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þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
New York
|
13-1026995
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
1221 Avenue of the Americas, New York, New York
|
10020
|
(Address of principal executive offices)
|
(Zip Code)
|
Not Applicable
|
þ
Large accelerated filer
|
o
Accelerated filer
|
o
Non-accelerated filer
|
o
Smaller reporting company
|
|
|
(Do not check if a smaller reporting company)
|
|
|
Page Number
|
|
|
|
|
|
|
(in millions, except per share amounts)
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Revenue:
|
|
|
|
|
|
|
|
||||||||
Product
|
$
|
833
|
|
|
$
|
941
|
|
|
$
|
1,589
|
|
|
$
|
1,761
|
|
Service
|
1,120
|
|
|
967
|
|
|
3,241
|
|
|
2,965
|
|
||||
Total revenue
|
1,953
|
|
|
1,908
|
|
|
4,830
|
|
|
4,726
|
|
||||
Expenses:
|
|
|
|
|
|
|
|
||||||||
Operating-related expenses:
|
|
|
|
|
|
|
|
||||||||
Product
|
332
|
|
|
374
|
|
|
708
|
|
|
786
|
|
||||
Service
|
348
|
|
|
337
|
|
|
1,075
|
|
|
1,021
|
|
||||
Total operating-related expenses
|
680
|
|
|
711
|
|
|
1,783
|
|
|
1,807
|
|
||||
Selling and general expenses (Note 2)
|
701
|
|
|
552
|
|
|
1,811
|
|
|
1,635
|
|
||||
Depreciation
|
23
|
|
|
23
|
|
|
69
|
|
|
74
|
|
||||
Amortization of intangibles
|
21
|
|
|
15
|
|
|
53
|
|
|
43
|
|
||||
Total expenses
|
1,425
|
|
|
1,301
|
|
|
3,716
|
|
|
3,559
|
|
||||
Other income
|
—
|
|
|
—
|
|
|
—
|
|
|
(13
|
)
|
||||
Operating profit
|
528
|
|
|
607
|
|
|
1,114
|
|
|
1,180
|
|
||||
Interest expense, net
|
20
|
|
|
18
|
|
|
61
|
|
|
57
|
|
||||
Income from continuing operations before taxes on income
|
508
|
|
|
589
|
|
|
1,053
|
|
|
1,123
|
|
||||
Provision for taxes on income
|
171
|
|
|
214
|
|
|
369
|
|
|
408
|
|
||||
Income from continuing operations
|
337
|
|
|
375
|
|
|
684
|
|
|
715
|
|
||||
Loss from discontinued operations, net of tax
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(2
|
)
|
||||
Net income
|
337
|
|
|
374
|
|
|
684
|
|
|
713
|
|
||||
Less: net income attributable to noncontrolling interests
|
(23
|
)
|
|
(8
|
)
|
|
(32
|
)
|
|
(17
|
)
|
||||
Net income attributable to The McGraw-Hill Companies, Inc.
|
$
|
314
|
|
|
$
|
366
|
|
|
$
|
652
|
|
|
$
|
696
|
|
|
|
|
|
|
|
|
|
||||||||
Amounts attributable to The McGraw-Hill Companies, Inc. common shareholders:
|
|
|
|
|
|
|
|
||||||||
Income from continuing operations
|
$
|
314
|
|
|
$
|
367
|
|
|
$
|
652
|
|
|
$
|
698
|
|
Loss from discontinued operations, net of tax
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(2
|
)
|
||||
Net income
|
$
|
314
|
|
|
$
|
366
|
|
|
$
|
652
|
|
|
$
|
696
|
|
|
|
|
|
|
|
|
|
||||||||
Earnings per share attributable to The McGraw-Hill Companies, Inc. common shareholders:
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
1.13
|
|
|
$
|
1.23
|
|
|
$
|
2.34
|
|
|
$
|
2.31
|
|
Diluted
|
$
|
1.10
|
|
|
$
|
1.21
|
|
|
$
|
2.29
|
|
|
$
|
2.27
|
|
Average number of common shares outstanding:
|
|
|
|
|
|
|
|
||||||||
Basic
|
278.7
|
|
|
297.8
|
|
|
278.8
|
|
|
302.2
|
|
||||
Diluted
|
284.6
|
|
|
303.6
|
|
|
284.6
|
|
|
307.4
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Dividend declared per common share
|
$
|
0.255
|
|
|
$
|
0.25
|
|
|
$
|
0.77
|
|
|
$
|
0.75
|
|
(in millions)
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Net income
|
$
|
337
|
|
|
$
|
374
|
|
|
$
|
684
|
|
|
$
|
713
|
|
|
|
|
|
|
|
|
|
||||||||
Other comprehensive income:
|
|
|
|
|
|
|
|
||||||||
Foreign currency translation adjustment
|
35
|
|
|
(61
|
)
|
|
22
|
|
|
(34
|
)
|
||||
Income tax effect
|
(5
|
)
|
|
4
|
|
|
(11
|
)
|
|
11
|
|
||||
|
30
|
|
|
(57
|
)
|
|
11
|
|
|
(23
|
)
|
||||
|
|
|
|
|
|
|
|
||||||||
Pension and other post-retirement benefit plans
|
8
|
|
|
8
|
|
|
36
|
|
|
28
|
|
||||
Income tax effect
|
(3
|
)
|
|
(3
|
)
|
|
(13
|
)
|
|
(9
|
)
|
||||
|
5
|
|
|
5
|
|
|
23
|
|
|
19
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Unrealized gain (loss) on investments and forward exchange contracts
|
2
|
|
|
—
|
|
|
2
|
|
|
(10
|
)
|
||||
Income tax effect
|
(1
|
)
|
|
—
|
|
|
(2
|
)
|
|
4
|
|
||||
|
1
|
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
||||
|
|
|
|
|
|
|
|
||||||||
Comprehensive income
|
373
|
|
|
322
|
|
|
718
|
|
|
703
|
|
||||
Less: comprehensive income attributable to noncontrolling interests
|
(10
|
)
|
|
(2
|
)
|
|
(15
|
)
|
|
(12
|
)
|
||||
Comprehensive income attributable to The McGraw-Hill Companies, Inc.
|
$
|
363
|
|
|
$
|
320
|
|
|
$
|
703
|
|
|
$
|
691
|
|
(in millions)
|
September 30,
2012 |
|
December 31,
2011 |
|
September 30,
2011 |
||||||
|
(Unaudited)
|
|
|
|
(Unaudited)
|
||||||
ASSETS
|
|
|
|
|
|
||||||
Current assets:
|
|
|
|
|
|
||||||
Cash and equivalents
|
$
|
1,243
|
|
|
$
|
944
|
|
|
$
|
1,438
|
|
Short-term investments
|
2
|
|
|
29
|
|
|
36
|
|
|||
Accounts receivable, net
|
1,338
|
|
|
1,045
|
|
|
1,133
|
|
|||
Inventories
|
258
|
|
|
263
|
|
|
285
|
|
|||
Deferred income taxes
|
260
|
|
|
260
|
|
|
282
|
|
|||
Prepaid and other current assets
|
158
|
|
|
138
|
|
|
216
|
|
|||
Total current assets
|
3,259
|
|
|
2,679
|
|
|
3,390
|
|
|||
Prepublication costs, net
|
303
|
|
|
325
|
|
|
305
|
|
|||
Property and equipment, net
|
482
|
|
|
500
|
|
|
488
|
|
|||
Goodwill
|
2,357
|
|
|
2,048
|
|
|
2,038
|
|
|||
Other intangible assets, net
|
1,247
|
|
|
608
|
|
|
621
|
|
|||
Other non-current assets
|
295
|
|
|
267
|
|
|
312
|
|
|||
Total assets
|
$
|
7,943
|
|
|
$
|
6,427
|
|
|
$
|
7,154
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
||||||
Current liabilities:
|
|
|
|
|
|
||||||
Accounts payable
|
$
|
409
|
|
|
$
|
347
|
|
|
$
|
333
|
|
Accrued royalties
|
98
|
|
|
119
|
|
|
101
|
|
|||
Accrued compensation and contributions to retirement plans
|
470
|
|
|
510
|
|
|
429
|
|
|||
Short-term debt
|
400
|
|
|
400
|
|
|
—
|
|
|||
Income taxes currently payable
|
135
|
|
|
29
|
|
|
250
|
|
|||
Unearned revenue
|
1,377
|
|
|
1,303
|
|
|
1,245
|
|
|||
Other current liabilities
|
469
|
|
|
422
|
|
|
402
|
|
|||
Total current liabilities
|
3,358
|
|
|
3,130
|
|
|
2,760
|
|
|||
Long-term debt
|
799
|
|
|
798
|
|
|
1,198
|
|
|||
Pension and other post-retirement benefits
|
489
|
|
|
513
|
|
|
470
|
|
|||
Other non-current liabilities
|
625
|
|
|
402
|
|
|
438
|
|
|||
Total liabilities
|
5,271
|
|
|
4,843
|
|
|
4,866
|
|
|||
Commitments and contingencies (Note 14)
|
|
|
|
|
|
||||||
Redeemable noncontrolling interest (Note 10)
|
810
|
|
|
—
|
|
|
—
|
|
|||
Equity:
|
|
|
|
|
|
||||||
Common stock
|
412
|
|
|
412
|
|
|
412
|
|
|||
Additional paid-in capital
|
449
|
|
|
94
|
|
|
148
|
|
|||
Retained income
|
7,518
|
|
|
7,667
|
|
|
7,525
|
|
|||
Accumulated other comprehensive loss
|
(392
|
)
|
|
(425
|
)
|
|
(373
|
)
|
|||
Less: common stock in treasury
|
(6,201
|
)
|
|
(6,240
|
)
|
|
(5,504
|
)
|
|||
Total equity — controlling interests
|
1,786
|
|
|
1,508
|
|
|
2,208
|
|
|||
Total equity — noncontrolling interests
|
76
|
|
|
76
|
|
|
80
|
|
|||
Total equity
|
1,862
|
|
|
1,584
|
|
|
2,288
|
|
|||
Total liabilities and equity
|
$
|
7,943
|
|
|
$
|
6,427
|
|
|
$
|
7,154
|
|
(in millions)
|
Nine Months Ended
|
||||||
|
September 30,
|
||||||
|
2012
|
|
2011
|
||||
Operating Activities:
|
|
|
|
||||
Net income
|
$
|
684
|
|
|
$
|
713
|
|
Adjustments to reconcile net income to cash provided by operating activities:
|
|
|
|
||||
Depreciation (including amortization of technology projects)
|
91
|
|
|
95
|
|
||
Amortization of intangibles
|
53
|
|
|
45
|
|
||
Amortization of prepublication costs
|
141
|
|
|
165
|
|
||
Provision for losses on accounts receivable
|
16
|
|
|
5
|
|
||
Deferred income taxes
|
6
|
|
|
(5
|
)
|
||
Stock-based compensation
|
73
|
|
|
65
|
|
||
Other
|
59
|
|
|
13
|
|
||
Changes in operating assets and liabilities, net of effect of acquisitions and dispositions:
|
|
|
|
||||
Accounts receivable
|
(265
|
)
|
|
(147
|
)
|
||
Inventories
|
7
|
|
|
(12
|
)
|
||
Prepaid and other current assets
|
(29
|
)
|
|
(3
|
)
|
||
Accounts payable and accrued expenses
|
(63
|
)
|
|
(174
|
)
|
||
Unearned revenue
|
50
|
|
|
24
|
|
||
Other current liabilities
|
(44
|
)
|
|
(51
|
)
|
||
Net change in prepaid/accrued income taxes
|
128
|
|
|
288
|
|
||
Net change in other assets and liabilities
|
(60
|
)
|
|
17
|
|
||
Cash provided by operating activities
|
847
|
|
|
1,038
|
|
||
Investing Activities:
|
|
|
|
||||
Investment in prepublication costs
|
(119
|
)
|
|
(105
|
)
|
||
Capital expenditures
|
(79
|
)
|
|
(70
|
)
|
||
Acquisitions, net of cash acquired
|
(162
|
)
|
|
(199
|
)
|
||
Proceeds from dispositions of property and equipment
|
1
|
|
|
21
|
|
||
Changes in short-term investments
|
26
|
|
|
(13
|
)
|
||
Cash used for investing activities
|
(333
|
)
|
|
(366
|
)
|
||
Financing Activities:
|
|
|
|
||||
Dividends paid to shareholders
|
(216
|
)
|
|
(225
|
)
|
||
Dividends paid to noncontrolling interests
|
(13
|
)
|
|
(11
|
)
|
||
Repurchase of treasury shares
|
(269
|
)
|
|
(636
|
)
|
||
Exercise of stock options
|
253
|
|
|
115
|
|
||
Excess tax benefits from share-based payments
|
18
|
|
|
3
|
|
||
Cash used for financing activities
|
(227
|
)
|
|
(754
|
)
|
||
Effect of exchange rate changes on cash
|
12
|
|
|
(6
|
)
|
||
Net change in cash and equivalents
|
299
|
|
|
(88
|
)
|
||
Cash and equivalents at beginning of period
|
944
|
|
|
1,526
|
|
||
Cash and equivalents at end of period
|
$
|
1,243
|
|
|
$
|
1,438
|
|
1.
|
Basis of Presentation
|
2.
|
Growth and Value Plan
|
(in millions)
|
Three Months
|
|
Nine Months
|
||||
Professional fees
|
$
|
40
|
|
|
$
|
84
|
|
Restructuring charges
|
50
|
|
|
50
|
|
||
Transaction costs for our S&P/Dow Jones Indices, LLC joint venture
|
—
|
|
|
15
|
|
||
Charges related to our lease commitments
|
3
|
|
|
11
|
|
||
Miscellaneous charges
|
6
|
|
|
14
|
|
||
|
$
|
99
|
|
|
$
|
174
|
|
(in millions)
|
Three Months
|
|
Nine Months
|
||||||||||||
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Growth and Value Plan costs
|
$
|
99
|
|
|
$
|
—
|
|
|
$
|
174
|
|
|
$
|
—
|
|
Other selling and general expenses
|
602
|
|
|
552
|
|
|
1,637
|
|
|
1,635
|
|
||||
Total selling and general expenses
|
$
|
701
|
|
|
$
|
552
|
|
|
$
|
1,811
|
|
|
$
|
1,635
|
|
3.
|
Acquisitions and Divestitures
|
•
|
On November 1, 2012, we completed the acquisition of Kingsman SA (“Kingsman”), a privately-held, Switzerland-based provider of price information and analytics for the global sugar and biofuels markets. Kingsman will be integrated into our C&C segment. The acquisition of Kingsman will expand our presence in sugar and biofuels information markets and has the potential to provide growth in the global agricultural information markets.
|
•
|
On July 4, 2012, CRISIL, our majority owned Indian credit rating agency, completed the acquisition of Coalition Development Ltd. (“Coalition”), a privately-held U.K. analytics company, and its subsidiaries. Coalition provides high-end analytics to leading global investment banks and other financial services firms. Coalition will be integrated into CRISIL's Global Research & Analytics business within our Standard & Poor's Ratings segment.
|
•
|
On June 29, 2012, we closed our transaction with CME Group, Inc. (“CME Group”) and CME Group Index Services LLC (“CGIS”), a joint venture between CME Group and Dow Jones & Company, Inc., to form a new company, S&P/Dow Jones Indices, LLC (“S&P/DJ Indices”). See below for further detail related to this transaction.
|
•
|
On June 29, 2012 we acquired Credit Market Analysis Limited (“CMA”) from the CME Group. CMA provides independent data concerning the over-the-counter markets. CMA's data and technology will enhance our capability to provide pricing and related over-the-counter information. CMA will be integrated into our S&P Capital IQ / S&P Indices segment.
|
•
|
On April 3, 2012 we completed the acquisition of QuantHouse, an independent global provider of end-to-end systematic low-latency market data solutions. QuantHouse will be integrated into our S&P Capital IQ / S&P Indices segment. The acquisition allows us to offer real-time monitors, derived data sets and analytics as well as the ability to package and resell this data as part of a core solution.
|
•
|
On February 8, 2012, we completed the acquisition of R² Technologies (“R²”). R² provides advanced risk and scenario-
|
•
|
On August 1, 2012, we acquired certain assets of Key Curriculum Press, Inc. (“Key Curriculum”). The acquisition of Key Curriculum strengthens MHE's position in dynamic mathematics education technology at a time when the national market for digital science, technology, engineering, and mathematics education technologies is substantially increasing.
|
•
|
In July, we acquired the issued and outstanding shares of Steel Business Briefing Group (the “SBB Group”), a privately held U.K. company and leading provider of news, pricing and analytics to the global steel market. The SBB Group provides subscription-based, electronic products to the steel industry and its participants through two principal businesses, Steel Business Briefing and The Steel Index. The SBB Group is included within Platts, part of our C&C segment.
|
•
|
In January, we acquired all of the issued and outstanding membership interest units of Bentek Energy LLC (“Bentek”), which is included as part of our C&C segment. Bentek offers its customers a comprehensive portfolio of data, information and analytics products in the natural gas and liquids sector. The primary purpose of the acquisition was to acquire Bentek's knowledge, skill and expertise in gathering high-quality detailed data and their ability to identify key relationships within the data critical to industry participants.
|
•
|
In March, we acquired the assets of Bookette Software Company (“Bookette”). Bookette engages in the development of software and algorithms that are used to score and report educational tests for schools, districts, and states and other various educational systems and entities worldwide. Bookette is included within MHE's assessment business.
|
(in millions)
|
|
||
Fair value of 27% of S&P Index exchanged
|
$
|
571
|
|
Fair value of noncontrolling interest associated with DJI
|
221
|
|
|
Total
|
$
|
792
|
|
(in millions)
|
|
||
Current assets
|
$
|
74
|
|
Intangible assets:
|
|
||
Other intangibles
|
613
|
|
|
Goodwill
|
114
|
|
|
Current liabilities
|
(9
|
)
|
|
Total net assets
|
$
|
792
|
|
(in millions)
|
Three Months
|
|
Nine Months
|
||||
Revenue
|
$
|
22
|
|
|
$
|
67
|
|
Costs and expenses
|
23
|
|
|
68
|
|
||
Loss before taxes on income
|
(1
|
)
|
|
(1
|
)
|
||
Provision for taxes on income
|
—
|
|
|
1
|
|
||
Loss from discontinued operations, net of tax
|
$
|
(1
|
)
|
|
$
|
(2
|
)
|
(in millions)
|
|
||
Accounts receivable, net
|
$
|
18
|
|
Property and equipment, net
|
25
|
|
|
Other intangible assets, net
|
46
|
|
|
Other current assets
|
12
|
|
|
Assets held for sale
|
$
|
101
|
|
|
|
||
Accounts payable and accrued expenses
|
$
|
6
|
|
Other current liabilities
|
9
|
|
|
Liabilities held for sale
|
$
|
15
|
|
4.
|
Supplementary Balance Sheet Data
|
(in millions)
|
September 30,
2012 |
|
December 31,
2011 |
|
September 30,
2011 |
||||||
Accounts receivable — allowance for doubtful accounts
|
$
|
64
|
|
|
$
|
55
|
|
|
$
|
64
|
|
Accounts receivable — allowance for sales returns
|
193
|
|
|
187
|
|
|
233
|
|
|||
Prepublication costs — accumulated amortization
|
1,200
|
|
|
1,066
|
|
|
1,038
|
|
|||
Property and equipment — accumulated depreciation
|
1,021
|
|
|
1,066
|
|
|
1,057
|
|
5.
|
Fair Value Measurements
|
6.
|
Income Taxes
|
7.
|
Debt
|
(in millions)
|
September 30,
2012 |
|
December 31,
2011 |
|
September 30,
2011 |
||||||
5.375% Senior Notes, due 2012
1
|
$
|
400
|
|
|
$
|
400
|
|
|
$
|
400
|
|
5.9% Senior Notes, due 2017
2
|
400
|
|
|
399
|
|
|
399
|
|
|||
6.55% Senior Notes, due 2037
3
|
399
|
|
|
399
|
|
|
399
|
|
|||
Total debt
|
1,199
|
|
|
1,198
|
|
|
1,198
|
|
|||
Less: short-term debt including current maturities
|
400
|
|
|
400
|
|
|
—
|
|
|||
Long-term debt
|
$
|
799
|
|
|
$
|
798
|
|
|
$
|
1,198
|
|
1
|
Interest payments are due on February 15 and August 15, and, as of
September 30, 2012
, the unamortized debt discount is less than
$0.1 million
. These senior notes will mature on November 15, 2012.
|
2
|
Interest payments are due on April 15 and October 15, and, as of
September 30, 2012
, the unamortized debt discount is
$0.5 million
.
|
3
|
Interest payments are due on May 15 and November 15, and, as of
September 30, 2012
, the unamortized debt discount is
$1.3 million
.
|
8.
|
Employee Benefits
|
(in millions)
|
Three Months
|
|
Nine Months
|
||||||||||||
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Retirement Plans
|
|
|
|
|
|
|
|
||||||||
Service cost
|
$
|
3
|
|
|
$
|
16
|
|
|
$
|
21
|
|
|
$
|
50
|
|
Interest cost
|
24
|
|
|
25
|
|
|
70
|
|
|
75
|
|
||||
Expected return on plan assets
|
(31
|
)
|
|
(32
|
)
|
|
(93
|
)
|
|
(96
|
)
|
||||
Amortization of actuarial loss
|
8
|
|
|
8
|
|
|
24
|
|
|
23
|
|
||||
Net periodic benefit cost
|
$
|
4
|
|
|
$
|
17
|
|
|
$
|
22
|
|
|
$
|
52
|
|
Post-Retirement Plans
|
|
|
|
|
|
|
|
||||||||
Service cost
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
2
|
|
Interest cost
|
1
|
|
|
2
|
|
|
4
|
|
|
5
|
|
||||
Amortization of prior service credit
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
||||
Net periodic benefit cost
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
5
|
|
|
$
|
6
|
|
9.
|
Stock-Based Compensation
|
(in millions)
|
Three Months
|
|
Nine Months
|
||||||||||||
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Stock option expense
|
$
|
2
|
|
|
$
|
6
|
|
|
$
|
10
|
|
|
$
|
18
|
|
Restricted stock and unit awards expense
|
24
|
|
|
17
|
|
|
63
|
|
|
46
|
|
||||
Total stock-based compensation expense
|
$
|
26
|
|
|
$
|
23
|
|
|
$
|
73
|
|
|
$
|
64
|
|
10.
|
Equity
|
(in millions, except average price)
|
Three Months
|
|
Nine Months
|
||||||||||||
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Total number of shares purchased — 2011 Repurchase Program
1, 2
|
5.9
|
|
|
8.3
|
|
|
6.8
|
|
|
8.3
|
|
||||
Total number of shares purchased — 2007 stock repurchase program
|
—
|
|
|
0.7
|
|
|
—
|
|
|
8.4
|
|
||||
Average price paid per share
2
|
$
|
50.35
|
|
|
$
|
39.40
|
|
|
$
|
50.35
|
|
|
$
|
39.20
|
|
Total cash utilized
2
|
$
|
295
|
|
|
$
|
355
|
|
|
$
|
295
|
|
|
$
|
655
|
|
1
|
For the nine months ended September 30, 2012, includes shares received at the conclusion of the uncollared Accelerated Share Repurchase Agreement described in more detail below.
|
2
|
In any period, cash used in financing activities related to common stock repurchased may differ from the comparable change in equity, reflecting timing differences between the recognition of share repurchase transactions and their settlement for cash. As such, in the third quarter of 2012,
0.5 million
shares were repurchased for
$25.6 million
, which settled in October 2012. Excluding these
0.5 million
shares, the average price paid per share was
$49.99
.
|
•
|
The first ASR Agreement was structured as an uncollared ASR Agreement for the repurchase of
$250 million
of shares at a per share price equal to the volume weighted average price (“VWAP”) of our common stock between December 7, 2011 and February 22, 2012.
|
•
|
The second ASR Agreement was structured as a capped ASR Agreement for the repurchase of
$250 million
of shares at a per share price that was capped based on
110%
of the VWAP of our common stock during the period from December 7, 2011 through December 21, 2011. This capped price set the minimum number of shares that could be repurchased.
|
(in millions)
|
|
||
Opening redeemable noncontrolling interest
|
$
|
792
|
|
Net income attributable to noncontrolling interest
|
18
|
|
|
Distributions to noncontrolling interest
|
(15
|
)
|
|
Redemption value adjustment
|
15
|
|
|
Ending redeemable noncontrolling interest
|
$
|
810
|
|
11.
|
Earnings Per Share
|
(in millions, except per share amounts)
|
Three Months
|
|
Nine Months
|
||||||||||||
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Amounts attributable to The McGraw-Hill Companies, Inc. common shareholders:
|
|
|
|
|
|
|
|
||||||||
Income from continuing operations
|
$
|
314
|
|
|
$
|
367
|
|
|
$
|
652
|
|
|
$
|
698
|
|
Loss from discontinued operations, net of tax
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(2
|
)
|
||||
Net income attributable to the Company
|
$
|
314
|
|
|
$
|
366
|
|
|
$
|
652
|
|
|
$
|
696
|
|
|
|
|
|
|
|
|
|
||||||||
Basic weighted-average number of common shares outstanding
|
278.7
|
|
|
297.8
|
|
|
278.8
|
|
|
302.2
|
|
||||
Effect of stock options and other dilutive securities
|
5.9
|
|
|
5.8
|
|
|
5.8
|
|
|
5.2
|
|
||||
Diluted weighted-average number of common shares outstanding
|
284.6
|
|
|
303.6
|
|
|
284.6
|
|
|
307.4
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Basic EPS:
|
|
|
|
|
|
|
|
||||||||
Income from continuing operations
|
$
|
1.13
|
|
|
$
|
1.23
|
|
|
$
|
2.34
|
|
|
$
|
2.31
|
|
Loss from discontinued operations, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Net income
|
$
|
1.13
|
|
|
$
|
1.23
|
|
|
$
|
2.34
|
|
|
$
|
2.31
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
||||||||
Income from continuing operations
|
$
|
1.10
|
|
|
$
|
1.21
|
|
|
$
|
2.29
|
|
|
$
|
2.27
|
|
Loss from discontinued operations, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Net income
|
$
|
1.10
|
|
|
$
|
1.21
|
|
|
$
|
2.29
|
|
|
$
|
2.27
|
|
12.
|
Restructuring
|
13.
|
Segment and Related Information
|
•
|
S&P Ratings provides independent global credit ratings, credit risk evaluations, and ratings-related information research to investors, corporations, governments, financial institutions, investment managers and advisers globally.
|
•
|
S&P Capital IQ / S&P Indices provides comprehensive value-added financial data, information, indices and research services to investors, corporations, governments, financial institutions, investment managers and advisers globally.
|
•
|
C&C includes business and professional media, offering information, insight and analysis; and consists of business to business companies (including such brands as Platts, J.D. Power and Associates, McGraw-Hill Construction and Aviation Week). In accordance with the presentation of the Broadcasting Group as discontinued operations, the results of operations for all prior periods presented have been reclassified to reflect this change. See Note 3 for further discussion.
|
•
|
MHE is one of the leading global educational publishers. This segment consists of two operating groups: the Higher Education, Professional and International Group (“HPI”), serving the college, professional, international and adult education markets, and the School Education Group (“SEG”), serving the elementary and high school markets.
|
Three Months
|
2012
|
|
2011
|
||||||||||||
(in millions)
|
Revenue
|
|
Operating Profit
|
|
Revenue
|
|
Operating Profit
|
||||||||
S&P Ratings
|
$
|
502
|
|
|
$
|
209
|
|
|
$
|
410
|
|
|
$
|
169
|
|
S&P Capital IQ / S&P Indices
|
393
|
|
|
101
|
|
|
349
|
|
|
113
|
|
||||
C&C
|
239
|
|
|
60
|
|
|
228
|
|
|
51
|
|
||||
MHE
|
836
|
|
|
253
|
|
|
937
|
|
|
315
|
|
||||
Intersegment elimination
1
|
(17
|
)
|
|
—
|
|
|
(16
|
)
|
|
—
|
|
||||
Total operating segments
|
1,953
|
|
|
623
|
|
|
1,908
|
|
|
648
|
|
||||
General corporate expense
2
|
—
|
|
|
(95
|
)
|
|
—
|
|
|
(41
|
)
|
||||
Total
|
$
|
1,953
|
|
|
$
|
528
|
|
|
$
|
1,908
|
|
|
$
|
607
|
|
Nine Months
|
2012
|
|
2011
|
||||||||||||
(in millions)
|
Revenue
|
|
Operating Profit
|
|
Revenue
|
|
Operating Profit
|
||||||||
S&P Ratings
|
$
|
1,451
|
|
|
$
|
603
|
|
|
$
|
1,333
|
|
|
$
|
572
|
|
S&P Capital IQ / S&P Indices
|
1,112
|
|
|
308
|
|
|
1,006
|
|
|
307
|
|
||||
C&C
|
713
|
|
|
195
|
|
|
657
|
|
|
139
|
|
||||
MHE
|
1,606
|
|
|
245
|
|
|
1,777
|
|
|
281
|
|
||||
Intersegment elimination
1
|
(52
|
)
|
|
—
|
|
|
(47
|
)
|
|
—
|
|
||||
Total operating segments
|
4,830
|
|
|
1,351
|
|
|
4,726
|
|
|
1,299
|
|
||||
General corporate expense
2
|
—
|
|
|
(237
|
)
|
|
—
|
|
|
(119
|
)
|
||||
Total
|
$
|
4,830
|
|
|
$
|
1,114
|
|
|
$
|
4,726
|
|
|
$
|
1,180
|
|
1
|
Revenue for S&P Ratings and expenses for S&P Capital IQ / S&P Indices include an intersegment royalty charged to S&P Capital IQ / S&P Indices for the rights to use and distribute content and data developed by S&P Ratings.
|
2
|
General corporate expense includes Growth and Value Plan costs, which includes restructuring charges of
$52 million
and
$112 million
for the
three and nine
months ended
September 30, 2012
, respectively.
|
14.
|
Commitments and Contingencies
|
•
|
In connection with the Parmalat matter, on September 29, 2012, Parmalat submitted a brief to the Court of Appeals of Milan appealing the judgment issued by the Tribunal of Milan. An initial hearing on the appeal is scheduled to take place on May 23, 2013. Standard & Poor's response to the appeal, including a cross-appeal, if any, must be filed at least 20 days prior to the initial hearing.
|
•
|
In connection with the Reese matter, on April 2, 2012, the District Court entered judgment granting the Defendants’ motion to dismiss, and dismissing all claims asserted against the Defendants in their entirety. The Lead Plaintiff has appealed the dismissal order.
|
•
|
In connection with the Gearren and Sullivan matters, on February 23, 2012, the Court of Appeals denied the plaintiffs’ petition for reconsideration by the full Court. Plaintiffs filed a petition with the United States Supreme Court asking it to review the decision. The Supreme Court has denied plaintiffs' request and the dismissals are now final.
|
•
|
The Civil Division of the Department of Justice (“DOJ”) and the Division of Enforcement of the Securities and Exchange Commission (“SEC”) are investigating potential violations of civil provisions of federal law relating to S&P's ratings of structured products. We have been in discussions with representatives of the DOJ and the SEC presenting our position
|
15.
|
Recently Adopted Accounting Standards
|
•
|
Overview
|
•
|
Results of Operations — Comparing the Three and
Nine Months
September 30, 2012
and 2011
|
•
|
Liquidity and Capital Resources
|
•
|
Reconciliation of Non-GAAP Financial Information
|
•
|
Critical Accounting Estimates
|
•
|
Recently Adopted Accounting Standards
|
•
|
Forward-Looking Statements
|
•
|
S&P Ratings is a provider of credit ratings, providing investors and market participants with information and independent ratings benchmarks.
|
•
|
S&P Capital IQ / S&P Indices is a global provider of digital and traditional research and analytical tools, which integrate cross-asset analytics, desktop services, and valuation and index benchmarks for investment advisors, wealth managers and institutional investors.
|
•
|
C&C consists of business-to-business companies specializing in commercial and commodities markets that deliver their customers access to actionable data and analytics.
|
•
|
MHE is a global provider of educational materials, information and solutions serving the elementary and high school, college and university, professional, international and adult education markets.
|
(in millions)
|
Three Months
|
|
Nine Months
|
||||
Professional fees
|
$
|
40
|
|
|
$
|
84
|
|
Restructuring charges
|
50
|
|
|
50
|
|
||
Transaction costs for our S&P/Dow Jones Indices, LLC joint venture
|
—
|
|
|
15
|
|
||
Charges related to our lease commitments
|
3
|
|
|
11
|
|
||
Miscellaneous charges
|
6
|
|
|
14
|
|
||
|
$
|
99
|
|
|
$
|
174
|
|
(in millions, except per share amounts)
|
Three Months
|
|
Nine Months
|
||||||||||||||||||
|
2012
|
|
2011
|
|
% Change
|
|
2012
|
|
2011
|
|
% Change
|
||||||||||
Revenue
|
$
|
1,953
|
|
|
$
|
1,908
|
|
|
2
|
%
|
|
$
|
4,830
|
|
|
$
|
4,726
|
|
|
2
|
%
|
Operating profit
|
$
|
528
|
|
|
$
|
607
|
|
|
(13
|
)%
|
|
$
|
1,114
|
|
|
$
|
1,180
|
|
|
(6
|
)%
|
Operating margin %
|
27
|
%
|
|
32
|
%
|
|
|
|
23
|
%
|
|
25
|
%
|
|
|
||||||
Diluted earnings per share
|
$
|
1.10
|
|
|
$
|
1.21
|
|
|
(9
|
)%
|
|
$
|
2.29
|
|
|
$
|
2.27
|
|
|
1
|
%
|
•
|
The globalization of the capital markets: the global demand for capital and commodities markets trading and liquidity is expanding rapidly in both developed and emerging markets;
|
•
|
The need for data-driven decision making tools: developments in technology, communications and data processing have increased the demand for time-critical, multi-asset class data and solutions;
|
•
|
Systemic regulatory change: new global legislation (e.g. Dodd-Frank, U.S. Commodity Futures Trading Commission and Basel III) is creating new and complex operating and capital models for banks and market participants; and
|
•
|
Increased volatility and risk: amplified uncertainty and market volatility around short-term events are driving the need for new methodologies to measure risk, return and profitability.
|
•
|
Integrated Solutions: providing integrated solutions within and across market segments that fill evolving customer needs;
|
•
|
Distribution: capturing additional revenue by leveraging and expanding our strong channel relationships;
|
•
|
Geographic Penetration: using our vast global footprint to capitalize on opportunities in mature and growth markets;
|
•
|
Scalable Capabilities: creating and leveraging efficiency and effectiveness through common platforms, processes and standards;
|
•
|
Continuing to pursue targeted acquisitions and alliances; and
|
•
|
Continuing cost-reduction initiatives.
|
•
|
Exploiting high-growth markets for digital-enabled learning;
|
•
|
Building presence in important emerging markets;
|
•
|
Expanding educational services;
|
•
|
Managing the core business for profitability; and
|
•
|
Pursuing compelling acquisitions and strategic partnerships.
|
•
|
Prolonged difficulties in the global credit markets;
|
•
|
A change in the regulatory environment affecting our businesses;
|
•
|
Lower educational funding as a result of state budget concerns;
|
•
|
A change in educational spending; and
|
•
|
Unanticipated problems in executing our Growth and Value Plan.
|
(in millions)
|
Three Months
|
|
Nine Months
|
||||||||||||||||||
|
2012
|
|
2011
|
|
% Change
|
|
2012
|
|
2011
|
|
% Change
|
||||||||||
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Product
|
$
|
833
|
|
|
$
|
941
|
|
|
(11
|
)%
|
|
$
|
1,589
|
|
|
$
|
1,761
|
|
|
(10
|
)%
|
Service
|
1,120
|
|
|
967
|
|
|
16
|
%
|
|
3,241
|
|
|
2,965
|
|
|
9
|
%
|
||||
Total revenue
|
1,953
|
|
|
1,908
|
|
|
2
|
%
|
|
4,830
|
|
|
4,726
|
|
|
2
|
%
|
||||
Total Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Operating-related expenses
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Product
|
332
|
|
|
374
|
|
|
(11
|
)%
|
|
708
|
|
|
786
|
|
|
(10
|
)%
|
||||
Service
|
348
|
|
|
337
|
|
|
3
|
%
|
|
1,075
|
|
|
1,021
|
|
|
5
|
%
|
||||
Total operating-related expenses
|
680
|
|
|
711
|
|
|
(4
|
)%
|
|
1,783
|
|
|
1,807
|
|
|
(1
|
)%
|
||||
Selling and general expenses
|
701
|
|
|
552
|
|
|
27
|
%
|
|
1,811
|
|
|
1,635
|
|
|
11
|
%
|
||||
Depreciation and amortization
|
44
|
|
|
38
|
|
|
16
|
%
|
|
122
|
|
|
117
|
|
|
4
|
%
|
||||
Total expenses
|
1,425
|
|
|
1,301
|
|
|
10
|
%
|
|
3,716
|
|
|
3,559
|
|
|
4
|
%
|
||||
Other income
|
—
|
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
(13
|
)
|
|
(100
|
)%
|
||||
Operating profit
|
528
|
|
|
607
|
|
|
(13
|
)%
|
|
1,114
|
|
|
1,180
|
|
|
(6
|
)%
|
||||
Interest expense, net
|
20
|
|
|
18
|
|
|
11
|
%
|
|
61
|
|
|
57
|
|
|
7
|
%
|
||||
Provision for taxes on income
|
171
|
|
|
214
|
|
|
(20
|
)%
|
|
369
|
|
|
408
|
|
|
(10
|
)%
|
||||
Loss from discontinued operations, net of tax
|
—
|
|
|
(1
|
)
|
|
N/M
|
|
|
—
|
|
|
(2
|
)
|
|
N/M
|
|
||||
Less: net income attributable to noncontrolling interests
|
(23
|
)
|
|
(8
|
)
|
|
N/M
|
|
|
(32
|
)
|
|
(17
|
)
|
|
83
|
%
|
||||
Net income attributable to the Company
|
$
|
314
|
|
|
$
|
366
|
|
|
(14
|
)%
|
|
$
|
652
|
|
|
$
|
696
|
|
|
(6
|
)%
|
(in millions)
|
2012
|
|
2011
|
|
% Change
|
||||||||||||||||
|
Operating-
related expenses
|
|
Selling and
general expenses
|
|
Operating-
related expenses
|
|
Selling and
general expenses
|
|
Operating-
related expenses
|
|
Selling and
general expenses
|
||||||||||
S&P Ratings
|
$
|
147
|
|
|
$
|
139
|
|
|
$
|
157
|
|
|
$
|
78
|
|
|
(6
|
)%
|
|
78
|
%
|
S&P Capital IQ / S&P Indices
|
139
|
|
|
139
|
|
|
114
|
|
|
114
|
|
|
23
|
%
|
|
22
|
%
|
||||
C&C
|
76
|
|
|
99
|
|
|
89
|
|
|
84
|
|
|
(15
|
)%
|
|
18
|
%
|
||||
MHE
|
337
|
|
|
228
|
|
|
369
|
|
|
235
|
|
|
(9
|
)%
|
|
(3
|
)%
|
||||
Intersegment eliminations
|
(17
|
)
|
|
—
|
|
|
(16
|
)
|
|
—
|
|
|
(8
|
)%
|
|
—
|
%
|
||||
Total segments
|
682
|
|
|
605
|
|
|
713
|
|
|
511
|
|
|
(4
|
)%
|
|
18
|
%
|
||||
Corporate
1
|
(2
|
)
|
|
96
|
|
|
(2
|
)
|
|
41
|
|
|
—
|
%
|
|
N/M
|
|
||||
|
$
|
680
|
|
|
$
|
701
|
|
|
$
|
711
|
|
|
$
|
552
|
|
|
(4
|
)%
|
|
27
|
%
|
1
|
Selling and general expenses includes expenses of $52 million for our Growth and Value Plan, including costs related to the separation of MHE, restructuring costs and other related non-recurring costs.
|
(in millions)
|
2012
|
|
2011
|
|
% Change
|
||||||||||||||||
|
Operating-
related expenses
|
|
Selling and
general expenses
|
|
Operating-
related expenses
|
|
Selling and
general expenses
|
|
Operating-
related expenses
|
|
Selling and
general expenses
|
||||||||||
S&P Ratings
|
$
|
491
|
|
|
$
|
337
|
|
|
$
|
482
|
|
|
$
|
261
|
|
|
2
|
%
|
|
29
|
%
|
S&P Capital IQ / S&P Indices
1
|
391
|
|
|
382
|
|
|
337
|
|
|
336
|
|
|
16
|
%
|
|
14
|
%
|
||||
C&C
|
241
|
|
|
264
|
|
|
256
|
|
|
262
|
|
|
(6
|
)%
|
|
—
|
%
|
||||
MHE
|
718
|
|
|
589
|
|
|
784
|
|
|
656
|
|
|
(8
|
)%
|
|
(10
|
)%
|
||||
Intersegment eliminations
|
(52
|
)
|
|
—
|
|
|
(47
|
)
|
|
—
|
|
|
(10
|
)%
|
|
—
|
%
|
||||
Total segments
|
1,789
|
|
|
1,572
|
|
|
1,812
|
|
|
1,515
|
|
|
(1
|
)%
|
|
4
|
%
|
||||
Corporate
2
|
(6
|
)
|
|
239
|
|
|
(5
|
)
|
|
120
|
|
|
14
|
%
|
|
99
|
%
|
||||
|
$
|
1,783
|
|
|
$
|
1,811
|
|
|
$
|
1,807
|
|
|
$
|
1,635
|
|
|
(1
|
)%
|
|
11
|
%
|
1
|
Selling and general expenses includes transaction costs of $15 million for our S&P/Dow Jones Indices, LLC joint venture.
|
2
|
Selling and general expenses includes expenses of $112 million for our Growth and Value Plan, including costs related to the separation of MHE, restructuring costs and other related non-recurring costs.
|
(in millions)
|
2012
|
|
2011
|
|
% Change
|
|||||
S&P Ratings
|
$
|
209
|
|
|
$
|
169
|
|
|
24
|
%
|
S&P Capital IQ / S&P Indices
|
101
|
|
|
113
|
|
|
(11
|
)%
|
||
C&C
|
60
|
|
|
51
|
|
|
17
|
%
|
||
MHE
|
253
|
|
|
315
|
|
|
(20
|
)%
|
||
Total segment operating profit
|
623
|
|
|
648
|
|
|
(4
|
)%
|
||
General corporate expense
1
|
(95
|
)
|
|
(41
|
)
|
|
N/M
|
|
||
Total operating profit
|
$
|
528
|
|
|
$
|
607
|
|
|
(13
|
)%
|
1
|
Includes depreciation expense and expenses for our Growth and Value Plan, including costs related to the separation of MHE, restructuring costs and other related non-recurring costs.
|
(in millions)
|
2012
|
|
2011
|
|
% Change
|
|||||
S&P Ratings
|
$
|
603
|
|
|
$
|
572
|
|
|
5
|
%
|
S&P Capital IQ / S&P Indices
1
|
308
|
|
|
307
|
|
|
—
|
%
|
||
C&C
|
195
|
|
|
139
|
|
|
40
|
%
|
||
MHE
|
245
|
|
|
281
|
|
|
(13
|
)%
|
||
Total segment operating profit
|
1,351
|
|
|
1,299
|
|
|
4
|
%
|
||
General corporate expense
2
|
(237
|
)
|
|
(119
|
)
|
|
99
|
%
|
||
Total operating profit
|
$
|
1,114
|
|
|
$
|
1,180
|
|
|
(6
|
)%
|
1
|
Includes transaction costs for our S&P/Dow Jones Indices, LLC joint venture.
|
2
|
Includes depreciation expense and expenses for our Growth and Value Plan, including costs related to the separation of MHE, restructuring costs and other related non-recurring costs.
|
•
|
ratings related to new issuance of corporate and government debt instruments, and structured finance debt instruments;
|
•
|
bank loan ratings; and
|
•
|
corporate credit estimates, which are intended, based on an abbreviated analysis, to provide an indication of our opinion regarding creditworthiness of a company which does not currently have an S&P Ratings credit rating.
|
(in millions)
|
Three Months
|
|
Nine Months
|
||||||||||||||||||
|
2012
|
|
2011
|
|
% Change
|
|
2012
|
|
2011
|
|
% Change
|
||||||||||
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Transaction
|
$
|
215
|
|
|
$
|
131
|
|
|
64
|
%
|
|
$
|
612
|
|
|
$
|
503
|
|
|
22
|
%
|
Non-transaction
|
287
|
|
|
279
|
|
|
3
|
%
|
|
839
|
|
|
830
|
|
|
1
|
%
|
||||
Total revenue
|
$
|
502
|
|
|
$
|
410
|
|
|
22
|
%
|
|
$
|
1,451
|
|
|
$
|
1,333
|
|
|
9
|
%
|
% of total revenue:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Transaction
|
43
|
%
|
|
32
|
%
|
|
|
|
42
|
%
|
|
38
|
%
|
|
|
||||||
Non-transaction
|
57
|
%
|
|
68
|
%
|
|
|
|
58
|
%
|
|
62
|
%
|
|
|
||||||
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Domestic
|
$
|
275
|
|
|
$
|
207
|
|
|
33
|
%
|
|
$
|
785
|
|
|
$
|
692
|
|
|
13
|
%
|
International
|
227
|
|
|
203
|
|
|
12
|
%
|
|
666
|
|
|
641
|
|
|
4
|
%
|
||||
Total revenue
|
$
|
502
|
|
|
$
|
410
|
|
|
22
|
%
|
|
$
|
1,451
|
|
|
$
|
1,333
|
|
|
9
|
%
|
Operating profit
|
$
|
209
|
|
|
$
|
169
|
|
|
24
|
%
|
|
$
|
603
|
|
|
$
|
572
|
|
|
5
|
%
|
Operating margin %
|
42
|
%
|
|
41
|
%
|
|
|
|
42
|
%
|
|
43
|
%
|
|
|
|
|
Third Quarter
Compared to Prior Year
|
|
Year-to-Date
Compared to Prior Year
|
||||||||
Corporate Issuance
|
|
U.S.
|
|
Europe
|
|
U.S.
|
|
Europe
|
||||
High-Yield Issuance
|
|
311
|
%
|
|
213
|
%
|
|
28
|
%
|
|
(3
|
)%
|
Investment Grade
|
|
32
|
%
|
|
121
|
%
|
|
15
|
%
|
|
9
|
%
|
Total New Issue Dollars — Corporate Issuance
|
|
72
|
%
|
|
126
|
%
|
|
18
|
%
|
|
8
|
%
|
•
|
Corporate issuance in the U.S. was up in the quarter and year-to-date driven by record high-yield debt issuance and strong investment grade debt issuance as borrowers took advantage of low funding rates to opportunistically refinance existing debt. Both investment grade and high-yield issuance comparisons in the quarter also benefited from very low volumes in the third quarter of 2011.
|
•
|
Europe corporate issuance was up in the quarter and year-to-date due to similar reasons noted above for U.S. issuance. However, Europe high-yield issuance is down slightly year-to-date reflecting weak financial services issuance in the first half of the year.
|
|
|
Third Quarter Compared to Prior Year
|
|
Year-to-Date Compared to Prior Year
|
||||||||
Structured Finance
|
|
U.S.
|
|
Europe
|
|
U.S.
|
|
Europe
|
||||
Residential Mortgage-Backed Securities (“RMBS”)
|
|
46
|
%
|
|
(39
|
)%
|
|
29
|
%
|
|
(46
|
)%
|
Commercial Mortgage-Backed Securities (“CMBS”)
|
|
1
|
%
|
|
*
|
|
|
3
|
%
|
|
(22
|
)%
|
Collaterized Debt Obligations (“CDO”)
|
|
264
|
%
|
|
20
|
%
|
|
55
|
%
|
|
32
|
%
|
Asset-Backed Securities (“ABS”)
|
|
68
|
%
|
|
(4
|
)%
|
|
41
|
%
|
|
(4
|
)%
|
Covered Bonds
|
|
*
|
|
|
(37
|
)%
|
|
*
|
|
|
(46
|
)%
|
Total New Issue Dollars — Structured Finance
|
|
65
|
%
|
|
(33
|
)%
|
|
38
|
%
|
|
(42
|
)%
|
*
|
Represents low issuance levels in 2012 and 2011.
|
•
|
RMBS volume is up in the U.S. in the quarter and year-to date due to higher re-REMIC activity in the quarter. Year-to-
|
•
|
CMBS issuance in the quarter and year-to-date is up slightly in the U.S. as the sector continues to recover. European CMBS issuance continued to remain constrained in the quarter and year-to-date with low issuance levels in both periods.
|
•
|
Issuance in the CDO asset class in the U.S. in the quarter and year-to-date was driven by strong CLO issuance driven by an increase in corporate loan activity. European issuance in the CDO asset class was minimal due to economic uncertainty and quarter and year-to-date increases compare to a very low level of activity in 2011.
|
•
|
ABS issuance in the U.S. is up in the quarter and year-to-date primarily due to strength in autos, credit cards and, to a lesser extent, student loans. Strong credit and rating performance, tighter pricing, increased consumer borrowing and refinancing opportunities in the student loan sector all contributed to the increase. European ABS is down slightly in the quarter and year-to-date driven by weakness in autos.
|
•
|
Covered bond issuance (which are debt securities backed by cash flows from mortgages or public sector loans) in Europe is down in the quarter and year-to-date resulting from uncertainty regarding sovereign risk and the potential unfavorable impact on this sector as well as lower funding requirements due to additional liquidity provided by the European Central Bank's through its long-term refinancing operations.
|
•
|
products in our Integrated Desktop Solutions group, which include the following content: Capital IQ — a product suite
|
•
|
products in our Enterprise Solutions group, such as Global Data Solutions, which combines high-quality, multi-asset class and market data to help professional investors, traders, and analysts meet the new analytical, risk management, regulatory and front-to-back office operations requirements;
|
•
|
investment research products in our Research & Analytics group; and
|
•
|
other data subscriptions.
|
(in millions)
|
Three Months
|
|
Nine Months
|
||||||||||||||||||
|
2012
|
|
2011
|
|
% Change
|
|
2012
|
|
2011
|
|
% Change
|
||||||||||
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Subscription
|
$
|
281
|
|
|
$
|
252
|
|
|
12
|
%
|
|
$
|
816
|
|
|
$
|
738
|
|
|
11
|
%
|
Non-subscription
|
112
|
|
|
97
|
|
|
15
|
%
|
|
296
|
|
|
268
|
|
|
10
|
%
|
||||
Total revenue
|
$
|
393
|
|
|
$
|
349
|
|
|
13
|
%
|
|
$
|
1,112
|
|
|
$
|
1,006
|
|
|
11
|
%
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Domestic
|
$
|
276
|
|
|
$
|
242
|
|
|
14
|
%
|
|
$
|
773
|
|
|
$
|
704
|
|
|
10
|
%
|
International
|
117
|
|
|
107
|
|
|
10
|
%
|
|
339
|
|
|
302
|
|
|
12
|
%
|
||||
Total revenue
|
$
|
393
|
|
|
$
|
349
|
|
|
13
|
%
|
|
$
|
1,112
|
|
|
$
|
1,006
|
|
|
11
|
%
|
Operating profit
|
$
|
101
|
|
|
$
|
113
|
|
|
(11
|
)%
|
|
$
|
308
|
|
|
$
|
307
|
|
|
—
|
%
|
Operating margin %
|
26
|
%
|
|
32
|
%
|
|
|
|
28
|
%
|
|
30
|
%
|
|
|
•
|
In February 2012, we completed the acquisition of R² Technologies, a provider of advanced risk and scenario-based analytics to traders, portfolio and risk managers for pricing, hedging and capital management across asset classes, allowing us to offer an integrated view of market and credit risks across asset classes.
|
•
|
In April 2012, we completed the acquisition of QuantHouse, an independent global provider of end-to-end systematic low-latency market data solutions, allowing us to offer unique real-time monitors, derived data sets and analytics as well as the ability to package and resell this data as part of a core solution.
|
•
|
In June 2012, we completed the acquisition of CMA, a provider of independent data in the over-the-counter markets.
|
•
|
In connection with the Standard & Poor's CUSIP Service Bureau matter, CUSIP Global Services has created and distributed a new data feed of US International Securities Identification Numbers tailored specifically to the institutions for their use within the European Economic Area.
|
(in millions)
|
Three Months
|
|
Nine Months
|
||||||||||||||||||
|
2012
|
|
2011
|
|
% Change
|
|
2012
|
|
2011
|
|
% Change
|
||||||||||
Total revenue
|
$
|
239
|
|
|
$
|
228
|
|
|
5
|
%
|
|
$
|
713
|
|
|
$
|
657
|
|
|
8
|
%
|
Operating profit
|
$
|
60
|
|
|
$
|
51
|
|
|
17
|
%
|
|
$
|
195
|
|
|
$
|
139
|
|
|
40
|
%
|
Operating margin %
|
25
|
%
|
|
22
|
%
|
|
|
|
27
|
%
|
|
21
|
%
|
|
|
(in millions)
|
Three Months
|
|
Nine Months
|
||||||||||||||||||
|
2012
|
|
2011
|
|
% Change
|
|
2012
|
|
2011
|
|
% Change
|
||||||||||
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
HPI
|
$
|
484
|
|
|
$
|
517
|
|
|
(6
|
)%
|
|
$
|
926
|
|
|
$
|
958
|
|
|
(3
|
)%
|
SEG
|
352
|
|
|
420
|
|
|
(16
|
)%
|
|
680
|
|
|
819
|
|
|
(17
|
)%
|
||||
Total revenue
|
$
|
836
|
|
|
$
|
937
|
|
|
(11
|
)%
|
|
$
|
1,606
|
|
|
$
|
1,777
|
|
|
(10
|
)%
|
Operating profit
|
$
|
253
|
|
|
$
|
315
|
|
|
(20
|
)%
|
|
$
|
245
|
|
|
$
|
281
|
|
|
(13
|
)%
|
Operating margin %
|
30
|
%
|
|
34
|
%
|
|
|
|
15
|
%
|
|
16
|
%
|
|
|
(in millions)
|
2012
|
|
2011
|
|
% Change
|
|||||
Net cash provided by (used for):
|
|
|
|
|
|
|||||
Operating activities
|
$
|
847
|
|
|
$
|
1,038
|
|
|
(18
|
)%
|
Investing activities
|
(333
|
)
|
|
(366
|
)
|
|
(9
|
)%
|
||
Financing activities
|
(227
|
)
|
|
(754
|
)
|
|
(70
|
)%
|
(in millions)
|
2012
|
|
2011
|
||||
Cash provided by operating activities
|
$
|
847
|
|
|
$
|
1,038
|
|
Investment in prepublication costs
|
(119
|
)
|
|
(105
|
)
|
||
Capital expenditures
|
(79
|
)
|
|
(70
|
)
|
||
Cash flow before dividends
|
649
|
|
|
863
|
|
||
Dividends paid to shareholders
|
(216
|
)
|
|
(225
|
)
|
||
Dividends paid to noncontrolling interests
|
(13
|
)
|
|
(11
|
)
|
||
Free cash flow
|
$
|
420
|
|
|
$
|
627
|
|
•
|
worldwide economic, financial, political and regulatory conditions;
|
•
|
currency and foreign exchange volatility;
|
•
|
the effect of competitive products and pricing;
|
•
|
the level of success of new product development and global expansion;
|
•
|
the level of future cash flows;
|
•
|
the levels of capital and prepublication investments;
|
•
|
income tax rates;
|
•
|
restructuring charges;
|
•
|
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 capital markets in the U.S. and abroad;
|
•
|
the demand and market for debt ratings, including collateralized debt obligations, residential and commercial mortgage and asset-backed securities and related asset classes;
|
•
|
the state of the credit markets and their impact on Standard & Poor’s Ratings and the economy in general;
|
•
|
the regulatory environment affecting Standard & Poor’s Ratings and our other businesses;
|
•
|
the level of merger and acquisition activity in the U.S. and abroad;
|
•
|
the level of funding in the education market;
|
•
|
School Education Group’s level of success in adoptions and open territories;
|
•
|
enrollment and demographic trends;
|
•
|
the strength of School Education Group’s testing market, Higher Education, Professional and International’s publishing markets and the impact of technology on them;
|
•
|
continued investment by the construction, automotive, computer and aviation industries;
|
•
|
the strength and performance of the domestic and international automotive markets;
|
•
|
the volatility of the energy marketplace;
|
•
|
and the contract value of public works, manufacturing and single-family unit construction.
|
•
|
In connection with the Parmalat matter, on September 29, 2012, Parmalat submitted a brief to the Court of Appeals of Milan appealing the judgment issued by the Tribunal of Milan. An initial hearing on the appeal is scheduled to take place on May 23, 2013. Standard & Poor's response to the appeal, including a cross-appeal, if any, must be filed at least 20 days prior to the initial hearing.
|
•
|
In connection with the Reese matter, on April 2, 2012, the District Court entered judgment granting the Defendants’ motion to dismiss, and dismissing all claims asserted against the Defendants in their entirety. The Lead Plaintiff has appealed the dismissal order.
|
•
|
In connection with the Gearren and Sullivan matters, on February 23, 2012, the Court of Appeals denied the plaintiffs’ petition for reconsideration by the full Court. Plaintiffs filed a petition with the United States Supreme Court asking it to review the decision. The Supreme Court has denied plaintiffs' request and the dismissals are now final.
|
•
|
The Civil Division of the Department of Justice (“DOJ”) and the Division of Enforcement of the Securities and Exchange Commission (“SEC”) are investigating potential violations of civil provisions of federal law relating to S&P's ratings of structured products. We have been in discussions with representatives of the DOJ and the SEC presenting our position on the issues raised by them and articulating why neither of them should commence proceedings adverse to the Company or its personnel.
|
•
|
We previously announced a tax-free spin-off of McGraw-Hill Education and we are also considering a potential sale of the business. Any spin-off or sale would be subject to various regulatory approvals, and may be affected by unanticipated developments or changes in market conditions. These factors could prevent the completion of or otherwise adversely affect or delay the proposed transaction.
|
•
|
Completion of a spin-off or sale requires significant time, effort, and expense. Any delays in the anticipated completion of the transaction may increase the expenses which we incur to complete the transaction. In the case of a spin-off, McGraw-Hill Education could also face unanticipated problems in operating independently, and thus may not achieve the anticipated benefits of the separation.
|
•
|
If consummated, the spin-off will result in two separate independent public companies each of which will be a smaller, less diversified company than we currently are with a narrower business focus than we currently have. In addition, diversification of revenues, costs, and cash flows may diminish. As such, it is possible that the results of operations, cash flows, working capital and financing requirements of the two separate businesses may be subject to increased volatility. These same considerations would apply to the Company in the case of a sale of McGraw-Hill Education.
|
•
|
A spin-off transaction requires us to hire, retain and develop our senior management and a highly skilled workforce for two separate businesses. Any unplanned turnover or our failure to develop current leadership positions or to hire and
|
•
|
In addition, we have and plan to outsource certain support functions to third-party service providers to achieve cost savings and efficiencies. If the service providers to which we outsource these functions to do not perform effectively, we may not be able to achieve the expected cost savings and, depending on the function involved, we may experience business disruption, processing inefficiencies, the loss of or damage to intellectual property through security breach, or harm employee morale.
|
•
|
On October 5, 2012, the International Organization of Securities Commissions ("IOSCO") issued its final report to the G-20, including Principles for Oil Price Reporting Agencies, which sets out principles IOSCO states are intended to enhance the reliability of oil price assessments that are referenced in derivative contracts subject to regulation by IOSCO members.
|
•
|
We do not believe that any new regulatory or self-regulatory oversight regime would have a material adverse effect on our financial condition or results of operations.
|
Period
|
|
(a) Total Number of Shares Purchased
|
|
(b) Average Price Paid per Share
|
|
(c) Total Number of Shares Purchased as
Part of Publicly Announced Programs
|
|
(d) Maximum Number of Shares that may yet be Purchased Under the Programs
|
|||||
Jul. 1 — Jul. 31, 2012
|
|
0.6
|
|
|
$
|
46.90
|
|
|
0.6
|
|
|
22.2
|
|
Aug. 1 — Aug. 31, 2012
|
|
3.3
|
|
|
49.07
|
|
|
3.3
|
|
|
18.9
|
|
|
Sept. 1 — Sept. 30, 2012
|
|
2.0
|
|
|
53.40
|
|
|
2.0
|
|
|
16.9
|
|
|
Total — Qtr
|
|
5.9
|
|
|
$
|
50.35
|
|
|
5.9
|
|
|
16.9
|
|
(15)
|
Letter on Unaudited Interim Financials
|
|
|
(31.1)
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended
|
|
|
(31.2)
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended
|
|
|
(32)
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
(101.INS)
|
XBRL Instance Document
|
|
|
(101.SCH)
|
XBRL Taxonomy Extension Schema
|
|
|
(101.CAL)
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
|
(101.LAB)
|
XBRL Taxonomy Extension Label Linkbase
|
|
|
(101.PRE)
|
XBRL Taxonomy Extension Presentation Linkbase
|
|
|
(101.DEF)
|
XBRL Taxonomy Extension Definition Linkbase
|
|
|
|
The McGraw-Hill Companies, Inc.
|
|
|
|
Registrant
|
|
|
|
|
Date:
|
November 2, 2012
|
By
|
/s/
Jack F. Callahan, Jr.
|
|
|
|
Jack F. Callahan, Jr.
|
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
|
|
Date:
|
November 2, 2012
|
By
|
/s/
Kenneth M. Vittor
|
|
|
|
Kenneth M. Vittor
|
|
|
|
Executive Vice President and General Counsel
|
|
|
|
|
Date:
|
November 2, 2012
|
By
|
/s/
Emmanuel N. Korakis
|
|
|
|
Emmanuel N. Korakis
|
|
|
|
Senior Vice President and Corporate Controller
|
No information found
* THE VALUE IS THE MARKET VALUE AS OF THE LAST DAY OF THE QUARTER FOR WHICH THE 13F WAS FILED.
FUND | NUMBER OF SHARES | VALUE ($) | PUT OR CALL |
---|
DIRECTORS | AGE | BIO | OTHER DIRECTOR MEMBERSHIPS |
---|
No information found
No Customers Found
Suppliers
Supplier name | Ticker |
---|---|
Cisco Systems, Inc. | CSCO |
Motorola Solutions, Inc. | MSI |
Veritiv Corporation | VRTV |
R. R. Donnelley & Sons Company | RRD |
Price
Yield
Owner | Position | Direct Shares | Indirect Shares |
---|