NEW YORK, July 29 /PRNewswire-FirstCall/ -- The McGraw-Hill Companies
(NYSE: MHP) today reported diluted earnings per share of $0.66 for the second
quarter of 2008. The results include a pre-tax restructuring charge of
$23.7 million ($14.8 million after tax) or $0.05 per diluted share primarily
for severance costs relating to a workforce reduction of 395 positions.
Net income for the second quarter decreased 23.4% to $212.3 million
compared to the same period last year.
Revenue declined by 2.6% to $1.7 billion in the second quarter.
"An encouraging start in the elementary-high school business that
underscores our outstanding third quarter prospects in this year's state new
adoption market, the double-digit growth of Standard & Poor's Investment
Services that helped cushion the downturn in credit markets, and strength in
news and pricing services for global energy markets were important factors in
our second quarter performance," said Harold McGraw III, chairman, president
and chief executive officer of The McGraw-Hill Companies.
Education: "Revenue for this segment increased 3.6% in the second quarter
to $670.8 million compared to the same period last year. Reflecting a pre-tax
restructuring charge of $8.5 million in the second quarter, operating profit
declined $10.9 million, or 13.5% to $69.5 million compared to last year.
Foreign exchange rates favorably affected revenue by $5.3 million and had an
immaterial impact on operating profit for the second quarter.
"Revenue for the McGraw-Hill School Education Group increased by 6.9% in
the second quarter to $438.2 million. Revenue for the McGraw-Hill Higher
Education, Professional and International Group decreased by 2.1% to
$232.6 million.
"Despite concerns about the economy in many states, a robust state new
adoption market is shaping up this year, and we are now on course to capture
about one-third of the total available dollars. We estimate that the total
state new adoptions this year will be worth $900 million to $950 million
compared with about $820 million in 2007.
"Two critical state new adoption markets this year are for K-5 reading in
Florida and K-5 math in Texas. Ordering in June from both states was a key to
the McGraw-Hill School Education Group's second quarter performance and an
early sign of the success we are experiencing in adoption markets. In the open
territory, which is predominantly a third-quarter market, we benefited from a
substantial second-quarter order from New York City for Everyday Mathematics.
"The supplemental market remains sluggish, although sales of our
intervention products are growing. These include Number Worlds, Reading
Triumphs and Jamestown Reading Navigator, which recently won a major adoption
in Florida's Miami-Dade County.
"Based on the trends and performance so far this year, the McGraw-Hill
School Education Group expects to gain share in an elementary-high school
market that is forecasted to grow 4% to 5% this year.
"Revenue in testing improved as gains in Acuity, our new formative testing
program; LAS Links, our new assessments for English-language learners; and
TABE, diagnostic assessments and instructional support for adult students,
offset declines in older products and custom contract work.
"In the McGraw-Hill Higher Education, Professional and International
Group, revenue in the second quarter softened in U.S. college and professional
markets. The Group's international revenue increased in most markets served by
the English-Language Group, notably India and Asia. In the markets served by
the Latin/Hispanic-Language Group, gains in Latin America were offset by a
decline in the Ibero/Italian region.
"In the U.S. college and university market, second-quarter sales were
affected when some textbook distributors shifted the timing of their orders
for the fall semester from late June into July. Still, sales of our digital,
custom and career product lines, which target three important emerging markets
within higher education, all showed solid growth during the quarter.
"Softness in retail markets and challenging comparisons created by the
first-year sales success of the Encyclopedia of Science and Technology in the
second quarter of 2007 were factors in our performance in professional
markets. However, key titles continued to perform well despite challenging
conditions. When Markets Collide by Mohamed A. El-Erian, named one of the 10
must-read summer investing and business books by J.P. Morgan's Private Client
Group, climbed by early July to the No. 1 position on The Wall Street
Journal's list of best-selling business books. Digital subscription products
for professional markets also continued to show good growth in the second
quarter.
Financial Services: "Revenue for this segment declined 10.4% to
$735.5 million in the second quarter compared to the same period last year.
Including a pre-tax restructuring charge of $15.2 million in the second
quarter, operating profit decreased by 25.4% to $299.2 million. A reduction in
incentive compensation mitigated the decline in operating profit in the second
quarter. Foreign exchange rates positively impacted revenue by $16.8 million
and operating profit by $7.9 million.
"Revenue for Standard & Poor's Credit Market Services, which provides
independent global credit ratings, credit risk evaluations and ratings-related
information and products, declined by 20.1% to $507.9 million in the second
quarter compared to the same period last year.
"Revenue for Standard & Poor's Investment Services, which provides
comprehensive value-added financial data, information, investment indices and
research, increased by 22.8% to $227.6 million in the second quarter compared
to the same period last year.
"At S&P Credit Market Services, a 13.7% gain in revenue to $341.0 million
from non-transaction products helped partially offset the substantial decline
in structured finance and softness in corporates. Public finance improved in
the second quarter. Non-transaction revenue, which includes surveillance fees,
annual contracts and subscriptions, accounted for 67.1% of Credit Market
Services' revenue in the second quarter.
"The 50.3% decline in transaction revenue to $166.9 million for S&P Credit
Market Services reflected the fall-off in new issue dollar volume in the U.S.
and European bond markets. Total new issue dollar volume in the U.S. fell
44.4% in the second quarter compared to the same period last year, according
to S&P estimates and reports from Thomson Financial and Harrison Scott
Publications. In the U.S., corporate new issue dollar volume was off 15.1%.
Public finance increased 18.7%. Mortgage-backed securities were off 94.5%.
Asset-backed securities declined 19.1%. Collateralized debt obligations fell
by 88.2%.
"In Europe, new issue dollar volume was down 24.4%.
"International revenue for S&P Credit Market Services was off 3.3%, or
9.4% excluding the impact of foreign exchange rates, to $235.5 million in the
second quarter, reflecting softness in collateralized debt obligations,
commercial mortgage-backed securities, and asset-backed securities primarily
in Europe. U.S. revenue decreased 30.6% to $272.4 million.
"Solid gains by index services and Capital IQ products were instrumental
in Standard & Poor's Investment Services' 22.8% revenue increase in the second
quarter. Capital IQ continued to add new customers in the second quarter in
both domestic and international markets. Capital IQ now has more than 2,400
customers worldwide, a 23% increase compared to the second quarter of 2007.
"Assets under management in exchange-traded funds that track S&P indices
increased 15.5% to $206.3 billion at the end of the second quarter compared to
the same period last year. In the second quarter, 18 new exchange-traded funds
using S&P indices were launched. There are now 175 exchange-traded funds based
on S&P indices. S&P receives payments based on assets under management in
these funds.
"The average daily volume for major exchange-traded derivatives based on
S&P indices grew in the second quarter by 25% to more than 2.8 million
contracts. The growth was primarily driven by E-mini, options on E-mini's and
Volatility Index contracts. S&P is paid a royalty each time a contract is
traded.
Information & Media: "Revenue for this segment grew by 6.8% to
$266.9 million in the second quarter compared to the same period last year.
Operating profit increased by 68.2% to $24.8 million. Foreign exchange rates
did not have a material impact on segment revenue or operating profit growth.
"Revenue in the second quarter increased 7.8% to $240.4 million for the
Business-to-Business Group, which includes the following brands: Aviation
Week, BusinessWeek, J.D. Power and Associates, McGraw-Hill Construction, and
Platts. A key driver in the Group's second quarter performance was Platts. In
a volatile energy market, Platts' critical oil, natural gas and petrochemical
news and pricing products and services are attracting new subscribers both
here and abroad. J.D. Power and Associates continued to increase its
automotive market penetration in the Asia-Pacific market in the second
quarter.
"Advertising pages in BusinessWeek's global edition were down 11% in the
second quarter, according to the Publishers Information Bureau.
"Revenue for the Broadcasting Group declined 1.0% to $26.5 million in the
second quarter compared to last year as gains in political advertising were
offset by softness in local and national advertising.
The Outlook: "Uncertainty in financial markets and the economy continue
to have an impact on The McGraw-Hill Companies in 2008.
"Revenue for the Financial Services segment could be off 7% to 9% in 2008
if the decline we experienced in the first half in structured finance
continues for the remainder of the year. Under these circumstances, we would
also expect a 500 to 600 basis point pullback in the segment's operating
margin.
"Slower growth in our higher education, professional, and international
operations may also reduce the rate of the increase in revenue this year for
McGraw-Hill Education. We now estimate revenue growth of 4% to 6% for this
segment in 2008. But we are not changing our estimate of a 50 to 100 basis
point decline in the segment's operating margin.
"For Information & Media, we still anticipate revenue growth of 6% to 8%
and operating margin improvement.
"Year-over-year comparisons get easier in the second half. Excluding
second quarter restructuring charges and related benefits, we still expect
earnings per share in the $2.65 to $2.75 range for 2008."
Conference Call/Webcast Details: The Corporation's senior management will
review the second quarter 2008 earnings results on a conference call scheduled
for this morning, July 29, 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
http://www.mcgraw-hill.com/investor_relations. To participate by telephone,
please dial-in to the call 10 minutes before the start time and register.
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 http://investor.mcgraw-
hill.com/phoenix.zhtml?c=96562&p=irol-EventDetails&EventId=1898119. (Please
copy and paste URL into web browser.) 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.
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 2007 were $6.8 billion. Additional
information is available at www.mcgraw-hill.com.
Homepage: http://www.mcgraw-hill.com
Investor Relations: http://www.mcgraw-hill.com/investor_relations
Get news direct from McGraw-Hill via RSS:
http://investor.mcgraw-hill.com/phoenix.zhtml?c=96562&p=newsRSS
Release issued: July 29, 2008
The McGraw-Hill Companies
Statements of Income
Periods ended June 30, 2008 and 2007
(dollars in thousands, except per share data)
(unaudited) Three Months
---------------------------------
2008 2007 % Change
---------- ---------- --------
Revenue $1,673,225 $1,718,179 (2.6)%
Expenses, net 1,313,200 1,262,754 4.0 %
Other income - - -
---------- ----------
Income from operations 360,025 455,425 (20.9)%
Interest expense, net 20,354 12,099 68.2 %
---------- ----------
Income from operations
before taxes on income 339,671 443,326 (23.4)%
Provision for taxes on income 127,377 166,248 (23.4)%
---------- ----------
Net income $212,294 $277,078 (23.4)%
========== ==========
Earnings per common share:
Basic $0.67 $0.81 (17.3)%
========== ==========
Diluted $0.66 $0.79 (16.5)%
========== ==========
Dividend per common share $0.22 $0.205 7.3 %
========== ==========
Average number of common shares
outstanding:
Basic 317,746 340,183
Diluted 321,087 350,298
(unaudited) Six Months
----------------------------------
2008 2007 % Change
---------- ---------- --------
Revenue $2,891,096 $3,014,597 (4.1)%
Expenses, net 2,383,464 2,344,296 1.7 %
Other income - 17,305 N/M
---------- ----------
Income from operations 507,632 687,606 (26.2)%
Interest expense, net 38,184 13,303 187.0 %
---------- ----------
Income from operations
before taxes on income 469,448 674,303 (30.4)%
Provision for taxes on income 176,044 253,387 (30.5)%
---------- ----------
Net income $293,404 $420,916 (30.3)%
========== ==========
Earnings per common share:
Basic $0.92 $1.22 (24.6)%
========== ==========
Diluted $0.91 $1.18 (22.9)%
========== ==========
Dividend per common share $0.44 $0.410 7.3 %
========== ==========
Average number of common shares
outstanding:
Basic 318,875 345,488
Diluted 322,273 355,687
N/M - not meaningful
Exhibit 1
The McGraw-Hill Companies
Operating Results by Segment - As Reported
Periods ended June 30, 2008 and 2007
(dollars in thousands)
(unaudited) Revenue
-----------------------------------
% Favorable
2008 2007 (Unfavorable)
---------- --------- ------------
Three Months
McGraw-Hill Education $670,846 $647,324 3.6 %
Financial Services 735,477 820,993 (10.4)%
Information & Media 266,902 249,862 6.8 %
---------- ----------
Total revenue $1,673,225 $1,718,179 (2.6)%
========== ==========
(unaudited) Segment Expenses
-----------------------------------
% Favorable
2008 2007 (Unfavorable)
---------- --------- ------------
Three Months
McGraw-Hill Education (a) $601,311 $566,922 (6.1)%
Financial Services (a) 436,250 419,625 (4.0)%
Information & Media 242,103 235,122 (3.0)%
---------- ----------
Total segment expenses $1,279,664 $1,221,669 (4.7)%
========== ==========
(unaudited) Operating Profit
---------------------------------
% Favorable
2008 2007 (Unfavorable)
--------- ------- ------------
Three Months
McGraw-Hill Education (a) $69,535 $80,402 (13.5)%
Financial Services (a) 299,227 401,368 (25.4)%
Information & Media 24,799 14,740 68.2 %
--------- ---------
Total operating segments 393,561 496,510 (20.7)%
General corporate expense (33,536) (41,085) 18.4 %
Interest expense, net (20,354) (12,099) (68.2)%
--------- ---------
Total operating profit * $339,671 $443,326 (23.4)%
========= =========
Exhibit 2 - p. 1 of 2
(unaudited) Revenue
-----------------------------------
% Favorable
2008 2007 (Unfavorable)
---------- --------- ------------
Six Months
McGraw-Hill Education $1,001,002 $979,004 2.2 %
Financial Services 1,379,778 1,549,875 (11.0)%
Information & Media 510,316 485,718 5.1 %
---------- ----------
Total revenue $2,891,096 $3,014,597 (4.1)%
========== ==========
(unaudited) Segment Expenses
-----------------------------------
% Favorable
2008 2007 (Unfavorable)
---------- --------- ------------
Six Months
McGraw-Hill Education (a) $1,021,733 $989,282 (3.3)%
Financial Services (a) (b) 820,548 800,495 (2.5)%
Information & Media 473,791 461,092 (2.8)%
---------- ----------
Total segment expenses $2,316,072 $2,250,869 (2.9)%
========== ==========
(unaudited) Operating Profit (Loss)
---------------------------------
% Favorable
2008 2007 (Unfavorable)
--------- ------- ------------
Six Months
McGraw-Hill Education (a) $(20,731) $(10,278) (101.7)%
Financial Services (a) (b) 559,230 749,380 (25.4)%
Information & Media 36,525 24,626 48.3 %
--------- ---------
Total operating segments 575,024 763,728 (24.7)%
General corporate expense (67,392) (76,122) 11.5 %
Interest expense, net (38,184) (13,303) (187.0)%
--------- ---------
Total operating profit * $469,448 $674,303 (30.4)%
========= =========
* Income from operations before taxes on income
(a) 2008 segment expenses and operating profit for the three and six
months include a pre-tax restructuring charge of $23.7 million as
follows: Financial Services, $15.2 million and McGraw-Hill
Education, $8.5 million.
(b) 2007 segment expenses and operating profit for the six months
include a $17.3 million pre-tax gain on the sale of the Company's
mutual fund data business in March 2007.
Exhibit 2 - p. 2 of 2
The McGraw-Hill Companies
Operating Results by Segment - As Adjusted
Periods ended June 30, 2008 and 2007
(dollars in thousands)
(unaudited) Revenue
-----------------------------------
% Favorable
2008 2007 (Unfavorable)
---------- --------- ------------
Three Months
McGraw-Hill Education $670,846 $647,324 3.6 %
Financial Services 735,477 820,993 (10.4)%
Information & Media 266,902 249,862 6.8 %
---------- ----------
Total revenue $1,673,225 $1,718,179 (2.6)%
========== ==========
(unaudited) Segment Expenses
-----------------------------------
% Favorable
2008 2007 (Unfavorable)
---------- --------- ------------
Three Months
McGraw-Hill Education (a) $592,803 $566,922 (4.6)%
Financial Services (a) 421,103 419,625 (0.4)%
Information & Media 242,103 235,122 (3.0)%
---------- ----------
Total segment expenses $1,256,009 $1,221,669 (2.8)%
========== ==========
(unaudited) Operating Profit
---------------------------------
% Favorable
2008 2007 (Unfavorable)
--------- ------- ------------
Three Months
McGraw-Hill Education (a) $78,043 $80,402 (2.9)%
Financial Services (a) 314,374 401,368 (21.7)%
Information & Media 24,799 14,740 68.2 %
--------- ---------
Total operating segments 417,216 496,510 (16.0)%
General corporate expense (33,536) (41,085) 18.4 %
Interest expense, net (20,354) (12,099) (68.2)%
--------- ---------
Total operating profit * $363,326 $443,326 (18.0)%
========= =========
Exhibit 3 - p. 1 of 2
(unaudited) Revenue
-----------------------------------
% Favorable
2008 2007 (Unfavorable)
---------- --------- ------------
Six Months
McGraw-Hill Education $1,001,002 $979,004 2.2 %
Financial Services 1,379,778 1,549,875 (11.0)%
Information & Media 510,316 485,718 5.1 %
---------- ----------
Total revenue $2,891,096 $3,014,597 (4.1)%
========== ==========
(unaudited) Segment Expenses
-----------------------------------
% Favorable
2008 2007 (Unfavorable)
---------- --------- ------------
Six Months
McGraw-Hill Education (a) $1,013,225 $989,282 (2.4)%
Financial Services (a) (b) 805,401 817,800 1.5 %
Information & Media 473,791 461,092 (2.8)%
---------- ----------
Total segment expenses $2,292,417 $2,268,174 (1.1)%
========== ==========
(unaudited) Operating Profit (Loss)
---------------------------------
% Favorable
2008 2007 (Unfavorable)
--------- ------- ------------
Six Months
McGraw-Hill Education (a) $(12,223) $(10,278) (18.9)%
Financial Services (a) (b) 574,377 732,075 (21.5)%
Information & Media 36,525 24,626 48.3 %
--------- ---------
Total operating segments 598,679 746,423 (19.8)%
General corporate expense (67,392) (76,122) 11.5 %
Interest expense, net (38,184) (13,303) (187.0)%
--------- ---------
Total operating profit * $493,103 $656,998 (24.9)%
========= =========
* Income from operations before taxes on income
(a) 2008 segment expenses and operating profit for the three and six
months exclude a pre-tax restructuring charge of $23.7 million as
follows: Financial Services, $15.2 million and McGraw-Hill
Education, $8.5 million.
(b) 2007 segment expenses and operating profit for the six months
exclude a $17.3 million pre-tax gain on the sale of the Company's
mutual fund data business in March 2007.
Non-GAAP Measures
In addition to including financial measures under accounting principles
generally accepted in the United States of America (U.S. GAAP), The
McGraw-Hill Companies disclosed non-GAAP measures for the three and six
months ended June 30, 2008 and 2007. These non-GAAP measures exclude the
impact of restructuring charges and a gain on the sale of the Company's
mutual fund data business. The non-GAAP measures are provided because
management believes they provide useful supplemental information for
meaningful comparisons of the Company's results. This exhibit should be
read in conjunction with Exhibit 2.
Exhibit 3 - p. 2 of 2
The McGraw-Hill Companies
Financial Services Segment
Credit Market Services - Transaction vs. Non-Transaction Revenue
Periods ended June 30, 2008 and 2007
(dollars in thousands)
(unaudited)
2008 2007 % Change
-------- -------- --------
Three Months
Transaction Revenue (a) $166,859 $335,708 (50.3)%
Non-Transaction Revenue (b) 341,037 300,009 13.7 %
-------- --------
Total Credit Market Services Revenue $507,896 $635,717 (20.1)%
======== ========
(unaudited)
2008 2007 % Change
-------- ---------- --------
Six Months
Transaction Revenue (a) $285,059 $602,848 (52.7)%
Non-Transaction Revenue (b) 650,151 577,880 12.5 %
-------- ----------
Total Credit Market Services Revenue $935,210 $1,180,728 (20.8)%
======== ==========
(a) Revenue related to rating new issuance of corporate, public finance,
and structured finance instruments.
(b) Revenue from annual fees for frequent issuer programs, surveillance,
subscriptions, and certain non-traditional products.
The McGraw-Hill Companies
Financial Services Segment
Credit Market Services - Domestic vs. International Revenue
Periods ended June 30, 2008 and 2007
(dollars in thousands)
(unaudited)
2008 2007 % Change
-------- -------- --------
Three Months
Domestic Revenue $272,349 $392,184 (30.6)%
International Revenue 235,547 243,533 (3.3)%
-------- --------
Total Credit Market Services Revenue $507,896 $635,717 (20.1)%
======== ========
(unaudited)
2008 2007 % Change
-------- ---------- --------
Six Months
Domestic Revenue $495,144 $743,808 (33.4)%
International Revenue 440,066 436,920 0.7 %
-------- ----------
Total Credit Market Services Revenue $935,210 $1,180,728 (20.8)%
======== ==========
Exhibit 4
SOURCE The McGraw-Hill Companies