S&p Global Inc. · NYSE:SPGI
S&p Global — The McGraw-Hill Companies — Q4 2010 Earnings Presentation
41 slides from S&p Global's earnings presentation, Feb 1, 2011
Slide 1: 4Q 2010 Earnings Call
4Q 2010 Earnings Call February 1, 2011 Presenters: Harold McGraw III Chairman, President and CEO Jack Callahan 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: Comparison of Adjusted Information to U.S. GAAP Information
Comparison of Adjusted Information to U.S. GAAP Information This presentation includes adjusted earnings per share, operating profit, and corporate expense information. This information is provided to enable investors to make meaningful comparisons of the Company’s operating performance between peri
Slide 3: MHP: Double-digit growth in FY 2010
Harold McGraw III Chairman, President and CEO The McGraw-Hill Companies MHP: Double-digit growth in FY 2010 As Reported 4Q 2010 FY 2010 Diluted EPS $0.50 $2.65 As Adjusted 4Q 2010 4Q 2009 Change Diluted EPS $0.55 $0.51 7.8% FY 2010 FY 2009 Change $2.69 $2.37 13.5% Dilution from acquisitions • 4Q 201
Slide 4: MHP: Realigned into four operating segments
MHP: Realigned into four operating segments New Reporting Structure (Recasted) 2010 2010 Adjusted Segment Revenue Operating Profit I&M MHF I&M MHF 15% 11% 19% 20% MHE S&P MHE 22% 27% 39% S&P 47% 6 McGraw-Hill Financial Standard & Poor’s McGraw-Hill Education McGraw-Hill Information & Media
Slide 5: The strategy for McGraw-Hill Financial
The strategy for McGraw-Hill Financial Started testing strategic concept for McGraw-Hill Financial in 2008 New structure integrates core capabilities • Segment can be greater than the sum of its parts Drive organic growth through: • Development of new, integrated solutions from proprietary assets •
Slide 6: McGraw-Hill Financial's new integrated product capabilities
McGraw-Hill Financial’s new integrated product capabilities Existing Products & Services (1) Previously in FIRMS offering Enterprise Solutions • Global Data Leverages our data organization Value Proposition: Solutions 1 to create and deliver: Integrated Data • Global benchmark data and • Provide inv
Slide 7: McGraw-Hill Financial's new integrated product capabilities
McGraw-Hill Financial’s new integrated product capabilities Existing Products & Services (1) Previously in FIRMS offering Research & Analytics • Equity Research Leverages the capabilities of Value Proposition: (STARS) Enterprise Solutions and Market Analysis Benchmarks to provide: & Investment Insig
Slide 8: How a recasted McGraw-Hill Financial performed in 2010
How a recasted McGraw-Hill Financial performed in 2010 Recasted 2010 results for McGraw-Hill Financial • Revenue: $1.2 billion • Operating margin: 26.5% Compares to Standard & Poor’s Investment Services revenue of $918 million • McGraw-Hill Financial includes the securities information business from
Slide 9: McGraw-Hill Financial: 12.4% revenue growth in 4Q 2010
McGraw-Hill Financial: 12.4% revenue growth in 4Q 2010 As Recasted 4Q 2010 4Q 2009 Change Revenue $321.8 million $286.4 million 12.4% • Includes $12.7 million in revenue from TheMarkets.com acquisition 16 Solid growth for S&P Indices in 2010 $300.3 billion in assets under management based on S&P ind
Slide 10: Continuing to build and expand at Capital IQ
Continuing to build and expand at Capital IQ More clients in 2010 • An increase of 15.8% for the year to more than 3,400 Smooth integration of TheMarkets.com • Strong addition to McGraw-Hill Financial’s integrated desktop platform 18 2011 outlook for McGraw-Hill Financial Expect a good start to the
Slide 11: Solid results at Standard & Poor's in 2010
McGraw-Hill Financial Standard & Poor’s McGraw-Hill Education McGraw-Hill Information & Media Solid results at Standard & Poor’s in 2010 As Adjusted 4Q 2010 4Q 2009 Change Revenue $471.6 million $415.9 million 13.4% Operating Profit $204.8 million $179.2 million 14.3% As Adjusted FY 2010 FY 2009 Cha
Slide 12: A record year for global high-yield new issuance
A record year for global high-yield new issuance Worldwide Corporates High Yield $500 $381.4 (in billions of US$) $400 $300 $243.5 $200 $106.0 $120.5 $100 $0 2Q 2007 4Q 2010 FY 2007 FY 2010 Source: Thomson Financial, Harrison Scott Publications, Standard & Poor’s 2007 2010 22 Tightening interest rat
Slide 13: Refinancing: 64% of U.S. high-yield dollar volume in 2010
Refinancing: 64% of U.S. high-yield dollar volume in 2010 U.S. Issuance 2010 Acquisition 11% Refinancing 64% (Bonds/Bank Debt/Refi) Other 5% LBO 4% Dividend 5% Corporate Purpose 11% Total 100% Par Vol $285 billion Source: Standard & Poor’s Leveraged Commentary Data 24 U.S. public finance set records
Slide 14: Prospects for more growth at Standard & Poor's in 2011
Prospects for more growth at Standard & Poor’s in 2011 Expect to benefit from same trends that contributed to success in 2010 Corporate issuance, including high-yield bonds, looks strong again 2011 off to good start 26 Why 2011 should be another good year for ratings Refinancing requirements are sub
Slide 15: Why 2011 should be another good year for ratings (cont'd)
Why 2011 should be another good year for ratings (cont’d) Access to capital markets remains strong and financing costs are still low Tighter spreads will allow for needed refinancing requirements Fundamentals are supportive • Credit investors expect default rates to remain low (2% to 3% range) • U.S
Slide 16: Why 2011 should be another good year for ratings (cont'd)
Why 2011 should be another good year for ratings (cont’d) Merger and acquisition activity is growing • M&A is a key driver of new bond issuance Continued deleveraging by banks • Will contribute to growth of public debt markets Trends driving activity in U.S. will also contribute to international gro
Slide 17: Latest developments on litigation front
Latest developments on litigation front The record: • 16 cases have been dismissed outright – Four of these cases involved fraud charges • Seven cases have been voluntarily withdrawn • Progress in all three categories: 1. Underwriter claims 2. “Stock drop” suits 3. State law claims 32 Latest develop
Slide 18: Latest developments on litigation front
Latest developments on litigation front 2. “Stock drop” suits Our motions to dismiss were granted in three of the four cases in this category • Two have been appealed; awaiting decision from the U.S. Court of Appeals In remaining case, we are waiting for a decision on our motion to dismiss 34 La
Slide 19: Update on lawsuits overseas
Update on lawsuits overseas Overseas lawsuits are in preliminary stages and some involve jurisdictional issues Most notable is Parmalat litigation which started in Italy in 2005 • In a procedural hearing on January 11, 2011, judge ordered final briefs to be submitted in March • We continue to believ
Slide 20: Favorable decision in California state court
Favorable decision in California state court CALPERS case in California alleged negligent misrepresentation in connection with the ratings of three structured investment vehicles • Court granted our motion that the complaint falls under a California statute protecting speech made in the public inter
Slide 21: How S&P has invested to meet new regulations
How S&P has invested to meet new regulations S&P created Quality, Criteria, Compliance, Risk (QCCR) governance and control framework • Significant investments in technology platforms and staffing for quality, criteria, compliance and risk management • Operates independently of the ratings business 4
Slide 22: Gaining more clarity on regulatory issues
Gaining more clarity on regulatory issues United States: SEC will engage in more rulemaking in 2011 to meet Dodd-Frank Act requirements New regulations expected from Canada and Singapore Hong Kong and Taiwan recently passed new regulations 42 Gaining more clarity on regulatory issues New European Se
Slide 23: 2011 outlook for Standard & Poor's
2011 outlook for Standard & Poor’s Summary • Legal risk remains low • We are prepared to deal effectively with new regulatory requirements • Continuing strong corporate issuance should produce high single-digit revenue growth • Operating profit should grow in high single- digits in 2011 44 McGraw-Hi
Slide 24: 2010 revenue at McGraw-Hill Education
2010 revenue at McGraw-Hill Education As Reported 4Q 2010 4Q 2009 Change Revenue $496.3 million $520.0 million (4.6%) FY 2010 FY 2009 Change $2,433.1 million $2,387.8 million 1.9% 46 2010 operating profit at McGraw-Hill Education As Reported 4Q 2010 4Q 2009 Change Operating $16.2 million $33.5 milli
Slide 25: McGraw-Hill Education revenue pattern mirrors market data
McGraw-Hill Education revenue pattern mirrors market data Elementary-high school market: • FY 2010: 3.3% increase despite decline in 4Q • 4Q 2010: Double-digit decrease, according to Association of American Publishers statistics U.S. higher education market • FY 2010: 6.8% increase • 4Q 2010: Sales
Slide 26: Gains in el-hi market, Decline in testing
Gains in el-hi market, Decline in testing 2010 revenue flat for McGraw-Hill School Education Group Gain in el-hi market offset by a decline in testing • Impact of planned discontinuation of custom testing contracts in Florida, California, and Arizona –These programs produced revenue in 2009 Award-wi
Slide 27: Growing digital opportunities for expanding array of products
Growing digital opportunities for expanding array of products The Blackboard connection: • Through new alliance with Blackboard, McGraw-Hill Higher Education's products will be integrated seamlessly into the Blackboard platform – McGraw-Hill Connect™: Homework management product – McGraw-Hill Create
Slide 28: Outlook for elementary-high school market
Digital developments will increase opportunities in international markets Launching mConnect mobile learning platform in India with Wipro Initiative combines: • McGraw-Hill’s digital learning and adaptive educational software • Wipro’s wireless technology capabilities mConnect will deliver supplemen
Slide 29: 2011 outlook for McGraw-Hill Education
2011 outlook for McGraw-Hill Education Market expectations: • Flat to minimal growth in elementary-high school market • 4% to 6% growth in U.S. higher education market For McGraw-Hill Education: • Revenue: Expect growth in low single-digits • Operating profit: Anticipate a decline, largely driven by
Slide 30: 2010 revenue at Information & Media
2010 revenue at Information & Media As Reported 4Q 2010 4Q 2009 Change Revenue $249.3 million $253.3 million (1.6%) FY 2010 FY 2009 Change $907.5 million $953.8 million (4.9%) As Adjusted 4Q 2010 4Q 2009 Change Revenue $249.3 million $231.7 million 7.6% FY 2010 FY 2009 Change $907.5 million $854.6 m
Slide 31: Information & Media: Best operating margin in a decade
Information & Media: Best operating margin in a decade Operating Margin 2010 2009 As reported 17.7% 9.7% As adjusted 18.8% 9.0% We believe the new operating margin level is sustainable • 2010 adjusted margin is best achieved since 21.1% in 2000 Contributors to improvement • Divestiture of BusinessWe
Slide 32: 4Q results at Business-to-Business Group
4Q results at Business-to-Business Group J.D. Power and Associates • Improvement in U.S. automotive business contributed to 4Q performance • Sets the stage for more growth in 2011 Softness in construction • Commercial construction industry continued to hamper McGraw-Hill Construction in 2010 62 Busi
Slide 33: A strong rebound at Broadcasting Group in 2010
A strong rebound at Broadcasting Group in 2010 Key drivers: • Strong political advertising • Improved national and local-time sales Revenue 2010 2009 Change 4Q $28.4 million $23.3 million 21.7% Full Year $96.0 million $81.1 million 18.3% 64 2011 outlook for Information & Media Summary: • Revenue: Ex
Slide 34: 2011 outlook for The McGraw-Hill Companies
2011 outlook for The McGraw-Hill Companies Standard & Poor’s and McGraw-Hill Financial: Expect to build on strong 2010 results McGraw-Hill Education: Will make important investments in digital products and services to achieve a new level in a rapidly developing market 2011 EPS guidance: Expect earni
Slide 35: A royalty for Standard & Poor's content
A royalty for Standard & Poor’s content McGraw-Hill Financial pays a royalty to use and distribute content and data developed by Standard & Poor’s Impact of $56 million royalty: • Non-transaction revenue for Standard & Poor’s • Expense for McGraw-Hill Financial 68 Realigning products in the new segm
Slide 36: Outlook for corporate expenses
Outlook for corporate expenses Adjusted expenses exclude one-time charge of $15.6 million related to subleasing space • 4Q 2010: Adjusted expenses increased $10 million to $46.7 million • YTD 2010: Adjusted expenses increased approximately $37 million to $164.4 million Primary drivers: • Increase in
Slide 37: The outlook for prepublication investments
The outlook for prepublication investments 2010: $151 million • Time shift in investments – By delaying publication dates by several months, we are able to reflect both existing state standards and final Common Core Standards in new product releases – Stepping up digital investments 2011: Expect $20
Slide 38: The outlook for capital expenditures
The outlook for capital expenditures 2010: $115 million 2011: Expect approximately $150 million • Driven in part by increased digital and technology investments 74 Returning cash to shareholders in 2010 2010: Returned $548 million to shareholders through dividends and share repurchases 2010: Repurch
Slide 39: Returning cash to shareholders in 2011
Returning cash to shareholders in 2011 8.4 million shares remain in 2007 program authorized by the Board of Directors 2011: Expect to repurchase about half of the remaining 8.4 million shares, subject to market conditions • Factored into 2011 EPS guidance; minimal impact Dividend increased 6.4% in J
Slide 40: A well-capitalized company
A well-capitalized company Net cash and short-term investments: • As of December 31, 2010: $350 million Cash and short-term investments: • 4Q 2010: $1.548 billion Gross debt: Approximately $1.2 billion • Comprised of long-term unsecured senior notes • No commercial paper outstanding 78 4Q 2010 Earni
Slide 41: 4Q 2010 Earnings Call
4Q 2010 Earnings Call February 1, 2011 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 March 1, 2011 Domestic: 866-348-3536 Internation
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