標普全球 (SPGI) 2013 Q2 法說會逐字稿

Good morning and welcome to McGraw-Hill Financial's conference call. I'd like to inform you this call is being recorded for broadcast. All participants are on a listen-only mode. We will open conference to question and answers after the presentation and instructions will follow at that time. To access the webcast and slides, go to www.mhfi.com -- that's MHFI for McGraw Hill Financial Inc, dot com -- and click on the link for the second-quarter earnings webcast. If you are listening by telephone, please note that there is an option available to synchronize the presenters slides to your telephone instead of the computer. After you log into the guest book, you will see two windows side-by-side in the webcast viewer. Along the bottom of the left-hand window, click the gear icon and select live phone from the list. A line will appear over the sound icon indicating that sound has been disabled through your computer speakers.

(Operator Instructions)

I would now like to introduce Mr. Chip Merritt, Vice President of Investor Relations for McGraw Hill Financial. Sir, you may begin.

Good morning. Thank you for joining us this morning for McGraw Hill Financial's second-quarter 2013 earnings call. Presenting on this morning's call are Harold McGraw III, Chairman, President and CEO; Doug Peterson, President of Standard & Poor's Rating Services; and Jack Callahan, Chief Financial Officer. Also joining us is Ken Vittor, our General Counsel. This morning we issued a news release with our results. I trust you have all had a chance to review the release. If you need copy of the release and financial schedules, they can be downloaded at www.mhfi.com. In today's earnings release and during the conference call, we are providing adjusted financial information. This information is provided to enable investors to make meaningful comparisons of the Corporation's operating performance between periods and to view the Corporation's business from the same perspective as Management's. The earnings release contains exhibits that reconcile the difference between the non-GAAP measures and the comparable financial measures, calculated in accordance with US GAAP. The results also reflect the reclassification of McGraw-Hill Education as discontinued operation.

Before we begin, I need to provide certain cautionary remarks about forward-looking statements. Except for historical information, the matters discussed in the teleconference may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including projections, estimates, and descriptions of future events. Any such statements are based on current expectations and current economic conditions and are subject to risks and uncertainties that may cause actual results to differ materially from results anticipated in these forward-looking statements. In this regard, we direct listeners to the cautionary statements contained in our Form 10-Ks, 10-Qs and other periodic reports filed with US Securities and Exchange Commission. I would also like call your attention to a new European regulation -- any investor who has or expects to obtain ownership of 5% or more of McGraw Hill Financial should give me a call to better understand the impact of this legislation on the investor and potentially the Company. We are aware that we do have some media representatives with us on the call; however, this call is intended for investors and would ask that questions from the media be directed to Jason Feuchtwanger at our New York office at 212-512-3151, subsequent to this call. Now I would like turn the call over to Harold McGraw III. Terry?

Okay. Thank you, Chip and, Chip, you do such great job representing all our shareholders. I thank you for that. Good morning, everyone, and thanks for being with us and welcome to today's conference call. I'd like to begin this call by summarizing the highlights that we will cover today. Our second-quarter results contributed to the strong momentum that we have delivered since reporting McGraw Hill Financial results separately. In fact, so far this year, our revenue has increased 15% and adjusted diluted EPS has increased 30%. We will provide a legal update. I know this is a topic that many are watching closely. We also have our next President and CEO, Doug Peterson, on today's call to make some comments about his new role and discuss the results of Standard & Poor's Ratings Services, the business he is currently running and to give you a chance to ask him any questions during the Q&A. We will also discuss our plans to take a larger stake in CRISIL. This is India's largest rating agency. We will also discuss very briefly our recent announcement to sell the Aviation Week Group. And lastly, as part of Jack Callahan's financial discussion, we will share our newly increased 2013 EPS guidance. All right, so let's turn to the financial performance during the second quarter.

Our initial full-year 2013 guidance called for high single-digit revenue growth and approximately 15% diluted adjusted EPS growth. However, during the second quarter, we delivered 17% revenue growth and 31% diluted adjusted EPS growth, reaching $0.92 per share. Our three strongest benchmark businesses led the growth again this quarter -- Standard & Poor's Ratings Services, Standard & Poor's Ratings Services, Platts, and S&P Dow Jones Indices. Cost control and accelerated share repurchase program also contributed to the EPS increase. While we are clearly off to a very solid start, keep in mind that comparisons will become a little bit more difficult because of each quarter of 2012, we delivered sequential increases in revenue and diluted adjusted earnings per share. In addition, Doug will discuss recent trends in issuance of which we need to be mindful of. We shared this chart with you last quarter, but felt that it was important to share it again as the makeup of the Company has changed so dramatically. These two pie charts should help put into perspective the revenue and operating earnings contribution of each of our business segments. Not surprisingly, Standard & Poor's Ratings Services is our largest segment, with each of the remaining three contributing, a comparable level of operating profit.

This morning, I also want to focus on some of the things that are of interest to everyone. Since our legal issues are attracting some attention of late, I thought we would bring them to the forefront of today's discussion. Let me go through some of this with you. With regard to the Department of Justice case, oral argument was held on July 8 in the Federal Court in California. On July 16, the court denied our motion to dismiss. The decision included the following statement -- quote, the court finds that the government has efficiently pleaded the intent required to support its fraud claims; any disputes over the veracity of these claims or contested facts are properly challenged at a later stage of litigation, unquote. It also stated, quote, S&P might disagree with the government's version of these facts, but the opportunity to challenge such factual allegation comes later in the litigation process, end quote. While I'm sure that all of you would like us to discuss our view in great detail and provide additional support for our position, the court has made it abundantly clear that it does not want either party trying this case in the media. Since we will adhere to that request we will not provide any additional commentary regarding the complaint except to repeat what we've said all along, that it has no merit and we look forward to demonstrating that in the court.

With regard to the state actions, in June, the Judicial Panel on Multidistrict Litigation, that's JPML, Judicial Panel on Multidistrict Litigation, transferred most of the State AG actions to a single federal judge in Manhattan. The JPML found, quote, that these actions involve common questions of fact and that centralization of all of these actions in the Southern District of New York will serve the convenience of the parties and witnesses and promote the just and efficient conduct of this litigation, end quote. The New York Federal Court must now decide whether the State AG actions were properly removed to Federal Court. Oral argument on this issue is scheduled to be held on October 4. Please note that these transferred federal actions involve most of the State Attorney General cases; however California, Illinois, and Connecticut have not been consolidated with the other State AG cases and will remain as separate actions in state courts.

In other litigations, we continue to build upon our positive track record during the quarter. 33 cases have now been dismissed outright, including the June dismissal of the Tolin case by a Federal District Court in New York City. In the Tolin case, the court stated, quote, the complaint fails by a wide margin to allege adequately that S&P did not believe the ratings when it made them. The complaint fails entirely to allege, let alone with particularity, what S&P's state-of-mind was at the time it issued the particular ratings at issue in this case, unquote. Now 11 dismissals by lower courts have been affirmed by higher courts and 10 cases have been voluntarily withdrawn. That leaves us with a few dozen non-government cases that remain outstanding. Some new cases have been filed very recently and apparently in an effort to avert the statute of limitation expirations, which is a possible defense for us after so many years passing since the issuance of the ratings at issue. Several of these new cases include other rating agencies as co-defendants, as well.

And in our legal and regulatory topic, the United States Supreme Court has denied the International Securities Exchange, the ISE's petition, seeking review of the Illinois Appellate Court's ruling that prohibits ISE from listing or providing an exchange market for the trading of the S&P 500 and Dow Jones Industrial Average options, and the OCC from issuing, clearing, or settling the exercise of such ISE options without permission. This ruling just reinforces the intellectual property rights of the S&P Dow Jones Indices, as well as other index providers. This ruling supports the same legal issue that our General Counsel, Ken Vittor, who is with us this morning, first successfully defended on our behalf back in 1982. Okay, with that, let's turn to the individual businesses and I will start with the S&P Dow Jones Indices.

In a second quarter, organic revenue increased 6% to $94 million and the addition of the Dow Jones Index revenue brought total revenue to $123 million. The principal driver of the organic revenue growth was a 34% increase in quarter-ending assets under management in exchange-traded funds, linked to S&P Indices, which reached more than $469 billion. Including the assets under management linked to Dow Jones Indexes, assets under management reached $546 billion at the end of the quarter. It is important to note that the revenue impact is not as pronounced as the growth in assets under management as the basis points charged are not always linear with asset growth. Trading volume of exchange-traded derivatives increased 11%. With equity prices at or near record levels, market participants increased hedging activities, thereby driving higher daily contract volume for the S&P 500 Index options and the CBOE Volatility Index, commonly known as the VIX, at the Chicago Board Options Exchange. This is the last quarter that we will be breaking out the revenue associated with the Dow Jones Indexes, as a joint venture was in placed for all of the third quarter of 2012. While the joint venture realized $80 million of adjusted operating profit, $60 million is retained by us, as 27% of the profit is forwarded to our partner, the CME.

It is critical that we continue to invest in our benchmark businesses to keep the brand prominent and well understood. To that end, the Company launched a new advertising campaign in The Wall Street Journal, Financial Times, and another print and digital media. And while we are investing in the brand, we are also investing in the product. During the second quarter, we launched 33 new indices, many of them deviate from our core strength in US equities. Some notable examples of these new indices include Non-Sharia Compliant Indices, the S&P GSCI Roll Weight Select, the Dow Jones Real Estate Risk Control, Intermediate Duration Muni Yield, Korea and Nordic Low Volatility, and the S&P/ISDA US 150 Credit Spread. These new indices and others will help us continue to diversify and grow this important business.

With that, let me now move on to S&P Capital IQ. In the second quarter, this business delivered top-line growth of 3%. Two key offerings, Capital IQ Desktop and RatingsXpress, led the revenue growth. These results were offset somewhat by declines in revenue from proprietary research. In a market characterized by customer employee cutback, S&P Capital IQ delivered 16% user growth, excluding government and university users, to more than 54,000. When large enterprise accounts and broad-tiered pricing are excluded, user growth increased mid-single-digit. Adjusted operating profit decreased 7% and there was a decline in the operating margin as increased investment in content and technology continue to reduce some profitability. These investments are leading to innovative, real-time solutions beyond the QuantHouse exchange data feed business that has already been launched.

S&P Capital IQ's new Portfolio Risk solution product that I'm going to discuss in a little bit more detail in just a moment, was created from the acquisition of R-Squared coupled with considerable investment and innovation over the past year. But before I turn to that, I thought I would take a moment to add some clarity to the S&P Capital IQ business line. This chart depicts the four primary categories of the business and the capabilities that each offers. As you can see, Capital IQ is one of numerous capabilities offered within this business line. Lou Eccleston, who runs S&P Capital IQ, and his team have been working to upgrade this portfolio. The more promising pieces are receiving appropriate investment while the pieces that don't fit are being divested or shut down. For example, we have recently moved ABSXchange, European MarketScope, and FMR Australia out of the portfolio and we expect that as progress is made, this will become a higher margin, faster growing business segment.

In June, S&P Capital IQ launched its new Portfolio Risk solution available through the Capital IQ Desktop. The product brings together leading risk and portfolio analytics acquired to last year's purchase of R-Squared financial technologies and Capital IQ's extensive market and reference data. This product is the only real-time, multi-asset portfolio risk system that enables internal and external collaboration, click-through transparency, and seamless access to the broad range of reference data and functionality offered within the Capital IQ Desktop. This powerful tool provides traders and portfolio and risk managers with the ability to make decisions about pricing, hedging, and capital management of multi-asset portfolios including equities, fixed income, and derivatives all in real time. Okay, with that, now let me turn to the Commodities and Commercial Markets segment.

Revenue here grew 8% in the second quarter and operating profit increased 16% resulting in a record operating margin of 31.8%. Platts delivered double-digit revenue growth, well J.D. Power and Aviation Week delivered single-digit growth. In commodities, Platts recorded a 14% increase in revenue. Growth in petroleum product subscriptions continue to be the primary driver of this double-digit growth. In addition, licensing revenue from petroleum derivative trading increased more than 50%. Petroleum, petrochemical, metals, agricultural product subscriptions all delivered double-digit revenue growth, while power and gas revenue were flat. Two new price assessments for China and Greater Asia were launched during the quarter. They are designed to complement each other by providing a quick and straightforward way for traders and other interested parties to compare the prices of domestic and imported thermal coal in the Chinese market and immediately determine whether there is a price arbitrage advantage favoring one type or the other.

Over the past few years, the natural gas, oil, and liquids markets have been transformed and revitalized by extraction innovation such as horizontal drilling and hydraulic fracturing. Deposits of gas and oil that were once cost prohibitive or difficult to assess have now become cost-effective and are having a profound effect on energy markets around the globe. The United States and Canada are at the center of this revolution and the Platts North American Shale Plays Map presents a holistic view of an industry that profoundly altered our energy landscape. I cite this map because it provides a quick visual example of the breadth of data that Platts provides beyond pricing. That capability is increasingly important with the growing Marcellus Shale production of natural gas. Commercial Markets' revenue increased 2% in the second quarter with J.D. Power and Aviation Week both delivering single-digit revenue growth. Within J.D. Power, the Asian business drove a double-digit revenue increase in automotive, which was partially offset by reduced licensing from past award recipients.

McGraw-Hill Construction revenue continues to be pressured by the weak US Commercial construction market with growth of new products unable to overcome declines in base business and Aviation Week revenue increased primarily due to the MRO Americas Show and the biennial Paris Air Show, which took place in the second quarter of 2013. As an example of the importance of the J.D. Power brand, GM is running numerous advertisements depicting the eight recent J.D. Power Initial Quality Study awards that it received as part of their advertising. Last week they wrapped a banner around their entire World Headquarter with a picture of the eight awards. We are very proud of that and very proud of them. And here, J.D. Power received its own award. It is celebrating its 45th year anniversary. In 1968, a wonderful individual, J.D. Power III, Dave, established J.D. Power from his kitchen table, with a primary focus on the automotive industry. Since that time, the Company has successfully influenced the everyday lives of consumers and industries worldwide and is expanding to include offices throughout North America, Europe, and Asia Pacific, and all of us here are so very, very proud of all of these accomplishments so congratulations goes out to all of our J.D. Power employees. Well done everyone.

And finally, as I mentioned previously I'd like to again introduce McGraw Hill Financial's next President and CEO. After serving as President for 20 years -- I can't believe it -- after 20 years and CEO for 15 years, it is great to have a successor of the caliber of Doug Peterson. Doug is not only a talented leader with profound industry knowledge, regulatory experience, and most importantly, unquestionable integrity. The transition is well underway. Doug and I are working through many issues and Doug will officially begin his new position in November. And of course, after this transition, I will continue as Chairman of the Board. So let me at this point turn it over to Doug to make some remarks and then after that we can go in any direction anybody would like. Doug?

Thank you, Terry. I'm honored to be asked to lead this great Company. Terry's passion, optimism, and exceptional management of the Company have positioned us to succeed going forward. Over the last 20 years, Terry has led this Company with great success, [it seems a] consistent record of delivering shareholder value. Terry and the Board had the vision to create McGraw Hill Financial with a focus on benchmarks, ratings, and analytics, and now I look forward to leading this new, fast-growing financial intelligence Company. Before I talk about this change in leadership, let me first review Standard & Poor's Ratings Services' results for the quarter and then take a few [moments] to share some thoughts about McGraw Hill Financial and my new role. After a strong first quarter, the Business delivered an even stronger second quarter. Revenue for the segment grew 24%, setting a new, all-time record for any quarter of $599 million, surpassing the previous mark set in the second quarter of 2007. Segment operating profit increased 34% and the corresponding operating margin increased 330 basis point to more than 46%. The incremental revenue growth was a primary driver of the margin expansion.

We note that the issuance declined notably after Federal Reserve statements regarding consideration of changes to current stimulus policies were made in June. While the Company expects global issuance to remain generally robust, interruptions in issuance could occur as markets contemplate possible interest-rate increases. On our third quarter call last November, we shared a slide with you that showed high levels of Corporate maturities that were coming due over the next several years and should support continued strong issuance and we continue to publish research showing that information. On our fourth-quarter call in February, we shared a slide with you that showed the European disintermediation opportunity. Today I would like to share an interesting slide that depicts the correlation or actually lack thereof of interest rate changes to global issuance. This slide shows 10 years of global issuance with Corporate issuance in blue, structured finance in green. The dashed line is the average Corporate issuance over this time period. The solid line depicts the average 10-year Treasury yield for each year.

As interest rates rise, issuance actually increased. Then as interest rates declined, Corporate issuance showed little change. This data and other research that we perform shows that issuance in the last decade has not been correlated to changes in interest rates and that issuance was more robust when interest rates were considerably higher than they are today. Frankly there are many other forces that impact issuance including spread, liquidity, consumer sentiment, government policy, and expected growth rates to name just a few. We believe that if interest rates rise due to improvements in GDP growth and lower unemployment, it could be positive for issuance; however, that doesn't mean issuance will not be choppy as markets adjust new rates. Therefore, due to upcoming Corporate maturities, the European bank deleveraging opportunity, and emerging market expansion, we remain optimistic about issuance levels over the [next few] years.

Turning back to the quarter, non-transaction revenue grew 12% driven by increased entity credit rating and ratings evaluation services. Excluding the acquisition of Coalition, non-transaction revenue grew 9.9%. Growth in these products is an encouraging sign that new issuers could be coming to market. Transaction revenue increased 41% as a result of improved investment grade and high-yield issuance, increased Bank Loan Ratings, and growth in US CMBS and CDOs. Globally, growth was balanced; in fact, the revenue in each major region of the world that we tracked increased over 20%. This chart shows second-quarter year-over-year increases in both the United States and Europe of 10% and 25% respectively in issuance. Total Corporate issuance reflects an 85% increase in high-yield and a 24% increase in investment-grade. US structured issuance increased, driven by a resurgence in CMBS and CDOs -- in the CDO world, primarily CLOs -- which grew 70% and 48% respectively. This chart also makes clear the fact that in both United States and Europe, second-quarter issuance declined; yet despite this decline, our revenue actually increased sequentially. This was due to growth in Bank Loan Ratings, which are not included in issuance in this chart; Entity Credit Ratings; Ratings Evaluation Services; and CRISIL.

Some of you will have noticed that Standard & Poor's Ratings Services launched our first major advertising campaign in our history, targeting US markets. As part of the broader McGraw Hill Financial launch, our efforts are aimed at supporting our brand in educating stakeholders throughout outreach, thought leadership, and strategic media placement including print, online, and radio. It is important that we proactively educate all our constituencies about our role and importance in the capital markets. Capital allows people to start and grow businesses, cities and states to build highways and hospitals, and manufacturers to build factories, all of which lead to job creation. Now I will make a few comments about McGraw Hill Financial and my upcoming role as President and CEO.

McGraw Hill Financial promotes sustainable and orderly growth in the capital and commodity markets as the foremost provider of ratings, benchmarks, and analytics to financial professionals and investors worldwide. The Company has built an incredible set of businesses with iconic brands and leading market positions. With such a great collection of assets, our solid balance sheet and our strong cash flow, I don't expect to need to make any major changes to our current strategy or portfolio. However, there can be no complacency for any business in this fast-changing world. We will need to continue to upgrade the portfolio as necessary and, most importantly, ensure that we invest cash wisely. First and foremost, before embarking on any changes we will continue with the smooth and seamless transition. We need to put in place a new head of the Standard & Poor's Ratings Services business. We have some excellent internal candidates and are looking outside the Company, as well.

In the meantime, I will be meeting with investors, clients, public officials, and employees in the coming months to discuss how McGraw Hill Financial can even better serve the financial markets. Some particular areas of focus will be on strategy and innovation, both at the business and enterprise level. We will look at Corporate governance, our regulatory environment and very, very importantly, capital allocation. As we prepare for 2014, there are several key priorities to address. I need to make sure that we have a well-understood Corporate vision and that our individual business strategies are aligned. There are important opportunities both on the revenue and the cost side for the businesses to work more closely together and I would like to ensure we understand and deliver these benefits. We are all committed to the core values of McGraw Hill Financial -- fairness, integrity, and transparency. Most importantly, I understand that we are the stewards of shareholders' assets and must maximize the return on their investment. To the people on this call, your investment. With that, let me now hand the call over to Jack Callahan, our Chief Financial Officer, for additional details on the financials. Thank you.

Thank you, Doug. And good morning to everyone joining us on the call. This morning, I want to briefly discuss several lines in our performance and the outlook for 2013. First, I want to recap key financial metrics in the quarter and review the modest one-time costs that were incurred. Second, I will provide some additional detail related to that balance sheet and year-to-date cash flow. And finally, I will discuss share repurchase activity, our intent to increase our ownership of CRISIL, and the recent divestiture of Aviation Week. As Terry just discussed, while our first quarter was strong, our second quarter was even better. Revenue grew 17% to $1.25 billion with organic revenue growing 13%. Adjusted operating profit grew 29%, driven primarily by the strong results in Standard & Poor's Rating Services and Commodities and Commercial markets. Adjusted unallocated expense increased 4%. Overall, the margin expansion was significant year-on-year, as consolidated adjusted operating profit margins increased over 300 basis points to 35.7%.

The tax rate declined 250 basis points to 35% while non-controlling interest grew $20 million, both primarily due to the impact of the S&P Dow Jones Indices joint venture. The tax rate also benefited from certain ongoing tax planning activities. Adjusted net income from continuing operations increased 28% and the impact of our accelerated share repurchases can be seen in the adjusted diluted earnings per share growth of 31%. Our Growth and Value Plan costs continue to wind down. During the second quarter, we reported $10 million of cost related to professional fees and outsourcing. We continue to maintain an exceptionally strong balance sheet. At the end of the quarter, we had $1.9 billion of cash and approximately $800 million of long-term debt. We intend to maintain a strong balance sheet going forward, balancing investments targeted at building the Business and, as appropriate, returning cash to shareholders.

Our free cash flow during the first six months was $145 million. This was negatively impacted year-on-year by two large items. First, because of Hurricane Sandy, the IRS allowed fourth-quarter estimated tax payments that are normally made in December to be paid in February. This payment was $130 million and was paid in the first quarter. The second item was the $77 million payment associated with the legal settlement that was included in our first-quarter results. Including the impact of these items, our operating cash flow guidance remains $650 million to $700 million. I am pleased to announce that the $500 million accelerated share repurchase transaction was completed earlier this week. As we noted in our first-quarter conference call, we received 8.6 million shares at the end of March. This week we received an additional 700,000 shares to close out the transaction. In total, we repurchased 9.3 million shares at a volume weighted average price of $53.80 per share. And right now, approximately 7.6 million shares remain under our existing share repurchase authorization and we plan to continue to repurchase shares in the open market as appropriate.

During the quarter, we also announced plans to purchase an additional 22% of the outstanding shares of CRISIL. CRISIL is the leading rating agency in India and we currently own approximately 53% of the Company. Earlier this week on July 24, the Company initiated the voluntary tender offer for up to 15.7 million shares. The tender will close on August 6. If the tender is fully subscribed, this would represent an additional investment of approximately $320 million at current exchange rates. And lastly just yesterday, we announced the sale of Aviation Week to Penton further increasing our focus on high-growth, high-margin benchmark businesses. The sale of Aviation Week will reduce the Company's annualized revenue by almost $50 million per year. The bottom-line impact will be minimal. Summing up, we have delivered an excellent first half with 15% revenue growth and 31% adjusted diluted earnings per share growth. We are a bit cautious about the balance-of-year growth due to issuance volatility and challenging second half year-on-year comparisons, especially in the fourth quarter. That being said, we are maintaining our free cash flow guidance of $650 million to $750 million(sic-see presentation slides "$700 million") and we are raising our 2013 adjusted diluted earnings per share guidance by $0.05 to $3.15 to $3.25 per share. The first year of McGraw Hill Financial continues to look very promising. With that, let me now turn the call back over to Terry.

Okay. Thanks, Jack, and again we have indeed delivered excellent first-half results. We are deploying cash into global ratings opportunities as well as share repurchases and we are continuing to refine our portfolio of high-growth, high-margin businesses. With that, let me end it there, and let's go to Q&A. We can go in any direction you'd like and to give some instructions on how to ask your questions, let me turn it over to Chip to provide that. Chip?

All right, just a couple of instructions for our phone participants.

(Caller Instructions)

And now, operator, we will take the first question.

William Bird, Lazard.

First, Terry and Doug, congratulations to each of you. Question on the outlook. What does guidance assume for stock buybacks and the macro context particularly as it relates to S&P Ratings?

Okay, thanks, Bill. Let me come over to Jack on share repurchases. We obviously completed what we said we were going to do in terms of the $500 million in the first half. And as Jack was saying, we fully intend to complete the year -- continuing share repurchases and we still have an authorization level out there and we will go back to the Board for more as seen fit. And just in terms of the ratings guidance in terms of an outlook -- again, issuance albeit that slowed a little bit in June was awfully strong in April and May. We see no abatement in terms of the drive for capital demand and therefore issuance will be strong. Again, comparisons to last year are going to be a little bit of an issue so we will see how that goes from that standpoint. Let me ask Jack -- Jack, do you want to add anything on the share repurchase?

Bill, we still have about 7.6 million shares under our existing authorization, that's about $400 million. We will selectively work through that over the balance of the year. Some part of that is included in our guidance, but particularly, as you start to get in the back half of year most of that has a bigger impact as you get into 2014.

Great. Thank you.

But very strong commitment, Bill, to that. Let me -- Doug, you want to add anything more in terms of issuance?

On issuance, I'd mention two additional factors. As we mentioned before, between the first quarter and second quarter these have been very robust issuance. Although there are certain asset classes -- an example in the European structured finance market has been down and with very, very low issuance with the exception of covered bonds. The last few days into last week and this week we've seen a resurgence of volume and a strong pipeline coming up but that's a short-term view. With a longer-term view, we published different works over the last three or four months, looking at the longer-term pipeline of brief financing and growth needs. In the Corporate issuance alone between now and 2017, there's an $8.3 trillion debt maturities that is outstanding and whether that we see choppiness and how that comes into the markets we will have to watch carefully. But between the overall corporate financial institutions, government refinancing pipeline which is large, the need for new capital and new investment, we see that there will be in the immediate term very robust issuance going into the markets.

Thank you.

Manav Patnaik, Barclays.

I'd also like to first congratulate Terry and Doug on their new roles. If I can start off on this C&C side. Clearly Platts continues to perform well and I just wanted an update on the inquiries going on in Europe, like what was the latest that you guys have heard in terms of how that was proceeding?

Okay, let me -- again, all of that is as you say proceeding and we are very much on top of that. The fact that Ken Vittor, our General Counsel, is here -- let me ask Ken, would you talk on the Platts issue for a second?

Sure, Terry. We were a party to an inspection by EC in May, as were many other parties. No allegations of wrongdoing have been made against Platts. We are cooperating with the regulators and this is the initial stage of this proceeding. We are planning to make a presentation to the EC early in the fall, probably in September, to lay out the Platts MOC process and how we go about assessing prices and doing our reporting activities so it is very early stages and that matter will go on for some time.

Okay, fair enough. And then in the margin performance, the division was obviously very impressive. Was that driven mainly by the transactional increase on the Platts side and then looking forward, how sustainable is that level and also, taking into account Aviation Week, it seems like didn't have much of a margin contribution there balancing those two, how should we think about what the sustainability of that margin is?

Well, at this point, Manav, it is very sustainable. Platts' business is very strong. We are getting an increased contribution from McGraw-Hill Construction and J.D. Power as well. J.D. Power, especially, in terms of its success in China and as we expand into more geographic regions with that. That's going to be very sustainable with not as much investment dollars as some other areas. So it is very supportable at that level.

Okay, and if I can just sneak in one last one on the rating agency side and margin-related as well. It seems like, sequentially, it was about the same year-over-year improved nicely. Is it fair to characterize most of that year-over-year improvement due to the reentrance into the CMBS market based on last year?

Manav, that's a contributor. It certainly helps as you get some stepped-up revenue on that part of the Business, but I would also -- we've also had very strong growth on the Corporate side so the revenue is, being as robust as it is, is certainly incrementally profitable. But the Business has also done a very good job in controlling year-on-year expense growth, particularly as it relates to headcount addition so I would say it is a combination of very strong top-line fundamentals combined with prudent management of costs.

Okay, fair enough. Thank you, guys. Good job.

Alex Kramm, UBS.

Just maybe starting going back to the product portfolio. It sounds like, Doug, you will give us a little bit more detail going forward, but obviously Aviation Week is getting -- you are leaving that business. What else is in the product portfolio right now? Is there anything more non-core that you're looking at a little bit harder to maybe -- not as good of a fit anymore? Then on the other side, you said there might be still room for some tuck-in acquisitions -- so first of all, in terms of tuck-in and what do you mean in terms of sizes and then secondly, what areas do you think interest you in particular?

Okay, well Alex, first of all, we don't comment on any aspect within the portfolio pending or anything like that. We are very committed to the businesses that we are in. The nice aspect for Aviation Week is that it is a particularly strong strategic fit and an excellent home with Penton Media. And of course, they have an aviation business as well. So they are a very nice fit there, but no, we obviously are always looking at the portfolio. But there's nothing further at this point to discuss that way. In terms of tuck-in acquisitions, remember now that for the most part and we are very proud of this because of the talent that we have, the majority of our businesses are organic businesses. And we've taken them in terms of changes in market and have been able to transform certain aspects [and the like].

But for the most part, they are there -- now, we will always continue to be active in the market for tuck-ins -- smaller acquisitions in size that bring new skill sets or capabilities to us. And I mentioned a couple of them QuantHouse, R-Squared, CMA for Capital IQ. But Jack was talking about the additional tendering opportunity in CRISIL. We like those opportunities a lot. And through globalization and the expansion of capital markets around the world and the introduction of new bond markets and the like, we plan to be very aggressive in terms of being able to expand our global footprint. So tuck-in acquisitions that give us new little skill sets or capabilities are always important to us, but for the most part, our businesses are organically driven.

All right, fair enough. Thank you. And then secondly, maybe talk a little bit more about the outlook for Capital IQ. I don't think there has been a lot of focus here in the prepared remarks so first of all client user growth continues pretty nicely, your organic growth is decent, but maybe you can talk a little bit more with the outlook there in terms of the hiring market seems to be looking a little bit better both on the sell side and buy side and then obviously with the new product offering of the Risk Analytics, maybe just a little bit of color of what you've heard so far in terms of early interest in the product and then also how do you think you can compete with your competitors there?

Yes. We are obviously very excited about the prospects of Capital IQ going forward. We took a little bit of a step back in terms of the acquisitions of those three capabilities --QuantHouse, R-Squared, and CMA from last year. But all of that was done to accelerate the top line. And you are exactly right, customer acquisition is what it is all about. We have been able to provide some tremendous traction there. And that will accelerate the top line. We still have a little bit of year-over-year comparisons to get through in terms of the second half, but we fully expect that the investments that we've made and the continued customer acquisition will get us to a much higher level.

Yes, it, looking forward -- it is our hope, with the benefit of some of these new product introductions, by the time we at least get to the fourth quarter, we'd see some modest pick-up in top-line growth and would set us up for a stronger year of top-line growth as we get into 2014. We're in the midst of our early planning around the more of the specifics of that next year.

Great, great, thank you and maybe lastly on the rating side, maybe this is a little bit too detailed but when I look at market share in high-yield, it looks like you lost a little bit of ground in the last few months and there were a couple of high-profile deals that you weren't actually on as far as we can tell. So just wondering is there anything different in the competitive environment that you're seeing in particular as it relates to high-yield that we should beware of?

Alex, we are not losing any market share in high-yield. In fact, it is pretty aggressive. But given that Doug is here, Doug, do you want to add anything to that?

The only thing I would add is that we've not seen any specific slip in market share. We had very strong issuance throughout the quarter and, as you have seen, our pick-up back into the structured finance market, in particular with CMBS and COOs has been quite successful. So I don't have any additional comments on that.

No and Bank Loan Ratings, as well.

Bank Loan Ratings, as well.

It has been very good on that part.

And again, that's fair enough and we can follow up on the specific deals, if you want to. Just to squeeze in one for Jack real quick. Just want to make sure I heard you correct on your response on the share buybacks earlier. You basically said that 7.6 million should be extinguished by the remainder -- by the end of year, did I hear that right?

We had that possibility. I wouldn't be -- we will work that in as we go through the year depending on market conditions. But unless we get an additional authorization that would certainly be the maximum we could do this year.

All right, fair enough.

That would be the plan.

All right, thanks again.

Craig Huber, Huber Research Partners.

Want to focus first on your non-transaction revenues within your Ratings business, up about 11.5%. I'd be curious to hear what drove that and also, can you talk about this change in billing that your press release talks about, can you quantify for that and when did that part start? That change start?

Can you repeat the second part of that question, Craig?

You mentioned in your press release that there was a change in the billing of your non-transaction revenue within Rating -- be curious when that actually started and can you quantify that [positive impact]?

Okay, going back to the high level, first of there is an impact in there from the Coalition acquisition and CRISIL, which is about 2 points of growth. Another major driver of the growth is the strong growth in new entity ratings, new companies coming to market for a rating. And there's been some -- the point in terms of the release-- there has been over time some restructuring in terms of some of the way certain things are billed between that impact -- the non-transaction. I believe that worked its way into -- worked our way into about a year ago so this is essentially the last quarter where we would have a significant year-on-year benefit. Obviously, we have that now change moving forward, but I doubt it will make as significant a contributor to growth in future quarters.

And again, Craig, as the release stated, non-traction (sic -- see press release, "non-transaction") revenue increased 12% and represented 52% of S&P Ratings' total revenue and that compared, that 52% to 58% in the same period last year.

Did this billing change, sorry to belabor this, but did it add a few percentage points of the growth year-over-year here?

It made a contribution.

Okay. For the whole Company, what was the incentive compensation for the second quarter and what was it in the first quarter, please?

Craig, we really haven't gone on the path of being that explicit in the past. It is not a -- I would say though in terms of year-on-year comparisons, year-to-date it is modestly up this year. So it is a bit dilutive to growth.

But, Jack, you might want to put in the context of last year, how we calendarized percent over the over the quarters, as this year seems to be a little more upfront.

This year is a bit more balanced than last year. Last year it was because our performance really zoomed up in the third and fourth quarter. The timing of incentive compensation year-on-year feathered in more in the third and particularly the fourth quarter of 2012. This year we are off to a stronger start than anticipated. I do suspect the year-on-year accruals right now may be a bit more front-end loaded. And we don't anticipate as significant an increase in incentive accruals in the third and fourth quarter that we saw last year.

Craig, if you want to circle back with Chip, we will give you some specific numbers on that for what we've got.

If I could just ask on the DOJ case, is your sense if this thing does actually go to trial, you're thinking roughly three years out from when it first became public knowledge in early February?

Well, the only thing that I would say on DOJ and again, remember, the judge was very explicit and he didn't want this going back and forth in media circles or public circles and all of those things so we'll -- we obviously are going to honor that. Let me just say that we look forward to getting our side of the story out there and the facts and figures on this thing and we feel very confident and comfortable with that.

Let me just add that--

This is Ken Vittor, General Counsel.

Thanks, Terry. The timeline is not clear yet because the government still has to decide what case it will be bringing. It needs to narrow and specify the case. In its current form, we are unable to advise the court and the court would be unable to set a firm trial date because we don't know yet what the case is going to look like. As it is refined and narrowed, and there's a status conference on Monday the 29th to begin that process of how to shape the pre-trial phase of the case, we will be better able to give you a timeline. But right now it is still dependent on the government refining its allegations.

Great, thank you.

Peter Appert, Piper Jaffray.

Jack, in the last couple quarters, or at least last quarter, you talked about some orphaned cost left over from the Education divestiture. I'm wondering what the -- what's left there -- what the magnitude of that overhang might be and then on the growth and value costs, restructuring costs, you noted that those numbers are going down, should we continue to expect some costs in the third and fourth quarter?

Yes, Peter, in terms of -- we came into the year with Education with stranded costs in the range of $20 million to $25 million. They are still in our run rate. So we have yet to -- but we are working on those, but I suspect that we will -- it'll take us some time as we get into 2014 to really address those more fully. So we are still overcoming those stranded costs right now in our performance. And in terms of relative to the Growth and Value Plan costs, I probably right now would point you towards some continuation of those cost, but I would keep them at the more modest end, like we've seen here, and now in a second quarter of approximately $10 million. As we are working through the final stages of some of our outsourcing activities that relate to some of the decisions that we took last year.

Got it, thank you. And Terry or Doug, the decision to increase the ownership of CRISIL, I understand the appeal of that business given it is very rapid growth, but what are the strategic benefits to you -- in the roughly 50% to 70%-ish and is there a road map that could take you to 100%?

Well, again, it is a public Company. And as a public Company, once you start getting above 75%, you're going to be at issues of delisting and things like that so we are very, very excited about CRISIL. And it is performing extremely well in a marketplace that is going to be adding, what, $1 trillion of infrastructure over the next five years and all the financing mechanisms associated with that. It also represents a launch pad for other geographic expansion outside of India. So we are very excited about it. And we are in our tender offer period at this point and probably shouldn't comment any further on that, but very excited about it.

Just for context, Peter, this -- our previous -- our last investment in CRISIL probably, if you look at, probably has delivered a 10 times return when we went from about 9% ownership to over 50%. It may be one of the best investments this Company has ever made. So that's just a little bit of historical context. But beyond the financial criteria, increasingly we are just doing more working together and with the increased ownership it just gets easier as we work together to broaden out the business both within India and more broadly. But right now, let's be very clear, it is our long-term intent to maintain it as an independent public Company in India, which means our ownership is maxed out at that 75% level. So that's what we are targeting.

Got it, thank you. And last thing, the -- if I've done this calculation correctly -- the full-year EPS guidance would suggest that you're going to be up somewhere between 0% and 7% in a second half -- obviously I understand the comp issue S&P, are there any of the things you would call out in terms of variables here in a second half in terms of year-to-year comps that would drive some slower growth?

Well it is just the math impact of now, once we get into the third quarter, well we will now have -- the JV will now have been formed for over a year so that will now -- you'll get a more complete view of the JV -- it will be more apples-to-apples comparison. Obviously because it was only -- it was formed in the early third quarter of a year ago so that's just -- but that's just the math impact of it. You are raising the big point, which is just the extraordinarily difficult overlap that we have particularly in the fourth quarter led by Ratings. So that's -- and the current volume with that just gives us some caution as we look at the balance of the year.

And as always, Peter, as we go, we will be looking at it very hard and we will give you any guidance that we see as we go.

Thank you.

Doug Arthur, Evercore Partners.

Just on Dow Jones Indices. I'm trying to reconcile the pro-forma growth of 6% with the -- you cite assets under management ex Dow Jones Indices up 34% and trading volume -- derivatives up 11%. So what's missing in that puzzle?

Yes, that's a good question. Just a couple points. One, as it relates to assets under management -- in our contract there is some, let's call them, some breakpoints, as more assets get under management, our return goes down a little bit, as you'd expect, it's a volume discount, that's one. Two, we are paid not on assets under management at the end of the quarter but how it builds, how it averages in, over the course of the quarter. And also, let's see, so there's some noise in a second quarter and you'll see that, it will be clear as we get into the third. There was some benefits of some contract negotiations a year ago that we were able to retrospectively recognize from revenue a year ago that's suppressing the year-on-year growth rate. As you get into the third and fourth quarter, based on at least right now what we are seeing on assets under management, we think this Business is going to have pretty strong balance-of-year top -line growth in aggregate of double-digit growth in both the third and fourth quarter if assets under management stay in this range. So we will get this noise behind us and it'll be a bit clearer as we move forward.

Great. Thank you.

Patrick O'Shaughnessy, Raymond James.

My first question is on CRISIL, can you just talk about how you think of using cash to increase your stake in CRISIL versus other options whether that's share repurchases or anything else that you might look at and obviously keeping in mind that the cash that you are going to use for that is held from your non-US subsidiaries?

Well, it is always obviously a balancing of considerations of that. And Patrick, I cannot state any more clearly how enthusiastic we are and excited about the share repurchase program we have in place and what we've been able to accomplish to date in all of that. But the opportunity for CRISIL and using offshore cash was particularly welcoming because of what we wanted to do in and what we want to represent in that marketplace.

And, look, I would just add, the first place we would want to deploy capital is building up our core business and, at our core, CRISIL is our rating agency and with the global business and so the first place we're going to deploy capital is to build out that network and I would just reiterate point I made earlier. Our last investment in CRISIL, which was only eight years ago, to date has delivered from -- the expansion -- relative to the expansion of the market capitalization of CRISIL, has delivered roughly a 10 times return. So those -- we will do those all day long. And you should expect us to continue if -- there's not that many opportunities where we can deploy capital of this magnitude in the Ratings business, I wish there were more, but we still have this as a great opportunity, particularly given the formation of the new Company.

I understand, thank you. And then last one for me and I apologize if you already talked about this, but with record quarter for S&P Ratings, I would have expected a little bit operating margin expansion but it was pretty much flat quarter-over-quarter. Can you talk about margin on that business and what drove cost a little bit higher this quarter and what we should expect going forward?

We are actually quite pleased. We've had now two consecutive quarters of mid-40%s margins, which has been pretty good expansion relative to where we were. As in our overall expense control relative to headcount adds has been quite good, particularly given the amount of business that has come in. And so I did -- there is -- business is doing so well -- there is some impact year-on-year as it relates to incentive compensation. But all in all, the business is doing a very good job of managing its cost and we continue to both -- we hear the opportunity of margins going forward, but that is a balance of both top-line growth and managing of the overall cost base.

All right, thank you very much.

David Reynolds, Jefferies.

Just one question from me. I wonder if you could talk about Capital IQ -- the proprietary research business? Seem to be some comments suggesting that it was a difficult quarter. I just wondered what you saw in that domain in terms of the longer-term view?

We did lose a bit of business there. So it was dilutive to the growth rate to some degree, but we like that business. And we are trying to rethink a little bit how we do this on the global business so we don't have all the answers right now, but it is an area of some focus for us right now as we start to get ready for 2014. But we do think it is an interesting piece of our overall portfolio. Not a big one, but an interesting little piece.

That's great, thank you.

Ed Atorino, Benchmark.

Terry, you may have covered this [circumventionally] or something like that, you're getting to a good size in financial services -- you are concentrated in a couple areas, do you see the need to diversify and make some acquisitions and broaden the base in the financial service area?

Yes, Ed, again, in terms of the whole notion of data content benchmarks and analytics, we obviously are looking at all things that could be constructive to the portfolio. As this point, I would suggest that if we are doing any acquisitions they are going to be relatively small and they are going to give us different skills or capabilities that would enhance our portfolio. The portfolio now is largely organic driven. And we are very excited about that because of the talent that we have and those capabilities. But there are no plans at this point for expansion. We are very focused on share repurchase. We are very focused on strategic things like the tender opportunity with CRISIL.

Got it, thanks.

That concludes this morning's call. A PDF version of the presenter's slides is available now for downloading from www.mhfi.com. A replay of this call, including the Q&A session, will be available in about two hours. The replay will be maintained on McGraw-Hill Financial's website for 12 months from today and for 1 month from today by telephone. On behalf of McGraw Hill Financial, we thank you for participating and wish you good day.