NEW YORK, Oct. 18 /PRNewswire-FirstCall/ -- The McGraw-Hill Companies
(NYSE: MHP) today reported diluted earnings per share increased 26.4% to $1.34
in the third quarter compared to $1.06 for the same period last year. Diluted
earnings per share in 2006 included a $0.03 charge for restructuring business
operations.
Net income for the third quarter grew by 18.2% to $452.0 million. Revenue
for the third quarter of 2007 increased 9.8% to $2.2 billion. Foreign exchange
rates positively affected the growth of revenue by $21.3 million and
contributed $1.8 million to operating profit.
"Double-digit growth and increased share in the elementary-high school
market in the most important quarter of the year for education and solid
performances in Financial Services even as the structured finance market
deteriorated were key to our results," said Harold McGraw III, chairman,
president and chief executive officer of The McGraw-Hill Companies. "The
operating margin expanded in all three segments.
"For the first nine months of 2007, diluted earnings per share were $2.50,
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 $1.84 diluted
earnings per share reported for the first nine months of 2006 included a one-
time charge of $0.04 for the elimination of the Company's restoration stock
option program and $0.03 for restructuring.
"Net income for the first nine months was $872.9 million.
"Revenue for the first nine months grew by 11.6% to $5.2 billion.
Education: "Revenue for this segment increased 9.9% to $1.2 billion in the
third quarter compared to the same period last year. Operating profit grew by
16.1% to $411.1 million. Included in the segment's 2007 operating profit is a
pre-tax gain of $4.1 million on the divestiture of a product line for
parochial schools. In the third quarter of 2006, there was a pre-tax
restructuring charge of $5.6 million. Foreign exchange rates added $8.1
million to the growth in revenue, but had an immaterial effect on operating
profit growth.
"Revenue for the McGraw-Hill School Education Group increased 11.2% in the
third quarter to $670.8 million. Revenue for the McGraw-Hill Higher Education,
Professional and International Group grew by 8.1% in the third quarter to
$505.1 million.
"Capturing 32% of the fast-growing state new adoption market was the key
to this year's industry-leading performance by the McGraw-Hill School
Education Group. We originally estimated that the 2007 state new adoption
market would grow 10% to 15% to $750-$800 million. It now appears that the
state new adoption market could grow 14% to 20% this year to $780-$820
million.
"Our K-8 science programs led all competition in California and South
Carolina while our 6-8 math programs captured a leading share in the Texas
adoption. Treasures, the K-5 balanced basal reading program, led the list in
Indiana and competed very well in Oregon and Tennessee. The elementary series,
Spotlight on Music, placed first in all six states adopting music this year.
We benefited from additional K-5 social studies sales in the second year of
the California adoption.
"The McGraw-Hill School Education Group also achieved significant capture
rates in small but profitable categories such as health, business education,
technical and vocational education, and family and consumer science.
"In a market seeking a range of proven instructional approaches, our
strategy of providing a spectrum of products also contributed to the success
of the McGraw-Hill School Education Group. That was demonstrated by the
response to the new third edition of Everyday Mathematics, a reform-based
program. Everyday Mathematics sold well in large urban markets and took the
leading share in New Mexico's K-5 math adoption.
"In the open territory, the McGraw-Hill School Education Group is
outpacing the competition, but this market segment is virtually flat and only
orders in the fourth quarter can produce an uptick there this year for the
industry.
"The supplemental market has been soft all year. The introduction of new
basal reading programs like Treasures, which provide more comprehensive
coverage of literacy skills, including phonics, has diminished the demand for
separate supplements.
"Our performance improved in the testing market for both custom and off-
the-shelf, or non-custom, products.
"In the Higher Education, Professional and International Group, we
benefited from growth in college and university markets, a solid performance
in professional publishing, and gains overseas.
"In the U.S. college and university market, the Business and Economics
imprint turned in outstanding results. Gains were also produced by imprints in
Science, Engineering and Mathematics, and Humanities, Social Sciences and
Languages.
"Best-sellers include:
McConnell, Economics, 17th Edition
Nickels, Understanding Business, 8th Edition
Garrison, Managerial Accounting, 12th Edition
Kamien, Music, An Appreciation, Brief Edition, 6th Edition
Raven, Biology, 8th Edition "Digital products also contributed to the growth across all three
imprints.
"In professional markets, digital products, which include Access Medicine,
Access Surgery, Access Emergency Medicine and Access Pharmacy, continue to
attract a growing number of domestic and international subscribers. Our new
digital iSpeak products, launched in April and now available in seven
languages, are gaining traction. The iSpeak software turns iPod and MP3
players into portable translators with the text appearing on the screen while
phrases are simultaneously played through the earphones.
"In international markets, we benefited from strong school sales in Canada
and Spain and a solid higher education selling season in Europe, Asia and
India.
Financial Services: "Revenue for this segment increased 12.5% in the third
quarter to $759.6 million compared to the same period last year. Operating
profit grew by 17.3% to $346.7 million. Foreign exchange rates positively
affected revenue growth by $12.6 million and had an immaterial impact on
operating profit growth.
"Double-digit growth in Standard & Poor's international fixed income
markets, a strong performance by corporate and government ratings, and
outstanding results from financial information products and services offset
growing weakness in structured finance. Although new issuance in the U.S. bond
market declined precipitously in September, the segment improved its operating
margin to 45.6%, up from 43.8% for the same period in 2006.
"International credit ratings and services accounted for 41.6% of ratings
revenue in the third quarter versus 38.5% for the same period last year.
"Structured finance revenues declined modestly in the third quarter due to
difficult conditions in the credit markets created by the performance of
subprime mortgages. Solid growth overseas partially offset a decline in the
U.S. market. The contraction in U.S. residential mortgage-backed securities
activity and the related impact on the collateralized debt obligation sector
were the biggest contributors to the revenue shortfall in structured finance.
Revenue increased in the asset-backed securities market.
"Investor flight to quality helped produce solid revenue gains in the
investment-grade corporate market, which benefited from a shrinking commercial
paper market and pent-up demand that was unleashed by the Federal Reserve's
interest rate cut in mid-September. Public finance also improved as new money
issuance outpaced a decline in refundings.
"For the third quarter, new issue dollar volume declined by 19.7% in the
U.S. market and by 23.6% in Europe, according to reports from Thomson
Financial and Harrison Scott Publications and Standard & Poor's estimates.
"In the U.S., investment-grade corporate dollar volume issuance increased
9.4% while speculative volume fell 76.8%. As a result, total corporate
issuance was flat. Public finance issuance was up 3.8%. Mortgage-backed
securities issuance was off 43.9% as residential mortgage-backed securities
fell 59.3%. Asset-backed securities issuance was off 7.6%.
"Ratings and services not directly linked to public new issuance produced
a double-digit increase in the third quarter and accounted for 25.7% of
ratings revenue, up from 23.6% for the same period in 2006. Driving the growth
in the third quarter were infrastructure and financial strength ratings and
rating evaluation services.
"Standard & Poor's data and information products and index services
recorded solid gains. Increasing assets under management in exchange-traded
funds, stepped up trading volume of derivative contracts, and growth in
licensing fees, all linked to Standard & Poor's indices, contributed to the
improvement.
"Assets under management in exchange-traded funds based on Standard &
Poor's indices grew by 38.4% from September 30, 2006 to $209.5 billion as of
September 30, 2007. S&P receives payments based on assets under management.
"At the Chicago Mercantile Exchange, the average daily volume of e-mini
contracts climbed to 2.0 million in the third quarter, a 102.7% increase over
the comparable period last year. The average daily volume of S&P 500 option
contracts traded at the Chicago Board Options Exchange increased 72.8% to
673,713. S&P is paid a royalty each time a contract is traded.
"Strong demand for data and information products is spurring growth.
Capital IQ continues to add new customers and expand services to existing
clients. A primary revenue driver has been the addition of new modules to the
Capital IQ platform, including portfolio management tools and detailed fixed
income information. Enhanced delivery of data through improvements to
Xpressfeed and the Web-based Research Insight platform stimulated growth at
Compustat. Worldwide demand for fixed income data from Standard & Poor's is
also producing solid results especially for RatingsDirect and RatingsXpress.
Information & Media: "Revenue for this segment increased 2.1% in the third
quarter to $252.4 million compared to the same period last year. Operating
profit grew by 35.8% to $18.6 million. In the third quarter of 2006, the
segment incurred a pre-tax restructuring charge of $5.8 million. Foreign
exchange rates did not have a material effect on revenue or operating profit
growth.
"The segment benefited in the third 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 third quarter of 2007.
"In the third quarter, revenue increased 3.2% to $228.5 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.
"Growth in Platts' news and pricing services for oil, natural gas and
power markets and the accounting impact of the transformation of Sweets were
key to revenue improvement at the Business-to-Business Group. Growth in J.D.
Power and Associates studies and proprietary services in international markets
also benefited the Business-to-Business Group.
"Advertising pages for BusinessWeek's global print edition were down 24.6%
in the third quarter compared to last year, with one less issue in the third
quarter of 2007 versus 2006, according to the Publishers Information Bureau.
"Softness in television advertising in a non-election year led to a 7.8%
decline in revenue at the Broadcasting Group. Revenue for the third quarter
this year was $24.0 million compared to $26.0 million for the same period in
2006.
The Outlook: "We are still on course to produce double-digit earnings per
share growth in 2007, as well as improved operating margins in the Financial
Services and McGraw-Hill Education segments. For the fourth quarter, revenues
and earnings will not match last year's results because of challenging
conditions in the structured finance market and some softness in education."
Conference Call/Webcast Details: The Corporation's senior management will
review the third quarter 2007 earnings results on a conference call scheduled
for this morning, October 18, 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 October 25, 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: October 18, 2007
The McGraw-Hill Companies
Statements of Income
Periods ended September 30, 2007 and 2006
(in thousands, except for per share data)
(unaudited) Three Months
-----------------------------------
2007 2006 % Change
---------- ---------- --------
Revenue $2,187,996 $1,992,570 9.8
Expenses, net 1,449,344 1,376,341 5.3
Other income - - -
---------- ----------
Income from operations 738,652 616,229 19.9
Interest expense 15,423 7,515 105.2
---------- ----------
Income from operations before taxes on
income 723,229 608,714 18.8
Provision for taxes on income 271,211 226,441 19.8
---------- ----------
Net income $452,018 $382,273 18.2
---------- ----------
---------- ----------
Earnings per common share:
Basic $1.37 $1.09 25.7
---------- ----------
---------- ----------
Diluted $1.34 $1.06 26.4
---------- ----------
---------- ----------
Dividend per common share $0.2050 $0.1815 12.9
---------- ----------
---------- ----------
Average number of common shares
outstanding:
Basic 330,249 351,139
Diluted 337,733 360,935
(unaudited) Nine Months
-----------------------------------
2007 2006 % Change
---------- ---------- --------
Revenue $5,202,593 $4,660,792 11.6
Expenses, net 3,793,640 3,568,486 6.3
Other income 17,305 - N/M
---------- ----------
Income from operations 1,426,258 1,092,306 30.6
Interest expense 28,726 13,561 111.8
---------- ----------
Income from operations before taxes on
income 1,397,532 1,078,745 29.6
Provision for taxes on income 524,598 401,291 30.7
---------- ----------
Net income $872,934 $677,454 28.9
---------- ----------
---------- ----------
Earnings per common share:
Basic $2.57 $1.89 36.0
---------- ----------
---------- ----------
Diluted $2.50 $1.84 35.9
---------- ----------
---------- ----------
Dividend per common share $0.6150 $0.5445 12.9
---------- ----------
---------- ----------
Average number of common shares
outstanding:
Basic 340,295 357,704
Diluted 349,589 367,853
N/M - not meaningful
Exhibit 1
The McGraw-Hill Companies
Operating Results by Segment
Periods ended September 30, 2007 and 2006
(dollars in thousands)
Revenue
-----------------------------------------
(unaudited) % Favorable
2007 2006 (Unfavorable)
---------- ---------- -------------
Three Months
McGraw-Hill Education $1,175,954 $1,070,238 9.9
Financial Services 759,614 675,063 12.5
Information & Media (a) 252,428 247,269 2.1
---------- ----------
Total revenue $2,187,996 $1,992,570 9.8
---------- ----------
---------- ----------
(dollars in thousands)
Revenue
-----------------------------------------
(unaudited) % Favorable
2007 2006 (Unfavorable)
---------- ---------- -------------
Nine Months
McGraw-Hill Education $2,154,958 $1,996,034 8.0
Financial Services 2,309,489 1,952,376 18.3
Information & Media (a) 738,146 712,382 3.6
---------- ----------
Total revenue $5,202,593 $4,660,792 11.6
---------- ----------
---------- ----------
The McGraw-Hill Companies
Operating Results by Segment
Periods ended September 30, 2007 and 2006
(dollars in thousands)
Operating Profit
-----------------------------------------
(unaudited) % Favorable
2007 2006 (Unfavorable)
---------- ---------- -------------
Three Months (b)
McGraw-Hill Education $411,059 $354,038 16.1
Financial Services 346,650 295,650 17.3
Information & Media (a) 18,629 13,717 35.8
---------- ----------
Total operating segments 776,338 663,405 17.0
General corporate expense (37,686) (47,176) 20.1
Interest expense (15,423) (7,515) (105.2)
---------- ----------
Total operating profit $723,229* $608,714* 18.8
---------- ----------
---------- ----------
(dollars in thousands)
Operating Profit
-----------------------------------------
(unaudited) % Favorable
2007 2006 (Unfavorable)
---------- --------- -------------
Nine Months (b) (c)
McGraw-Hill Education $400,781 $324,748 23.4
Financial Services (d) 1,096,030 861,193 27.3
Information & Media (a) 43,255 28,366 52.5
---------- ----------
Total operating segments 1,540,066 1,214,307 26.8
General corporate expense (113,808) (122,001) 6.7
Interest expense (28,726) (13,561) (111.8)
----------- -----------
Total operating profit $1,397,532* $1,078,745* 29.6
----------- -----------
----------- -----------
* 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 September 30
and $19.5 million and $17.3 million, respectively, for the nine months
ended September 30 related to the transformation of Sweets
to an Internet-based sales and marketing solution.
(b) 2006 operating profit for the three and nine month periods includes a
one-time pre-tax restructuring charge of $15.4 million as follows:
McGraw-Hill Education, $5.6 million; Information & Media, $5.8
million; and Corporate, $4.1 million.
(c) 2006 operating profit for the nine month period includes a one-time
pre-tax charge of $23.8 million related to the elimination of the
Company's restoration stock option program as follows: McGraw-Hill
Education, $4.2 million; Financial Services, $2.1 million;
Information & Media, $2.7 million; and Corporate, $14.8 million.
(d) 2007 operating profit for the nine month period 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