10-QPeriod: Q2 FY2006

S&P Global Inc. Quarterly Report for Q2 Ended Jun 30, 2006

Filed July 28, 2006For Securities:SPGI

Summary

The McGraw-Hill Companies, Inc. (now S&P Global Inc.) reported solid financial results for the quarter and six months ended June 30, 2006. Total revenue increased year-over-year, driven by strong performance in the Financial Services segment, which benefited from robust activity in structured finance and corporate ratings. Net income and diluted earnings per share also saw increases, demonstrating the company's ability to grow profitability. The company's strategic acquisitions in 2005, such as CRISIL Limited and J.D. Power and Associates, are beginning to contribute to revenue growth, although some integration costs are noted. Management remains optimistic about future prospects, supported by continued strength in key business segments and ongoing share repurchase programs.

Key Highlights

  • 1Total revenue for the second quarter of 2006 increased by 4.9% to $1.53 billion, driven by a 13.4% increase in the Financial Services segment.
  • 2Net income for the second quarter rose by 13.3% to $221 million, with diluted earnings per share increasing to $0.60 from $0.51 in the prior year.
  • 3The Financial Services segment showed significant operating profit growth of 21.5% to $313.9 million, with an operating margin of 46.3%, reflecting strong demand for ratings and data services.
  • 4McGraw-Hill Education segment revenue saw a slight decrease of 2.7% to $611.7 million, impacted by a challenging state adoption market for K-12 materials.
  • 5Information & Media segment revenue grew 3.6% to $238.6 million, but operating profit declined slightly due to increased investments in J.D. Power and Associates.
  • 6The company repurchased approximately $1.4 billion of treasury shares in the first six months of 2006, demonstrating a commitment to returning capital to shareholders.
  • 7The company is facing ongoing legal proceedings related to Standard & Poor's ratings of Parmalat, though management believes these claims lack merit and will not materially affect financial condition.

Frequently Asked Questions

The primary driver of revenue growth was the Financial Services segment, which experienced a 13.4% increase due to strong performance in structured finance, corporate, and government ratings, as well as contributions from data and information businesses and acquisitions like CRISIL Limited.

Stock-based compensation expenses increased significantly. For the second quarter, it rose to $23.0 million from $8.1 million in the prior year. For the six months, it increased to $77.0 million from $13.8 million. This increase is attributed to the adoption of SFAS No. 123(R) and a reshuffling of the incentive compensation program towards restricted performance stock.

Standard & Poor's is facing a lawsuit in Italy from Enrico Bondi, the Extraordinary Commissioner of Parmalat, alleging negligence in issuing ratings. While the company believes the claims lack merit and intends to contest them vigorously, the potential financial impact is a factor to monitor. Additionally, a prosecutor's office in Italy is investigating rating analysts for alleged involvement in Parmalat's bankruptcy.

The company is actively repurchasing shares as part of its capital allocation strategy. In the first six months of 2006, it repurchased approximately $1.4 billion of treasury shares. These repurchases are used for general corporate purposes, including offsetting the dilutive effect of stock options and supporting employee ownership.