NEW YORK, April 24 /PRNewswire-FirstCall/ -- The McGraw-Hill Companies
(NYSE: MHP) today reported diluted earnings per share of $0.40 for the first
quarter of 2007 compared to $0.20 for the same period last year. Included in
the 2007 results is a $0.03 per diluted share gain ($10.3 million after tax)
on the divestiture of a mutual fund data business in March. In the first
quarter of 2006, stock-based compensation expense included a one-time charge
of $0.04 for the elimination of the company's restoration stock option
program.
Net income for the first quarter of 2007 was $143.8 million. Revenue for
the first quarter increased 13.7% to $1.3 billion.
"A strong performance by Financial Services, and improvement in Education
and Information & Media contributed to our first quarter," said Harold McGraw
III, chairman, president and chief executive officer of The McGraw-Hill
Companies. "The operating margin improved in all three segments."
Education: "Revenue for this segment increased 5.6% to $331.7 million in
the first quarter compared to the same period last year. The operating loss
was reduced by 6.6% to $90.7 million. In the first quarter of 2006, stock-
based compensation expense included a one-time charge of $4.2 million from the
elimination of the restoration stock option program. Foreign exchange rates
positively impacted revenue growth by $2.1 million and had no material impact
on the reduced operating loss.
"Revenue for the McGraw-Hill School Education Group declined 1.2% in the
first quarter to $144.8 million. Revenue for the McGraw-Hill Higher Education,
Professional and International Group grew by 11.5% to $186.9 million.
"Although the first quarter in education is not a barometer for the year,
the initial results are encouraging. The McGraw-Hill School Education Group
in 2006 benefited from $9.0 million in first quarter orders from Texas,
spillover business for music and health programs that were part of the 2005
adoption and from sales of online products.
"Early ordering in 2007 from North Carolina for our K-5 music program
(Spotlight on Music), vocational, family and consumer science products helped
to offset the gap despite the seasonally slow start in the open territory and
adoption states.
"The widely anticipated 10 to 15% pick up in the state new adoption market
this year is starting to take shape and we are encouraged by preliminary
indications in such key states as California (K-12 science), Texas (6-12
math), Tennessee and Indiana (K-12 reading/literature) and some important
urban markets in the open territory.
"In testing, we benefited from increases in custom work on state-wide
assessment programs in Georgia, Colorado, Indiana and Florida. We continue to
invest in technology to improve efficiencies in developing, delivering, and
scoring our products.
"A January surge in ordering for second-semester U.S. college and
university products contributed to solid growth in higher education titles
around the world. The sales performance in the U.S. was strong in all three
major imprints: Science, Engineering and Mathematics; Business and Economics;
and Humanities, Social Science and Languages.
"Best-sellers for the first quarter included:
-- Wild, Fund Accounting Principles, 18th edition
-- Stevenson, Operations Management, 9th edition
-- Lucas, The Art of Public Speaking, 9th edition
-- Brinkley, American History: A Survey, 12th edition
-- Saladin, Anatomy and Physiology, 4th edition
"In the professional market, The Starbucks Experience, Flip and Crucial
Conversations all hit the BusinessWeek best-seller list in the first quarter,
but could not offset softness in back-list titles.
"Internationally, softness in Canada offset growth in English-language
titles. Declines in Spanish-language titles offset growth in Latin America.
Financial Services: "Revenue for this segment in the first quarter
increased 21.5% to $728.9 million compared to the same period last year.
Including a pre-tax gain of $17.3 million on the sale of a mutual fund data
business, operating profit grew by 38.3% to $348.0 million. In the first
quarter of 2006, stock-based compensation expense included a one-time charge
of $2.1 million from the elimination of the restoration stock option program.
Foreign exchange contributed $9.5 million to revenue growth and did not have a
material impact on the increase in operating profit.
"Standard & Poor's had the best first-quarter performance in its history
as fixed income and equity information products and services contributed to
new records for revenue, operating profit and the operating margin, which was
47.7%, including the gain on the sale of the mutual fund data business.
Structured finance produced 40.8% of the revenue growth. Corporate and
government ratings contributed 34.3% of the revenue increase.
"Both U.S. and international ratings grew at double-digit rates in the
first quarter. International credit ratings and services accounted for 36.1%
of ratings revenue in the first quarter versus 35.6% for the same period a
year ago.
"Structured finance benefited substantially from a robust U.S.
collateralized debt obligations market where concerns about widening spreads
resulting from credit quality deterioration in the sub-prime market and an
increase in collateralized loan obligations resulting from strength in the
corporate loan market led to a strong pick up in activity in the first
quarter.
"Collateralized debt obligations also grew rapidly in Europe. We had
solid results from residential mortgage-backed securities in Europe and steady
improvement in the European commercial mortgage-backed securities market.
Auto issuance slumped, but increases in credit card and student loans kept
asset-backed securities growing in the U.S.
"Corporate sector growth was driven by merger and acquisition financing
and robust issuance activity attributable to a favorable financing
environment. Favorable foreign exchange rates contributed to strong demand
for emerging market debt. Public finance benefited from strong new money
issuance and increased refundings.
"New issuance dollar volume increased in the U.S. and European bond
markets in the first quarter versus the same period last year, according to
reports from Thomson Financial, Harrison Scott Publications and S&P estimates.
In the U.S., total new issue dollar volume was up 28.5% in the first quarter
as corporates climbed 42.9%. Public finance was up 46.8%. Mortgage-backed
securities, reflecting the anticipated decline in U.S. residential mortgage-
backed securities issuance, decreased by 4.3%. Asset-backed securities were
up 49.7%. In Europe, new issue dollar volume was up 34.1%.
"Ratings and services not directly linked to public new issuance also
produced substantial increases in the first quarter. These services, which
include bank loan ratings, rating evaluation services, counterparty and
financial strength ratings, accounted for 26.3% of ratings revenue in the
first quarter, up from 23.1% for the same period last year.
"Products and services for equity markets also contributed to Standard &
Poor's strong first quarter performance. We benefited from the growth of
assets under management in exchange-traded funds and increased trading of
derivative contracts based on Standard & Poor's indices. At the end of March,
assets under management in exchange-traded funds based on S&P indices
increased 23.7% to $170.3 billion.
"The Capital IQ product continues to add more clients and now has more
than 1,900. New fixed income data and real-time information were added as part
of a new release in January.
Information & Media: "Revenue for this segment in the first quarter
increased 4.1% to $235.9 million compared to the same period last year.
Operating profit was $9.9 million, up from $1.7 million last year. In the
first quarter of 2006, stock-based compensation expense included $2.7 million
from the elimination of the restoration stock option program. Foreign
exchange rates had no material effect on revenue growth and a negative impact
of $1.2 million on the increase of operating profit.
"The segment also benefited in the first quarter from the transformation
last year of Sweets from a primarily print catalog to a bundled print and
online service for the construction industry. In the new configuration,
revenue is earned throughout the year. As a result, Sweets contributed $6.5
million in revenue and $5.8 million in operating profit to Information &
Media's performance in the first quarter of 2007 from the transformation.
"In the first quarter, revenue increased 7.5% to $212.2 million at the
Business-to-Business Group, which includes the following brands: J.D. Power
and Associates, BusinessWeek, Platts, McGraw-Hill Construction and Aviation
Week. The transformation of Sweets and growth in Platts' news services for
oil, natural gas and power markets were key factors in the Business-to-
Business Group's revenue improvement. J.D. Power and Associates' research
expanded in financial services and insurance and healthcare markets.
Advertising pages for BusinessWeek's global edition were off 3.0% in the first
quarter. BusinessWeek.com continues to improve its performance with increases
in both advertising and unique visitors compared with the first quarter of
2006.
"Broadcasting revenue fell by 18.8% to $23.7 million in the first quarter
as both local- and national-time sales declined. Programming changes in 2007,
including the loss of the Super Bowl and the decision not to renew the Oprah
Winfrey show in two markets, contributed to the softness in a non-political
year for advertising.
Corporate Expense: "Corporate expenses declined 13.8% to $35.0 million in
the first quarter. In the first quarter of 2006, stock-based compensation
expense included a one-time charge of $14.8 million from the elimination of
the restoration stock option program and a pre-tax gain of $4.6 million
resulting from the sale of a facility.
The Outlook: "We're off to a good start to achieving our goal of
producing double-digit earnings growth in 2007. There will be more double-
digit growth and margin expansion for the balance of the year in Financial
Services, although probably not at the exceptional rate of growth we
experienced in the first quarter."
Conference Call/Webcast Details: The Corporation's senior management will
review the first quarter 2007 earnings results on a conference call scheduled
for this morning, April 24th, 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 May 1, 2007.
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 and state new adoptions 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 280
offices in 40 countries. Sales in 2006 were $6.3 billion. Additional
information is available at www.mcgraw-hill.com.
Release issued: April 24, 2007
The McGraw-Hill Companies
Statements of Income
Periods ended March 31, 2007 and 2006
(in thousands, except per share data)
(unaudited) Three Months
-----------------------------------
2007 2006 % Change
---------- ---------- --------
Revenue $1,296,418 $1,140,679 13.7
Expenses, net 1,064,237 1,025,005 3.8
---------- ----------
Income from operations 232,181 115,674 N/M
Interest expense / (income) 1,204 (2,509) N/M
---------- ----------
Income from operations before
taxes on income 230,977 118,183 95.4
Provision for taxes on income 87,139 43,963 98.2
---------- ----------
Net income $143,838 $74,220 93.8
========== ==========
Earnings per common share:
Basic $0.41 $0.20 N/M
========== ==========
Diluted $0.40 $0.20 N/M
========== ==========
Dividend per common share $0.2050 $0.1815 12.9
========== ==========
Average number of common shares
outstanding:
Basic 351,215 367,456
Diluted 361,497 377,333
N/M - not meaningful
Exhibit 1
The McGraw-Hill Companies
Operating Results by Segment
Periods ended March 31, 2007 and 2006
(dollars in thousands)
(unaudited) Revenue
-------------------------------------
% Favorable
2007 2006 (Unfavorable)
---------- ---------- -------------
Three Months
McGraw-Hill Education $331,680 $314,150 5.6
Financial Services 728,882 600,000 21.5
Information & Media (a) 235,856 226,529 4.1
---------- ----------
Total revenue $1,296,418 $1,140,679 13.7
========== ==========
The McGraw-Hill Companies
Operating Results by Segment
Periods ended March 31, 2007 and 2006
(dollars in thousands)
(unaudited) Operating Profit
-----------------------------------
% Favorable
2007 2006 (Unfavorable)
--------- --------- ------------
Three Months (b)
McGraw-Hill Education $(90,680) $(97,051) 6.6
Financial Services (c) 348,012 251,657 38.3
Information & Media (a) 9,886 1,693 N/M
--------- ---------
Total operating segments 267,218 156,299 71.0
General corporate expense (35,037) (40,625) 13.8
Interest (expense)/ income (1,204) 2,509 N/M
--------- ---------
Total operating profit $230,977 * $118,183 * 95.4
========= =========
N/M - not meaningful
* Income from operations before taxes on income
(a) 2007 revenue and operating profit includes $6.5 million and $5.8
million, respectively, related to the transformation of Sweets to an
internet-based sales and marketing solution.
(b) 2006 operating profit includes a one-time charge of $23.8 million
pre-tax related to the elimination of the Company's restoration
stock option program.
(c) 2007 operating profit includes a $17.3 million pre-tax gain on the
sale of the Company's mutual fund data business on March 16, 2007.
Exhibit 2
Contacts for The McGraw-Hill Companies:
Media Relations Contact:
Steven H. Weiss
Vice President, Corporate Communications
(212) 512-2247 (office)
(917) 699-9389 (mobile)
weissh@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.comSOURCE The McGraw-Hill Companies
Contact: Media Relations Contact: Steven H. Weiss, Vice President, Corporate Communications, +1-212-512-2247, +1-917-699-9389 (mobile), weissh@mcgraw-hill.com, or Investor Relations Contact: Donald S. Rubin, Senior Vice President, Investor Relations, +1-212-512-4321, +1-212-512-3840 (fax), donald_rubin@mcgraw-hill.com, both of The McGraw-Hill Companies