McGraw-Hill Companies Earnings Call Nuggets: Buybacks and the Ohio Case
William Bird – Lazard Capital Markets: I was wondering if you could talk about the amount of buybacks assumed in the outlook and also whether a component of it is accelerated.
Harold McGraw III – Chairman, President and CEO: Yeah, hi, Bill. Go ahead, Jack.
Jack F. Callahan, Jr. – EVP and CFO: Bill, right now we’re just affirming that today share repurchase is part of the 2013 program. In terms of the specific amounts, we want to retain some flexibility as the year transpires. Your question about will we consider an accelerated action; that’s a possibility, but we haven’t made any definitive conclusion on that. But again, we’re not – we don’t intend to back into the market until we actually received the proceeds from Education which will be towards the end of the first quarter. But we’ll give you more complete update as we get through the year.
William Bird – Lazard Capital Markets: And as a follow-on, would you be willing to add leverage to buy back more stock?
Jack F. Callahan, Jr. – EVP and CFO: I don’t really feel a need to do that over the near term Bill right now, but I certainly understand the opportunity from a longer-term point of view.
Harold McGraw III – Chairman, President and CEO: Bill, the cash generation capability is so strong that we think that even if we go an accelerated position that we’d be in pretty good shape for that. But again, we’ll wait for the proceeds in March and we’ll go from there. But share repurchase is going to be a very important activity for us in 2013.
William Bird – Lazard Capital Markets: Could you share what the next steps are in the DOJ process?
Harold McGraw III – Chairman, President and CEO: Let me ask Ken to do that. Ken.
Kenneth M. Vittor – Executive Vice President and General Counsel: Yes, there will be a schedule established by which we will be required to respond to the complaint and that will be probably in the next 60 to 90 days.
The Ohio Case
Manav Patnaik – Barclays Capital: First, just a question on the legal side. In terms of all the states sort of teaming up together in many ways for the lawsuit, can you maybe help us understand what the difference is between what happened in Ohio, which you noted; obviously, went in favor of all the rating agencies and Connecticut which is leading, I guess, coalition here and their specific case I guess is heading to trial next year. So, I just wanted to understand what’s the difference there between Ohio and the rest of these guys are now.
Kenneth M. Vittor – Executive Vice President and General Counsel: Yes, I’d be happy to do that. The Ohio case related to investments made by pension funds and they were suing for their alleged losses, hundreds of millions of dollars of alleged losses and both the District Court and Court Of Appeals in the Sixth Circuit dismissed those cases for a variety of legal reasons. The State Attorney General cases that we are now addressing and that some that have already been brought by Connecticut and other states are not brought on behalf of investors except in one case, which we can talk about the California case. Generally, these deal with consumer deception claims that consumers in each of these states were allegedly deceived by representations made by S&P and in some cases, other rating agencies that they were independent, that they were objective in arriving at their ratings. So, these are different cases. These are deception cases brought based on statements about independence and objectivity. The Ohio case you referred to was relating to investment losses brought by various pension investors.
Manav Patnaik – Barclays Capital: I guess then related to Connecticut, can you just explain? I guess it’s been two years or so since the case has been ongoing. Now they have been sent to trial. Can you help us understand what the decision was to send it to trial like it seems like you guys disagree it clearly?
Kenneth M. Vittor – Executive Vice President and General Counsel: There was a threshold ruling or rulings on motions to dismiss, and so the case is now in the next phase. There’s no decision on the merits in that case. We’re just in the next phase which involves discovery and elements leading up to whether there will be another motion to try to dismiss the case. So, there’s no decision on the merits in that case. There were preliminary decisions on dismissal motions.
Manav Patnaik – Barclays Capital: Just one question on the guidance. In the Indices section, the plus 20% revenue growth you guys guided to, seems like it’s a little light than the $500 million you had noted when you first made the acquisition. Am I reading that right and maybe why so?
Jack F. Callahan, Jr. – EVP and CFO: Yeah, Manav, it’s probably a little bit lighter relative to the initial (story). I just think some of the market activity that we’ve seen, particularly relative to volatility in the third and fourth quarter has – is not quite as robust we had seen in the back half of ’11 into ’12. So, it’s probably a bit, but again, we’re being conservative about our outlook there; again, because this is so hard to predict, the volatility and the marketplace there. But we’re still very, very excited about how those two businesses have come together and we’re really looking forward to accelerated growth over the long-term.
Harold McGraw III – Chairman, President and CEO: Yeah, and Manav, it’s a little early on, but one of the things that I was talking about is the switch from outflows to inflows from actively managed equity funds into indexed funds, it’s a trend that’s not only taking place here domestically but worldwide. And we see tremendous uplift in terms of volumes on this one. One of the reasons that we wanted to break out S&P Dow Jones Indices so that you could see those numbers and we’ll keep those in front of us as we go forward is so that you can see not only the growth but the value creation in those and we’re very, very excited about this business.
Harold McGraw III – Chairman, President and CEO: Well, again, the four uses of cash; we have focused on dividend and share repurchases. Both of those; no change, and we’re going to be very active in both. In terms of transactions and organic growth, we like to focus more on the organic growth and that’s why we break it out. And so, what we are looking for is more specific capabilities in terms of transactions that can help some of our platforms and some of our data and analytic platforms in our businesses. So, to that extent, tuck-ins is probably a good word, but what we’re looking for is added skills and capabilities to enhance the platforms that we have.
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