helped increase enrollments last fall and again this year More funding for students: • Increased Pell Grants • Higher allowable tax deductions for college-related expenses • New Post 9/11 GI Bill provides subs
Slide 12: Growing digital initiatives in professional markets
Growing digital initiatives in professional markets New digital products in 1Q 2010: • Kiss, Bow or Shake Hands—a digital subscription- based reference for international business etiquette • Perfect Phrases for Managers—a performance support tool that helps managers find the right phrase at the righ
Slide 13: Growing digital initiatives in professional markets
Growing digital initiatives in professional markets Digital offering broadens geographic coverage • New partnership agreement with the Chinese Education and Research Network –Makes Access suite available for the first time to Chinese students, educators and researchers Digital products are producing
Slide 14: 1Q 2010 results at Financial Services
McGraw-Hill Education Financial Services Information & Media 1Q 2010 results at Financial Services Revenue +9.3% to $667.0 million • S&P Credit Market Services: +15.4% to $451.5 million • S&P Investment Services: (1.5%) to $215.5 million Operating Profit +12.3% to $260.0 million Operating Margin 39.
Slide 15: Key drivers in Financial Services' 1Q 2010 results
Key drivers in Financial Services’ 1Q 2010 results S&P Credit Market Services: 15.4% growth in 1Q revenue • Increase driven by: – Record high-yield issuance – Strong growth in bank loan ratings – Solid gain in public finance – Modest improvement in structured finance – 18.4% growth in international
Slide 16: Record 1Q growth in worldwide corporate high-yield debt issuance
Record 1Q growth in worldwide corporate high-yield debt issuance Worldwide Corporates: High yields up 564.5% 12.9 1050 1010.8 85.8 900 (in billions of US$) 2009 750 759.3 High-Yield 600 Investment Grade 2.6 450 5.8 45.1 2010 24.0 4.5 361.3 High-Yield 300 288.9 16.8 360.6 312.9 Investment Grade 264.2
Slide 17: Favorable trends in the credit markets
Favorable trends in the credit markets Steady spread contraction across all asset-backed securities Asset-backed January 2009 April 20, 2010 securities Autos LIBOR + 605 bps LIBOR + 30 bps Credit cards LIBOR + 525 bps LIBOR + 30 bps FFELP student loans LIBOR + 355 bps LIBOR + 35 bps Source: Deutsche
Slide 18: Structured finance contributed modestly to 1Q increase
Structured finance contributed modestly to 1Q increase U.S. RMBS 4 U.S. CMBS (in billions of US$) 8 (in billions of US$) 6 3 6.1 2.7 4 2 4.3 3.7 4.0 2 1 0.9 1.1 0.0 0.0 0.0 0.1 0.0 0 0 Jan Feb Mar Jan Feb Mar 6 U.S. CDOs 20 U.S. ABS (in billions of US$) (in billions of US$) 17.9 5.0 15 4 11.4 11.7 1
Slide 19: How non-transaction revenue grew in 1Q
How non-transaction revenue grew in 1Q 8.1% non-transaction revenue growth in 1Q primarily from increased subscriptions and annual fees Other contributions: • Increased demand for products and services not tied to new issuance • An increase in new credits under surveillance • Price increases • A mod
Slide 20: S&P Indices: Growth in asset-based revenue
S&P Indices: Growth in asset-based revenue 1Q 2010: New high of $254.2 billion for assets under management in exchange-traded funds based on S&P indices • 2.9% higher than the previous record high at year-end 2009 • 21 new exchange-traded funds based on S&P indices were launched in 1Q, bringing the
Slide 21: Positive signs at S&P Credit Market Services
Positive signs at S&P Credit Market Services High-yield issuance will continue at a good pace • Proceeds mainly used for leveraged loan repayments Activity will continue in the bank loan market Refinancing will be a factor with $2 trillion in debt maturities due through 2014 Number of investment-gra
Slide 22: Latest developments on litigation front
Positive signs at S&P Credit Market Services Structured finance market has improved but new federal rules/regulations may: • Increase cost of securitization • Temper new issuance 42 Latest developments on litigation front Courts are issuing decisions in lawsuits against McGraw- Hill and Standard & P
Slide 23: Latest developments on litigation front
Latest developments on litigation front 1. Underwriter lawsuits allege that McGraw-Hill is liable under Securities Act of 1933 • To date, four federal judges have granted motions to dismiss in six separate “underwriter” actions • In light of favorable rulings, class action counsel in the Fort Worth
Slide 24: Latest developments on litigation front
Latest developments on litigation front Significant decisions in cases in which Standard & Poor’s is not a party • Claims against an issuer or underwriter based on allegedly misleading statements about ratings included in disputed offering documents • The federal courts have rejected these claims ou
Slide 25: How the courts have ruled
How the courts have ruled In rejecting claims that rating agencies “controlled” Lehman • Lehman Brothers Securities and ERISA Litigation “This complaint, fairly read, alleges only that the Rating Agencies had the power to influence Lehman with respect to the composition of the pools of mortgages to
Slide 26: How the courts have ruled
How the courts have ruled In dismissing allegations, based upon alleged purported failures to disclose rating agencies conflicts of interest “The Securities Act does not require disclosure of that which is publicly known, and the risk that rating agencies operating under a conflict of interest becau
Slide 27: Latest developments on litigation front
Latest developments on litigation front Federal courts are making important decisions in similar cases in which Standard & Poor’s and the other rating agencies are not defendants: 1. Plumbers Union Local versus Nomura Asset Acceptance Corp. 2. New Jersey Carpenters Health Fund versus DLJ 3. New Jers
Slide 28: Latest developments on litigation front
Latest developments on litigation front Clear takeaways from recent court decisions: • Rating agencies are not underwriters or sellers of securities under securities laws • Rating agencies are not controlling persons under securities laws • Ratings are opinions, not statements of fact • After-the-fa
Slide 29: Latest developments on litigation front
Latest developments on litigation front Courts understand the difference between credit risk and market risk Misunderstanding by others are on display almost daily by some sophisticated investors who claim they relied on ratings to make their investment decisions for themselves or as fiduciaries for
Slide 30: The regulatory outlook for S&P remains fluid
The regulatory outlook for S&P remains fluid We are seeking a level playing field • All parties should be subject to the same legal pleading standards • To impose lower pleading standard on NRSROs is unprecedented and discriminatory 58 The regulatory outlook for S&P remains fluid We fully support th
Slide 31: The regulatory outlook for S&P remains fluid
The regulatory outlook for S&P remains fluid New SEC regulations go into effect on June 2 • New 17g5 rule requires issuers and arrangers to make information available to all NRSROs— whether paid or not –Promotes unsolicited ratings S&P is working with market participants to implement 17g5 rule and t
Slide 32: 1Q 2010 results at Information & Media
McGraw-Hill Education Financial Services Information & Media 1Q 2010 results at Information & Media Revenue (8.5%) to $206.2 million • Broadcasting Group: +2.2% to $18.7 million • Business-to-Business Group: (9.5%) to $187.5 million Operating Profit Increased $25.0 million to $27.8 million Operating
Slide 33: Business-to-Business Group: Making steady progress
Business-to-Business Group: Making steady progress Divestiture of BusinessWeek is having a positive impact on results • Late 2009 divestiture will positively impact year- over-year comparisons for 11 months in 2010 Excluding BusinessWeek divestiture: • Revenue grew 4.3% in 1Q • Business-to-Business
Slide 34: Tracking the digital transformation of Information & Media
Tracking the digital transformation of Information & Media A plus for the segment in 2010 Digital products and services represented more than 60% of B2B Group’s 1Q revenue Contributed to margin improvement 66 Broadcasting: Positive signs in 1Q results Revenue increased 2.2% in 1Q • Pick up in politi
Slide 35: Outlook for 2010: Information & Media
Outlook for 2010: Information & Media Summary for 2010: • 2009 sale of BusinessWeek will have a positive impact on revenue and operating margin in 2010 • Revenue: Expect mid single-digit decline – Excluding $99 million from BusinessWeek divestiture, revenue will increase in the mid single-digit rang
Slide 36: Robert J. Bahash / MHP starts 2010 in a strong financial position
Robert J. Bahash Executive Vice President and Chief Financial Officer The McGraw-Hill Companies MHP starts 2010 in a strong financial position Maintaining a healthy balance sheet 1Q 2010 total debt: $1.2 billion • Comprised of long-term unsecured senior notes • No commercial paper outstanding Ended
Slide 37: The outlook for investments and expenses
The outlook for investments and expenses 1Q 2010 segment expenses declined 2.6% Even with increase in EPS in 1Q, guidance remains the same due to increased investments later in the year • Technology investments • Additional selling and marketing expenses • Increasing our talent base in each segment
Slide 38: 2010 guidance for McGraw-Hill Education
2010 guidance for McGraw-Hill Education 2010 revenue guidance: 6% to 7% growth • Compared to previous guidance of 7% to 8% growth Maintaining adjusted operating margin from 2009 • Now expect expenses to increase 6% to 7% versus previous guidance of a 7% to 8% increase –Additional selling and marketi
Slide 39: 2010 guidance for Financial Services
2010 guidance for Financial Services 2010 expense guidance: Expect 9% to 10% increase versus 2009 adjusted expenses. Driven by: • Continued investment in our fast growing businesses • Carry over impact of 2009 hires and planned hires in 2010 • Additional investments to support regulatory and complia
Slide 40: Measuring the impact of BusinessWeek divestiture
Measuring the impact of BusinessWeek divestiture Information & Media’s 2010 results will reflect $38 million in savings from BusinessWeek divestiture • Corporate expense will increase $13 million as a result of managing vacant space and other support costs following the divestiture 78 2010 guidance
Slide 41: 2010 outlook for corporate expenses
2010 outlook for corporate expenses 1Q 2010: $35.8 million • $2.4 million increase compared to 1Q 2009, largely due to increased excess space 2010: Expect to increase $25 million to $30 million • Primarily due to increase in vacant space in New York resulting from BusinessWeek divestiture and restru
Slide 42: Outlook for pension plan funding
Outlook for pension plan funding 2010: We do not anticipate any funding requirements for U.S. pension plan • Pension expense is expected to increase roughly $20 million in 2010 82 Increasing prepublication investments 1Q 2010: $29.9 million • $12.8 million decrease versus 1Q 2009, largely due to tim
Slide 43: Increasing property and equipment expenditures
Increasing property and equipment expenditures 1Q 2010: $7.6 million • Slight decrease versus 1Q 2009 2010: Expect $90 million to $100 million • Compared to $68.5 million in 2009 • Largely reflects increase in technology spending 84 Outlook for non-cash items: Amortization of prepublication costs 1Q
Slide 44: Outlook for non-cash items: Depreciation
Outlook for non-cash items: Depreciation 1Q 2010: $25.9 million • Compared to $29.4 million in 1Q 2009 2010: Now expect $115 million, versus our earlier forecast of $120 million • Compared to $113 million in 2009 • Reflects shift in timing of certain capital expenditures 86 Outlook for non-cash item
Slide 45: Diluted weighted average shares outstanding (WASO)
Diluted weighted average shares outstanding (WASO) 1Q 2010: 316.3 million shares • 4.2 million share increase compared to 1Q 2009 • 1.8 million share increase from 4Q 2009 Increase driven by stock price appreciation and issuance related to employee plans Fully-diluted shares at end of 1Q 2010: Appro
Slide 46: Outlook for effective tax rate
Outlook for effective tax rate 1Q 2010: 36.4% • Unchanged from 2009 2010: Expect a comparable rate 90 1Q ’10 tax payments 1Q 2010: We made a cash tax payment of approximately $35 million due to restructuring actions related to our international operations • Will largely be recovered through reduced
Slide 47: Immaterial impact from new healthcare legislation
Immaterial impact from new healthcare legislation New healthcare law eliminates the tax deductibility of employer paid retiree prescription drug benefits McGraw-Hill’s post-retirement benefits program does not include a significant portion of retiree prescription drug benefits which are reimbursed p
Slide 48: Update on share repurchase program
Update on share repurchase program In January, we announced plans to resume share repurchases in 2010 • No repurchases in 1Q • 17.1 million shares remaining from the 2007 authorization from the Board of Directors We remain committed to resuming the program later in 2010 94 1Q 2010 Earnings Call Apri
Slide 49: 1Q 2010 Earnings Call
1Q 2010 Earnings Call April 27, 2010 Replay Options Internet replay available for one year Go to www.mcgraw-hill.com/investor_relations • Click on the Earnings Announcement link under Investor Presentation Webcasts Telephone replay available through May 27, 2010 Domestic: 800-839-4838 International:
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