NEW YORK, July 24 /PRNewswire-FirstCall/ -- The McGraw-Hill Companies
(NYSE: MHP) today reported diluted earnings per share increased 31.7% to $0.79
in the second quarter of 2007 compared to the same period last year.
Net income for the second quarter grew by 25.4% to $277.1 million.
Revenue for the second quarter of 2007 increased by 12.5% to $1.7 billion
compared to the same period in 2006. Foreign exchange rates positively
affected the growth of revenue by $16.8 million, but had no material impact on
operating profit growth.
"A very strong performance by Financial Services was a key factor in our
second quarter," said Harold McGraw III, chairman, president and chief
executive officer of The McGraw-Hill Companies. "We also benefited from the
McGraw-Hill School Education Group's strong start in this year's state new
adoption market and solid performances in higher education, professional and
international markets.
"The operating margin improved in all three segments.
"In the first half of 2007, diluted earnings per share was $1.18,
including a $0.03 per diluted share gain ($10.3 million after-tax) on the
divestiture of a mutual fund data business in March. The $0.79 diluted
earnings per share reported in the first half of 2006 included a one-time
charge of $0.04 for the elimination of the Company's restoration stock option
program. Net income for the first half of 2007 was $420.9 million.
"Revenue for the first half grew to $3.0 billion, a 13.0% increase over
the same period in 2006. Foreign exchange rates positively affected revenue
growth by $28.4 million and negatively impacted operating profit growth by
$5.0 million.
Education: "Revenue for this segment increased 5.8% in the second quarter
to $647.3 million compared to the same period last year. Operating profit grew
by 18.6% to $80.4 million. Foreign exchange rates added $4.5 million to the
growth in revenue, but had an immaterial effect on operating profit growth.
"Revenue for the McGraw-Hill School Education Group increased by 3.3% to
$403.3 million in the second quarter. Revenue for the Higher Education,
Professional and International Group grew by 10.3% to $244.0 million.
"A fast start in this year's very promising state new adoption market
offset a slower performance in the open territory and supplemental markets in
the second quarter.
"We produced solid results in the key adoptions: Math (grades 6-12 in
Texas) and science (K-12 in California and K-8 in South Carolina). In most
state adoption campaigns we now expect the McGraw-Hill School Education Group
to finish first or a close second. We continue to project that the state new
adoption market will grow 10% to 15% this year.
"In the open territory, most small- and medium-sized districts typically
order in the third quarter so visibility in this part of the market tends to
develop more slowly. The McGraw-Hill School Education Group has won some
significant open territory adoptions in large urban markets, including science
programs in New York City and Washington, D.C., math in Boston and New York
City and music in St. Louis and Prince George's County, Maryland. We still
expect the industry's open territory sales to increase by about 4% this year.
"In the supplemental market, the industry is seeing a decline in non-
standards-aligned print and computer-based materials. We are succeeding with
targeted skills-based intervention materials, including Number Worlds,
Corrective Reading, Kaleidoscope and Language for Learning. Orders for
supplemental products tend to grow in the third and even the fourth quarter.
"Based on the trends and the performance so far this year, the McGraw-Hill
School Education Group expects to gain share in an elementary-high school
market that will grow 5% to 7% in 2007.
"In the testing market, following the discontinuation of the Kentucky and
Maryland contracts, we saw some slippage in custom revenue. Volume also
decreased in "shelf" or non-custom products. A new contract in Georgia and
increased business in Tennessee, Missouri, Indiana and the State of Qatar
partially offset the decline.
"In the Higher Education, Professional and International Group, we
benefited from growth in higher education products here and abroad and a solid
performance in professional markets.
"In the U.S. college and university market, our three major imprints -
Science, Engineering and Math; Humanities, Social Science and Languages; and
Business and Economics - all performed well in the second quarter. Best-
sellers included:
-- McConnell, Economics, 16th Edition
-- Sabin, Gregg Reference Manual, 10th Edition
-- Knorre, Puntos De Partida, 7th Edition
-- Lucas, The Art of Public Speaking, 9th Edition
"Digital products continue to gain traction in both college and university
and professional markets. Homework management, assessment and tutoring
products are attracting new customers in higher education.
"In professional markets, Digital Engineering Library, Harrison's
Practice, Access Medicine, Access Surgery and Access Emergency Medicine
continue to add new domestic and international subscribers.
"The release of the 10th edition of the McGraw-Hill Encyclopedia of
Science and Technology contributed to our strong performance in domestic and
international markets.
Financial Services: "Revenue for this segment increased 21.2% in the
second quarter to $821.0 million compared to the same period last year.
Operating profit grew by 27.9% to $401.4 million. Foreign exchange rates
positively affected revenue growth by $12.1 million and had an immaterial
impact on operating profit growth.
"Strength in fixed income and equity information services in domestic and
international markets produced a record second quarter performance for
revenue, operating profit and operating margin at Standard & Poor's. The
operating margin for the second quarter was 48.9%. Structured finance
contributed 42.1% of the revenue growth. Corporate and government ratings
produced 38.1% of the revenue increase.
"Both domestic and international ratings grew at double-digit rates in the
second quarter. International credit ratings and services accounted for 38.9%
of ratings revenue in the second quarter versus 36.6% for the same period a
year ago.
"Structured finance was strong globally. In the domestic market, Standard
& Poor's benefited from robust activity in commercial mortgage-backed
securities and collateralized debt obligations. Despite a contraction in the
U.S. subprime market, domestic collateralized debt obligations remained strong
in the second quarter as arrangers focused on hybrids, synthetics and
collateralized loan obligations. As a result, the issuance of collateralized
debt obligations grew by 58.0% in the second quarter. In Europe, we saw solid
performances in all asset classes.
"In the corporate sector, the continuance of a favorable financing
environment and an active merger and acquisition market contributed to solid
growth. Public finance benefited from increased refundings as municipalities
took advantage of low interest rates.
"New issue dollar volume increased in the U.S. and European bond markets
in the second quarter compared to the same period last year, according to
reports from Thomson Financial and Harrison Scott Publications and Standard &
Poor's estimates.
"In the U.S., total new issue dollar volume grew by 15.3% in the second
quarter. Corporates increased 34.5%, setting a new record for issuance for the
second consecutive quarter. Public finance was up 15.3%. Mortgage-backed
securities dollar volume was off by 5.7%, reflecting a 12.4% decline in
residential mortgage-backed securities issuance. Asset-backed securities were
up 8.3%. In Europe, new issue dollar volume was up 33.4%.
"Ratings and services not directly linked to public new issuance recorded
double-digit increases in the second quarter. These services, which include
bank loan, counterparty and derivative ratings, accounted for 22.6% of ratings
revenue in the second quarter compared to 24.1% for the same period last year.
"Standard & Poor's services for equity markets also posted a solid
performance in the second quarter. Growth in assets under management in
exchange-traded funds and the increased trading of derivative contracts based
on Standard & Poor's indices contributed to the results.
"At the end of June, assets under management in exchange-traded funds
based on Standard & Poor's indices rose 20.9% to $178.6 billion compared to
the same period last year. Nine new exchange-traded funds based on Standard &
Poor's indices began trading in June, bringing the total number of exchange-
traded funds launched this year to 30. Overall, 127 exchange-traded funds
worldwide now rely on Standard & Poor's indices.
"At the Chicago Mercantile Exchange, the average daily volume of E-mini
contracts climbed to 1,429,804 in the second quarter, a 21.3% increase over
the comparable period last year. The average daily volume of S&P 500 options
contracts traded on the Chicago Board Options Exchange increased 32.1% to
608,813.
"The Capital IQ product continues to add clients and now has approximately
2,000, an increase of 29% over the prior year. We are also seeing solid
results at RatingsDirect and RatingsXpress, reflecting increased worldwide
demand for fixed income data from Standard & Poor's.
Information & Media: "Revenue for this segment increased 4.7% in the
second quarter to $249.9 million compared to the same period last year.
Operating profit increased 13.1% to $14.7 million. Foreign exchange rates did
not have a material effect on revenue or operating profit growth.
"The segment benefited in the second quarter from the change in accounting
for the transformation in 2006 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 service is provided.
As a result of the transformation, Sweets contributed an incremental $6.5
million in revenue and $5.8 million in operating profit to the segment's
performance in the second quarter of 2007.
"In the second quarter, revenue increased 7.9% to $223.1 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 accounting impact of the transformation of Sweets and growth in
Platts' news and pricing services for oil, natural gas and power markets were
key to the revenue improvement at the Business-to-Business Group. The
Business-to-Business Group also benefited from new J.D. Power studies in the
financial services and healthcare sectors, as well as increased penetration
from existing studies. The timing of the biennial Paris Air Show also
favorably impacted Business-to-Business revenue.
"Advertising pages for BusinessWeek's global print edition were off 20.0%
in the second quarter compared to last year according to the Publishing
Information Bureau. BusinessWeek.com continues to expand with year-to-year
growth in advertising. In May, BusinessWeek.com successfully launched the
Company Insight Center utilizing Capital IQ's extensive database of company
fundamental data, which is expected to increase traffic on the Website.
"Revenue at the Broadcasting Group declined by 16.0% to $26.8 million in
the second quarter compared to the same period last year. The absence of
political advertising in a non-election year was a primary factor. National
and local-time sales were off during the second quarter driven by market
advertising declines, particularly in the automotive and service categories.
The Outlook: "We expect to achieve our goal of double-digit earnings
growth in 2007 even though the growth rate will probably slow during the
second half of the year as compared to our very strong first half performance.
Although we expect low double-digit growth from Financial Services in the
second half, tougher comparisons will make the fourth quarter more
challenging. Some operating margin compression may occur in our segments in
the second half, but we still expect improved operating margins in all three
segments for the full year."
Conference Call/Webcast Details: The Corporation's senior management will
review the second quarter 2007 earnings results on a conference call scheduled
for this morning, July 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 July 31, 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 debt (including U.S. residential mortgage-backed securities and
collateralized debt obligations) and equity markets, including possible future
interest rate changes, the health of the economy and in advertising; the level
of expenditures and state new adoptions and open territory sales 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: July 24, 2007
The McGraw-Hill Companies
Statements of Income
Periods ended June 30, 2007 and 2006
(in thousands, except for per share data)
(unaudited) Three Months
---------------------------------
2007 2006 % Change
---------- ---------- --------
Revenue $1,718,179 $1,527,543 12.5
Expense, net 1,262,754 1,167,140 8.2
Other income - - -
---------- ----------
Income from operations 455,425 360,403 26.4
Interest expense 12,099 8,555 41.4
---------- ----------
Income from operations before taxes on
income 443,326 351,848 26.0
Provision for taxes on income 166,248 130,887 27.0
---------- ----------
Net income $277,078 $220,961 25.4
========== ==========
Earnings per common share:
Basic $0.81 $0.62 30.6
========== ==========
Diluted $0.79 $0.60 31.7
========== ==========
Dividend per common share 0.2050 0.1815 12.9
========== ==========
Average number of common shares
outstanding:
Basic 340,183 355,783
Diluted 350,298 365,507
(unaudited) Six Months
----------------------------------
2007 2006 % Change
----------- ---------- --------
Revenue $3,014,597 $2,668,222 13.0
Expense, net 2,344,296 2,192,145 6.9
Other income 17,305 - N/M
----------- ----------
Income from operations 687,606 476,077 44.4
Interest expense 13,303 6,046 120.0
----------- ----------
Income from operations before taxes on
income 674,303 470,031 43.5
Provision for taxes on income 253,387 174,850 44.9
----------- ----------
Net income $420,916 $295,181 42.6
=========== ==========
Earnings per common share:
Basic $1.22 $0.82 48.8
=========== ==========
Diluted $1.18 $0.79 49.4
=========== ==========
Dividend per common share 0.4100 0.3630 12.9
=========== ==========
Average number of common shares
outstanding:
Basic 345,488 361,244
Diluted 355,687 371,569
N/M - not meaningful
Exhibit 1
The McGraw-Hill Companies
Operating Results by Segment
Periods ended June 30, 2007 and 2006
(dollars in thousands)
Revenue
-------------------------------------
(unaudited) %Favorable
2007 2006 (Unfavorable)
---------- ---------- -------------
Three Months
McGraw-Hill Education $647,324 $611,646 5.8
Financial Services 820,993 677,313 21.2
Information & Media (a) 249,862 238,584 4.7
---------- ----------
Total revenue $1,718,179 $1,527,543 12.5
========== ==========
(dollars in thousands)
Revenue
-------------------------------------
(unaudited) %Favorable
2007 2006 (Unfavorable)
---------- ---------- -------------
Six Months
McGraw-Hill Education $979,004 $925,796 5.7
Financial Services 1,549,875 1,277,313 21.3
Information & Media (a) 485,718 465,113 4.4
---------- ----------
Total revenue $3,014,597 $2,668,222 13.0
========== ==========
The McGraw-Hill Companies
Operating Results by Segment
Periods ended June 30, 2007 and 2006
(dollars in thousands)
Operating Profit
-------------------------------------
(unaudited) %Favorable
2007 2006 (Unfavorable)
---------- ---------- -------------
Three Months
McGraw-Hill Education $80,402 $67,761 18.7
Financial Services 401,368 313,886 27.9
Information & Media 14,740 12,956 13.8
---------- ----------
Total operating segments 496,510 394,603 25.8
General corporate expense (41,085) (34,200) 20.1
Interest expense (12,099) (8,555) 41.4
---------- ----------
Total operating profit $443,326 * $351,848 * 26.0
========== ==========
(dollars in thousands)
Operating Profit
-------------------------------------
(unaudited) %Favorable
2007 2006 (Unfavorable)
---------- ---------- -------------
Six Months (b)
McGraw-Hill Education $(10,278) $(29,290) (64.9)
Financial Services (c) 749,379 565,543 32.5
Information & Media 24,627 14,649 68.1
---------- ----------
Total operating segments 763,728 550,902 38.6
General corporate expense (76,122) (74,825) 1.7
Interest expense (13,303) (6,046) 120.0
---------- ----------
Total operating profit $674,303 * $470,031 * 43.5
========== ==========
* Income from operations before taxes on income.
(a) 2007 revenue and operating profit includes $6.5 million and $5.8
million, respectively, for the three months ended June 30 and
$13.0 million and $12.6 million, respectively, for the six months
ended June 30 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
SOURCE The McGraw-Hill Companies
Contact: Media Relations Contacts: Steven H. Weiss Vice President, Corporate Communications (212) 512-2247 (office) (917) 699-9389 (mobile) weissh@mcgraw-hill.com Frank Briamonte Senior Director, Corporate Communications (212) 512-4145 (office) (201) 725-6133 (mobile) frank_briamonte@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