2014

McGraw-Hill Reports 4th Quarter And Full-year 2012 Results McGraw-Hill Education Reclassified to Discontinued Operations in Anticipation of the Sale Closing in the 1st Quarter

McGraw Hill Financial Revenue Increased 22% in the 4th Quarter and 13% for the Full Year

Diluted EPS from Continuing Operations Increased 80% to $0.67 in the 4th Quarter and 19% to $2.37 for the Full Year

Adjusted Diluted EPS from Continuing Operations Increased 56% to $0.72 in the 4th Quarter and 32% to $2.75 for the Full Year, Creating a Baseline for Future Comparisons

Introduces 2013 Adjusted Diluted EPS Guidance for McGraw Hill Financial of $3.10 to $3.20, an Increase of Approximately 15% Versus Comparable 2012 EPS of $2.75

NEW YORK, Feb. 12, 2013 /PRNewswire-FirstCall/ -- The McGraw-Hill Companies (NYSE: MHP) today reported fourth quarter and full-year 2012 results.  Because of the pending sale of McGraw-Hill Education, this business has been reclassified as a discontinued operation and its results are excluded from continuing operations.  In addition, in anticipation of the formation of McGraw Hill Financial and the first full year of operation of the S&P Dow Jones Indices joint venture, the Company is reporting S&P Capital IQ and S&P Dow Jones Indices as distinct business segments beginning this quarter.

McGraw Hill Financial:
The Company reported fourth quarter 2012 revenue of $1,226 million, an increase of 22% compared to the same period last year.  Net income and diluted earnings per share from continuing operations were $190 million and $0.67, respectively.  For the full year, revenue increased 13% to $4,450 million and net income and diluted earnings per share from continuing operations were $676 million and $2.37, respectively.

Excluding the impact of one-time costs related to the Growth and Value Plan, and a gain from modifications to the vacation policy, adjusted net income from continuing operations increased 52% to $205 million, and adjusted diluted earnings per share from continuing operations increased 56% to $0.72.  For the full year, adjusted net income from continuing operations increased 24% to $783 million and adjusted diluted earnings per share from continuing operations increased 32% to $2.75.

"As we approach the successful completion of the Growth and Value Plan, I could not be more pleased with the execution of the Plan and the value it has unlocked for shareholders," said Harold McGraw III, chairman, president, and chief executive officer of The McGraw-Hill Companies.  He continued, "The sale of McGraw-Hill Education is anticipated in the first quarter.  Now we reflect on the tremendous opportunity both McGraw Hill Financial and McGraw-Hill Education have before them.  In 2012, McGraw Hill Financial delivered 13% revenue growth and 32% diluted adjusted EPS from continuing operations growth.  This performance demonstrates the growth potential of McGraw Hill Financial, with its market-leading positions providing essential intelligence to its customers."

The Outlook:  The Company reported full-year 2012 revenue of $4,450 million and adjusted diluted EPS from continuing operations of $2.75.  "This creates a baseline at McGraw Hill Financial for future comparisons," said Mr. McGraw.  He added, "We are introducing 2013 revenue guidance of high single-digit growth and adjusted diluted EPS guidance of $3.10 to $3.20, approximately a 15% increase.  This new company has the capability to deliver more pronounced growth for our shareholders and employees."

The Growth and Value Plan has delivered:

  • Separation: The sale of McGraw-Hill Education to Apollo Global Management was the cornerstone of the Growth and Value Plan. Its sale will be the culmination of this  transformative initiative.
  • Growth Investments: Focusing on innovative products and technologies, the Company executed several investments in 2012.  The most visible has been the formation of the S&P Dow Jones Indices joint venture which combines some of the most widely followed and trusted brands in the index space.  In addition, the Company completed acquisitions of QuantHouse, R2 Financial Technologies, Credit Market Analysis Limited, Coalition Development Ltd., and Kingsman SA.
  • Cost Reductions: The Company approached $175 million in run-rate cost reductions exceeding its commitment of at least $100 million by the end of 2012.  The principal elements of the cost reduction programs included select headcount reductions; the migration of numerous accounting work streams, human resource processes, and selected information technology support services to world-class partners that specialize in these operations; and redesigning the employee benefits plans, including a freeze of the U.S. pension plans.  Approximately two-thirds of the savings benefited McGraw-Hill Education. The  McGraw Hill Financial savings were partially offset by the impact of certain stranded costs driven by separation.
  • Return of Capital: During 2011 and 2012, the Company returned $3.1 billion to shareholders.  Aggregate share repurchases totaled approximately $1.8 billion.  In addition, the Company distributed approximately $600 million in regular dividends and approximately $700 million through a special dividend of $2.50 per share paid in December 2012.

Standard & Poor's Ratings Services:  Driven by the continued low interest rate environment and elevated levels of refinancing activity, fourth quarter 2012 revenue increased 34% to $584 million and operating profit increased 67% to $246 million.  Adjusted operating profit increased 63% to $254 million in the fourth quarter compared to a relatively weak fourth quarter in 2011.  The adjusted operating profit margin increased to 43.6% in the quarter.

2012 revenue increased 15% to $2,034 million.  Operating profit increased 18% to $849 million.  Adjusted operating profit increased 19% to $865 million compared to 2011.  For 2012, the adjusted operating profit margin increased 130 basis points to 42.5%.

Transaction revenue increased 97% to $292 million during the quarter, compared to what was a relatively weak period last year, and was driven by a doubling of U.S. corporate issuance and a 74% increase in European corporate issuance.  Worldwide structured issuance decreased 4%.  U.S. structured finance issuance increased 104% off a small base and was driven by strength in commercial mortgage-backed securities, asset-backed securities, and collateralized loan obligations.  The growth was offset by a 45% decline in European structured finance issuance due to a decrease in residential mortgage-backed securities and covered bond activity.

Non-transaction revenue increased 2% in the fourth quarter and represented 50% of Standard & Poor's Ratings' total revenue compared to 66% for the same period last year.

Domestic revenue increased 46% in the fourth quarter, outpacing a 23% increase in international revenue.  Foreign exchange rates negatively impacted international revenue by $4 million.  International revenue represented 46% of Standard & Poor's Ratings' total fourth quarter revenue.

S&P Capital IQ:  Revenue increased 8% to $290 million in the fourth quarter of 2012.  Organic growth accounted for 5% and new revenue from the acquisitions of QuantHouse, R2 Financial Technologies, and Credit Market Analysis Limited accounted for the balance.  Quarterly operating profit decreased 10% to $48 million.  Adjusted operating profit decreased 1% to $53 million.

Full-year 2012 revenue increased 9% to $1,124 million.  Organic growth accounted for 7% and new revenue from the acquisitions of QuantHouse, R2 Financial Technologies, and Credit Market Analysis Limited accounted for the balance.  Operating profit decreased 3% to $208 million.  Adjusted operating profit increased 6% to $228 million.

The business enjoyed high single-digit adjusted operating profit in the first half of the year.  In the second half of the year, profits declined modestly as the acquisitions were supplemented with additional investments to further develop the newly acquired technologies into innovative products and services.

Two key offerings, S&P Capital IQ (within Desktop Solutions) and Global Data Solutions (within Enterprise Solutions), both delivered solid growth despite continued layoffs within the financial industry.  TheMarkets.com is being successfully integrated into S&P Capital IQ's platform and users are migrating to S&P Capital IQ service.  Collectively, the number of S&P Capital IQ users increased 7% over the past year to more than 71,000.

S&P Dow Jones Indices:  Revenue increased 38% to $110 million in the fourth quarter of 2012.  Excluding the revenue associated with the Dow Jones Indexes, revenue increased 5% to $84 million.  Quarterly operating profit increased 48% to $64 million. Adjusted operating profit attributable to the Company increased 16% to $50 million.

2012 revenue increased 20% to $388 million. Excluding the revenue associated with the Dow Jones Indexes, full-year revenue increased 3% to $332 million.  Operating profit increased 12% to $212 million.  Adjusted operating profit attributable to the Company increased 5% to $198 million.

Because the S&P Dow Jones Indices joint venture is a majority-owned entity, 100% of its revenue and expenses are consolidated into the Company's financial statements.  In accordance with U.S. GAAP, 27% of the net income that is not owned by the Company is removed from the Company's income statement in the "net income attributable to noncontrolling interests" line.

Assets under management in exchange-traded funds based on S&P's indices increased 28% to $402 billion at the end of the fourth quarter.  Including the Dow Jones Indexes, assets under management increased 27% to $466 billion.  This was driven by record industry inflow of $191 billion into ETFs in the quarter.

The revenue benefit of increased assets under management was partially offset by a 12% decline in the average daily volume of exchange-traded derivative contracts based on S&P's indices, as well as a 27% decline in over-the-counter derivative revenue due to concerns among European banks with credit risk and the general economic slowdown.

Commodities & Commercial Markets:  Revenue increased 9% to $260 million and operating profit increased 31% to $54 million in the fourth quarter of 2012.  Adjusted operating profit increased by 27% to $59 million in the fourth quarter, compared to the same period last year.

For 2012, revenue increased 9% to $973 million.  Operating profit increased 38% to $248 million.  Adjusted operating profit increased by 40% to $260 million.

Platts topped off an already strong year with 15% revenue growth at Commodities to $129 million for the fourth quarter.  Petroleum product subscriptions, licensing of its price assessments to derivative exchanges, and metals products and services all contributed to their double-digit growth.

Commercial Markets' revenue increased 4% for the quarter as a record year at J.D. Power and Associates was offset by a modest decline at Construction.

DOJ Lawsuit: The Company believes the Department of Justice civil lawsuit filed last week is entirely without factual or legal merit and that the Company has very strong defenses against this and all pending litigation. S&P has a record of successfully defending these types of cases, with 41 cases dismissed outright or voluntarily withdrawn.

The DOJ lawsuit disregards the central fact that S&P's CDO ratings were made in good faith through its committee-based system and were fully consistent with the views of many other institutions at the time, including U.S. Government officials who in 2007 publicly stated that problems in the subprime market appeared to be contained.

The cherry-picked emails, selectively chosen from 20 million emails and documents, do not disprove this central fact. They display a culture of vigorous debate but not of wrongdoing. Claims that S&P deliberately kept ratings high when it knew they should be lower are simply not true as an objective assessment of all of the evidence will prove.

The DOJ also cites the fact that S&P personnel discussed proposed rating criteria with market participants although, under certain recent regulations, S&P is required to do just that.

The fact is, before 2007, and increasingly during 2007, S&P downgraded a record number of U.S. residential mortgage-backed securities (RMBS) and repeatedly warned of deteriorating conditions in the housing market and potential downgrades to come. (See list of published documents from this time on website listed below.) Between February and July of 2007 alone, S&P took 637 negative actions on ratings on 2006 vintage subprime RMBS. S&P downgraded more underlying U.S. RMBS than any other rating agency and did so sooner — a year and a half before the Lehman bankruptcy. These negative rating actions had a direct and automatic impact on S&P's CDO ratings.  If the RMBS that was put on CreditWatch, or downgraded, was in a CDO, or was being considered for a new CDO, S&P's CDO rating took that negative status into account and required additional protection for the CDO.

Unfortunately, these actions turned out to be insufficient in anticipating the severity of the housing crisis that ultimately came to pass.  However, the Company does not believe the Department of Justice can prove that this failure — common to nearly everyone at the time — was the product of intentional misconduct by anyone at S&P.

Additional information is available at www.standardandpoors.com/response

Unallocated Expense:  Unallocated expense includes corporate functions and centrally managed costs.  Adjusted unallocated expense increased 7% to $62 million in the fourth quarter, largely driven by increased incentives.

Non-GAAP Adjustments to Continuing Operations:  During the fourth quarter, there were $77 million of one-time charges related to the Growth and Value Plan, which includes restructuring charges.  Approximately $44 million was related to professional fees and approximately $29 million was related to restructuring actions.  Also during the quarter, the vacation policy was changed resulting in a $52 million gain.  These items are excluded from the adjusted results.

Return of Capital:  During 2012, share repurchases totaled approximately $300 million, regular quarterly dividends totaled approximately $300 million, and the Company paid approximately $700 million for a special dividend of $2.50 per share in December.

In 2013, the Company anticipates continuing its share repurchase program, subject to market conditions, once the funds from the sale of McGraw-Hill Education are received.  As a reminder, the Company currently has 16.9 million shares remaining under the existing authorization from the Board of Directors. The 2013 EPS guidance includes a positive impact from this anticipated share repurchase activity.

Balance Sheet and Cash Flow:  Cash and short-term investments at the end of the fourth quarter were $761 million, down from $864 million at the end of 2011.  During the fourth quarter the Company paid down approximately $400 million of 5.375% Senior Notes and paid the special dividend.  To help fund these transactions, the Company utilized its commercial paper program and had $457 million outstanding at year end.  2012 free cash flow from continuing operations (see exhibits 3 and 11) was $626 million, a decrease of $183 million from the same period in 2011.  This was due primarily to the one-time costs associated with the Growth and Value Plan and a $150 million fourth quarter pension contribution.

The McGraw-Hill Companies:

Discontinued Operations:  With the pending sale of the McGraw-Hill Education business, the results were classified as a discontinued operation.  Net loss from discontinued operations in the fourth quarter and full year were $(406) million and $(239) million, respectively.  These losses include intangible asset impairments of $497 million that consisted of goodwill, prepublication investment, and inventory assets at McGraw-Hill Education's School Education Group.  Adjusted net income from discontinued operations for the fourth quarter and full year were $9 million and $196 million, respectively. 

On a consolidated basis, which includes McGraw Hill Financial and McGraw-Hill Education, adjusted diluted earnings per share for the fourth quarter and the full year were $0.75 and $3.44, respectively.  This exceeded the Company's most recent 2012 guidance of $3.35 to $3.40 per share.

Comparison of Adjusted Information to U.S. GAAP Information:  Adjusted diluted earnings per share, adjusted diluted earnings per share from continuing operations, adjusted net income, adjusted operating profit, adjusted unallocated expense and free cash flow 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 5, 11, 12, and 13.

Conference Call/Webcast Details:  The Company's senior management will review the fourth quarter and year-end earnings results on a conference call scheduled for this morning, February 12, at 8:30 a.m. Eastern Time.  This call is open to all interested parties.  Discussions may include forward-looking information.  Additional information presented on the conference call may be made available on the Company's Investor Relations Website at http://www.mcgraw-hill.com/investor_relations.

The Webcast will be available live and in replay at http://investor.mcgraw-hill.com/phoenix.zhtml?c=96562&p=irol-EventDetails&EventId=4892269.  (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 "3044525" and the conference leader is Harold McGraw III.  A recorded telephone replay will be available approximately two hours after the meeting concludes and will remain available until March 12, 2013.  Domestic participants may call (888) 383-2997; international participants may call +1 (203) 369-0378 (long distance charges will apply).  No passcode is required.

The forward-looking statements in this news release involve risks and uncertainties and are subject to change based on various important factors, including worldwide economic, financial, liquidity, political and regulatory conditions; the health of debt (including U.S. residential mortgage-backed securities and collateralized debt obligations) and equity markets, including possible future interest rate changes; the health of the economy; the successful marketing of competitive products; and the effect of competitive products and pricing.

In addition, there are certain risks and uncertainties relating to our previously announced Growth and Value Plan which contemplates a separation of our education business, including, but not limited to, the impact and possible disruption to our operations, the timing and certainty of completing the transaction, unanticipated developments that may delay or negatively impact the transaction, and the ability of each business to operate as an independent entity upon completion of the transaction.

About The McGraw-Hill Companies:
The McGraw-Hill Companies (NYSE: MHP), a financial intelligence and education company, signed an agreement to sell its McGraw-Hill Education business to investment funds affiliated with Apollo Global Management, LLC in November 2012. Following the sale closing, expected in early 2013, the Company will be renamed McGraw Hill Financial (subject to shareholder approval) and will be a powerhouse in benchmarks, content and analytics for the global capital and commodity markets. The Company's leading brands will include: Standard & Poor's, S&P Capital IQ, S&P Dow Jones Indices, Platts, CRISIL Ltd., J.D. Power and Associates, McGraw-Hill Construction and Aviation Week. The Company will have approximately 17,000 employees in more than 30 countries. Additional information is available at www.mcgraw-hill.com

Investor Relations:  http://www.mcgraw-hill.com/investor_relations  

Get news direct from McGraw-Hill via RSS: http://investor.mcgraw-hill.com/phoenix.zhtml?c=96562&p=newsRSS

Release issued:  February 12, 2013

* * *

Contacts for The McGraw-Hill Companies:

Investor Relations:
Chip Merritt
Vice President, Investor Relations
(212) 512-4321 (office)
chip_merritt@mcgraw-hill.com 

News Media:
Jason Feuchtwanger
Director, Corporate Media Relations
(212) 512-3151 (office)
jason_feuchtwanger@mcgraw-hill.com

 

Exhibit 1

The McGraw-Hill Companies
Condensed Consolidated Statements of Income
Periods ended December 31, 2012 and 2011

(dollars in millions, except per share data)

(unaudited)

Three Months

Twelve Months



2012


2011


% Change



2012


2011


% Change

















Revenue


$

1,226



$

1,004



22%



$

4,450



$

3,954



13%


Expenses


931



804



16%



3,291



2,890



14%


Other income


52





N/M



52



13



N/M


Operating profit


347



200



74%



1,211



1,077



12%


Interest expense, net


18



19



(3)%



81



77



4%


Income before taxes on income


329



181



82%



1,130



1,000



13%


Provision for taxes on income


118



68



74%



404



374



8%


Income from continuing operations


211



113



86%



726



626



16%


(Loss) income from discontinued operations


(404)



108



N/M



(234)



308



N/M


Net (loss) income


(193)



221



N/M



492



934



(47)%


Less: net income attributable to noncontrolling interests - continuing


(21)



(5)



N/M



(50)



(19)



N/M


Less: net income attributable to noncontrolling interests - discontinued


(2)



(2)



55%



(5)



(4)



6%


Net (loss) income attributable to The McGraw-Hill Companies, Inc.


$

(216)



$

214



N/M



$

437



$

911



(52)%

















Amounts attributable to The McGraw-Hill Companies, Inc. common shareholders:















Income from continuing operations


$

190



$

108



76%



$

676



$

607



11%


(Loss) income from discontinued operations


(406)



106



N/M



(239)



304



N/M


Net (loss) income


$

(216)



$

214



N/M



$

437



$

911



(52)%

















Earnings per share attributable to The McGraw-Hill Companies, Inc. common shareholders:















Basic:















Income from continuing operations


$

0.68



$

0.38



81%



$

2.43



$

2.03



19%


(Loss) income from discontinued operations



(1.46)



0.37



N/M



(0.86)



1.02



N/M


Net (loss) income


$

(0.78)



$

0.75



N/M



$

1.57



$

3.05



(49)%


Diluted:















Income from continuing operations


$

0.67



$

0.37



80%



$

2.37



$

2.00



19%


(Loss) income from discontinued operations



(1.43)



0.36



N/M




(0.84)



1.00



N/M


Net (loss) income


$

(0.76)



$

0.73



N/M



$

1.53



$

3.00



(49)%

















Dividend per common share


$

0.255



$

0.25



2%



$

1.02




$

1.00



2%


Special dividend per common share


$

2.50



$



N/M



$

2.50



$



N/M

















Average number of common shares outstanding:















Basic


277.9



286.2






278.6



298.1





Diluted


284.7



292.4






284.6



303.6












































N/M - not meaningful

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

 

Exhibit 2

The McGraw-Hill Companies
Condensed Consolidated Balance Sheets
December 31, 2012 and 2011

(dollars in millions)

(unaudited)


2012



2011









Assets:







Cash and short-term investments


$

761




$

864



Other current assets


1,198




940



Assets held for sale (a)


1,940




2,508



Total current assets


3,899




4,312



Property and equipment, net


368




373



Goodwill and other intangible assets, net (b)


2,519




1,531



Other non-current assets


266




404



Total assets


$

7,052




$

6,620










Liabilities and Equity:







Short-term debt


457




400



Unearned revenue


1,229




1,187



Liabilities held for sale (a)


664




719



Other current liabilities


1,317




1,063



Long-term debt


799




798



Pension, other postretirement benefits and other non-current liabilities


936




869



Total liabilities


5,402




5,036



Redeemable noncontrolling interest (b)


810






Total equity


840




1,584



Total liabilities and equity


$

7,052




$

6,620










(a)   Includes McGraw-Hill Education as of December 31, 2012 and 2011.

(b)   Includes the impact of the S&P Dow Jones Indices LLC joint venture.

 

Exhibit 3

The McGraw-Hill Companies
Condensed Consolidated Statements of Cash Flows
Years ended December 31, 2012 and 2011

(dollars in millions)

(unaudited)


2012



2011









Operating Activities:







Net income from continuing operations


$

726




$

626



Adjustments to reconcile income from continuing operations to cash provided by operating activities from continuing operations:







Depreciation (including amortization of technology projects)


93




93



Amortization of intangibles


48




33



Stock-based compensation


93




77



Other


101




73



Net changes in operating assets and liabilities


(314)




22



Cash provided by operating activities from continuing operations


747




924










Investing Activities:







Capital expenditures


(97)




(92)



Acquisitions, net of cash acquired


(177)




(194)



Other


27




15



Cash used for investing activities from continuing operations


(247)




(271)










Financing Activities:







Additions to short-term debt


457






Payments of senior notes


(400)






Dividends paid to shareholders


(984)




(296)



Dividends and other payments paid to noncontrolling interests


(24)




(23)



Repurchase of treasury shares


(295)




(1,500)



Exercise of stock options and other


341




159



Cash used for financing activities from continuing operations


(905)




(1,660)



Effect of exchange rate changes on cash from continuing operations


5




(10)



Cash used for continuing operations


(400)




(1,017)



Cash provided by discontinued operations


325




436



     Net change in cash and equivalents


(75)




(581)



     Cash and equivalents at beginning of year


835




1,416



     Cash and equivalents at end of year


$

760




$

835










 

Exhibit 4

The McGraw-Hill Companies
Operating Results by Segment
Periods ended December 31, 2012 and 2011

(dollars in millions)

(unaudited)


Three Months

Twelve Months


















Revenue



Revenue




2012


2011


% Change



2012


2011


% Change

















S&P Ratings


$

584



$

434



34%



$

2,034



$

1,767



15%


S&P Capital IQ 1


290



268



8%



1,124



1,031



9%


S&P Dow Jones Indices 1


110



80



38%



388



323



20%


Commodities & Commercial


260



239



9%



973



896



9%


Intersegment Elimination


(18)



(17)



(6)%



(69)



(63)



(9)%


Total revenue


$

1,226



$

1,004



22%



$

4,450



$

3,954



13%


































Segment Expenses



Segment Expenses




2012


2011


% Change



2012


2011


% Change

















S&P Ratings


$

338



$

287



18%



$

1,185



$

1,047



13%


S&P Capital IQ


242



214



13%



916



817



12%


S&P Dow Jones Indices


46



37



24%



176



134



31%


Commodities & Commercial


206



198



4%



725



716



1%


Intersegment Elimination


(18)



(17)



(6)%



(69)



(63)



(9)%


Total segment expenses


$

814



$

719



13%



$

2,933



$

2,651



11%


































Operating Profit



Operating Profit




2012


2011


% Change



2012


2011


% Change

















S&P Ratings


$

246



$

147



67%



$

849



$

720



18%


S&P Capital IQ


48



54



(10)%



208



214



(3)%


S&P Dow Jones Indices


64



43



48%



212



189



12%


Commodities & Commercial


54



41



31%



248



180



38%


Total operating segments


412



285



44%



1,517



1,303



16%


Unallocated expense 2


(65)



(85)



(24)%



(306)



(226)



36%


Total operating profit


$

347



$

200



74%



$

1,211



$

1,077



12%

















1    As a result of our joint venture between CME Group and Dow Jones & Company, Inc., to form a new company, S&P Dow Jones Indices, LLC and how we are managing this company, we have separated our previously reported S&P Capital IQ / S&P Indices segment into two separate reportable segments.

2    Includes an increase for costs that were previously allocated to McGraw-Hill Education, such as costs for centralized departments, that could not be classified as discontinued operations due to the nature of the expense. Also includes Growth and Value Plan related costs necessary to enable separation and reduce our cost structure, which primarily includes professional fees and restructuring charges; and for 2012, unallocated expense includes $52 million related to a vacation accrual reversal in the fourth quarter.

 

Exhibit 5

The McGraw-Hill Companies
Operating Results by Segment - Reported vs. Performance
Periods ended December 31, 2012 and 2011

(dollars in millions)

(unaudited)


2012



2011



% Change




Reported


Non-GAAP Adjustments


Performance



Reported


Non-GAAP Adjustments


Performance



Reported


Performance























Three Months

S&P Ratings


$

246



$

8


a

$

254




$

147



$

9


b

$

156




67%


63%


S&P Capital IQ


48



5


a

53




54





54




(10)%


(1)%


S&P Dow Jones Indices


64



3


a

67




43





43




48%


56%


Commodities & Commercial


54



6


a

59




41



6


b

47




31%


27%


Segment operating profit


412



22



433




285



15



300




44%


45%


Unallocated expense  


(65)



3


a

(62)




(85)



27


b

(58)




(24)%


7%


Operating profit


347



25



371




200



42



242




74%


54%


Interest expense, net  


18





18




19





19




(3)%


(3)%


Income before taxes on income


329



25



353




181



42



223




82%


59%


Provision for taxes on income


118



9



126




68



15



83




74%


52%


Income from continuing operations


211



16



227




113



27



140




86%


62%


Income from discontinued operations


(404)



415


c

11




108



22


b

129




N/M


(91)%


Net income


(193)



431



238




221



49



270




N/M


(12)%


Less: NCI net income - continuing


(21)



(1)



(22)




(5)





(5)




N/M


N/M


Less: NCI net income - discontinued


(2)





(2)




(2)





(2)




55%


55%


Net income - continuing


$

190



$

15



$

205




$

108



$

27



$

135




76%


52%


Net income - discontinued


$

(406)



$

415



$

9




$

106



$

22



$

127




N/M


(92)%


Net income attributable to MHP


$

(216)



$

430



$

214




$

214



$

49



$

263




N/M


(19)%






















Diluted EPS - continuing


$

0.67



$

0.05



$

0.72




$

0.37



$

0.09



$

0.46




81%


56%


Diluted EPS - total


$

(0.76)



$

1.51



$

0.75




$

0.73



$

0.17



$

0.90




N/M


(16)%























Twelve Months

S&P Ratings


$

849



$

16


a

$

865




$

720



$

9


b

$

728




18%


19%


S&P Capital IQ


208



20


a

228




214





214




(3)%


6%


S&P Dow Jones Indices


212



22


a

234




189





189




12%


24%


Commodities & Commercial


248



12


a

260




180



6


b

186




38%


40%


Segment operating profit


1,517



70



1,587




1,303



15



1,317




16%


21%


Unallocated expense  


(306)



104


a

(202)




(226)



27


b

(198)




36%


2%


Operating profit


1,211



174



1,385




1,077



42



1,119




12%


24%


Interest expense, net  


81





81




77





77




4%


4%


Income before taxes on income


1,130



174



1,304




1,000



42



1,042




13%


25%


Provision for taxes on income


404



65



469




374



15



389




8%


21%


Income from continuing operations


726



109



835




626



27



653




16%


28%


Income from discontinued operations


(234)



435



201




308



21


b

329




N/M


(39)%


Net income


492



544



1,036




934



48



982




(47)%


5%


Less: NCI net income - continuing


(50)



(2)



(52)




(19)





(19)




N/M


N/M


Less: NCI net income - discontinued


(5)





(5)




(4)





(4)




6%


6%


Net income - continuing


$

676



$

107



$

783




$

607



$

27



$

634




11%


24%


Net income - discontinued


$

(239)



$

435


c

$

196




$

304



$

21



$

325




N/M


(40)%


Net income attributable to MHP


$

437



$

542



$

979




$

911



$

48



$

959




(52)%


2%






















Diluted EPS - continuing


$

2.37



$

0.38



$

2.75




$

2.00



$

0.09



$

2.09




19%


32%


Diluted EPS - total


$

1.53



$

1.91



$

3.44




$

3.00



$

0.16



$

3.16


d


(49)%


9%


N/M - not meaningful

Note - Totals presented may not sum across due to rounding.

a  Includes Growth and Value Plan related costs necessary to enable separation and reduce our cost structure, which primarily includes professional fees and restructuring charges. Unallocated expense also includes $52 million related to a vacation accrual reversal. S&P Dow Jones Indices also includes transaction costs associated with our S&P Dow Jones Indices LLC joint venture.

b  Includes restructuring charges and $10 million of Growth and Value Plan costs within unallocated expense.

c  Includes intangible asset impairments, restructuring charges, transaction costs for legal and professional fees related to the sale of McGraw-Hill Education, partially offset by a vacation reversal.

d Includes a $0.25 gain for the sale of the Broadcasting Group in December 2011; excluding this gain, diluted EPS was $2.91.

 

Exhibit 6


The McGraw-Hill Companies
McGraw Hill Financial
Periods ended December 31, 2012 and 2011

(dollars in millions)

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

(unaudited)


2012



2011



% Change












Three Months










Subscription / Non-transaction revenue


$

741




$

690




7%


Non-subscription / Transaction revenue


485




314




54%


Total McGraw Hill Financial


$

1,226




$

1,004




22%












Twelve Months










Subscription / Non-transaction revenue


$

2,855




$

2,672




7%


Non-subscription / Transaction revenue


1,595




1,282




24%


Total McGraw Hill Financial


$

4,450




$

3,954




13%












 Domestic vs. International Revenue

(unaudited)


2012



2011



% Change












Three Months










Domestic revenue


$

736




$

594




24%


International revenue


490




410




20%


Total McGraw Hill Financial


$

1,226




$

1,004




22%












Twelve Months










Domestic revenue


$

2,684




$

2,373




13%


International revenue


1,766




1,581




12%


Total McGraw Hill Financial


$

4,450




$

3,954




13%












 

Exhibit 7

The McGraw-Hill Companies
Standard & Poor's Ratings
Periods ended December 31, 2012 and 2011

(dollars in millions)

Transaction vs. Non-Transaction Revenue

(unaudited)


2012



2011



% Change












Three Months










Transaction revenue (a)


$

292




$

148




97%


Non-transaction revenue (b) (c)


292




286




2%


Total Standard & Poor's Ratings


$

584




$

434




34%












Twelve Months










Transaction revenue


$

903




$

651




39%


Non-transaction revenue


1,131




1,116




1%


Total Standard & Poor's Ratings


$

2,034




$

1,767




15%












(a)   Revenue related to ratings of publicly-issued debt, bank loan ratings and corporate credit estimates.

(b)   Revenue primarily related to annual fees for frequent issuer programs and surveillance.

(c)   Includes intersegment royalty revenue from S&P Capital IQ of $18 million and $69 million for the three and twelve months ended December 31, 2012, respectively and $17 million and $63 million for the three and twelve months ended December 31, 2011, respectively.

 

Domestic vs. International Revenue

(unaudited)


2012



2011



% Change












Three Months










Domestic revenue


$

318




$

218




46%


International revenue


266




216




23%


Total Standard & Poor's Ratings


$

584




$

434




34%












Twelve Months










Domestic revenue


$

1,102




$

910




21%


International revenue


932




857




9%


Total Standard & Poor's Ratings


$

2,034




$

1,767




15%












 

Exhibit 8

The McGraw-Hill Companies
S&P Capital IQ
Periods ended December 31, 2012 and 2011

(dollars in millions)

Subscription vs. Non-Subscription Revenue

(unaudited)


2012



2011



% Change












Three Months










Subscription revenue (a)


$

260




$

238




9%


Non-subscription revenue (b)


30




30




—%


Total S&P Capital IQ


$

290




$

268




8%












Twelve Months










Subscription revenue


$

1,014




$

922




10%


Non-subscription revenue


110




109




1%


Total S&P Capital IQ


$

1,124




$

1,031




9%












(a)   Revenue related to credit ratings-related information products, S&P Capital IQ platform, investment research products and other data subscriptions.

(b)   Revenue related to certain advisory, pricing and analytical services.

 

 Domestic vs. International Revenue

(unaudited)


2012



2011



% Change












Three Months










Domestic revenue


$

190




$

178




7%


International revenue


99




90




11%


Total S&P Capital IQ


$

290




$

268




8%












Twelve Months










Domestic revenue


$

749




$

693




8%


International revenue


375




338




11%


Total S&P Capital IQ


$

1,124




$

1,031




9%












 

Exhibit 9

The McGraw-Hill Companies
S&P Dow Jones Indices
Periods ended December 31, 2012 and 2011

(dollars in millions)

Subscription vs. Non-Subscription Revenue

(unaudited)


2012



2011



% Change












Three Months










Subscription revenue (a)


$

26




$

18




43%


Non-subscription revenue (b)


84




62




36%


Total S&P Dow Jones Indices


$

110




$

80




38%












Twelve Months










Subscription revenue


87




71




22%


Non-subscription revenue


301




252




19%


Total S&P Dow Jones Indices


$

388




$

323




20%












(a)   Revenue related to data subscriptions, which support index fund management, portfolio analytics and research.

(b)   Revenue related to fees based on assets underlying exchange-traded funds, as well as certain advisory, pricing and analytical services.

 

 Domestic vs. International Revenue

(unaudited)


2012



2011



% Change












Three Months










Domestic revenue


$

87




$

59




47%


International revenue