10-QPeriod: Q2 FY2008

S&P Global Inc. Quarterly Report for Q2 Ended Jun 30, 2008

Filed July 30, 2008For Securities:SPGI

Summary

S&P Global Inc. (SPGI) reported its second-quarter and first-half 2008 results, reflecting a mixed performance across its diverse business segments. While revenue saw a slight decline of 2.6% year-over-year for the quarter, driven primarily by a significant downturn in the Financial Services segment due to weakening credit markets, other segments showed resilience. The McGraw-Hill Education segment experienced revenue growth, and Information & Media also posted increases, highlighting the company's diversified revenue streams. Despite the revenue pressures, the company managed expenses, particularly through reduced incentive compensation, which helped mitigate the impact on operating profit. However, a significant restructuring charge of $23.7 million in the second quarter impacted net income and diluted earnings per share. Investors should note the ongoing challenges in the Financial Services segment, especially within Credit Market Services, due to the prevailing credit market turmoil. The company also faces increased regulatory scrutiny and ongoing litigation related to its credit rating activities.

Financial Highlights

52 data points
Beta

Revenue

$1.67B

61.3% Gross Margin

Net Income

$212.29M

12.7% Net Margin

EPS (Diluted)

$0.66

Total Assets

$6.60B

Cash & Equivalents

$355.30M

Free Cash Flow

-$11.34M

Financial Statements
Beta
Revenue$1.67B
Cost of Revenue$647.15M
Gross Profit$1.03B
SG&A Expenses$617.84M
Operating Expenses$1.31B
Operating Income$364.68M
Interest Expense$20.35M
Net Income$212.29M
EPS (Basic)$0.67
EPS (Diluted)$0.66
Shares Outstanding (Basic)317.75M
Shares Outstanding (Diluted)321.09M

Key Highlights

  • 1Total revenue for the second quarter of 2008 decreased by 2.6% to $1.67 billion compared to the prior year, primarily impacted by a 10.4% decline in the Financial Services segment.
  • 2Operating profit for the second quarter decreased by 20.7% to $393.6 million, with the Financial Services segment experiencing a 25.4% drop.
  • 3McGraw-Hill Education segment revenue increased by 3.6% in Q2, driven by growth in the School Education Group.
  • 4Information & Media segment revenue increased by 6.8% in Q2, primarily due to the Business-to-Business Group.
  • 5The company incurred a pre-tax restructuring charge of $23.7 million in the second quarter of 2008, impacting net income.
  • 6Diluted earnings per share decreased to $0.66 in Q2 2008 from $0.79 in Q2 2007.
  • 7The company is facing increased regulatory scrutiny and ongoing legal proceedings related to its credit rating activities, particularly concerning structured finance products.

Frequently Asked Questions

The primary driver of the revenue decline in the second quarter was the significant decrease in the Financial Services segment, particularly within Credit Market Services, which was negatively impacted by the ongoing credit market turmoil and a substantial drop in structured finance issuance volumes.

The company incurred a pre-tax restructuring charge of $23.7 million in the second quarter of 2008, primarily related to workforce reductions in the Financial Services and McGraw-Hill Education segments. This charge reduced net income and diluted earnings per share for the quarter.

The outlook for Credit Market Services remains challenging due to the current credit market conditions. The company noted that significant decreases in issuance volumes across various asset classes in both the U.S. and Europe contributed to the revenue decline, and these conditions could persist through 2008. The performance is dependent on broader economic conditions, interest rates, credit quality, and market liquidity.

Yes, S&P, a key part of S&P Global, is involved in several legal proceedings and regulatory reviews related to its credit rating activities, particularly concerning subprime mortgage-backed securities and structured finance transactions. These include investigations by state attorneys general and reviews by the SEC. While the company believes these litigations are without merit and intends to defend them vigorously, they represent a significant area of focus and potential risk.