Business Context and Reporting Period
Company: The McGraw-Hill Companies, Inc. (Parent of S&P Global Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three and six months ended June 30, 1999
Business Overview: The company operates through three segments: Educational & Professional Publishing, Financial Services (including Standard & Poor's), and Information and Media Services. The company completed a two-for-one stock split in March 1999.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended June 30, 1999 |
6 Months Ended June 30, 1999 |
|---|---|---|
| Operating Revenue | $922,721 | $1,639,192 |
| Net Income | $90,020 | $114,468 |
| Diluted EPS | $0.45 | $0.57 |
| Cash from Operations | N/A | $152,541 |
| Total Debt (Short + Long Term) | $731,920 | $731,920 |
| Cash and Equivalents | $23,003 | $23,003 |
Note: Total debt includes $280.3 million in notes payable and $451.7 million in long-term debt as of June 30, 1999.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenue increased 4.7% ($41.6 million) for the quarter and 3.4% ($54.7 million) for the six-month period compared to 1998. Excluding divested businesses, revenue growth was 7.6% for the quarter and 7.2% for the six months.
- Profitability: Net income rose 15.6% ($12.2 million) for the quarter and 16.8% ($16.5 million) for the six months. Diluted EPS increased from $0.39 to $0.45 (quarter) and $0.49 to $0.57 (six months).
- Interest Expense: Net interest expense decreased 21.0% for the quarter and 21.5% for the six months, primarily due to a tender offer in late 1998 that retired $155 million of 9.43% Notes.
- Segment Performance:
- Financial Services: Revenue up 11.6% (quarter) and 10.6% (six months), driven by Standard & Poor's Ratings and Financial Information Services.
- Educational & Professional Publishing: Revenue up 4.8% (quarter) and 3.1% (six months). Operating profit improved significantly in the quarter ($41.3 million) compared to a loss in the prior year's six-month period.
- Information and Media Services: Revenue declined 3.3% (quarter) and 4.9% (six months), though operating profit improved slightly.
Outlook, Risks, and Management Commentary
- Acquisitions: The company acquired Appleton & Lange, Inc. in late June 1999 for $46 million to strengthen its medical publishing portfolio.
- Capital Allocation: The Board authorized a stock repurchase program of up to 15 million shares. As of June 30, 1999, 757,000 shares were repurchased for $39.7 million. Dividends were increased by 10.3% to $0.215 per share.
- Year 2000 (Y2K) Readiness: Management estimates 99% of applications have been remediated or replaced, with 97% tested and certified. Estimated total cost for remediation is $19 million, with $14.2 million spent through June 30, 1999.
- Euro Conversion: Approximately 5% of revenues are derived from EMU countries. The company is prepared for Euro invoicing and plans full accounting currency conversion by January 1, 2001.
- Legal Proceedings: A lawsuit filed by the County of Orange regarding bond ratings was dismissed with prejudice on June 14, 1999, in exchange for a $140,000 payment.
Investor Verification Checklist
- Verify the impact of the Appleton & Lange acquisition on future Professional Publishing margins.
- Monitor the execution of the $15 million share repurchase program and its effect on diluted EPS.
- Confirm the timeline for full Euro currency conversion in accounting systems by 2001.
- Review the seasonality of cash flows, noting the pattern of borrowing in the first half and cash generation in the second half of the year.
- Assess the remaining 1% of Y2K remediation work scheduled for the third quarter of 1999.