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The McGraw-Hill Companies (MHP)

Q4 2011 Earnings Call

January 31, 2012 8:30 am ET

Executives

Donald S. Rubin - Senior Vice President of Investor Relations

Harold Whittlesey McGraw - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Jack F. Callahan - Chief Financial Officer and Executive Vice President

Analysts

Craig Huber

Peter P. Appert - Piper Jaffray Companies, Research Division

Douglas M. Arthur - Evercore Partners Inc., Research Division

Michael A. Meltz - JP Morgan Chase & Co, Research Division

William G. Bird - Lazard Capital Markets LLC, Research Division

Sloan Bohlen - Goldman Sachs Group Inc., Research Division

Presentation

Operator

Good morning, and welcome to The McGraw-Hill Companies' Conference Call. I'd like to inform you that this call is being recorded for broadcast [Operator Instructions]. To access the webcast and slides, go to www.mcgraw-hill.com and click on the link for the fourth quarter earnings webcast. [Operator Instructions] I would now like to introduce Mr. Donald Rubin, Senior Vice President of Investor Relations for The McGraw-Hill Companies. Sir, you may begin.

Donald S. Rubin

Good morning. We thank everyone in our global audience for joining us this morning at The McGraw-Hill Companies' Fourth Quarter and Full Year 2011 Earnings Call. I'm Donald Rubin, Senior Vice President of Investor Relations for The McGraw-Hill Companies.

This morning, we issued a news release with our fourth quarter results. We trust you've all had a chance to review the release. If you need a copy of it and for the financial schedules, they can be downloaded at www.mcgraw-hill.com. Once again, that is www.mcgraw-hill.com.

In today's earnings release and during the conference call, we are providing adjusted revenue and free cash flow information. This information is provided to enable investors to make meaningful comparison of the company's operating performance between periods and to view the company's business from the same perspective as management's. The earnings release contains exhibits that reconcile the differences between the non-GAAP measures and comparable financial measures calculated in accordance with U.S. GAAP. The results we are reporting also reflect the reclassification of the Broadcasting Group as a discontinued operation following the signing of a definitive agreement in October 2011 to sell this business to E.W. Scripps.

In today's news release and on the conference call, we are introducing new names for some operations to reflect changes being created by our Growth and Value Plan. In each case, more information about the new entity is being provided to investors. Under the separation plan, the newly named McGraw-Hill Financial company includes 5 lines of business. They are S&P Ratings, S&P Capital IQ, S&P Indices and Commodities and Commercial Operations. The segment previously named McGraw-Hill Financial now becomes S&P Capital/S&P Indices. We are providing revenue for both S&P Capital IQ and S&P Indices. And over time, additional financial information will be provided on these operations. Information & Media becomes Commodities and Commercial. We are providing revenue for both Commodities and Commercial operations and, over time, more information will be provided about them as well.

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 and 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 the U.S. Securities and Exchange Commission. We're aware that we do have some media representatives with us on the call. However, this call is for investors, and we would ask that questions from the media be directed to Patti Rockenwagner in our New York office at area code (212) 512-3533 subsequent to this call. That's (212) 512-3533.

Now I'd like to turn the call over to Harold McGraw III, Chairman, President and CEO of The McGraw-Hill Companies. Terry?

Harold Whittlesey McGraw

Okay, thank you very much, Don, and good morning, everybody, and welcome to our conference call today on the fourth quarter and on the full year results. With me today, besides Don, is Jack Callahan, our Chief Financial Officer.

And this morning, I will briefly review our results for the fourth quarter and the full year, and Jack will provide some additional detail. We're going to discuss the 2011, and 2011 was a milestone year for The McGraw-Hill Companies. I will provide an overview of the accomplishments of our businesses, both across the newly formed McGraw-Hill Financial and McGraw-Hill Education, and then we'll take a look into 2012, which promises to be one of the most momentous periods in our 24-year -- 124-year history of the company. As always, after our prepared remarks, we will be pleased to answer any questions that you may have about The McGraw-Hill Companies.

All right. In the fourth quarter, adjusted diluted earnings per share from continuing operations increased 17% year-over-year to $0.63. That includes $66 million in restructuring charges for severance related to a workforce reduction of approximately 800 positions and $10 million for onetime separation expenses necessary to implement the Growth and Value Plan. Revenue was up 2% and adjusted operating profit grew 8% as results across the portfolio were mixed. Looking at the year in its entirety, 2011 was the second best year in our history for revenue, operating profit and earnings per share. Only 2007 topped our performance in 2011. Revenue increased by 3% to $6.2 billion. On an adjusted basis, 2011 net income from continuing operations grew by 6% to $883 million. Adjusted earnings per diluted share from continuing operations increased 9% to $2.91.

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