McGraw-Hill Income and Revenues Rise in Second Quarter

NEW YORK, AUTHORLINK NEWS/July 23, 2010--The McGraw-Hill Companies today reported net income for the second quarter of 2010 increased by 16.4%, or $27.0 million, to $191.1 million. Revenue in the second quarter was up 0.6% to $1.5 billion. Earnings per share rose 17.3% to $0.52 for the same period in 2009.

"Solid results in the U.S. college and university market, a strong performance by Standard & Poor's indices, and strength in the global energy information market helped offset some softening in credit market services in the second quarter," said Harold McGraw III, Chairman, President and Chief Executive Officer of The McGraw-Hill Companies. "Our operating margin improved by 340 basis points to 24.7%."

Education: Revenue for this segment increased by 1.8% to $565 million in the second quarter compared to the same period last year. The operating profit for the second quarter grew to $51.6 million compared to $21.0 million last year, which included a net pre-tax restructuring charge of $11.6 million. Foreign exchange rates increased revenue by $3.3 million and operating profit by $2.3 million.

Revenue for the McGraw-Hill School Education Group declined by 4.0%, or $13.7 million, in the second quarter to $324.9 million. The results were influenced by the timing of some Texas K-12 orders, which will be shipped during the third quarter.
Revenue for the McGraw-Hill Higher Education, Professional and International Group grew by 10.8% to $240.1 million.

A solid performance in the Texas K-12 reading and literature market, this year's biggest state new adoption opportunity at more than $400 million, was key to McGraw-Hill School Education Group's second quarter results. Texas did not adopt new materials in 2009. This year the McGraw-Hill School Education Group expects to capture about 40% of the Texas K-5 reading market and approximately 18% of the 6-12 literature market.

The McGraw-Hill School Education Group also will benefit from solid performances in K-5 reading and reading intervention in other adoption states, from a strong showing in the Florida 6-12 math market, and from excellent capture rates in non-core disciplines such as business and computer education and family and consumer sciences.

The gain in the state new adoption market was partially offset by lower sales in California, South Carolina and Indiana -- adoption states with reduced opportunities in 2010 compared to 2009. California is in the second year of its K-8 reading and literature adoption and the third year of its math adoption. But as the market leader there in reading, the McGraw-Hill School Education Group has been especially hard hit by the cut back in ordering by local school districts in response to the state's budget deficit and poor economic outlook.

In view of these recent trends, the McGraw-Hill School Education Group is trimming its estimate for the year's state new adoption market to a range of $825 million to $875 million. The previous range was $875 million to $925 million. The McGraw-Hill School Education Group still expects to capture about 30% of the state new adoption market. Growth in the state new adoption market is key to the 4% to 6% increase now forecasted this year for the total elementary-high school market. Previously, a growth rate of 6% to 7% had been forecasted.

Online homework management, assessment and tutoring products for students, including McGraw-Hill Connect, e-books and online courses all recorded double-digit revenue increases in the second quarter. The newly announced partnership with Blackboard Inc. will significantly expand student and faculty access to McGraw-Hill Connect by allowing them to use their Blackboard login for the full suite of McGraw-Hill Connect content and tools. Scores of McGraw-Hill Connect assignments, quizzes and tests will post directly to the Blackboard grade book, eliminating the need for students and instructors to manage access and updates in two separate systems.
In the U.S. college and university market in the second quarter, there also was double-digit growth in the following imprints: Science, Engineering and Math; Humanities, Social Sciences and Languages; and Business and Economics.
Without the benefit of another enrollment surge this fall, the U.S. college and university market is expected to grow 5% to 7% this year.

In professional publishing, the e-book market continued to expand and there were indications of an improving trend in traditional retail channels. As part of the digital transformation, the number of professional titles available to customers as e-books increased again in the second quarter and now stands at 5,000. The number of new iPhone applications was also increased in the second quarter. There are now more than 115 mobile apps available through various licensing partners.

Reflecting the impact of favorable foreign exchange rates, revenue increased modestly in international markets. Higher education sales in Southeast Asia, South Korea and Mexico contributed to the performance.

The Outlook: "Our previous earnings per diluted share guidance for 2010 was $2.55 to $2.65. Due to choppiness in some of our key markets, we now expect to finish the year at the low end of that range," said Mr. McGraw.

A webcast will be available live and in replay at http://investor.mcgraw-hill.com/phoenix.zhtml?c=96562&p=irol-EventDetails&EventId=3208170 after July 23.

The McGraw-Hill Companies is a global information and education company providing knowledge, insights and analysis in the financial, education and business information sectors through leading brands including Standard & Poor's, McGraw-Hill Education, Platts, and J.D. Power and Associates. The Corporation has more than 280 offices in 40 countries. Sales in 2009 were $5.95 billion. Additional information is available at http://www.mcgraw-hill.com/.