McGraw Hill Financial Reports 4th Quarter And Full-Year 2014 Results

NEW YORK, Feb. 12, 2015 /PRNewswire/ -- McGraw Hill Financial, Inc. (NYSE: MHFI) today reported fourth quarter and full-year 2014 results.  The Company reported fourth quarter 2014 revenue of $1.29 billion, an increase of 7% compared to the same period last year.  Largely reflecting the impact of recent legal settlements, fourth quarter net income and diluted earnings per share from continuing operations were losses of  $(1,009) million and $(3.71), respectively.  For the full year, revenue increased 7% to $5.05 billion and net income and diluted earnings per share from continuing operations were $(293) million and $(1.08), respectively. Every business delivered increased revenue in 2014.

Excluding the impact of charges related to legal and regulatory settlements and restructuring, adjusted net income from continuing operations for the quarter increased 22% to $264 million, and adjusted diluted earnings per share from continuing operations increased 23% to $0.95.  For the full year, adjusted net income from continuing operations increased 19% to $1,073 million and adjusted diluted earnings per share from continuing operations increased 20% to $3.88.

"2014 was an important year for the Company.  We completed the portfolio rationalization of media businesses, resolved significant legal and regulatory matters, added talented new leaders to our senior management team, and delivered solid business performance," said Doug Peterson, President and Chief Executive Officer of McGraw Hill Financial.  He continued, "There is much more to be accomplished.  We will continue to focus on creating growth and driving performance, including enhancing our customers' experiences, extending our international capabilities, tightly managing our expense base, and delivering strong financial performance, all while striving to operate with the highest levels of independence, objectivity, regulatory compliance, and operational discipline."

Margin Improvement: Adjusted operating profit margin for the Company increased 280 basis points to 35.9%, marking the third consecutive year of greater than 100 basis-point improvements.

Resolved Significant Legal and Regulatory Matters:  The Company and Standard & Poor's Ratings Services recently entered into a settlement agreement with the U.S. Department of Justice and the Attorneys General of 19 states and the District of Columbia announced on February 3, 2015.  The Company reached a separate settlement with the California Public Employees' Retirement System ("CalPERS") to resolve a lawsuit relating to three structured investment vehicles.  In addition, Standard & Poor's Ratings Services reached settlements with the U.S. Securities and Exchange Commission and the Attorneys General of New York and Massachusetts which were announced on January 21, 2015.  These settlements resulted in a charge of $1.5 billion in the fourth quarter.

Restructuring Actions: Restructuring actions across the Company resulted in fourth quarter pre-tax charges of $41 million. The Company remains committed to achieving productivity gains in its pursuit of creating growth and driving performance.

Outlook:  The Company is introducing 2015 revenue guidance of mid single-digit growth and adjusted diluted EPS guidance of $4.35 to $4.45.

Standard & Poor's Ratings Services:  2014 revenue increased 8% to $2.45 billion.  Operating profit decreased to $(583) million.  Adjusted operating profit increased 13% to $1,074 million compared to 2013.  For the third straight year, adjusted operating profit margin increased more than 100 basis points, rising 190 basis points to 43.8%.

Fourth quarter 2014 revenue increased 8% to $618 million and operating profit decreased to $(1,313) million due to legal and regulatory settlements and restructuring charges.  Adjusted operating profit increased 18% to $261 million.  The adjusted operating profit margin increased to 42.2% in the quarter.

Transaction revenue increased 12% to $288 million during the quarter primarily due to increased demand for corporate ratings, particularly U.S. investment-grade and public finance ratings. 

Non-transaction revenue increased 4% in the fourth quarter and represented 53% of Standard & Poor's Ratings' total revenue compared to 55% for the same period last year. Non-transaction growth was driven primarily by annual fees (predominantly frequent-issuer relationship fees and surveillance).  Rating Evaluation Service revenue also increased as a result of increased merger and acquisition activity. 

In the fourth quarter domestic revenue increased 15% and international revenue increased 1%.  International revenue represented 47% of Standard & Poor's Ratings' total fourth quarter revenue.

S&P Capital IQ: Full-year 2014 revenue increased 6% to $1.24 billion.  Excluding ongoing portfolio rationalization, organic revenue growth was 7%.  Operating profit increased 21% to $228 million.  Adjusted operating profit grew 18% to $237 million.

Revenue increased 5% to $318 million in the fourth quarter of 2014.  Excluding ongoing portfolio rationalization, organic revenue growth was 6%.  Quarterly operating profit increased 42% to $56 million.  Adjusted operating profit increased 31% to $62 million.

In the fourth quarter, three key products, S&P Capital IQ Desktop, RatingsXpress^®and Ratings Direct^® were the drivers of growth.  S&P Capital IQ's international revenue increased 5% to $112 million in the fourth quarter and represented 35% of the business unit's total revenue.

S&P Dow Jones Indices:  2014 revenue increased 12% to $552 million. Operating profit increased 30% to $347 million.  Adjusted operating profit attributable to the Company increased 35% to $259 million.

Revenue increased 8% to $140 million in the fourth quarter of 2014.  Quarterly operating profit increased 83% to $87 million.  Adjusted operating profit attributable to the Company increased 87% to $64 million.   As a reminder, adjusted operating profit in the fourth quarter of 2013 included a $26 million non-cash impairment charge associated with an intangible asset acquired through the formation of the S&P Dow Jones Indices LLC joint venture.

There were three primary drivers of revenue growth during the quarter.  First, exchange-traded derivative licensing fees increased as a result of a volatility-led resurgence in trading activity.  Second, assets under management (AUM) in exchange-traded funds based on S&P Dow Jones Indices increased 25% to $832 billion at the end of the fourth quarter compared with the end of 2013.  More than half of this increase was the result of unit creation, or inflows. Third, mutual fund AUM based upon S&P Dow Jones Indices increased 17%, surpassing $1 trillion for the first time.

Commodities & Commercial Markets:  For 2014, revenue increased 6% to $893 million.  Organic revenue, excluding the acquisition of Eclipse and the divestiture of Aviation Week in 2013, increased 9%. Operating profit improved 3% to $290 million.  Adjusted operating profit improved 10% to $306 million.

Revenue increased 8% to $236 million in the fourth quarter of 2014.  Organic revenue, excluding the acquisition of Eclipse, increased 7%.  Operating profit improved 9% to $72 million in the fourth quarter of 2014.  Adjusted operating profit improved 4% to $76 million in the fourth quarter, compared to the same period last year.

Platts delivered high single-digit organic revenue growth in both the fourth quarter and for the full year.  Petroleum grew high single digits in the quarter and the full year, while Metals & Agriculture delivered the greatest rate of revenue growth in the quarter at 42%, reflecting recent investments in this sector.

J.D. Power recorded low single-digit revenue growth in the quarter and high single-digit revenue growth for the full year.  Growth in the fourth quarter was largely due to the auto business.

Adjusted Unallocated Expense:  Adjusted unallocated expense includes corporate center functions and certain non-performance related items such as excess real estate.  Adjusted unallocated expense decreased 1% to $41 million in the fourth quarter.  Full-year 2014 adjusted unallocated expense increased 7% to $152 million primarily as a result of charges in the second quarter related to the sale of a data center and the corporate aircraft.

Adjustments to Continuing Operations:  During the fourth quarter, there were $1.593 billion of charges primarily related to legal and regulatory settlements:

• $687.5 million to resolve legal matters with the U.S. Department of Justice;
• $687.5 million to resolve legal matters with the Attorneys General of 19 states and the District of Columbia;
• $125 million to resolve the CalPERS lawsuit;
• $17 million in additional charges associated with the settlements with the U.S. Securities and Exchange Commission and the Attorneys General of New York and Massachusetts;
• $35 million associated with settlements of other private litigation stemming from the financial crisis; and
• $41 million of restructuring charges associated with productivity improvements, approximately half of which was in Standard & Poor's Ratings Services.

Provision for Income Taxes: The Company's effective tax rate from continuing operations in 2014 was 453.7% due to the portion of legal settlements that are not tax deductible.  The adjusted effective tax rate from continuing operations in 2014 was 33.1% representing a reduction of 80 basis points versus 2013.

Dividend: The Board of Directors of McGraw Hill Financial approved the regular quarterly cash dividend on the Company's common stock.  The quarterly dividend will increase from $0.30 to $0.33 per share. The dividend will be payable on March 11, 2015, to shareholders of record on February 25, 2015.  The new annualized dividend rate is $1.32 per share.

The Company has paid a dividend each year since 1937 and is one of fewer than 25 companies in the S&P 500 that has increased its dividend annually for at least the last 42 years.

Return of Capital:  Return of capital to shareholders in 2014, in the form of share repurchases and dividends, was $688 million. During the fourth quarter, the Company did not repurchase any shares of common stock. The Company has approximately 45.6 million shares remaining under the existing share repurchase authorization from the Board of Directors.  In 2015, the Company anticipates continuing its share repurchase program, subject to domestic cash availability and market conditions.

Balance Sheet and Cash Flow:  Cash and short-term investments at the end of the fourth quarter were $2.5 billion, up from $1.6 billion at the end of 2013.  The majority of the legal and regulatory settlements listed above will be paid in the first quarter of 2015.  For full year 2014, free cash flow from continuing operations was $1.0 billion, an increase of $443 million from 2013.

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 and margin, adjusted expense, 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 and 8.

Conference Call/Webcast Details: The Company's senior management will review fourth quarter and full-year 2014 results on a conference call scheduled for this morning, February 12, 2015, at 8:30 a.m. ET. This call is open to all interested parties.  Additional information presented on the conference call may be made available on the Company's Investor Relations Website at http://investor.mhfi.com.

The Webcast will be available live and in replay at http://investor.mhfi.com/phoenix.zhtml?c=96562&p=irol-EventDetails&EventId=5184265. (Please copy and paste URL into Web browser.)

Telephone access is available. Domestic participants may call (888) 391-6568; international participants may call +1 (415) 228-4733 (long distance charges will apply). The passcode is "MHFI" and the conference leader is Douglas Peterson. A recorded telephone replay will be available approximately two hours after the conference call concludes and will remain available until March 12, 2015. To access the replay domestic participants may call (800) 839-1156; international participants may call +1 (402) 998-0972 (long distance charges will apply). No passcode is required.

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

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

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

The factors above are not exhaustive.  The Company and its subsidiaries operate in a dynamic business environment in which new risks may emerge frequently. Accordingly, we caution readers not to place undue reliance on the above forward-looking statements, which speak only as of the dates on which they are made. The Company undertakes no obligation to update or revise any forward-looking statement to reflect events or circumstances arising after the date on which it is made. Further information about our businesses, including information about factors that could materially affect our results of operations and financial condition, is contained in the Company's filings with the SEC, including Item 1a, Risk Factors, in our most recently filed Annual Report on Form 10-K.

About McGraw Hill Financial: McGraw Hill Financial is a leading financial intelligence company providing the global capital and commodity markets with independent benchmarks, credit ratings, portfolio and enterprise risk solutions, and analytics. The Company's iconic brands include Standard & Poor's Ratings Services, S&P Capital IQ, S&P Dow Jones Indices, Platts, CRISIL, and J.D. Power. The Company has approximately 17,000 employees in 30 countries. Additional information is available at www.mhfi.com.

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

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Contact:
Investor Relations:
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(212) 512-4321 (office)
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SOURCE McGraw Hill Financial, Inc.

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