McGraw Hill Financial Reports Third Quarter Results
Revenue Increased 5%; Excluding Foreign Exchange Impact, Revenue Increased 7%
Diluted EPS from Continuing Operations Increased 35% to $0.92
Adjusted Diluted EPS from Continuing Operations Increased 16% to $1.19
Operating Margin Increased 210 Basis Points to 31.0%
Adjusted Operating Margin Increased 230 Basis Points to 39.9%
2015 Adjusted Diluted EPS Guidance Increased to a Range of $4.45 to $4.50
Strategic Alternatives for J.D. Power Under Consideration
PR Newswire
NEW YORK

NEW YORK, Nov. 3, 2015 /PRNewswire/ -- McGraw Hill Financial, Inc. (NYSE: MHFI) today reported third quarter 2015 results with revenue of $1.32 billion, an increase of 5% compared to the same period last year. Net income and diluted earnings per share from continuing operations were $252 million and $0.92, respectively.

Adjusted net income from continuing operations increased 16% to $325 million and adjusted diluted earnings per share from continuing operations increased 16% to $1.19. The adjustments in the third quarter of 2015 were associated with an estimated provision for potential legal settlements primarily in Australia, transaction costs related to the SNL acquisition, partially offset by insurance recoveries related to legal settlements.

"The performance in the quarter demonstrates the balance across the portfolio as the Company continued to deliver solid revenue growth, margin expansion and adjusted EPS growth during the third quarter despite a significant decline in global bond issuance," said Douglas L. Peterson, President and Chief Executive Officer of McGraw Hill Financial. "This year's margin expansion is the result of top-line growth and a concerted focus across the Company to deliver on our productivity targets.  As we look to continue to build shareholder value, we are ever more excited with the addition of SNL and the synergy potential with S&P Capital IQ and Platts to create an offering that is distinctive and essential to the global financial markets.  Lastly, we remain committed to actively repurchasing our shares – having repurchased 4.9 million shares in the last nine months."

Strategic Alternatives for J.D. Power Under Consideration

During the fourth quarter, the Company commenced a process to explore strategic alternatives for J.D. Power, a global marketing information services company providing performance improvement, social media and customer satisfaction insights and solutions.  In 2016, J.D. Power is currently estimated to have annual revenues approaching $350 million. The Company is increasingly focused on an interrelated set of businesses that serve the capital and commodities markets.

Return of Capital:  "The Company remains committed to meaningful return of capital," said Jack F. Callahan, Jr., Executive Vice President and Chief Financial Officer.  "With the share price continuing to present a compelling value, we have increased our share repurchases in each of the last three quarters and anticipate continuing share repurchases in the fourth quarter, subject to market conditions."  During the third quarter, the Company repurchased approximately 2.3 million shares. Year-to-date, the Company's return of capital is $775 million, which includes approximately $500 million for the repurchase of 4.9 million shares. The Company has authorization from the Board of Directors to repurchase up to an additional 40.6 million shares.

Outlook:  Based upon the strong results in the quarter, and its view of the remainder of the year, the Company is increasing its full-year guidance for adjusted earnings per share to a range of $4.45 to $4.50.  However, the Company remains cautious given the continuing volatility in the fixed income and equity markets.

S&P Capital IQ and SNL:  Soon after the close of the SNL transaction on September 1, the Company began integrating the S&P Capital IQ and SNL organizations.  The business unit is led by Mike Chinn, the previous CEO of SNL.  "The integration is well underway and we are building a team that leverages the strength of each organization.  Our confidence is growing that we are well positioned to meet and likely exceed our initial synergy target of $70 million by 2019," said Douglas L. Peterson.

Third quarter results include one month of operations for SNL as the acquisition closed on September 1. Revenue increased 14% to $356 million in the third quarter of 2015 compared to the same period last year; excluding SNL, revenue grew 7%.

Expenses increased 23% primarily due to the combined impact of SNL's operating costs as well as acquisition-related costs.  Operating profit decreased 18% to $53 million.  Adjusted expenses, which excluded acquisition-related costs, increased 11% primarily due to the addition of SNL operating costs.  Adjusted operating profit increased 25% to $85 million.

Revenue from SNL products increased in September in the mid-teens compared to September 2014 when SNL was not owned by the Company.  Annual amortization related to the transaction is anticipated to be approximately $53 million.

The S&P Capital IQ Desktop product continues to have the most meaningful impact on revenue with low-teens revenue growth resulting from a similar increase in the number of users.

International revenue increased 12% to $120 million in the third quarter and represented 34% of the business unit's total revenue.

Standard & Poor's Ratings Services:  John Berisford is now President of Standard & Poor's Ratings and is no longer in an acting role. "Since he was appointed Acting President on September 8, John has done an outstanding job in aligning the organization to focus on quality analytics within an environment that promotes a culture of risk and compliance consciousness," said Douglas L. Peterson.

Revenue declined 3% to $587 million in the current quarter, primarily due to a 20% decline in global bond issuance and foreign exchange rates which unfavorably impacted revenue by 4 percentage points.

Transaction revenue decreased 9% to $244 million compared to the same period last year. This was in part due to very weak global bond issuance, especially in Asia and Latin America. Excluding the impact of foreign exchange, transaction revenue growth decreased 7%.

Non-transaction revenue increased 3% to $343 million in the quarter.  Excluding the impact of foreign exchange, non-transaction revenue increased 8% due primarily to increased demand for Rating Evaluation Service from heightened M&A activity and growth at CRISIL.

Domestic revenue increased 8% while international revenue, impacted by weak debt issuance, decreased 14%.  International revenue represented 42% of  third-quarter revenue.

Adjusted expenses in the quarter decreased 9% due to reduced legal fees and, to a lesser extent, decreased compensation and incentive costs primarily resulting from 2014 restructuring actions, partially offset by increased risk and compliance costs.

Operating profit increased 6% to $194 million with an operating profit margin that increased 280 basis points to 33%.  Adjusted operating profit increased 5% to $280 million with an adjusted operating profit margin that increased 380 basis points to 48%, driven by decreased expenses.  

S&P Dow Jones Indices:  Revenue increased 9% to $156 million in the third quarter of 2015 compared to the same period last year. Operating profit increased 23% to $106 million. Adjusted operating profit increased 18% to $106 million.  Adjusted operating profit attributable to the Company increased 19% to $80 million.

As the volatility of equity markets increased during the quarter, trading volumes of exchange-traded derivative contracts increased.  Top-line growth in the quarter was primarily due to this sharp increase in exchange-traded derivative activity associated with S&P Dow Jones Indices.  In addition, licensing revenue associated with increased exchange-traded fund AUM, mutual fund AUM, and data subscriptions all increased. AUM in exchange-traded funds based on S&P Dow Jones Indices increased 2% to $749 billion at the end of the quarter.

Commodities & Commercial Markets:  Revenue increased 9% to $248 million. Organic revenue, excluding revenue from recently acquired Petromedia and NADA Used Car Guide, grew 5%.  Operating profit grew 30% to $93 million and adjusted operating profit grew 11% to $93 million in the third quarter of 2015 compared to the same period last year.

Platts continued to experience steady revenue growth in the high single-digits as a result of strength in petroleum price assessments and market data.  Subscription revenue from Metals, Agriculture & Petrochemicals (MAPS) delivered the highest rate of growth.

Excluding revenue from the NADA Used Car Guide, J.D. Power revenue declined due largely to the economic slowdown in China.

Unallocated Expense:  Unallocated expense includes corporate center functions and certain non-allocated items such as excess real estate. Adjusted unallocated expense increased by 11% to $36 million in the third quarter primarily due to increased professional fees in support of certain enterprise-wide initiatives.

Taxes:  During the quarter, the Company recognized a favorable tax benefit for resolution of prior year tax audits of approximately $0.06 per share.  The Company now expects a full-year adjusted effective tax rate of approximately 31.5%.

Balance Sheet and Cash Flow:  The Company issued $2.0 billion of senior notes of various maturities during the quarter to finance the acquisition of SNL at a weighted average rate of 3.6%. Cash and cash equivalents at the end of the third quarter were $1.4 billion, of which approximately $1.3 billion was held outside the United States. In the first nine months of 2015, cash used for operating activities from continuing operations was $356 million. Free cash flow from continuing operations was $(497) million, a decrease of $1,234 million from the same period in 2014. Free cash flow, excluding the after-tax payments associated with legal and regulatory settlements and insurance recoveries, was $776 million.  Our full-year guidance for free cash flow, adjusted for legal and regulatory settlements, continues to be greater than $1.1 billion.

Comparison of Adjusted Information to U.S. GAAP Information: Adjusted diluted earnings per share, adjusted diluted earnings per share from continuing operations, adjusted diluted earnings per share excluding amortization expense, adjusted net income, adjusted operating profit and margin, adjusted expense, adjusted unallocated expense, free cash flow, free cash flow excluding certain items, and adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") are non-GAAP financial measures contained in this earnings release that are derived from the Company's continuing operations. This information is provided in order to allow investors to make meaningful comparisons of the Company's operating performance between periods and to view the Company's business from the same perspective as Company management. These non-GAAP measures may be different than similar measures used by other companies. Reconciliations for the differences between non-GAAP measures used in this earnings release and comparable financial measures calculated in accordance with U.S. GAAP are attached as Exhibits 4, 5, 8 and 9.

Conference Call/Webcast Details:  The Company's senior management will review the third quarter earnings results on a conference call scheduled for today, November 3, 2015, at 8:30 a.m. EST.  Additional information presented on the conference call may be made available on the Company's Investor Relations Website at http://investor.mhfi.com.

The Webcast will be available live and in replay at http://investor.mhfi.com/phoenix.zhtml?c=96562&p=irol-EventDetails&EventId=5206476. (Please copy and paste URL into Web browser.)

Telephone access is available. Domestic participants may call (888) 391-6568; international participants may call +1 (415) 228-4733 (long distance charges will apply). The passcode is "MHFI" and the conference leader is Douglas Peterson. A recorded telephone replay will be available approximately two hours after the meeting concludes and will remain available until December 3, 2015. Domestic participants may call (866) 403-6974; international participants may call +1 (203) 369-0561 (long distance charges will apply). No passcode is required.

Forward-Looking Statements: This press release contains "forward-looking statements," as defined in the Private Securities Litigation Reform Act of 1995. These statements, which express management's current views concerning future events, trends, contingencies or results, appear at various places in this press release and use words like "anticipate," "assume," "believe," "continue," "estimate," "expect," "forecast," "future," "intend," "plan," "potential," "predict," "project," "strategy," "target" and similar terms, and future or conditional tense verbs like "could," "may," "might," "should," "will" and "would." For example, management may use forward-looking statements when addressing topics such as: the outcome of contingencies; future actions by regulators; changes in the Company's business strategies and methods of generating revenue; the development and performance of the Company's services and products; the expected impact of acquisitions and dispositions; the Company's effective tax rates; and the Company's cost structure, dividend policy, cash flows or liquidity.

Forward-looking statements are subject to inherent risks and uncertainties. Factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements include, among other things:

  • the impact of the acquisition of SNL, including the impact on the Company's results of operations; any failure to successfully integrate SNL into the Company's operations and generate anticipated synergies and other cost savings; any failure to attract and retain key employees to execute SNL's growth strategy; any failure to realize the intended tax benefits of the acquisition; and the risk of litigation, competitive responses, or unexpected costs, charges or expenses resulting from or relating to the SNL acquisition;
  • the rapidly evolving regulatory environment, in the United States and abroad, affecting Standard & Poor's Ratings Services, Platts, S&P Dow Jones Indices, S&P Capital IQ and SNL, and the Company's other businesses, including new and amended regulations and the Company's compliance therewith;
  • the outcome of litigation, government and regulatory proceedings, investigations and inquiries;
  • worldwide economic, financial, political and regulatory conditions;
  • the health of debt and equity markets, including credit quality and spreads, the level of liquidity and future debt issuances;
  • the level of interest rates and the strength of the credit and capital markets in the United States and abroad;
  • the demand and market for credit ratings in and across the sectors and geographies where the Company operates;
  • concerns in the marketplace affecting the Company's credibility or otherwise affecting market perceptions of the integrity or utility of independent credit ratings;
  • the Company's ability to maintain adequate physical, technical and administrative safeguards to protect the security of confidential information and data, and the potential of a system or network disruption that results in regulatory penalties, remedial costs or improper disclosure of confidential information or data;
  • the effect of competitive products and pricing;
  • consolidation in the Company's end-customer markets;
  • the impact of cost-cutting pressures across the financial services industry;
  • a decline in the demand for credit risk management tools by financial institutions;
  • the level of success of new product developments and global expansion;
  • the level of merger and acquisition activity in the United States and abroad;
  • the volatility of the energy marketplace;
  • the health of the commodities markets;
  • the impact of cost-cutting pressures and reduced trading in oil and other commodities markets;
  • the strength and performance of the domestic and international automotive markets;
  • the impact on the Company's revenue and net income caused by fluctuations in foreign currency exchange rates;
  • the level of restructuring charges the Company incurs;
  • the level of the Company's capital investments;
  • the level of the Company's future cash flows;
  • the Company's ability to make acquisitions and dispositions and to integrate, and realize expected synergies, savings or benefits from the businesses it acquires;
  • the Company's ability to successfully recover should it experience a disaster or other business continuity problem from a hurricane, flood, earthquake, terrorist attack, pandemic, security breach, cyber-attack, power loss, telecommunications failure or other natural or man-made event;
  • changes in applicable tax or accounting requirements; and
  • the Company's exposure to potential criminal sanctions or civil penalties if it fails to comply with foreign and U.S. laws and regulations that are applicable in the domestic and international jurisdictions in which it operates, including sanctions laws relating to countries such as Iran, Russia, Sudan and Syria, anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act of 2010, and local laws prohibiting corrupt payments to government officials, as well as import and export restrictions.

The factors noted above are not exhaustive. The Company and its subsidiaries operate in a dynamic business environment in which new risks emerge frequently. Accordingly, the Company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the dates on which they are made. The Company undertakes no obligation to update or revise any forward-looking statement to reflect events or circumstances arising after the date on which it is made, except as required by applicable law. Further information about the Company's businesses, including information about factors that could materially affect its results of operations and financial condition, is contained in the Company's filings with the SEC, including the "Risk Factors" section in the Company's most recently filed Annual Report on Form 10-K and any subsequently filed Quarterly Report on Form 10-Q.

About McGraw Hill Financial:  McGraw Hill Financial is a leading financial intelligence company providing the global capital and commodity markets with independent benchmarks, credit ratings, portfolio and enterprise risk solutions, and analytics. The Company's iconic brands include Standard & Poor's Ratings Services, S&P Capital IQ and SNL, S&P Dow Jones Indices, Platts, CRISIL, and J.D. Power. The Company has approximately 20,000 employees in 31 countries. Additional information is available at www.mhfi.com.

Investor Relations: http://investor.mhfi.com

Get news direct from McGraw Hill Financial via RSS:
http://investor.mhfi.com/phoenix.zhtml?c=96562&p=rssSubscription&t=&id=&

Contact:
Investor Relations:
Chip Merritt
Vice President, Investor Relations
(212) 438-4321 (office)
chip.merritt@mhfi.com

News Media:
Jason Feuchtwanger
Director, Corporate Media Relations
(212) 438-1247 (office)
jason.feuchtwanger@mhfi.com

 

 

 

Exhibit 1

 

McGraw Hill Financial
Condensed Consolidated Statements of Income

Three and nine months ended September 30, 2015 and 2014
(dollars in millions, except per share data)

 

(unaudited)

Three Months

Nine Months

   

2015

 

2014

 

%
Change

   

2015

 

2014

 

%
Change

 
                             

Revenue

 

$

1,324

   

$

1,263

   

5%

   

$

3,938

   

$

3,761

   

5%

 

Expenses

 

914

   

897

   

2%

   

2,456

   

2,491

   

(1)%

 

Other (income) loss

 

   

   

N/M

   

(11)

   

9

   

N/M

 

Operating profit

 

410

   

366

   

12%

   

1,493

   

1,261

   

18%

 

Interest expense, net

 

30

   

12

   

N/M

   

62

   

40

   

55%

 

Income from continuing operations before
   taxes on income

 

380

   

354

   

8%

   

1,431

   

1,221

   

17%

 

Provision for taxes on income

 

99

   

139

   

(29)%

   

439

   

428

   

2%

 

Income from continuing operations

 

281

   

215

   

31%

   

992

   

793

   

25%

 

Income from discontinued operations (a)

 

   

2

   

N/M

   

   

15

   

N/M

 

Net income

 

281

   

217

   

30%

   

992

   

808

   

23%

 

Less: net income attributable to noncontrolling

  interests - continuing

 

(29)

   

(27)

   

11%

   

(83)

   

(77)

   

9%

 

Net income attributable to McGraw Hill
   Financial, Inc.

 

$

252

   

$

190

   

33%

   

$

909

   

$

731

   

24%

 
                             

Amounts attributable to McGraw Hill
   Financial, Inc. common shareholders:

                           

Income from continuing operations

 

$

252

   

$

188

   

34%

   

$

909

   

$

716

   

27%

 

Income from discontinued operations

 

   

2

   

N/M

   

   

15

   

N/M

 

Net income

 

$

252

   

$

190

   

33%

   

$

909

   

$

731

   

24%

 
                             

Earnings per share attributable to McGraw
    Hill Financial, Inc. common shareholders:

                           

Income from continuing operations:

                           

Basic

 

$

0.93

   

$

0.69

   

34%

   

$

3.33

   

$

2.64

   

26%

 

Diluted

 

$

0.92

   

$

0.68

   

35%

   

$

3.30

   

$

2.59

   

27%

 

Income from discontinued operations:

                           

Basic

 

$

   

$

0.01

   

N/M

   

$

   

$

0.05

   

N/M

 

Diluted

 

$

   

$

0.01

   

N/M

   

$

   

$

0.05

   

N/M

 

Net income:

                           

Basic

 

$

0.93

   

$

0.70

   

32%

   

$

3.33

   

$

2.69

   

24%

 

Diluted

 

$

0.92

   

$

0.69

   

33%

   

$

3.30

   

$

2.64

   

25%

 
                             

Weighted-average number of common shares outstanding:

                           

Basic

 

271.3

   

270.9

         

272.6

   

271.4

       

Diluted

 

274.4

   

275.4

         

275.4

   

276.2

       
                             

Actual shares outstanding at period end

               

270.3

   

271.4

       
                             
 

N/M - not meaningful

Note - % change in the tables throughout the exhibits are calculated off of the actual number, not the rounded number presented.

(a)  

In the fourth quarter of 2014, the Company sold McGraw Hill Construction, which historically was included in our Commodities & Commercial segment. As a result, this business has been reflected as a discontinued operation for the three and nine months ending September 30, 2014.

 

 

Exhibit 2

 

McGraw Hill Financial
Condensed Consolidated Balance Sheets

September 30, 2015 and December 31, 2014

 

(dollars in millions)

 

(unaudited)

 

September 30,

   

December 31,

 
   

2015

   

2014

 
             

Assets:

           

Cash and cash equivalents

 

$

1,441

     

$

2,497

   

Other current assets

 

1,395

     

1,469

   

Total current assets

 

2,836

     

3,966

   

Property and equipment, net

 

237

     

206

   

Goodwill

 

2,968

     

1,387

   

Other intangible assets, net

 

1,881

     

1,004

   

Other non-current assets

 

241

     

208

   

Total assets

 

$

8,163

     

$

6,771

   
             

Liabilities and Equity:

           

Unearned revenue

 

$

1,453

     

$

1,323

   

Other current liabilities (a)

 

1,052

     

2,644

   

Long-term debt

 

3,489

     

799

   

Pension, other postretirement benefits and other non-current liabilities

 

655

     

656

   

Total liabilities

 

6,649

     

5,422

   

Redeemable noncontrolling interest

 

810

     

810

   

Total equity

 

704

     

539

   

Total liabilities and equity

 

$

8,163

     

$

6,771

   
             
   

(a)

Includes an unpaid liability of $104 million and $1.6 billion related to legal and regulatory settlements as of September 30, 2015 and December 31, 2014, respectively.

 

 

 

Exhibit 3

 

McGraw Hill Financial
Condensed Consolidated Statements of Cash Flows

Nine months ended September 30, 2015 and 2014

 

(dollars in millions)

 

(unaudited)

 

2015

   

2014

 
             

Operating Activities:

           

Income from continuing operations

 

$

992

     

$

793

   

Adjustments to reconcile income from operations to cash (used for) provided by    

           

    operating activities from continuing operations:

           

Depreciation

 

64

     

64

   

Amortization of intangibles

 

40

     

36

   

Deferred income taxes

 

166

     

(33)

   

Stock-based compensation

 

55

     

72

   

Other

 

142

     

111

   

Accrued legal and regulatory settlements

 

(1,624)

     

   

Net changes in other operating assets and liabilities

 

(191)

     

(223)

   

Cash (used for) provided by operating activities from continuing operations

 

(356)

     

820

   
             

Investing Activities:

           

Capital expenditures

 

(74)

     

(52)

   

Acquisitions, net of cash acquired

 

(2,393)

     

(65)

   

Proceeds from dispositions

 

14

     

83

   

Changes in short-term investments

 

(3)

     

(1)

   

Cash used for investing activities from continuing operations

 

(2,456)

     

(35)

   
             

Financing Activities:

           

Proceeds from issuance of senior notes, net

 

2,674

     

   

Dividends paid to shareholders

 

(274)

     

(245)

   

Dividends and other payments paid to noncontrolling interests

 

(67)

     

(31)

   

Repurchase of treasury shares

 

(501)

     

(362)

   

Exercise of stock options, excess tax benefits from share-based payments and other

 

95

     

237

   

Cash provided by (used for) financing activities from continuing operations

 

1,927

     

(401)

   

Effect of exchange rate changes on cash from continuing operations

 

(42)

     

(24)

   

Cash (used for) provided by continuing operations

 

(927)

     

360

   

Cash (used for) provided by discontinued operations

 

(129)

     

16

   

Net change in cash and cash equivalents

 

(1,056)

     

376

   

Cash and cash equivalents at beginning of period

 

2,497

     

1,542

   

Cash and cash equivalents at end of period

 

$

1,441

     

$

1,918

   
             

 

 

Exhibit 4

 

McGraw Hill Financial
Operating Results
Three and nine months ended September 30, 2015 and 2014

 

(dollars in millions)

 

(unaudited)

Three Months

Nine Months

                             
   

Revenue

   

Revenue

 
                             
   

2015

 

2014

 

% Change

   

2015

 

2014

 

% Change

 
                             

S&P Ratings Services

 

$

587

   

$

604

   

(3)%

   

$

1,851

   

$

1,837

   

1%

 

S&P Capital IQ and SNL

 

356

   

311

   

14%

   

1,000

   

919

   

9%

 

S&P Dow Jones Indices

 

156

   

143

   

9%

   

446

   

412

   

8%

 

Commodities & Commercial Markets

 

248

   

227

   

9%

   

707

   

657

   

8%

 

Intersegment Elimination

 

(23)

   

(22)

   

(6)%

   

(66)

   

(64)

   

(2)%

 

Total revenue

 

$

1,324

   

$

1,263

   

5%

   

$

3,938

   

$

3,761

   

5%

 
                             
                             
   

Expenses

   

Expenses

 
                             
   

2015

 

2014

 

% Change

   

2015

 

2014

 

% Change

 
                             

S&P Ratings Services (a)

 

$

393

   

$

421

   

(7)%

   

$

1,005

   

$

1,107

   

(9)%

 

S&P Capital IQ and SNL

 

303

   

247

   

23%

   

822

   

747

   

10%

 

S&P Dow Jones Indices

 

50

   

57

   

(13)%

   

149

   

152

   

(1)%

 

Commodities & Commercial Markets

 

155

   

156

   

—%

   

442

   

440

   

1%

 

Intersegment Elimination

 

(23)

   

(22)

   

(6)%

   

(66)

   

(64)

   

(2)%

 

Total expenses (b)

 

$

878

   

$

859

   

2%

   

$

2,352

   

$

2,382

   

(1)%

 
                             
                             
   

Operating Profit

   

Operating Profit

 
                             
   

2015

 

2014

 

% Change

   

2015

 

2014

 

% Change

 
                             

S&P Ratings Services (a)

 

$

194

   

$

183

   

6%

   

$

846

   

$

730

   

16%

 

S&P Capital IQ and SNL

 

53

   

64

   

(18)%

   

178

   

172

   

4%

 

S&P Dow Jones Indices

 

106

   

86

   

23%

   

297

   

260

   

14%

 

Commodities & Commercial Markets

 

93

   

71

   

30%

   

265

   

217

   

22%

 

Total operating segments

 

446

   

404

   

10%

   

1,586

   

1,379

   

15%

 

Unallocated expense

 

(36)

   

(38)

   

(8)%

   

(93)

   

(118)

   

(21)%

 

Total operating profit

 

$

410

   

$

366

   

12%

   

$

1,493

   

$

1,261

   

18%

 
                             
   

(a) 

The three and nine months ended September 30, 2015 include legal settlement charges partially offset by a benefit related to legal settlement insurance recoveries of $86 million and $40 million, respectively. The three and nine months ended September 30, 2014 includes legal settlement charges of $60 million.

(b)

The three months ended September 30, 2015 includes legal settlement charges partially offset by a benefit related to legal insurance recoveries of $86 million and acquisition related costs related to the acquisition of SNL of $32 million. The three months ended September 30, 2014 includes legal settlement charges of $60 million, restructuring charges of $39 million, and professional fees largely related to corporate development activities of $4 million.

 

 

 

Exhibit 5

 

McGraw Hill Financial
Operating Results - Reported vs. Performance

Three and nine months ended September 30, 2015 and 2014


(dollars in millions, except per share amounts)

 
 

Three Months

(unaudited)

 

2015

   

2014

   

% Change

 
   

Reported

 

Non-GAAP Adjustments

 

Performance

   

Reported

 

Non-GAAP Adjustments

 

Performance

   

Reported

 

Performance

 
                                       

S&P Ratings Services

 

$

194

   

$

86

 

a

$

280

     

$

183

   

$

83

 

a

$

266

     

6%

 

5%

 

S&P Capital IQ and SNL

 

53

   

32

 

b

85

     

64

   

4

 

b

68

     

(18)%

 

25%

 

S&P Dow Jones Indices

 

106

   

   

106

     

86

   

4

 

e

91

     

23%

 

18%

 

Commodities & Commercial Markets

 

93

   

   

93

     

71

   

12

 

c

83

     

30%

 

11%

 

Segment operating profit

 

446

   

118

   

564

     

404

   

103

   

507

     

10%

 

11%

 

Unallocated expense

 

(36)

   

   

(36)

     

(38)

   

7

 

c

(32)

     

(8)%

 

11%

 

Operating profit

 

410

   

118

   

528

     

366

   

110

   

475

     

12%

 

11%

 

Interest expense, net

 

30

   

   

30

     

12

   

   

12

     

N/M

 

N/M

 

Income before taxes on income

 

380

   

118

   

498

     

354

   

110

   

463

     

8%

 

8%

 

Provision for taxes on income

 

99

   

45

   

144

     

139

   

17

   

155

     

(29)%

 

(8)%

 

Income from continuing 
 
operations

 

281

   

73

   

354

     

215

   

93

   

308

     

31%

 

15%

 

Income from discontinued

  operations

 

   

   

     

2

   

(2)

   

     

N/M

 

N/M

 

Net income

 

281

   

73

   

354

     

217

   

91

   

308

     

30%

 

15%

 

Less: NCI net income - continuing

 

(29)

   

   

(29)

     

(27)

   

   

(27)

     

11%

 

11%

 

Net income - continuing

 

252

   

73

   

325

     

188

   

93

   

281

     

34%

 

16%

 

Net income - discontinued

 

   

   

     

2

   

(2)

   

     

N/M

 

N/M

 

Net income attributable to MHFI

 

$

252

   

$

73

   

$

325

     

$

190

   

$

91

   

$

281

     

33%

 

16%

 
                                       

Diluted EPS - continuing

 

$

0.92

   

$

0.27

   

$

1.19

     

$

0.68

   

$

0.34

   

$

1.02

     

35%

 

16%

 

Diluted EPS - total

 

$

0.92

   

$

0.27

   

$

1.19

     

$

0.69

   

$

0.33

   

$

1.02

     

33%

 

16%

 
                                       
 

Nine Months

(unaudited)

 

2015

   

2014

   

% Change

 
   

Reported

 

Non-GAAP Adjustments

 

Performance

   

Reported

 

Non-GAAP Adjustments

 

Performance

   

Reported

 

Performance

 
                                       

S&P Ratings Services

 

$

846

   

$

48

 

a

$

894

     

$

730

   

$

83

 

a

$

813

     

16%

 

10%

 

S&P Capital IQ and SNL

 

178

   

44

 

b

222

     

172

   

4

 

b

176

     

4%

 

26%

 

S&P Dow Jones Indices

 

297

   

   

297

     

260

   

4

 

e

264

     

14%

 

12%

 

Commodities & Commercial Markets

 

265

   

1

 

c

266

     

217

   

12

 

c

230

     

22%

 

16%

 

Segment operating profit

 

1,586

   

93

   

1,679

     

1,379

   

103

   

1,482

     

15%

 

13%

 

Unallocated expense

 

(93)

   

(10)

 

d

(104)

     

(118)

   

7

 

c

(111)

     

(21)%

 

(7)%

 

Operating profit

 

1,493

   

83

   

1,576

     

1,261

   

110

   

1,371

     

18%

 

15%

 

Interest expense, net

 

62

   

   

62

     

40

   

   

40

     

55%

 

55%

 

Income before taxes on income

 

1,431

   

83

   

1,514

     

1,221

   

110

   

1,331

     

17%

 

14%

 

Provision for taxes on income

 

439

   

31

   

470

     

428

   

17

   

445

     

2%

 

6%

 

Income from continuing
 
operations

 

992

   

52

   

1,044

     

793

   

93

   

886

     

25%

 

18%

 

Income from discontinued

  operations

 

   

   

     

15

   

(15)

   

     

N/M

 

N/M

 

Net income

 

992

   

52

   

1,044

     

808

   

78

   

886

     

23%

 

18%

 

Less: NCI net income - continuing

 

(83)

   

   

(83)

     

(77)

   

   

(77)

     

9%

 

9%

 

Net income - continuing

 

909

   

52

   

961

     

716

   

93

   

809

     

27%

 

19%

 

Net income - discontinued

 

   

   

     

15

   

(15)

   

     

N/M

 

N/M

 

Net income attributable to MHFI

 

$

909

   

$

52

   

$

961

     

$

731

   

$

78

   

$

809

     

24%

 

19%

 
                                       

Diluted EPS - continuing

 

$

3.30

   

$

0.19

   

$

3.48

     

$

2.59

   

$

0.34

   

$

2.93

     

27%

 

19%

 

Diluted EPS - total

 

$

3.30

   

$

0.19

   

$

3.48

     

$

2.64

   

$

0.28

   

$

2.93

     

25%

 

19%

 
   

N/M - not meaningful

Note - Totals presented may not sum due to rounding

(a)  

The three and nine months ended September 30, 2015 include legal settlement charges partially offset by a benefit related to legal settlement insurance recoveries of $86 million and $40 million, respectively. Additionally, operating profit for the nine months ended September 30, 2015 includes restructuring charges. The three and nine months ended September 30, 2014 includes legal settlement charges of $60 million and restructuring charges.

(b)  

The three months ended September 30, 2015 include acquisition-related costs related to the acquisition of SNL of $32 million. The nine months ended September 30, 2015 and the three and nine months ended September 30, 2014 include restructuring charges.

(c) 

The nine months ended September 30, 2015 and the three and nine months ended September 30, 2014 include restructuring charges.

(d) 

The nine months ended September 30, 2015 include a gain of $11 million on the sale of our interest in a legacy McGraw Hill Construction investment and restructuring charges.

(e)  

The three and nine months ended September 30, 2014 include professional fees largely related to corporate development activities.

 

 

Exhibit 6

 

McGraw Hill Financial
Revenue Information

Three and nine months ended September 30, 2015 and 2014


(dollars in millions)


Subscription / Non-Transaction vs. Non-Subscription / Transaction Revenue

 

(unaudited)

 

Subscription / Non-Transaction

   

Non-Subscription / Transaction

 
   

2015

 

2014

 

% Change

   

2015

 

2014

 

% Change

 
                             
   

Three Months

 

S&P Ratings Services (a)

 

$

343

   

$

335

   

3%

   

$

244

   

$

269

   

(9)%

 

S&P Capital IQ and SNL (b)

 

322

   

283

   

14%

   

34

   

28

   

18%

 

S&P Dow Jones Indices (c)

 

32

   

29

   

12%

   

124

   

114

   

8%

 

Commodities & Commercial Markets (d)

 

165

   

145

   

14%

   

83

   

82

   

1%

 

Intersegment elimination

 

(23)

   

(22)

   

(6)%

   

   

       

Total revenue

 

$

839

   

$

770

   

9%

   

$

485

   

$

493

   

(2)%

 
                             
   

Nine Months

 

S&P Ratings Services (a)

 

$

989

   

$

996

   

(1)%

   

$

862

   

$

841

   

3%

 

S&P Capital IQ and SNL (b)

 

900

   

832

   

8%

   

100

   

87

   

14%

 

S&P Dow Jones Indices (c)

 

91

   

82

   

11%

   

355

   

330

   

8%

 

Commodities & Commercial Markets (d)

 

470

   

427

   

10%

   

237

   

230

   

3%

 

Intersegment elimination

 

(66)

   

(64)

   

(2)%

   

   

       

Total revenue

 

$

2,384

   

$

2,273

   

5%

   

$

1,554

   

$

1,488

   

4%

 
                             
   

(a) 

Non-transaction revenue is primarily related to annual fees for frequent issuer programs and surveillance, while transaction revenue is related to ratings of publicly-issued debt, bank loan ratings and corporate credit estimates. Non-transaction revenue also includes an intersegment revenue elimination, which mainly consists of the royalty of $21 million and $61 million for the three and nine months ended September 30, 2015, respectively, and $20 million and $57 million for the three and nine months ended September 30, 2014, respectively, charged to S&P Capital IQ and SNL for the rights to use and distribute content and data developed by S&P Ratings Services.

(b) 

Subscription revenue is related to credit ratings-related information products, S&P Capital IQ Desktop, investment research products and other data subscriptions, while non-subscription revenue is related to certain advisory, pricing and analytical services.

(c)  

Subscription revenue is related to data subscriptions, which support index fund management, portfolio analytics and research, while non-subscription revenue relates to fees based on assets underlying exchange-traded funds, as well as certain advisory, pricing and analytical services.

(d) 

Subscription revenue at Platts is related to real-time news, market data, and price assessments, along with other information products, while non-subscription revenue is related to licensing of its proprietary market price data and price assessments to commodity exchanges, conference sponsorship, consulting engagements and events. Subscription revenue at J.D. Power is related to information products primarily serving the automotive market, while non-subscription revenue is related to syndicated and proprietary research studies, advertising, consulting engagements and events.

 

 

 

Exhibit 7

 

McGraw Hill Financial
Domestic vs. International

Three and nine months ended September 30, 2015 and 2014

 

(dollars in millions)

 

(unaudited)

 

Domestic

   

International

 
   

2015

 

2014

 

% Change

   

2015

 

2014

 

% Change

 
                             
   

Three Months

 

S&P Ratings Services

 

$

340

   

$

316

   

8%

   

$

247

   

$

288

   

(14)%

 

S&P Capital IQ and SNL

 

236

   

203

   

16%

   

120

   

108

   

12%

 

S&P Dow Jones Indices

 

129

   

114

   

13%

   

27

   

29

   

(5)%

 

Commodities & Commercial Markets

 

116

   

102

   

15%

   

132

   

125

   

5%

 

Intersegment elimination

 

(11)

   

(11)

   

5%

   

(11)

   

(11)

   

7%

 

Total revenue

 

$

810

   

$

724

   

12%

   

$

515

   

$

539

   

(5)%

 
                             
   

Nine Months

 

S&P Ratings Services

 

$

1,078

   

$

977

   

10%

   

$

773

   

$

860

   

(10)%

 

S&P Capital IQ and SNL

 

660

   

603

   

9%

   

340

   

316

   

8%

 

S&P Dow Jones Indices

 

363

   

327

   

11%

   

83

   

85

   

(2)%

 

Commodities & Commercial Markets

 

317

   

296

   

7%

   

390

   

361

   

8%

 

Intersegment elimination

 

(33)

   

(33)

   

(1)%

   

(33)

   

(31)

   

6%

 

Total revenue

 

$

2,385

   

$

2,170

   

10%

   

$

1,553

   

$

1,591

   

(2)%

 
                             

 

 

Exhibit 8

 

McGraw Hill Financial
Non-GAAP Financial Information

Three and nine months ended September 30, 2015 and 2014


(dollars in millions)


Computation of Free Cash Flow and Free Cash Flow Excluding Certain Items

 

(unaudited)

 

Nine Months

 
   

2015

 

2014

 

Cash (used for) provided by operating activities from continuing operations

 

$

(356)

   

$

820

   

Capital expenditures

 

(74)

   

(52)

   

Dividends and other payments paid to noncontrolling interests

 

(67)

   

(31)

   

Free Cash Flow

 

$

(497)

   

$

737

   

Payment of legal and regulatory settlements

 

1,624

   

   

Legal settlement insurance recoveries

 

(101)

   

   

Tax benefit from legal settlements

 

(250)

   

   

Free Cash Flow Excluding Above Items

 

$

776

   

$

737

   
           

 

 

 McGraw Hill Financial Organic Revenue

 

(unaudited)

 

Three Months

   

Nine Months

 
   

2015

 

2014

 

% Change

   

2015

 

2014

 

% Change

 

Total revenue

 

$

1,324

   

$

1,263

   

5%

   

$

3,938

   

$

3,761

   

5%

 

S&P Capital IQ and SNL acquisitions,

  product closures and divestitures

 

(21)

   

         

(21)

   

(2)

       

C&C Acquisitions

 

(10)

   

         

(14)

   

       

Total Adjusted Revenue

 

$

1,293

   

$

1,263

   

2%

   

$

3,903

   

$

3,759

   

4%

 
                             
 

Adjusted S&P Capital IQ and SNL Revenue

 

(unaudited)

 

Three Months

   

Nine Months

 
   

2015

 

2014

 

% Change

   

2015

 

2014

 

% Change

 

S&P Capital IQ and SNL revenue

 

$

356

   

$

311

   

14%

   

$

1,000

   

$

919

   

9%

 

Acquisitions, product closures and

  divestitures

 

(21)

   

         

(21)

   

(2)

       

Adjusted S&P Capital IQ and SNL
Revenue

 

$

335

   

$

311

   

7%

   

$

979

   

$

917

   

7%

 
                             
 

Adjusted Commodities & Commercial Markets Revenue

 

(unaudited)

 

Three Months

   

Nine Months

 
   

2015

 

2014

 

% Change

   

2015

 

2014

 

% Change

 

C&C revenue

 

$

248

   

$

227

   

9%

   

$

707

   

$

657

   

8%

 

Acquisitions

 

(10)

   

         

(14)

   

       

Adjusted C&C Revenue

 

$

238

   

$

227

   

5%

   

$

693

   

$

657

   

5%

 
                             
 

Adjusted S&P Dow Jones Indices Net Operating Profit

 

(unaudited)

 

Three Months

   

Nine Months

 
   

2015

 

2014

 

% Change

   

2015

 

2014

 

% Change

 

Adjusted operating profit

 

$

106

   

$

91

   

18%

   

$

297

   

$

264

   

12%

 

Income attributable to noncontrolling

  interests

 

26

   

23

         

76

   

69

       

Adjusted Net Operating Profit

 

$

80

   

$

68

   

19%

   

$

221

   

$

195

   

13%

 
                             

 

 

Exhibit 9

 

McGraw Hill Financial
Adjusted EBITDA and Adjusted Diluted EPS Excluding Amortization Expense

Three and nine months ended September 30, 2015 and 2014

(dollars in millions)

 

Adjusted EBITDA

 

(unaudited)

 

Three Months

   

Nine Months

 
   

2015

 

2014

 

% Change

   

2015

 

2014

 

% Change

 

Adjusted operating profit

 

$

528

   

$

475

   

11%

   

$

1,576

   

$

1,371

   

15%

 

Depreciation

 

20

   

21

         

64

   

64

       

Amortization

 

17

   

12

         

40

   

36

       

Adjusted EBITDA

 

$

565

   

$

508

   

11%

   

$

1,680

   

$

1,471

   

14%

 
                             
 

Adjusted Diluted EPS Excluding Amortization Expense

 

(unaudited)

 

Three Months

   

Nine Months

 
   

2015

 

2014

 

% Change

   

2015

 

2014

 

% Change

 

Adjusted net income

 

$

325

   

$

281

   

16%

   

$

961

   

$

809

   

19%

 

After-tax amortization

 

11

   

8

         

25

   

23

       

Total

 

$

336

   

$

289

         

$

986

   

$

832

       

Adjusted diluted EPS excluding
   amortization expense

 

$

1.22

   

$

1.05

   

16%

   

$

3.57

   

$

3.01

   

19%

 
                             

 

 

SOURCE McGraw Hill Financial, Inc.