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McGraw-Hill Companies Inc. (MHP)

May 01, 2013 11:00 am ET

Executives

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

Kenneth M. Vittor - Executive Vice President and General Counsel

Operator

Good morning, and welcome to The McGraw-Hill Companies 2013 Annual Shareholders Meeting. The meeting is being conducted at McGraw-Hill's international headquarters in New York City. At this time, I would like to inform you that the call is being recorded for broadcast. [Operator Instructions] This call is also being webcast from The McGraw-Hill Companies' website and will be available for replay about 2 hours after this meeting ends, both by phone and on the web. To do that, go to the company's home page at www.mcgraw-hill.com and click on the link for the Annual Shareholders Meeting.

I will now turn the meeting over to Mr. Harold McGraw III, Chairman, President and Chief Executive Officer of The McGraw-Hill Companies. Thank you again for participating. We will now proceed.

Harold Whittlesey McGraw

Okay. If I can have your attention. Good morning, everybody. I'm Terry McGraw. I'm President, Chairman and CEO of The McGraw-Hill Companies, and it's my pleasure to welcome you to our 2013 Annual Shareholders Meeting. It is now 11:00, and I call the meeting to order. As the annual meeting is getting under way, we were just getting everybody on board on the telephone and on the webcast. We have about 500 people from around the world that are listening in, and we welcome all of them. We thank you for your interest in The McGraw-Hill Companies, and we welcome you to our shareholders meeting as well.

I'd like to begin by introducing the gentleman at the desk next to me. That is Ken Vittor, Executive Vice President and General Counsel of the corporation. And I might add, he's been serving this corporation, and I'm a little biased, with such outstanding distinction. And so it's -- welcome, Ken. I'm glad that you can join us. And I don't mean to keep making him busier, but he's doing a good job with it.

Now it's my pleasure to introduce to you our Board of Directors. And to say the least, we have a world-class board, whose dedication, expertise, leadership are a tremendous source of pride to the corporation. I would ask that each of our directors stand as I say their names and remain standing. And please hold your applause until we've introduced everyone. First, Pedro Aspe. He's Co-Chairman, Evercore Partners, Chairman of Protego and the former Finance Minister of Mexico; Sir Win Bischoff, Chairman of the Lloyds Banking Group; William D. Green, retired Executive Chairman, Accenture; Charles Ed Haldemann, former CEO of Freddie Mac, former CEO of Putnam Investments and also part of the starting team of the United Asset Management; Linda Koch Lorimer, Vice President, Yale University; Robert P. McGraw, Chairman and Chief Executive Officer, Averdale Holdings, LLC; Hilda Ochoa-Brillembourg, President and Chief Executive Officer of the Strategic Investment Group; Sir Michael Rake, Chairman of the BT Group. And if you take a look at the proxy, a number of others as well, he doesn't know how to say no. He's also the new Head of the CBI, the Confederation of British Industry. That's like, in the United States, the Business Roundtable. And we welcome his new leadership there as well; Edward B. Rust, Jr., Chairman, President and Chief Executive Officer of State Farm Insurance Companies, and he is our Lead Director; Kurt Schmoke, Vice President and General Counsel, Howard University, who just celebrated his 10th anniversary last night with us on the board; and Sidney Taurel, Chairman Emeritus, Eli Lilly and Company; and Richard E. Thornburgh, Vice Chairman, Corsair Capital LLC and formerly with Crédit Suisse. Will you please join me in a round of applause for them?

For the fun, it is always nice that we have retired directors that come back and visit us, as well as some executives, and I think it would be fun to just introduce them. And I would ask them to stand and remain standing. We have my predecessor, Joe Dionne and his wife Catherine, Joe; Lois Rice; John Wrede and his wife Joan; Tom Sullivan and his wife Solsey [ph]; our fabulous Editor-in-Chief -- I can't call him a business leader because he'd walk out on me. Our fabulous Editor-in-Chief, Steve Shepard; Vern Alden; Peter Lawson-Johnston; Deven Sharma; Bob Evanson; and one that I also got to add to the list is Bob Sherman, who's the Head of the Young Artists Showcase, 96.3 WQXR, who we've done so much work with. Bob Sherman right over here. Great to see you, Bob, as well.

Now I've already introduced Ken Vittor. I'd now like to introduce you to the other members of the senior management team. And I'd ask them to stand and remain standing as well. And by the way, I'm just a little bit biased on this one as well. This is a world-class management team, and I take a lot of credit for a lot of things because of a lot of the work that they do. But let's forget that part, on that one. First is Jack Callahan. He's our Executive Vice President and Chief Financial Officer; John Berisford, our Executive Vice President, Global Human Resources; Ted Smyth, Executive Vice President, Corporate Affairs, and Executive Assistant to the Chairman, President and CEO; Charles Teschner, the Executive Vice President of Global Strategy; Chip Merritt, Vice President, Investor Relations. And on the operating side, Lou Eccleston, President of S&P Capital IQ, also Chairman of the S&P Dow Jones Indices; Glenn Goldberg, President of Commodities & Commercial Markets; and Doug Peterson, the President of Standard & Poor's Ratings Services. What a team.

Okay. We will now proceed to the business of our annual meeting. The purpose of which is a number of items: number one, to review our 2012 operations and to look at our prospects for 2013 and beyond; number two is to elect 13 directors; three, to vote on a proposal to change the name of the company to McGraw Hill Financial, Inc.; four, to vote on a proposal to approve on an advisory basis the executive compensation program for the company's named executive officers; five, to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2013; and six, to vote on a shareholder proposal requesting shareholder action by written consent and to take up any other matter that may properly come before us.

To get started, Mr. Vittor will establish that the meeting is duly called, that we have a quorum present and that other formalities have been complied with. After Mr. Vittor advises us that a quorum is present, we will proceed with the matters listed in Item #2 on the agenda, which was distributed to everybody as you came in. Ken?

Kenneth M. Vittor

Thanks, Terry. Before we begin, let me provide certain cautionary remarks about forward-looking statements that may be made during this annual meeting. Except for historical information, the matters discussed during the meeting may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act, 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 the results anticipated in these forward-looking statements. We direct listeners and the audience to the cautionary statements contained in our Form 10-Ks, 10-Qs and other periodic reports filed with the United States Securities and Exchange Commission.

The corporation's Secretary, Mr. Scott Bennett, has advised me that we have certified lists of shareholders of record as of the close of business on March 11, 2013, who are entitled to vote at this annual shareholders meeting. Such lists have been opened for inspection by shareholders. We also have copies of the Notice of Meeting, proxy materials, annual report and affidavits of mailing relating to this annual meeting. The affidavits will be filed with the records of the annual meeting.

The Board of Directors has designated 2 representatives of Computershare Trust Company to act as inspectors of election for the annual meeting. Representatives of Computershare Trust Company are present and have been duly sworn. Their oaths will be duly filed.

In addition, I am advised by Mr. Bennett that shares of common stock representing approximately 89% of the outstanding shares of The McGraw-Hill Companies and representing more than the majority of the votes entitled to be cast at this annual meeting are represented either in person or by proxy.

Mr. Chairman, the annual meeting has been duly convened, a quorum is present and the business of the annual meeting should proceed.

Harold Whittlesey McGraw

Thanks, Ken. We will now proceed with the election of directors and the other formal business items. Ballots will be distributed to those who want to vote in person on any of the proposals. We will vote on each proposal before taking up the next. Time will be provided for specific questions relating to each of the proposals as they are introduced. Further time will be provided following the annual report on operations for questions on other matters. And I would request that all remarks or statements concerning the formal business items be directed to the chair.

In order that remarks from the floor be heard clearly by everyone, we have microphones on both sides of the auditorium. I would ask that each shareholder who ask -- wishes to ask a question or make a statement use one of those. And if that's not convenient, we'll have a handheld microphone available. If you have a question or a remark, please state your name and whether you are a shareholder or you're representing a shareholder. And as a matter of courtesy, please limit yourself to one statement or question until everyone who wishes to do so has made one.

The first item to be voted upon is the election of 13 directors. We present as nominees for election as directors the 13 persons named in the proxy statement dated March 19, 2013. The names of the 13 directors nominated for election are Pedro Aspe, Sir Win Bischoff, Bill Green, Ed Haldemann, Linda Koch Lorimer, Harold McGraw III, Robert P. McGraw, Hilda Ochoa-Brillembourg, Sir Michael Rake, Edward Rust, Kurt Schmoke, Sidney Taurel and Richard Thornburgh. The floor is now open for questions or comments on this proposal.

Okay. Seeing none -- and, again, I would ask that if you need a proxy, just raise your hand. Again, if you've already done it by telephone or webcast or anything, you don't have to do that here on that one. Since there's no further discussion on this item, I declare the voting closed on this proposal.

The second item to be voted upon is a proposal to amend the corporation's restated certificate of incorporation, to change the name of the company to McGraw Hill Financial, Inc. from The McGraw-Hill Companies. Are there any comments or questions on this?

Okay. Since there's no further discussion on this proposal, I declare the voting closed on this item.

The third item to be voted upon is the proposal to approve on an advisory basis the executive compensation program for the company's named executive officers. The floor is open for questions or comments here.

Okay. Seeing none, I say the voting on this item is closed.

The fourth item to be voted upon is the ratification of the selection of Ernst & Young LLP as the company's independent registered public accounting firm for 2013. Ms. Denise Pelli, partner of Ernst & Young responsible for The McGraw-Hill Companies' account, is present today at our meeting. She is available now. If you wish to ask any questions about the selection of her firm or any questions about the financial statements of The McGraw-Hill Companies, the floor is open for any comments here.

Seeing none, I thank you and declare the voting on this item closed.

The fifth item to be voted upon is a shareholder proposal requesting shareholder action by written consent. This was proposed by Mr. Kenneth Steiner. And today, we have Ms. Stephanie Samaha [ph], who has been designated to make this proposal. Stephanie, are you there?

Unknown Attendee

Yes.

Harold Whittlesey McGraw

Go ahead, Stephanie. It's all yours.

Unknown Attendee

Thank you. Good morning. I'm Stephanie Samaha, and I'm here to move Proposal #5 on shareholder action by written consent. I've been asked to read the following statement on behalf of Kenneth Steiner.

Shareholders request that our Board of Directors undertake such steps as may be necessary to permit written consent by shareholders entitled to cast the minimum number of votes that would be necessary to authorize the action at a meeting at which all shareholders entitled to vote thereon were present in voting. This written consent includes all issues that shareholders may propose. This written consent is to be consistent with applicable law and consistent with giving shareholders the fullest power to act by written consent consistent with applicable law.

This proposal topic won majority shareholder support at 13 major companies in a single year. This included 67% support at both Allstate and Sprint. Hundreds of major companies enable shareholder action by written consent. The shareholders of Wet Seal successfully used written consent to elect better qualified directors in October 2012.

This proposal topic received 47% support in 2012 and might have received a majority vote had our directors taken a neutral stance on the topic or had been willing to make it as easy to vote for this proposal as to vote against it. Last year, it took only 1 click to vote against this proposal but 15 clicks to vote in favor due to our 2012 Internet voting system.

This proposal should also be evaluated in the context of our company's overall corporate governance as reported in 2012.

GMI Ratings, an independent investment research firm, downgraded our company to D with High Governance Risk. They also noted High Concern for our directors' qualifications and concern regarding executive pay.

Please vote to protect shareholder value, support Proposal 5 and vote in favor of the shareholder right to act by written consent. Thank you.

Harold Whittlesey McGraw

Thank you very much, Stephanie. And the Board of Directors recommends a vote against this proposal, and there's detailed reasons that are laid out in the proxy statement that you have received. But the board believes that this proposal is not necessary because, as important an issue as it is, the company amended its certificate of incorporation in 2011 to provide that special meetings of shareholders of the company may be called at the request of holders of 25% of the outstanding shares of the company's common stock. So this provision allows such holders to propose action for shareholder consideration between annual meetings of the company's shareholders. Any comments, questions on this proposal?

Okay. Since there's no further discussion on this proposal, I declare the voting closed on -- in those items. And that concludes the voting on our formal business items. Those ballots will be collected or tallied, and those votes will be described to you in a little bit.

Let me move on. And while those votes are being counted, let me once again welcome you all to our 2013 Annual Meeting of Shareholders. This is a very special time for our company. And as we like to say here, it is all about growth, it is all about a higher sense of purpose and it's all about being passionate in everything that we do. And we try to live up to that every day. So if you're an employee, a shareholder or a customer and you like opportunities produced by growth, global expansion, technology, transformation and outstanding people, I think you're going to be excited about our story.

In March of this year, we completed the 20-month-long Growth and Value Plan, which resulted in the creation of 2 powerful new companies, McGraw-Hill Education and McGraw-Hill Financial, allowing both companies to pursue their specific growth agendas. The action that we have taken has accelerated the pace of our growth and created superior value for our shareholders. And for McGraw-Hill Financial, it is a name that more closely identifies the essential intelligence that we provide to both the global, financial and the capital and commodity markets. With your vote today, we'll officially rebrand our company McGraw Hill Financial.

We're also celebrating something that is a little bit unbelievable and is an amazing achievement in its own right. We're celebrating our 125th anniversary. Since our founding in 1888, the world has grown up at a rapid pace. Breakthroughs in energy, science, technology, coupled with globalization, the energy behind urbanization and the growth of international trade have raised living standards throughout the world. Today, and as we mentioned last night, today, the developed world, which is the United States, Europe and Japan, represents about 50% of world GDP. The good news of that message is that 50% of world GDP is generated outside of the developed world. What a change in just a decade-plus on that one.

By 2030, short 17 years, the latest McKinsey study has that, that 50% of world GDP generated by the developed world will be 30% on that part. And what exactly does that mean? It means growth, lots and lots of growth. It means hope, it means opportunity, it means improved standards of living and it means that others in our world are going to start to benefit from all the things that we have been benefiting from. And for our company, we sit right in the very heart of all of this change. These changes, plus the ingenuity of our own people, has spurred business innovations, opened new ways of learning, contributed to widespread economic progress. And this is not alien us -- to us at The McGraw-Hill Companies.

Think for a moment of McGraw-Hill's pioneers. When entrepreneurs and others wanted to know more about the emerging technologies of their time, railroads, electricity, whatever, our founders offered powerful insights with branded and trusted journals, books, conferences, whatever. You see, McGraw-Hill has always been in the business of helping professionals and educators do their jobs more effectively and, obviously, more efficiently. When the oil industry was still in its early days in America, a young journalist named Warren Platt saw a need for oil market news and set out to promote transparency and competition through the greater flow of information. When technology allowed for the calculation of indices from a large number of stocks in a matter of seconds, Louis Shellback and George Olsen [ph] revolutionized the stock market, launching the S&P 500 way back in 1957.

And while McGraw-Hill Education is now a separate company, we recognize their trailblazing work because it is an essential part of our legacy. For instance, when MIT professor Paul Samuelson questioned why there was this huge gap between the theory-laden material that he had been taught in college and the economic problems of the real world, he began writing this seminal textbook, Economics, in 1945. It's now in its 19th edition, and it is as relevant as ever. We are so proud of the tradition. And at the conclusion of this meeting, you can see so many more stories of all of these pioneers in the gallery next door. And I think you'll find it fun, exciting and for all of us, very, very rewarding.

Okay. With that history as a quick backdrop, I would like to spend the remaining time that we have together this morning focusing on the present and the exciting way forward. And there are 3 topics that I would like to cover. First, it's important to acknowledge the character, quality and commitment of our employees. They are the ones who have always made and will continue to make this company exceptional. Second, we'll review our recent strong performance and discuss how we are building on this momentum for the days and the years ahead. And third, you'll hear about the powerful secular trends driving long-term demand for our information, ratings, benchmarks, analytics and other capabilities.

So let's start with talking about our people. And we're using 3 words that I began with in the beginning to describe our near 20,000 men and women of our company: growth, purpose and passion. To us, growth is a mindset. It's an attitude. It's about being a constant learner and making impacts in markets. It is never ever about us. It is always about the things that we can do to influence others and to make impacts in markets. Purpose means having a positive impact both at work and in the communities in which we live and work. Above all, our employees display great integrity, adhere to the highest standards of fairness, impartiality and transparency. Our Board of Directors, senior management team, customers and many market participants recognize their ethical conduct and their value to the essential insights that they provide. Well, and passion gives our people the energy to drive the growth and stay committed to the highest measure of our values. It is what we are all about.

Now, recently, the U.S. government made claims that are contradicted by our very values of honesty and fairness.

The Department of Justice has joined with 17 states in filing civil lawsuits against the company related to S&P's ratings of 33 collateralized debt obligations, securities that we call CDOs, back in 2007. Claims that S&P ratings analysts deliberately kept ratings high when they knew they should have been lower are simply not true. The bottom line is this: The facts do not support the government's theory. S&P analysts acted in good faith, relied on the same data as the rest of the market, including the Federal Reserve and the U.S. Treasury, and came to the same conclusions. As a result, we fully expect to prevail.

Last week, we moved to have the government's complaint dismissed. We filed a motion for dismissal of the complaint in its entirety. As our legal team said in our filing, S&P's inability, along with the Federal Reserve and U.S. Treasury and other market participants, to predict the extent of the housing crisis, as it related to securities in the financial downturn, reveals a lack of foresight, not -- and certainly not any wrongdoing.

We expect the federal and state suits to take probably 2 to 3 years to resolve, if not sooner, meaning you can expect some headlines about the government's claims to continue. But rest assured, we will prevail and we will stay keenly focused on what we're supposed to be doing, which is our customers and serving the growing needs of our markets.

In other legal news, on April 26, we said that we have settled the Abu Dhabi and King County cases without any admission of liability or wrongdoing. While we had strong factual and legal defenses to these 2 cases, we made a practical business decision to settle these actions. The settlements will have no bearing on our positions in any other cases. We have a successful record dealing with financial crisis-related cases. 42 cases, 42 have been dismissed or withdrawn to date. And by the way, just so one knows, we do everything in the federal courts. And today, because it is such a litigious society, it takes 2, 2.5 years just to get in to the queue to get before a federal judge. And so they sit there. And the majority of these 42 cases that have been settled or withdrawn were done in the same day that the judge saw them.

We have learned plenty of valuable lessons from this whole crisis period, and we continue to improve S&P's credit ratings. In the past 5 years, we have spent approximately $400 million to reinforce the integrity, independence and performance of our S&P ratings. We continue to strengthen our leadership team. We've instituted new governance and enhanced risk management functions. These actions exemplify a culture of continual improvement and a recognition that integrity is at the very heart of everything we do. The principles by which our employees conduct themselves every day can be seen in their research, their analytics, their editorial judgments and throughout the neighborhood in which we live and work.

For a window into the character of our employees, look no further than the service to communities, especially when the need for support is greatest. It cannot be overstated what an impact Hurricane Sandy had on the New York metropolitan area. Incidentally, we used to have -- just about everyone has, here at 1221, Joe Dionne and I discuss that. And we thought that given some of the new situations and the like, that we should diversify. So we did. We diversified to 2 Penn Plaza and eventually to 55 Water so that no one area could be hit at once. Hurricane Sandy did not treat us very nicely, Joe, because they all got hit and all of that. There are people like Dave Williams of S&P Capital IQ who spent days in New Jersey and Staten Island cleaning out basements of homes that sustained water damage. There are people like Teresa Wills [ph], who works in our tax department and was part of a whole huge team of employees who packed 7,300 meals for hungry families affected by the storm. No one asked them to do this. They, like so many of our employees, just did it. Both in the office and in their communities, our people do the right thing. Now Teresa couldn't be with us today, but Dave is here. And so I'd like to ask Dave to stand. And he represents, as one individual, all of our employees and what we're trying to do. Dave? Thanks. Good job.

And as many of you know, last year, we lost one of our absolute best employees and one of our best friends in Don Rubin. Don was our Senior Vice President of Investor Relations and a close personal friend to all of us. He represented the heart and soul of who we are and of our house. During a distinguished 52-year career with the company, Don displayed great wisdom, which was matched by the impeccable quality of his character. At this meeting a year ago, we told you we were going to establish a scholarship in his memory and to pay tribute to Don's early career as a reporter. I am pleased to report the City University of New York Graduate School of Journalism awarded the inaugural Donald S. Rubin McGraw-Hill Memorial Scholarship to a very deserving student in September. Her name is Laura Lorenzetti. Laura graduated Cum Laude from -- with a BA from -- in Economics from New York University and is studying at the CUNY School because she says that she knows that as she graduates, "I'll be quick to enter a newsroom, ready to break news on deadline and of the highest quality." Laura is with us today. She's joined by former BusinessWeek Editor-in-Chief and CUNY Founding Dean, Steve Shepard, and Dean Diana Robertson of CUNY. Laura, would you, Steve and Diana, please stand?

Laura, this is as good as it gets, okay? It gets harder from here. So congratulations to you and we wish you, obviously, very well. And we're going to follow your success on this one. And to Nancy Rubin and Laura and Alex Rubin, thank you for joining us today as well. We so enjoyed to continue to celebrate your husband and your dad.

Okay. The second topic I wanted to cover is our strong performance and bright prospects going ahead. And as I also said last night, Jack Callahan reminded me, today is the last day that I can talk about our performance of 2012. We have to move on and all of that. So with that in mind, I want to talk about it in terms of Growth and Value. We achieved strong growth in our financial results, and we unlocked value for shareholders. And that's the combination we want to keep before us always. Yesterday, we announced first quarter earnings for 2013. Revenue grew by 14% to $1.2 billion. Excluding onetime costs, net income from continuing operations increased 29%, and EPS from continuing operations rose 29% to $0.80 per share. Looking ahead for all of 2013, our guidance calls for revenue to grow at high single digits, adjusted earnings per share to grow somewhere between $3.10 and $3.20, which equates at the midpoint to 15% growth. And we're going to be working very hard to even better than that. Our first quarter growth trends carried over from 2012. Last year, revenue grew 13% and adjusted earnings per share from continuing operations grew at 32%.

2012 was an extraordinary year for us. After careful consideration, we came to an agreement to sell McGraw-Hill Education. McGraw-Hill Education is just a phenomenal franchise and obviously plays a key role in today's knowledge economy. Education will always be vital to us and, as I said earlier, a proud legacy of this company. On our behalf, I wish to wish CEO Buzz Waterhouse and all the employees of McGraw-Hill Education every success in fulfilling their critical mission to educate the world. The sale of McGraw-Hill Education generated $2.5 billion. It generated net proceeds of $1.9 billion. We used a portion of that to pay down some short-term debt and to resume our share repurchase program, and the remainder is available to return to shareholders and to invest back in our businesses.

The proceeds afford even more financial flexibility than normal. Our business produces very solid free cash flow, and we have a very low level of debt. Our strong balance sheet and confidence in the future have allowed us to consistently deliver on our commitment to generate superior shareholder value. Underscoring that commitment, we have returned $1.3 billion in cash to shareholders last year in the form of dividends and share repurchase. We declared a special $2.50 per share dividend in December that was $700 million. That was on top of the regular $1.02 regular annual cash dividend. In January, the Board of Directors voted to increase the regular quarterly cash dividend by 9.8%. And here's the fun part. We have paid a dividend every year since 1937, and we've increased it every year since 1973. That is every year for 40 years. Fewer than 25 companies in the S&P 500 can claim that record.

We're obviously very proud of our S&P Dow Jones Index business. And I don't know if Alex Matturi is here, but he's very proud of what we have accomplished since 1957 with the landmark S&P 500 and the performance of the S&P 500. But here's some more exciting news, and this is over both the short and the long term. The McGraw-Hill Companies total shareholder return has outperformed the S&P 500 over the last 10 years, over the last 5 years, over the last 3 years and over the last year. We're very proud of that record.

Okay. With that review complete, let's take a look at the steps that we've been taking to position us for greater growth and value creation in the days and the years ahead. We continue to add capabilities to our fast-growing businesses. Last year, we made strategic investments in QuantHouse, R2 Financial Technologies and Credit Market Analysis Limited, and these were all in our Capital IQ platform. Coalition Development Ltd. to add high-end analytics to CRISIL. That's our analysis, research and credit rating company in India. And Kingsman to give Platts even more of a capability in the commodity platform by adding more in the agriculture area, in particular, sugar. And we launched a superb joint venture with the CME Group, S&P Dow Jones Indices.

Earlier, I mentioned that this is an exciting time for our customers. So how are they benefiting? At S&P Capital IQ, the team is adding portfolio risk analytics. While others can offer portfolio analysis, attribution or risk scenarios separately, S&P Capital IQ is bringing all of these together in one offering and across multiple asset classes. This will help traders, portfolio and risk managers price, hedge and manage their investments. We also expect our businesses to become more integrated over time to the benefits of our customers.

International expansion, as we mentioned earlier, is another huge priority for us. The case for global growth is clear. When the U.S. is expected to grow at 2.7% this year, I hope, emerging markets will expand at a much faster pace. China is forecast to grow their GDP at 8.1%; India, 6%; Asia-Pacific region, excluding Japan, at 6.2%. 40% of our revenue now comes from outside the United States, and it's growing at a faster rate. And that number is only going to go up. Five years ago, it was only about 1/3. We expect more growth on the global side ahead.

That's why earlier this year, S&P Ratings Services moved to a larger liaison office in Istanbul. This office will support the growth of our business in Turkey, as well as expand S&P's international presence for ratings alone. They're now in 23 countries, and that's only going to go up. And, of course, with your vote today, we are launching the new brand.

McGraw Hill Financial is focused on providing clients with the essential intelligence that they need to make better-informed decisions. Our employees are excited about the brand. When we asked them to describe the future of our company, they used words like this. This diagram is a word cloud. And every time somebody uses one of the words, it keeps getting bigger. So the bigger words means that, that's what keeps coming up. And isn't it kind of fun that the words that keep coming up are exciting, bright, growth, innovative and leader on that part. And by the way, that's the handiwork of Ted Smyth. He's very proud of his word cloud, and he takes it everywhere he goes. So beware in the gallery afterwards.

We've produced a short video to show you the role that employees play in creating this essential intelligence. Take a look.

[Presentation]

Harold Whittlesey McGraw

What a terrific message and what terrific employees. We're very, very proud of all they do.

Okay. With our new brand identity, we're also changing the ticker symbol under which our shares trade on the New York Stock Exchange. On May 14, shares of McGraw Hill Financial will begin trading under the MHFI ticker symbol, and we will be at the New York Stock Exchange to ring the closing bell on the 14th. If any of you want to come, I would love to have you. There's hardly anybody on the floor of the New York Stock Exchange anymore. Everything's electronic. For those of you in the New York City area this Friday evening, please take a minute to look at the Empire State Building. It will be lit up in red in honor of McGraw-Hill Financial and to commemorate our 125th anniversary.

We accomplished a lot in 2012 and the first quarter of 2013, but that just sets the stage for the rest of the year and beyond. We believe secular trends in the global capital and commodity markets will benefit us for many years to come, and this is the third topic that I wanted to address with you. We sit, as I said, right in the middle of some of the biggest developments shaping our global economy. According to a recent report by McKinsey & Company, global financial assets, that's debt and equity, grew to a record $225 trillion last year, albeit the growth rate has slowed somewhat since the financial crisis. But to give you some perspective of all of that, the value of financial assets in the year 2000 stood at $119 trillion, so just in that time frame, $119 trillion to $225 trillion. And according to a report last year by S&P, non-financial corporates in the Eurozone, U.K., U.S., China and Japan, just those will need as much as $46 trillion over the next 4 years. That's both in terms of refinancing as well as new monies to spur growth.

In addition, European banks continue to deleverage, shifting finance to capital marks -- financing to capital markets. We're seeing the introduction of bond markets all over the world so quickly as markets are turning to the capital markets and, in particular, the fixed-income market in order to raise the kind of capital for their growth in expansion, their infrastructure financing. Right now, we are looking at -- over this time frame by 2030 some $70 trillion -- I don't know what $1 trillion looks like -- but some $70 trillion in infrastructure financing on a worldwide basis. India alone in the next 5 years is going to be spending about $1 trillion. We're talking about roads. We're talking about bridges. We're talking about hospitals. We're talking about institutions that are going to be to the benefit of all these people. These shifts mean there are growing opportunities for Standard & Poor's Ratings Services to bring transparency to the capital market around the world at a time when it is so desperately needed.

In the global commodity markets, continued volatility has increased the demand for transparency. That's why earlier this year, Platts introduced its electronic editorial platform to facilitate price discovery, pricing in the iron ore spot market. Platts is helping to facilitate transparency and efficiency by clearly showing the iron ore market bids, offers and other information. The information collected from Platts' editorial window, which we call eWindow, has further enhanced the speed and efficiency of the Platts pricing assessment process, helping to transform the iron ore market from a long-term annual pricing system to a flexible spot market.

Now just so that we're clear on this, the transformation at Platts is huge. From a pure information and editorial process, what it produces today is about 12,000 price assessments and benchmarks that trade on spot markets all around the world. If I'm a manufacturer and I need raw materials, I used to enter into these long-term contracts. And then these manufacturers turned around and said, "I don't want long-term contracts and have to inventory all these raw materials. I just want what I want when I want it." And there weren't spot markets that existed at that time. Today, they're all over the world, and it's Platt that provides all the pricing assessments that make those spot markets work.

Another positive trend, assets continue to shift to index investment. Inflows to exchange traded funds, or ETFs, reached a record $191 billion last year. Overall, exchange traded fund assets have more than doubled since 2008. Assets under management and exchange traded funds based on S&P and Dow Jones Indices hit $466 billion in 2012. That's a 27% increase versus 2011. And since the end of last year, exchange traded fund assets based on our indices have increased to a record of more than $500 billion. That's your assets and you're right in the center of it. More growth in this market is expected. One outside study projected assets in exchange traded products, that includes ETFs, exchange traded commodities and exchange traded notes, to grow as much as $4.7 trillion by 2015 and $1.5 trillion in 2010. Our commitment is to provide an index for every single kind of investment. All of these trends are very powerful and long-lasting, which should excite our employees, clients and I hope excites our shareholders.

Now I begin this morning by talking about our people. They obviously do just a fabulous job day in, day out. Let me wrap up by sharing 2 brief stories that underscore the defining quality. Because of our expertise and operating insights into equities, fixed income, commodities and other assets, our philanthropic initiatives and community-focused programs are aimed at expanding important personal finance topics to students as well as to adults. We call this financial essentials.

Earlier this year, I was in India where I had the great pleasure to help launch the CRISIL Foundation. They're focused hugely on this idea. And by the way, their success has been so rapid and to get to a point where they have established this CRISIL Foundation just talks about a smart head and a kind heart. We established this strategic partnership with CRISIL in 1996, and we took a majority stake in 2005. CRISIL's growth has been phenomenal. Over the last 5 years, revenues have increased at a compounded annual growth rate of nearly 20%. And they're doing so well that Doug Peterson is now taking credit for it, which is what I do, too. But that's not the whole story. It's not all about the bottom line. It's about helping out. So in March, CRISIL established its foundation. In its first year, it's expected to reach over 50,000 girls and women in India to raise the level of understanding of personal finance issues such as saving, insurance and so forth. So female inclusion is the first part. The other story to what they're doing, is financial literacy and all the components on that part. We're very proud.

The other story that I'd share with you is closer to home. Next door in the Hell's Kitchen neighborhood, there's a wonderful organization that we've had the privilege of partnering with for more than 50 years. It's called Hartley House. It's a community development center that offers hope and opportunity to thousands of residents every year through after-school services, adult education programs and so forth. Our employees are there continually helping however they can. They set up computers, paint, provide support in whatever ways necessary. Nicole Cicogna is the Executive Director of Hartley House. We're glad that Nicole could be with us. Nicole, I hope you're here because I didn't see you when I came in. But -- there you are. Nicole, we enjoy so much working with you. Thank you.

For 125 years, the common thread of our company has been the integrity and ingenuity of our employees. From the industrial revolution to today they have delivered essential intelligence that customers and markets can trust. As we look ahead, our long-term growth prospects are excellent because of the people, the culture, the values and the capabilities of this company and the powerful enduring trends of our market.

Let me close by once again thanking our world-class Board of Directors for their indispensable leadership and counsel. And thanks to all of our shareholders for your investment in the new McGraw-Hill Financial, a terrific 125-year anniversary. And we look forward to continue to hopefully please you with all the things that we're trying to do. There we go.

Okay. Now the moment that you've all been waiting for. The meeting is now open for questions or comments concerning any subject generally relating to the McGraw-Hill Companies, hopefully McGraw-Hill Companies. I would request that all questions and comments be directed to me, although I may redirect some if necessary, so you'll have the opportunity to see the persons more directly responsible. As before, in order for remarks to be heard, please use the microphone on either side or we'll get you a handheld if you so need one. Please state your name and whether you're a shareholder yourself or you represent one.

Let's go to questions and comments. The floor is open. And senior management, you cannot ask a question.

Question-and-Answer Session

Unknown Attendee

Hello. My name is Nora Maloney [ph], and I am a shareholder. I would like to know the status of the Australian litigation and if that has any impact on the current U.S. litigation that you're working on.

Harold Whittlesey McGraw

No. Again, when we start talking about litigation, we take everything as a stand-alone and the issues associated with that. We have worked through the Australian issues on that case. We are in appeal on that one, and we'll just see as time goes on. In all of these, there's questions, big questions of motives and thoughts of impropriety and all of those things. Those things don't live here. One of the things that everybody here that works at the company knows and understands is that the value structure is at the heart of who we are and what we do. And so we fully understand that when things go wrong, people can use a litigation system. But we will defend vigorously every attempt that's against us. And no one suit has a bearing on another suit. So the U.S. situation is different from that.

Unknown Shareholder

Thank you.

Harold Whittlesey McGraw

You bet. Any other comments? Questions? Yes.

Philip Berman

Philip Berman, portfolio manager and shareholder. Some comments and questions together. For the last few years, Terry McGraw and the board have had to make very difficult corporate business decisions to transform a company with an iconic traditional-storied history into a leaner company concentrating on managing the divisions where the outlook is far stronger and more certain -- for more certain growth. The newly minted McGraw-Hill Financial Companies shall in the future be able to be more intensely concentrated on making more strategic, synergistic acquisitions that may present themselves in the future as we move through the various phases of the Internet digital age. In the last year, it's noteworthy that when large, multinational corporations have reconfigured their core emphasis, the aggregate sum value of the remainder stronger division have led to a higher stock price on both the short-term and long-term basis. Now some questions. As we are all aware in recent years, newspapers, magazines and books have all had to modify their business models substantially. As a college textbook publisher, what -- to what extent was the Education business sale based on the company having to deal with the old business model of new textbooks versus the used textbook market and textbook renting and the trend of custom publishing against the uncertain backdrop of eBooks and the Internet?

Harold Whittlesey McGraw

Thank you very much, and thank you for your opening comments on that one. I want you to know that, again -- and I appreciate your specific comment. But again, we have a world-class Board of Directors and I think the world-class senior management team here and management teams underneath them. These decisions don't come easy. We think through them very hard. And one of the comments that I was making about Growth and Value, growth in the future and unlocking value for shareholders is what we've got to always be about and focused on. And so together, we make those kinds of decisions. The second point on the Education front, one of the things that led us, in terms of the Growth and Value Plan, to separate into the 2 powerful companies, McGraw-Hill Financial, McGraw-Hill Education, was that in the McGraw-Hill Education space, unfortunately and especially domestically, we're failing our young people today. We have a flawed funding model. We're using local property taxes and local municipalities to fund our operations. The federal government does nothing on that part. And because of that, we are not making a progress in terms of educational reforms giving more opportunities to more people. So what we have done with McGraw-Hill Education is put it into a private setting, where it can more quickly expand into the digital transformation that we believe in. We believe that in terms of the textbook of today, that there's so much more that we can do in terms of the digital capabilities. And I would like to urge anyone to look at the relationship we have, for example, with Apple and all the programs we put together with Apple in terms of the iPad that brings to life these kind of materials. Now we've got to do it on a scale basis. But for McGraw-Hill Education, they're going to have to do it in a private setting, not in a public setting, so that they can move very, very quickly in being able to do it. But I -- I mean, to say education is essential to any society is sort of silly. It's obvious and all that. We just have to find newer, better and more constructive ways to do it. And I think in a private setting, it's going to have that opportunity. The McGraw Hill Financial, it unlocks a lot of that shareholder value in terms of such robust conditions around the world in terms of -- again, the capital demand used to be that big and banks supplied the majority of those funds. Today, the capital demand for growth is up here, and banks are still only providing this much. So where does all of that capital come from? That's coming from capital markets and, in large part, fixed income markets around the world, and that's why you're seeing such expansion of exchanges, expansion of capabilities. And again, one of the very nice things for McGraw Hill Financial is you're sitting right in the heart of this huge opportunity. It's up to us to take advantage of it and all that. But that's what this team is all about.

Philip Berman

The outstanding highlights of the first quarter beyond the already booked Education sale was that bond sales heavily boosted MHP's earnings. In essence, without the usually steady income of the former Education division -- that the former Education division provided, the stock may be more volatile now depending on economic conditions. For example, in the event Congress ever funds infrastructure development for our crumbling highways, bridges and roads...

Harold Whittlesey McGraw

I wish they would.

Philip Berman

That would help us enormously. How do you feel about the new change in the structure of the company whereby it's no longer going to be buffered by the Education division and we're going to have volatile [indiscernible] possibly?

Harold Whittlesey McGraw

Well, I think your comment is exactly correct. Again, they are 2 very different kinds of business. McGraw-Hill Education is a very capital-intensive, asset-intensive business, and it's a long-cycle business. When we talk about reading programs or social study programs, you're talking 4 or 5 years in terms of getting paybacks on those things. So in a firm like that, you're going to have to ask investors to be very patient. And therefore, you're going to have to have higher dividend yields and so forth to accommodate that. With McGraw Hill Financial, without that capital-intensive capability and the like, you're right, you're going to be much -- or you're going to trade much more as a market-related entity. And therefore, if markets are doing well, you should be doing very well. And if markets are not doing as well, we're going to feel that impact. And so to your point, you will see a little bit more volatility. We will do everything that we can to smooth that out over time. But you're exactly right, being a more pure financial-related, commodity-related, capital markets-related market, you're going to be more influenced by market factors.

Philip Berman

And would the board ever consider -- as we're changing the content of the company, would the board ever consider changing the dividend policy to a stock dividend, which would be tax-free, versus that cash dividend policy?

Harold Whittlesey McGraw

By the very question, Sir Win Bischoff, as Head of our Financial Policy Committee, I'm sure, will be thinking that part through. Right now, in terms of everything that we do, in terms of our relationship with our holders, the cash dividend is one that is highly regarded, as well as our share repurchase program and all of that. But also, the other 2 uses of capital are transactions and organic growth. And, again, having a clean balance sheet and having the ability to have access to funds, all 4 components in terms of use of capital are in the boat. But we'll take a look at that. Thanks.

Terrific. Any other comment? Questions? Okay. If there are no other questions, we will now proceed to the next order of business. And I understand that the inspectors of election, Ken, have now submitted their report to the secretary. And will you read that report?

Kenneth M. Vittor

Thanks, Terry. The preliminary tally of votes by the inspectors of election shows that the 13 persons nominated as directors of the McGraw-Hill Companies have been elected. The proposal to approve changing the company's name to McGraw Hill Financial, Inc. has been approved. The proposal to approve on an advisory basis the executive compensation program for the company's named executive officers has been approved. The ratification of the appointment of Ernst & Young LLP as the company's independent registered public accounting firm for 2013 has been approved. The shareholder proposal requesting shareholder action by written consent has not been approved. The certificate of the inspectors of election will be filed with the records of the meeting, and the final results will be available on or before May 7 in our SEC Form 8-K filing.

Harold Whittlesey McGraw

Well, there you have it. Welcome to the first day of McGraw Hill Financial. And once again, I thank all of our shareholders on the phones, webcast, wherever you are, here, for all of your support and your -- and our appreciation with that. The vote for the directors is also very much appreciated. With that, there are no -- there being no other further business before us, I will now entertain a motion for adjournment.

Unknown Attendee

[indiscernible].

Harold Whittlesey McGraw

I didn't ask for a seconding. I don't want you to think this was scripted. All in favor?

[Voting]

Harold Whittlesey McGraw

Thank you, all, very much.

Operator

That does conclude this morning's call. On behalf of the McGraw-Hill Companies, we thank you for participating and wish you a good day.

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Source: The McGraw-Hill Companies, Inc. - Shareholder/Analyst Call
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