Revenue Grows by 16.9%
NEW YORK, July 26 /PRNewswire-FirstCall/ -- The McGraw-Hill Companies
(NYSE: MHP) today announced diluted earnings per share from continuing
operations of $0.51 for the second quarter of 2005, an 18.6% increase over the
$0.43 reported for the same period last year. The second quarter 2005 results
include $0.03 dilution from acquisitions in 2004 and 2005. All prior year
earnings per share have been adjusted to reflect the two-for-one stock split
that was distributed on May 17, 2005 to shareholders of record on May 6, 2005.
"Net income for the second quarter was $195 million versus $165.6 million
for the same period last year.
"Revenue for the second quarter grew by 16.9% to $1.5 billion.
"A record performance at Financial Services and a solid increase at
McGraw-Hill Education were key to our second quarter results," said Harold
McGraw III, chairman, president and chief executive officer of The McGraw-Hill
Companies.
"For the first half of 2005, earnings per share from continuing operations
were $0.71 versus $0.63 for the same period last year.
"The first-half results of 2005 reflect $0.04 of dilution from
acquisitions in 2004 and 2005. The 2004 results include a non-cash benefit of
$0.05 per share of accrued tax liabilities following the completion of various
federal, state, local and foreign tax audits.
Education: "Revenue for this segment in the second quarter grew by 14.8%
to $628.6 million while operating profit improved by 25.5% to $71.6 million.
Foreign exchange rates contributed $3.4 million to revenue and had a slightly
positive impact on operating profit.
"Revenue for the McGraw-Hill School Education Group increased 17.0% in the
second quarter to $414.4 million. Revenue for McGraw-Hill Higher Education,
Professional and International Group grew by 10.9% to $214.2 million.
"A very good year is taking shape for the McGraw-Hill School Education
Group even if Texas does not provide all the funding we had anticipated in
2005. The Texas legislature recently approved $295 million for instructional
materials the state adopted for purchasing this year, but funding is
contingent on decisions lawmakers now meeting in a special session will make
on taxes and other school financing issues.
"In the second quarter, the breadth and depth of McGraw-Hill School
Education's product lineup helped us grow in the state adoption market, the
open territories and in testing.
"The biggest new state adoption opportunity this year was in social
studies. With most district-level decision-making completed by the end of the
second quarter, our middle and high school programs led the secondary market
with powerful performances in Florida and Alabama. Our elementary health
program captured leading shares in California, Indiana, and South Carolina,
while both our elementary and secondary science programs achieved excellent
results in North Carolina and Indiana.
"In Texas, we started to benefit from funding that was released in the
second quarter for the purchase of business, family and consumer science and
technology products. Sales of these vocational and technology programs had
been scheduled in 2004, but were postponed because of funding issues.
Residual sales in reading and math also contributed to our strong second
quarter performance in Texas.
"Our alternative basals, Open Court Reading and Everyday Mathematics, have
continued to capture new sales across the country. Our elementary school
products realized incremental revenue from Reading First, the program created
as part of the No Child Left Behind Act to ensure children can read at or
above grade level by the end of third grade. To reinforce that effort, the
Los Angeles Unified School District is purchasing Kaleidoscope, our new
intervention product for the elementary grades.
"To meet No Child Left Behind requirements for testing in reading and math
in grades three through eight at the end of the 2005-06 academic year, states
have been developing standards-based assessment programs. State compliance
activity has created solid growth in our custom contracts business, which is
offsetting declining sales for national, norm-referenced assessments. We also
benefited from the expansion of business with the State of Qatar's National
Assessment Program.
"Our higher education products sold well here and abroad. In the U.S.
college and university market, we are particularly encouraged by the second
quarter performance in Science, Engineering and Math, which introduced new
editions of some of its best sellers in chemistry, biology and mathematics.
With our other major imprints in Humanities, Social Science and Language, and
Business and Economics also producing increases in the second quarter, we
continue to expect to gain share in the U.S. college and university market
this year.
"In professional markets, our medical titles generated solid results. New
16th editions of Harrison's Manual of Medicine, published in February, and
Harrison's Principles of Internal Medicine, published last July, were primary
drivers. A Spanish-language edition of Harrison's Principles of Internal
Medicine sold well in Mexico.
"Four of our leading trade titles were recognized as best sellers in the
second quarter. Crucial Conversations, The Millionaire Real Estate Investor
and The Millionaire Real Estate Agent all made it onto BusinessWeek's list of
best sellers. Wooden on Leadership was on The Wall Street Journal's list.
Financial Services: "Revenue for this segment in the second quarter
increased 18.4% to $597.4 million and operating profit grew by 20.6% to
$258.3 million compared to the same period in 2004. Foreign exchange rates
contributed $4.4 million to revenue and $5.3 million to operating profit in
the second quarter of 2005.
"Standard & Poor's growing geographic and product diversity in debt and
equity markets around the world produced another record quarter. Setting the
pace were international credit ratings and services, which grew faster than
domestic products and accounted for 35% of ratings revenue. International
ratings accounted for 33% of ratings revenue in the second quarter last year.
"Issuer and investor appetite for securitized debt again played a key role
in our results. Structured finance showed strength across all asset classes
and in all of our international regions - Europe, Asia, Latin America and
Canada. In Europe, our largest overseas market, Mortgage-Backed Securities
and Collateralized Debt Obligations, were particularly strong as investors
sought a combination of attractive yields, good credit quality and asset
protection.
"In the United States, the Residential Mortgage-Backed Securities market
continued to confound predictions of a slowdown. A strong housing market,
lower than expected interest rates and a proliferation of new mortgage
products, including hybrid adjustable rate mortgages, negative amortization
loans and interest-only mortgages, helped produce a 39.9% increase in new
issue dollar volume in the second quarter.
"The Commercial Mortgage-Backed Securities market set a new U.S. record
for issuance in the second quarter as dollar volume soared by 75.8%.
"The Collateralized Debt Obligations in the U.S. market grew by 64.1% in
the second quarter versus the same period last year.
"A steep decline in high-yield issuance and a slowdown in investment-grade
activity curtailed growth in corporates in the second quarter. Public finance
benefited from a surge in refunding activity.
"New issue dollar volume grew in the United States and European bond
markets in the second quarter versus the same period in 2004. In the U.S.,
total new issue dollar volume was up 23.0%. Corporate new issuance declined
by 2.0%. Public finance grew by 3.0%. Mortgage-Backed issuance climbed by
44.2% while Asset-Backed issuance increased 29.1% according to reports from
Securities Data Corporation and Harrison Scott Publications.
"In Europe, new issue dollar volume was up 47.8%, according to Securities
Data Corporation and Harrison Scott Publications.
"We continue to benefit from ratings and services that are not tied to new
issuance. They represent just over 19% of ratings revenue in the second
quarter as financial strength ratings of insurance companies, counterparty
credit ratings and performance evaluation services helped offset a decline in
bank loan ratings and rating evaluation services.
"In equity markets, our sales of independent research continue to grow to
participants in the Global Research Settlement and to non-settlement firms
here and abroad.
"With assets under management in Exchange-Traded Funds (ETFs) based on S&P
indexes growing by 31.2% over the prior year, our indexes produced a solid
gain. At the end of June 2005, there was $118.2 billion in assets under
management in those ETFs.
"Volume also grew in contracts for exchange-traded derivatives based on
S&P indexes at the Chicago Board Option Exchange, the Chicago Mercantile
Exchange and other options exchanges. Daily average volume in the second
quarter for options based on Standard & Poor's Depositary Receipts (SPDRs) was
164,750. At the Chicago Board Option Exchange, daily average volume for the
S&P 500 options contract was 260,139 in the second quarter.
Information and Media Services: "Revenue for this segment in the second
quarter grew by 18.6% to $230.3 million compared to the same period last year.
J.D. Power and Associates, which was acquired on April 1, 2005, accounted for
$33.6 million of the revenue increase in the second quarter. Operating profit
in the second quarter fell $11.2 million to $13.6 million due to a decline in
advertising and $8.9 million of acquisition-related costs at J.D. Power and
Associates.
"Foreign exchange rates had an immaterial effect on revenue, but reduced
operating profit by $0.2 million in the second quarter.
"Revenue for the Broadcasting Group in the second quarter was off 0.4% to
$27.9 million as growth in local-time sales virtually offset a decline in
national and political advertising.
"Revenue for the Business-to-Business Group, which includes BusinessWeek,
J.D. Power and Associates, construction, energy, aviation, and healthcare
products and services, increased 21.8% to $202.4 million in the second
quarter. The revenue increase reflects the acquisition of J.D. Power and
Associates and gains in information products and services, which offset a
fall-off in advertising revenue.
"Advertising pages for BusinessWeek's North American edition were off 9.2%
in the second quarter, according to the Publishers Information Bureau.
"We're pleased with J.D. Power and Associates' progress in the second
quarter. Auto and non-auto businesses produced substantial increases in
revenue. The integration is proceeding smoothly.
"Increases in advertising revenue at Architectural Record, ENR, the
regional publications and from our newly-launched magazines, My House and
Constructor, helped offset softness elsewhere in construction. In the second
quarter of 2005, we continued to make investments in the McGraw-Hill
Construction Network to strengthen its effectiveness and efficiency.
"In a volatile oil market, the demand for our news and pricing information
continued to grow.
"Aviation Week benefited from the Paris Air Show, which was held in the
second quarter.
The Outlook: "Given the strength of our first-half performance and the
outlook for the second half, we are increasing our earnings guidance for the
year. We now expect double-digit growth in earnings per share from continuing
operations, including $0.08 to $0.09 dilution from acquisitions in 2004 and
2005 and changes in pension plan assumptions for 2005, but excluding the 2004
non-cash benefit of $0.05 per share from accrued tax liabilities."
Conference Call/Webcast Details: The Corporation's senior management will
review the second quarter 2005 earnings results on a conference call scheduled
for this morning, July 26th, at 8:30 AM Eastern Time. This call is open to
all interested parties. Discussions may include forward-looking information.
Additional information presented on the conference call may be made available
on the Corporation's Investor Presentations website at
www.mcgraw-hill.com/investor_relations. To participate by telephone, please
dial-in by 8:20 AM Eastern Time and register before the start of the call.
Domestic participants may call toll-free (800) 857-9633; international
participants may call +1 (630) 395-0023 (long distance charges will apply).
The passcode is McGraw-Hill and the conference leader is Harold McGraw III.
The conference call will also be Webcast. Go to the Corporation's Investor
Relations website and click on the Earnings Announcement link under Investor
Presentation Webcasts. At the Event Details screen, select the Webcast link.
You will need Windows Media Player. The prepared remarks and slides will be
available for downloading from the Investor Relations website's Investor
Presentations archive several hours after the end of the call and a Webcast
replay will be available until August 2, 2005.
The forward-looking statements in this news release involve risks and
uncertainties and are subject to change based on various important factors,
including worldwide economic, financial, political and regulatory conditions,
the health of capital and equity markets, including possible future interest
rate changes, the pace of recovery in the economy and in advertising, the
level of expenditures in the education market, the successful marketing of
competitive products and the effect of competitive products and pricing.
About The McGraw-Hill Companies:
Founded in 1888, The McGraw-Hill Companies is a global information
services provider meeting worldwide needs in the financial services, education
and business information markets through leading brands such as Standard &
Poor's, McGraw-Hill Education and BusinessWeek. The Corporation has more than
300 offices in 40 countries. Sales in 2004 were $5.3 billion. Additional
information is available at http://www.mcgraw-hill.com.
The McGraw-Hill Companies
Statements of Income
Periods ended June 30, 2005 and 2004
(in thousands, except per share data)
(unaudited) Three Months
------------------------------------
2005 2004 % Change
---------- ---------- ---------
Revenue $1,456,277 $1,245,962 16.9
Expenses, net 1,142,304 980,902 16.5
----------- -----------
Income from
operations 313,973 265,060 18.5
Interest expense 3,512 2,161 62.5
----------- -----------
Income from continuing
operations before taxes
on income 310,461 262,899 18.1
Provision for taxes on
income 115,491 97,273 18.7
----------- -----------
Income from continuing
operations 194,970 165,626 17.7
----------- -----------
Discontinued operations:
Loss from operations
of discontinued
component - - N/M
Income tax benefit - - N/M
---------- ----------
Loss from discontinued
operations - - N/M
---------- ----------
Net income $194,970 $165,626 17.7
========== ==========
Earnings per common share:
Basic earnings per share:
-------------------------
Income from continuing
operations $0.52 $0.44 18.2
========== ==========
Net income $0.52 $0.44 18.2
========== ==========
Diluted earnings per share:
---------------------------
Income from continuing
operations $0.51 $0.43 18.6
========== ==========
Net income $0.51 $0.43 18.6
========== ==========
Dividend per common share $0.165 $0.150 10.0
Average number of common
shares outstanding:
Basic 373,534 379,180
Diluted 380,047 385,214
N/M - not meaningful
The McGraw-Hill Companies
Statements of Income
Periods ended June 30, 2005 and 2004
(in thousands, except per share data)
(unaudited) Six Months
-------------------------------------
2005 2004 % Change
----------- ----------- ---------
Revenue $2,485,283 $2,165,829 14.7
Expenses, net 2,045,636 1,809,721 13.0
----------- -----------
Income from
operations 439,647 356,108 23.5
Interest expense 4,210 3,898 8.0
----------- -----------
Income from continuing
operations before taxes
on income 435,437 352,210 23.6
Provision for taxes on
income 161,732 110,318 46.6
----------- -----------
Income from continuing
operations 273,705 241,892 13.2
----------- -----------
Discontinued operations:
Loss from operations
of discontinued
component - (931) N/M
Income tax benefit - (344) N/M
----------- -----------
Loss from discontinued
operations - (587) N/M
----------- -----------
Net income $273,705 $241,305 13.4
=========== ==========
Earnings per common share:
Basic earnings per share:
-------------------------
Income from continuing
operations $0.73 $0.64 14.1
========== ==========
Net income $0.73 $0.63 15.9
========== ==========
Diluted earnings per share:
---------------------------
Income from continuing
operations $0.71 $0.63 12.7
========== ==========
Net income $0.71 $0.63 12.7
========== ==========
Dividend per common share $0.330 $0.300 10.0
========== ==========
Average number of common
shares outstanding:
Basic 376,191 380,226
Diluted 383,332 386,152
N/M - not meaningful
EXHIBIT 1
The McGraw-Hill Companies
Operating Results by Segment
Periods ended June 30, 2005 and 2004
(dollars in thousands)
(unaudited) Revenue
--------------------------------------
% Favorable
2005 2004 (Unfavorable)
------------ ---------- -------------
Three Months
McGraw-Hill Education $628,647 $547,386 14.8
Financial Services 597,366 504,472 18.4
Information and Media Services 230,264 194,104 18.6
------------ -----------
Total revenue $1,456,277 $1,245,962 16.9
============ ===========
(dollars in thousands)
(unaudited) Revenue
--------------------------------------
% Favorable
2005 2004 (Unfavorable)
------------ ---------- -------------
Six Months
McGraw-Hill Education $935,947 $833,875 12.2
Financial Services 1,144,647 961,107 19.1
Information and Media Services 404,689 370,847 9.1
------------ -----------
Total revenue $2,485,283 $2,165,829 14.7
============ ===========
The McGraw-Hill Companies
Operating Results by Segment
Periods ended June 30, 2005 and 2004
(dollars in thousands)
Operating Profit
(unaudited) --------------------------------------
% Favorable
2005 2004 (Unfavorable)
------------ ---------- -------------
Three Months
McGraw-Hill Education $71,591 $57,055 25.5
Financial Services 258,286 214,205 20.6
Information and Media Services 13,608 24,841 (45.2)
------------ -----------
Total operating segments 343,485 296,101 16.0
General corporate expense (29,512) (31,041) 4.9
Interest expense (3,512) (2,161) (62.5)
------------ -----------
Total operating profit $310,461* $262,899* 18.1
============ ===========
(dollars in thousands)
Operating Profit
(unaudited) --------------------------------------
% Favorable
2005 2004 (Unfavorable)
------------ ---------- -------------
Six Months
McGraw-Hill Education $(7,083) $(11,741) 39.7
Financial Services 480,798 388,044 23.9
Information and Media Services 18,354 38,492 (52.3)
------------ -----------
Total operating segments 492,069 414,795 18.6
General corporate expense (52,422) (58,687) 10.7
Interest expense (4,210) (3,898) (8.0)
------------ -----------
Total operating profit $435,437* $352,210* 23.6
============ ===========
* Income from continuing operations before taxes on income
EXHIBIT 2
SOURCE The McGraw-Hill Companies
-0- 07/26/2005
/CONTACT: Media Relations Contacts:
Steven H. Weiss
Vice President, Corporate Communications
The McGraw-Hill Companies
(212) 512-2247 (office)
(917) 374-2024 (mobile)
(212) 580-2565 (home)
weissh@mcgraw-hill.com
Tom DiPiazza
Senior Director, Corporate Communications
(212) 512-4145 (office)
(917) 328-7582 (mobile)
tom_dipiazza@mcgraw-hill.com
Investor Relations Contact:
Donald S. Rubin
Senior Vice President, Investor Relations
The McGraw-Hill Companies
(212) 512-4321 (office)
(212) 512-3840 (fax)
donald_rubin@mcgraw-hill.com/
/Web site: http://www.mcgraw-hill.com /
(MHP)
CO: The McGraw-Hill Companies
ST: New York
IN: FIN EDU HED
SU: ERN CCA
LK
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