Revenue Grows by 14.3%
NEW YORK, Jan. 25 /PRNewswire-FirstCall/ -- The McGraw-Hill Companies
(NYSE: MHP) today reported a 12.8% increase for 2005 diluted earnings per
share from continuing operations of $2.21, which includes a $0.01 gain on the
sale of Corporate Value Consulting, a $0.04 restructuring charge, and a $0.03
increase in income taxes on the repatriation of funds. The 2004 diluted
earnings per share from continuing operations of $1.96 included a $0.05
reduction of accrued tax liabilities following the completion of various
federal, state, local and foreign audits.
Net income for 2005 increased 11.7% to $844.3 million.
Revenue for 2005 grew 14.3% to $6.0 billion.
For the fourth quarter of 2005, diluted earnings per share from continuing
operations were $0.50, including a $0.04 restructuring charge and a $0.03
increase in income taxes on the repatriation of funds. Diluted earnings per
share from continuing operations for the fourth quarter of 2004 were $0.49.
Net income for the fourth quarter of 2005, reflecting a pre-tax
restructuring charge of $23.2 million and a $10 million increase in income
taxes on the repatriation of funds, was $189.3 million.
Revenue increased 13.2% in the fourth quarter to $1.5 billion.
"Record results at Standard & Poor's and a strong finish to an outstanding
year in the education market were our growth engines in the fourth quarter and
for 2005," said Harold McGraw III, chairman, president and chief executive
officer of The McGraw-Hill Companies.
Education: "Revenue for this segment in 2005 increased by 11.5% to $2.7
billion while operating profit grew by 20.6% to $410.2 million. The operating
margin for 2005 was 15.4%, up from 14.2% a year ago.
"In the fourth quarter, revenue for the segment increased 12.1% to $593.5
million. Operating profit grew by 27.7% to $36.5 million. Foreign exchange
rates decreased revenue by $0.7 million and had a slightly negative impact on
operating profit in the fourth quarter.
"The McGraw-Hill School Education Group's revenue grew by 18.5% to $1.5
billion in 2005 and by 23.6% to $267.5 million in the fourth quarter.
"The McGraw-Hill Higher Education, Professional and International Group's
revenue increased by 3.5% to $l.2 billion in 2005 and by 4.2% to $325.9
million in the fourth quarter.
"In the best year so far in this promising decade for the U.S. elementary-
high school market -- industry sales were up 10.7% through November, according
to the Association of American Publishers -- we had outstanding results and
captured share. Our ability to capitalize on the strong 2005 state new
adoption market was key.
"Texas presented the single largest opportunity in the state new adoption
market with dual funding of materials for Proclamation 2001 and Proclamation
2002. With a 57% market share in K-12 music and a 43% share in K-12 health, we
were the overall leader in Texas, capturing 33% of the available funds.
"Delayed ordering in Texas skewed the timing of sales, pushing some
business into the fourth quarter and possibly into early 2006. Late orders
from California and South Carolina were also factors in the fourth quarter. In
California, we benefited from the late buying of basal materials and an
increase in supplemental sales stimulated by the fourth quarter release of
English-Language Learners grants to local districts. In December, South
Carolina purchased our text, Journey Across Time, for all seventh grade social
studies classes in the state.
"Social studies provided the largest opportunity outside Texas in 2005 and
we led the market with a powerful performance at the secondary level, taking a
49% share in all states adopting the subject for grades 6-12. We had
outstanding capture rates in K-12 health, science, art and music and in 6-12
mathematics.
"We also achieved gains in the open territories as well as the
supplemental market.
"Reading First, a key program created as part of the No Child Left Behind
Act, produced incremental revenue in the fourth quarter and for the year.
"The No Child Left Behind Act also continues to expand the testing market
as states prepare for the first time to test all students in grades three
through eight in reading and math before the end of the current academic year.
We realized incremental revenue in 2005 and in the fourth quarter stemming
from the federal mandate, but increased state demand for customized tests
continues to put pressure on our margins.
"Strong ordering in December for second semester classes enabled our
Higher Education, Professional and International Group to gain share in the
U.S. college market in 2005. All our major imprints -- Business and Economics;
Humanities, Social Science and Language; and Science, Engineering and Math --
grew in 2005. Best sellers for 2005 were: McConnell and Brue, Economics,
16/e; Garrison, Managerial Accounting, 11/e; Nickels, Understanding Business,
7/e; Silberberg, Chemistry, 4/e; Kamien, Music: An Appreciation, 5/e; Knorre,
Puntos de Partida, 7/e.
"In professional markets, we finished with a solid gain in the fourth
quarter. New business and education titles helped produce the upswing. Our
digital subscription products, led by Access Medicine, also contributed to our
growth in professional markets.
"The leading best sellers for the fourth quarter were: Current Medical
Diagnosis and Treatment, 2006/e; QuickBooks 2006: The Official Guide; premier
edition, First Aid Clinical Cases for the USMLE Step 1, 2006/e; Harrison's
Principles of Internal Medicine, 16/e; The Millionaire Maker.
"Internationally, softness in Spanish-language markets offset modest
growth by English-language products for 2005. In the fourth quarter, both
product lines declined.
Financial Services: "For 2005, revenue in this segment grew by 16.8% to
$2.4 billion and operating profit increased by 21.4% to $1.0 billion compared
to 2004. The operating margin expanded to 42.5% from 40.8% in 2004.
"In the fourth quarter of 2005, revenue for Financial Services grew by 10%
to $650.4 million. Excluding the prior year revenue of $32.4 million from
Corporate Value Consulting, which was sold at the end of September 2005,
fourth quarter revenue increased by 16.4% on a non-GAAP basis. Operating
profit for the fourth quarter increased 14.9% to $286.5 million. The operating
margin improved to 44.0% from 42.2% for the same period a year ago. Foreign
exchange rates decreased revenue by $9.0 million and negatively impacted
operating profit by $1.9 million in the fourth quarter.
"The record revenue, operating profit and operating margin for both 2005
and the fourth quarter underscore another outstanding performance by Standard
& Poor's in global financial markets.
"A strong worldwide structured finance market was key to double-digit
growth in U.S. and international ratings in 2005. International ratings
accounted for 37% of ratings revenue in 2005, slightly higher than last year.
"In the fourth quarter of 2005, U.S. ratings benefited from a late surge
in structured finance activity to outpace international results. For the
fourth quarter of 2005, international ratings accounted for 38.4% of revenue,
down from 39.3% in 2004. More challenging year-to-year comparisons, especially
in Europe, were also a key factor in the fourth quarter.
"Structured finance finished the year strongly, producing 73.2% of the
revenue growth in Financial Services in the fourth quarter. In 2005,
structured finance represented 40.3% of Financial Services' revenue growth.
U.S. residential mortgage-backed securities, U.S. commercial mortgage-backed
securities and collateralized debt obligations hit record levels in the fourth
quarter as issuers continued to take advantage of low interest rates,
improving credit quality and innovative new structures. Ratings also
benefited from a solid fourth quarter in the U.S. asset-backed securities
market. With the Securities and Exchange Commission requiring more disclosure
under Regulation AB on January 1, 2006, there also was some acceleration of
deals closed in the fourth quarter.
"Refunding activity kept public finance growing in the fourth quarter.
Corporate finance, which includes financial services, contributed 17% to
Financial Services' revenue growth in 2005 and 31% in the fourth quarter
despite declines in high yield and investment grade issuance.
"New issue dollar volume increased in the U.S. and European bond markets
in the fourth quarter versus the same period in 2004, according to reports
from Securities Data Corporation and Harrison Scott Publications.
"In the U.S., total new issue dollar volume increased 23.5%. Corporate new
issuance was up 0.l%. Public finance grew by 12.3%. Mortgage-Backed Securities
issuance was up 33.0%. Asset-Backed Securities were up 81.7%.
"In Europe, new issue dollar volume was up 23.7%.
"S&P also benefited from growth of ratings and services that are not tied
to new issuance. These services accounted for 22% of ratings revenue in the
fourth quarter and 21.2% for 2005. Growth in Bank Loan Ratings, Counterparty
Credit Ratings, Financial Strength Ratings and Ratings Evaluation Services all
produced gains for the fourth quarter and the year.
"In equity markets, S&P continues to expand and grow. Assets under
management in exchange-traded funds based on S&P indexes ended 2005 at $135.l
billion, an l8.8% increase over 2004. The exchange-traded funds using S&P
indexes attracted record inflows in November to post 17 consecutive quarters
of double-digit growth in assets under management. The average daily trading
volume of derivative contracts based on S&P indexes increased for 2005 and the
fourth quarter at both the Chicago Board Options Exchange and the Chicago
Mercantile Exchange.
"Sales of data and information products grew as we continue to leverage
the combined client bases, content and delivery platforms from Capital IQ and
S&P.
Information and Media Services: "In 2005, revenue for this segment
increased 16.4% to $931.1 million compared to 2004. J.D. Power and Associates,
which was acquired on April 1, 2005, accounted for $144.7 million of the
segment's revenue, but had no material impact on operating profit.
"Operating profit for the segment in 2005 declined 49.2% to $60.6 million
primarily due to softness in advertising.
"In the fourth quarter, revenue increased 23.4% to $297.5 million,
including $60.1 million from J.D. Power and Associates, which had no material
impact on operating profit in this period. Operating profit in the fourth
quarter declined 47.8% to $29.8 million compared to the same period last year.
Foreign exchange rates reduced revenue by $ 1.0 million but contributed $0.6
million to operating profit in the fourth quarter.
"The cyclical decline of advertising in a non-election year led to a 1.7%
reduction in revenue to $112.2 million at the Broadcasting Group in 2005 and a
5.6% drop to $32.4 million in the fourth quarter compared to the same period
last year. An increase in local-time sales enabled the stations to offset part
of the decline in political advertising in 2005.
"Revenue for the Business-to-Business Group, which includes BusinessWeek,
J.D. Power and Associates, construction, aviation and energy products and
services, grew by 19.4% to $818.9 million in 2005 and by 28.2% to $265.0
million in the fourth quarter. The revenue increases in both periods reflect
the acquisition of J.D. Power and Associates.
"A solid performance in the U.S. non-automotive business helped keep J.D.
Power and Associates moving ahead during the year and in the fourth quarter.
"Advertising pages at BusinessWeek declined 18.8% in the fourth quarter
and 12.8% for the year, according to the Publishers Information Bureau. For
revenue recognition, there were 50 issues in 2005 compared to 51 in 2004.
"In the construction market, softness in sales of the Sweets File in the
fourth quarter offset gains in both advertising and at the McGraw-Hill
Construction Network.
"In a volatile energy marketplace, our news and pricing services benefited
from increased demand by energy professionals and traders for accurate,
transparent and real-time prices.
"In aerospace and defense, we benefited from the shift of the annual
Maintenance, Repair and Overhaul Conference in Europe from the third quarter
in 2004 to the fourth quarter in 2005.
The Outlook: "In 2006, we confidently expect The McGraw-Hill Companies to
produce another year of earnings growth. It will be a more challenging year
in the K-12 education marketplace, which will decline in 2006 after a very
strong performance in 2005. We also expect another very good performance from
Financial Services, which once again is expected to achieve a double-digit
increase in revenue -- excluding revenue from Corporate Value Consulting which
was divested in 2005 -- and a double-digit increase in operating profit."
Conference Call/Webcast Details: The Corporation's senior management will
review the fourth quarter 2005 earnings results on a conference call scheduled
for this morning, January 25th, 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 Relations 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 (888) 323-5423; international participants may
call +1 (415) 228-5016 (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 February 1, 2006.
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 leading 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, BusinessWeek and J.D. Power and Associates. The
Corporation has more than 290 offices in 38 countries. Sales in 2005 were $6.0
billion. Additional information is available at http://www.mcgraw-hill.com.
The McGraw-Hill Companies
Statements of Income
Periods ended December 31, 2005 and 2004
(in thousands, except per share data)
(unaudited)
Three Months Twelve Months
2005 2004 %Change 2005 2004 %Change
--------------------------- ----------------------------
Revenue $1,541,318 $1,361,833 13.2 $6,003,642 $5,250,538 14.3
Expenses, net 1,225,756 1,060,167 15.6 4,638,478 4,075,848 13.8
--------- --------- --------- ---------
Income from
operations 315,562 301,666 4.6 1,365,164 1,174,690 16.2
Interest (income)/
expense (1,816) 20 N/M 5,202 5,785 (10.1)
--------- --------- --------- ---------
Income from continuing
operations before
taxes on income 317,378 301,646 5.2 1,359,962 1,168,905 16.3
Provision for taxes
on income 128,066 111,609 14.7 515,656 412,495 25.0
--------- --------- --------- ---------
Income from continuing
operations 189,312 190,037 (0.4) 844,306 756,410 11.6
--------- --------- --------- ---------
Discontinued operations:
Loss from operations
of discontinued
component - - N/M - (931) N/M
Income tax benefit - - N/M - (344) N/M
--------- --------- --------- ---------
Loss from discontinued
operations - - N/M - (587) N/M
--------- --------- --------- ---------
Net income $189,312 $190,037 (0.4) $844,306 $755,823 11.7
========= ========= ========= =========
Earnings per common share:
Basic earnings per share:
Income from
continuing
operations $0.51 $0.50 2.0 $2.25 $1.99 13.1
========= ========= ========= =========
Net income $0.51 $0.50 2.0 $2.25 $1.99 13.1
========= ========= ========= =========
Diluted earnings per share:
Income from continuing
operations $0.50 $0.49 2.0 $2.21 $1.96 12.8
========= ========= ========= =========
Net income $0.50 $0.49 2.0 $2.21 $1.96 12.8
========= ========= ========= =========
Dividend per
common share $0.165 $0.150 10.0 $0.660 $0.600 10.0
========= ========= ========= =========
Average number of
common shares
outstanding:
Basic 374,001 379,270 375,006 379,688
Diluted 382,362 386,608 382,570 385,824
N/M - not meaningful
The McGraw-Hill Companies
Operating Results by Segment
Periods ended December 31, 2005 and 2004
(dollars in thousands)
(unaudited) Revenue
----------------------------------
2005 2004 %
Favorable
(Unfavorable)
---------- ---------- ----------
Three Months
McGraw-Hill Education $593,454 $529,320 12.1
Financial Services 650,411 591,382 10.0
Information and Media Services 297,453 241,131 23.4
---------- ----------
Total revenue $1,541,318 $1,361,833 13.2
========== ==========
(dollars in thousands)
(unaudited) Revenue
----------------------------------
2005 2004 %
Favorable
(Unfavorable)
---------- ---------- -----------
Twelve Months
McGraw-Hill Education $2,671,732 $2,395,513 11.5
Financial Services 2,400,809 2,055,288 16.8
Information and Media Services 931,101 799,737 16.4
---------- ----------
Total revenue $6,003,642 $5,250,538 14.3
========== ==========
The McGraw-Hill Companies
Operating Results by Segment
Periods ended December 31, 2005 and 2004
(dollars in thousands)
(unaudited) Operating Profit
----------------------------------
2005 2004 %
Favorable
(Unfavorable)
---------- ---------- -----------
Three Months
McGraw-Hill Education $36,449 $28,553 27.7
Financial Services 286,458 249,332 14.9
Information and Media Services(b) 29,785 57,013 (47.8)
---------- ----------
Total operating segments 352,692 334,898 5.3
General corporate expense (37,130) (33,232) (11.7)
Interest income / (expense) 1,816 (20) N/M
---------- ----------
Total operating profit $317,378* $301,646* 5.2
========== ==========
(dollars in thousands)
(unaudited) Operating Profit
----------------------------------
2005 2004 %
Favorable
(Unfavorable)
---------- ---------- -----------
Twelve Months
McGraw-Hill Education $410,213 $340,067 20.6
Financial Services (a) 1,019,201 839,398 21.4
Information and Media Services(b) 60,576 119,313 (49.2)
---------- ----------
Total operating segments 1,489,990 1,298,778 14.7
General corporate expense (124,826) (124,088) (0.6)
Interest expense (5,202) (5,785) 10.1
---------- ----------
Total operating profit $1,359,962* $1,168,905* 16.3
========== ==========
N/M -not meaningful
* Income from continuing operations before taxes on income
(a) Includes a $6.8 million pre-tax gain on the sale of Corporate Value
Consulting on September 30, 2005.
(b) Includes a $5.5 million pre-tax loss on the sale of the Healthcare
Information Group on November 8, 2005.
The McGraw-Hill Companies
Operating Results by Segment
Periods ended December 31, 2005 and 2004
(dollars in thousands)
(unaudited) Three Months Twelve Months
----------------------- ------------------------
2005 2004 % 2005 2004 %
Favorable Favorable
(Unfavor- (Unfavor-
able) able)
---------------------------------------------------
Operating Profit
McGraw-Hill Education $36,449 $28,553 27.7 $410,213 $340,067 20.6
Restructuring charge 9,044 - 9,044 -
-------- --------- --------- ---------
McGraw-Hill Education
excluding
restructuring 45,493 28,553 59.3 419,257 340,067 23.3
Financial Services (a) 286,458 249,332 14.9 1,019,201 839,398 21.4
Restructuring charge 1,170 - 1,170 -
-------- --------- --------- ---------
Financial Services
excluding
restructuring 287,628 249,332 15.4 1,020,371 839,398 21.6
Information and Media
Services (b) 29,785 57,013 (47.8) 60,576 119,313 (49.2)
Restructuring charge 10,238 - 10,238 -
-------- --------- --------- ---------
Information and Media
Services excluding
restructuring 40,023 57,013 (29.8) 70,814 119,313 (40.6)
Total operating
segments 352,692 334,898 5.3 1,489,990 1,298,778 14.7
Restructuring charge 20,452 - 20,452 -
-------- --------- --------- ---------
Total operating segments
excluding
restructuring 373,144 334,898 11.4 1,510,442 1,298,778 16.3
General corporate
expense (37,130) (33,232)(11.7) (124,826) (124,088) (0.6)
Restructuring charge 2,789 - 2,789 -
-------- --------- --------- ---------
General corporate expense
excluding
restructuring (34,341) (33,232) (3.3) (122,037) (124,088) 1.7
Interest income/(expense) 1,816 (20) N/M (5,202) (5,785) 10.1
-------- --------- --------- ---------
Total operating profit
excluding
restructuring $340,619* $301,646* 12.9$1,383,203*$1,168,905*18.3
========= ======== ========== ==========
N/M - not meaningful
* Income from continuing operations before taxes on income
(a) Twelve months includes a $6.8 million pre-tax gain on the sale of
Corporate Value Consulting on September 30, 2005.
(b) Three and twelve months includes a $5.5 million pre-tax loss on the
sale of the Healthcare Information Group on November 8, 2005.
SOURCE The McGraw-Hill Companies
-0- 01/25/2006
/CONTACT: Media Relations Contacts:
Steven H. Weiss
Vice President, Corporate Communications
(212) 512-2247 (office)
(917) 699-9389 (mobile)
weissh@mcgraw-hill.comMary Skafidas
Director, Corporate Communications
(212) 512-2826 (office)
(347) 351-6407 (mobile)
mary_skafidas@mcgraw-hill.com
Investor Relations Contact:
Donald S. Rubin
Senior Vice President, Investor Relations
(212) 512-4321 (office)
(212) 512-3840 (fax)
donald_rubin@mcgraw-hill.com /
/Web site: http://www.mcgraw-hill.comhttp://www.mcgraw-hill.com/investor_relations /
(MHP)
CO: The McGraw-Hill Companies; Standard & Poor's
ST: New York
IN: PUB EDU FIN
SU: ERN CCA
LH
-- NYW005 --
3529 01/25/200607:22 ESThttp://www.prnewswire.com