S&P Global (SPGI) 10-Q 2008 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to                

Commission File Number 1-1023

THE MCGRAW-HILL COMPANIES, INC.

(Exact name of registrant as specified in its charter)

New York	13-1026995
(State of other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1221 Avenue of the Americas, New York, N.Y.	10020
(Address of Principal executive offices)	(Zip Code)
Registrant’s telephone number, including area code (212) 512-2000

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YESþ NOo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o  Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YESo NOþ

On July 18, 2008 there were approximately 317.6 million shares of common stock (par value $1.00 per share) outstanding.

The McGraw-Hill Companies, Inc.

TABLE OF CONTENTS

			Page Number
PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Report of Independent Registered Public Accounting Firm		3
		Consolidated Statements of Income for the three and six months ended June 30, 2008 and 2007		4
		Consolidated Balance Sheets at June 30, 2008, December 31, 2007 and June 30, 2007		5
		Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007		6
		Notes to Consolidated Financial Statements		7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		35
	Item 4.	Controls and Procedures		35
PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings		36
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		37
	Item 4.	Submissions of Matters to a Vote of Security Holders		38
	Item 6.	Exhibits		38
EX-15: LETTER ON UNAUDITED INTERIM FINANCIALS
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32: CERTIFICATION

2

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
of The McGraw-Hill Companies, Inc.

We have reviewed the consolidated balance sheet of The McGraw-Hill Companies, Inc., as of June 30, 2008, and the related consolidated statements of income for the three-month and six-month periods ended June 30, 2008 and 2007, and the consolidated statements of cash flows for the six-month periods ended June 30, 2008 and 2007. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of The McGraw-Hill Companies, Inc. as of December 31, 2007, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended, not presented herein, and in our report dated February 26, 2008, we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph for the adoption of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109”, effective January 1, 2007. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2007, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ ERNST & YOUNG LLP

July 29, 2008

3

Part I
Financial Information

Item 1.Financial Statements

The McGraw-Hill Companies, Inc.
Consolidated Statements of Income

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2008		2007		2008		2007
(in thousands, except per share data)	(Unaudited)				(Unaudited)
Revenue
Product	$	634,112	$	605,373	$	951,755	$	917,742
Service		1,039,113		1,112,806		1,939,341		2,096,855
Total revenue		1,673,225		1,718,179		2,891,096		3,014,597
Expenses
Operating-related
Product		278,220		265,168		460,266		436,146
Service		361,050		369,633		680,377		703,037
Operating-related expenses		639,270		634,801		1,140,643		1,139,183
Selling and general
Product		277,116		251,666		473,890		455,051
Service		353,259		336,021		683,649		669,279
Selling and general expenses		630,375		587,687		1,157,539		1,124,330
Depreciation		30,411		28,798		57,938		57,703
Amortization of intangibles		13,144		11,468		27,344		23,080
Total expenses		1,313,200		1,262,754		2,383,464		2,344,296
Other income (Note 4)		—		—		—		17,305
Income from operations		360,025		455,425		507,632		687,606
Interest expense — net		20,354		12,099		38,184		13,303
Income from operations before taxes on income		339,671		443,326		469,448		674,303
Provision for taxes on income		127,377		166,248		176,044		253,387
Net income	$	212,294	$	277,078	$	293,404	$	420,916
Earnings per common share:
Basic	$	0.67	$	0.81	$	0.92	$	1.22
Diluted	$	0.66	$	0.79	$	0.91	$	1.18
Average number of common shares outstanding:
Basic		317,746		340,183		318,875		345,488
Diluted		321,087		350,298		322,273		355,687
Dividend declared per common share	$	0.22	$	0.205	$	0.44	$	0.41

See accompanying notes.

4

The McGraw-Hill Companies, Inc.
Consolidated Balance Sheets

	June 30,			December 31,			June 30,
	2008			2007			2007
(in thousands)	(Unaudited)						(Unaudited)
ASSETS
Current assets:					��
Cash and equivalents	$	355,304		$	396,096		$	358,082
Accounts receivable (net of allowance for doubtful accounts and sales returns)		1,266,221			1,189,205			1,296,150
Inventories		496,594			350,668			430,194
Deferred income taxes		282,081			280,525			246,398
Prepaid and other current assets		109,464			116,541			115,490
Total current assets		2,509,664			2,333,035			2,446,314
Prepublication costs (net of accumulated amortization)		613,965			573,179			557,941
Investments and other assets:
Asset for pension benefits		263,535			276,487			184,485
Other		179,212			177,757			174,318
Total investments and other assets		442,747			454,244			358,803
Property and equipment — at cost		1,626,790			1,614,051			1,475,940
Less: accumulated depreciation		(978,637	)		(953,285	)		(906,232	)
Net property and equipment		648,153			660,766			569,708
Goodwill and other intangible assets:
Goodwill — net		1,724,192			1,697,621			1,669,192
Copyrights — net		170,835			178,869			187,143
Other intangible assets — net		449,331			459,622			450,344
Net goodwill and intangible assets		2,344,358			2,336,112			2,306,679
Total assets	$	6,558,887		$	6,357,336		$	6,239,445
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Notes payable	$	526,222		$	22		$	994,193
Accounts payable		361,467			388,008			362,373
Accrued royalties		57,301			110,849			53,610
Accrued compensation and contributions to retirement plans		368,008			598,556			440,729
Income taxes currently payable		74,065			—			123,263
Unearned revenue		1,102,692			1,085,440			1,025,536
Deferred gain on sale leaseback		10,480			10,180			9,590
Other current liabilities		468,830			447,022			472,231
Total current liabilities		2,969,065			2,640,077			3,481,525
Other liabilities:
Long-term debt		1,197,519			1,197,425			300
Deferred income taxes		112,069			139,173			91,604
Liability for postretirement healthcare and other benefits		128,390			127,893			125,543
Deferred gain on sale leaseback		164,561			169,941			175,138
Other non-current		477,109			476,177			473,643
Total other liabilities		2,079,648			2,110,609			866,228
Total liabilities		5,048,713			4,750,686			4,347,753
Commitments and contingencies (Note 12)
Shareholders’ equity :
Common stock		411,709			411,709			411,709
Additional paid-in capital		102,574			169,187			118,499
Retained income		5,703,049			5,551,757			5,093,409
Accumulated other comprehensive loss		(23,589	)		(12,623	)		(106,827	)
Less: common stock in treasury — at cost		(4,683,569	)		(4,513,380	)		(3,625,098	)
Total shareholders’ equity		1,510,174			1,606,650			1,891,692
Total liabilities and shareholders’ equity	$	6,558,887		$	6,357,336		$	6,239,445

See accompanying notes.

5

The McGraw-Hill Companies, Inc.
Consolidated Statements of Cash Flows

	Six Months Ended
	June 30,
	2008			2007
(in thousands)	(Unaudited)
Cash flows from operating activities
Net income	$	293,404		$	420,916
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation		57,938			57,703
Amortization of intangibles		27,344			23,080
Amortization of prepublication costs		94,229			84,939
Provision of losses on accounts receivable		9,215			9,594
Net change in deferred income taxes		(21,632	)		(60,701	)
Stock-based compensation		43,000			62,811
Gain on sale of business		—			(17,305	)
Other		6,133			2,799
Changes in operating assets and liabilities, net of effect of acquisitions and dispositions:
Accounts receivable		(77,385	)		(49,702	)
Inventories		(143,096	)		(98,947	)
Prepaid and other current assets		13,128			(2,907	)
Accounts payable and accrued expenses		(324,595	)		(187,447	)
Unearned revenue		8,111			40,920
Other current liabilities		(9,222	)		6,336
Income taxes currently payable		75,959			58,786
Net change in other assets and liabilities		(15,119	)		37,656
Cash provided by operating activities		37,412			388,531
Cash flows from investing activities
Investments in prepublication costs		(131,900	)		(132,646	)
Purchases of property and equipment		(48,756	)		(83,449	)
Acquisitions of businesses		(34,666	)		(40,070	)
Dispositions of property, equipment and businesses		165			55,204
Additions to technology projects		(10,141	)		(7,791	)
Cash used for investing activities		(225,298	)		(208,752	)
Cash flows from financing activities
Borrowings on short-term debt — net		526,200			991,812
Dividends paid to shareholders		(142,112	)		(142,326	)
Repurchase of treasury shares		(275,549	)		(1,178,287	)
Exercise of stock options		30,732			114,092
Excess tax benefits from share-based payments		1,320			32,018
Cash provided by (used for) financing activities		140,591			(182,691	)
Effect of exchange rate changes on cash		6,503			7,496
Net change in cash and equivalents		(40,792	)		4,584
Cash and equivalents at beginning of period		396,096			353,498
Cash and equivalents at end of period	$	355,304		$	358,082

See accompanying notes.

6

The McGraw-Hill Companies, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts or as noted)

1.	Basis of Presentation
	The financial information in this report has not been audited, but in the opinion of management all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly such information have been included. The operating results for the three and six months ended June 30, 2008 and 2007 are not necessarily indicative of results to be expected for the full year due to the seasonal nature of some of the Company’s businesses. The financial statements included herein should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 (the “Annual Report”).
	The Company’s critical accounting policies and estimates are disclosed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the Company’s Annual Report for the year ended December 31, 2007. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to revenue recognition, allowance for doubtful accounts and sales returns, prepublication costs, valuation of inventories, valuation of long-lived assets, goodwill and other intangible assets, retirement plans and postretirement healthcare and other benefits, income taxes and stock-based compensation.
	Since the date of the Annual Report, there have been no material changes to the Company’s critical accounting policies and estimates.
	Certain prior year amounts have been reclassified for comparability purposes.
2.	Comprehensive Income
	The following table is a reconciliation of the Company’s net income to comprehensive income for the periods ended June 30:

	Three Months						Six Months
	2008			2007			2008			2007
Net income	$	212,294		$	277,078		$	293,404		$	420,916
Other comprehensive income:
Foreign currency translation adjustment		(4,087	)		17,249			406			16,885
Pension and other postretirement benefit plans, net of tax		(8,047	)		(10,316	)		(7,830	)		(8,500	)
Unrealized loss on investment, net of tax		(1,815	)		—			(3,542	)		—
Comprehensive income	$	198,345		$	284,011		$	282,438		$	429,301

3.	Segment and Related Information
	The Company has three reportable segments: McGraw-Hill Education, Financial Services and Information & Media.
	The McGraw-Hill Education segment is one of the premier global educational publishers serving the elementary and high school (“el-hi”), college and university, professional, international and adult education markets. During the second quarter of 2008, the segment incurred a pre-tax restructuring charge that reduced operating profit by $8.5 million.
	The Financial Services segment operates under the Standard & Poor’s brand. This segment provides services to investors, corporations, governments, financial institutions, investment managers and advisors globally. The segment and the markets it serves are impacted by interest rates, the state of global economies, credit quality and investor confidence. Included in the six months of 2007 operating profit of the Financial Services segment is a pre-tax gain of $17.3 million resulting from the sale of its mutual fund data business in March 2007. During the second quarter of 2008, the segment incurred a pre-tax restructuring charge that reduced operating profit by $15.2 million.
	The Information & Media segment includes business, professional and broadcast media, offering information, insight and analysis.

7

Operating profit by segment is the primary basis for the chief operating decision maker of the Company, the Executive Committee, to evaluate the performance of each segment. A summary of operating results by segment for the periods ended June 30 is as follows:

	2008					2007
			Operating					Operating
Three months	Revenue		Profit			Revenue		Profit
McGraw-Hill Education	$	670,846	$	69,535		$	647,324	$	80,402
Financial Services		735,477		299,227			820,993		401,368
Information & Media		266,902		24,799			249,862		14,740
Total operating segments		1,673,225		393,561			1,718,179		496,510
General corporate expense		—		(33,536	)		—		(41,085	)
Interest expense — net		—		(20,354	)		—		(12,099	)
Total Company	$	1,673,225	$	339,671	*	$	1,718,179	$	443,326	*

* Income from operations before taxes on income.

	2008					2007
			Operating					Operating
Six months	Revenue		Profit (Loss)			Revenue		Profit (Loss)
McGraw-Hill Education	$	1,001,002	$	(20,731	)	$	979,004	$	(10,278	)
Financial Services		1,379,778		559,230			1,549,875		749,380
Information & Media		510,316		36,525			485,718		24,626
Total operating segments		2,891,096		575,024			3,014,597		763,728
General corporate expense		—		(67,392	)		—		(76,122	)
Interest expense — net		—		(38,184	)		—		(13,303	)
Total Company	$	2,891,096	$	469,448	*	$	3,014,597	$	674,303	*

* Income from operations before taxes on income.

4.	Dispositions
	In March 2007, the Company sold its mutual fund data business, which was part of the Financial Services segment. This business was selected for divestiture, as it no longer fit within the Company’s strategic plans. The divestiture of the mutual fund data business will enable the Financial Services segment to focus on its core business of providing independent research, ratings, data indices and portfolio services. For the six months ended June 30, 2007 the Company recognized a pre-tax gain of $17.3 million ($10.3 million after-tax, or $0.03 per diluted share). This disposition is immaterial to the Company.
	There were no dispositions by the Company for the three and six months ended June 30, 2008.
	There were no material acquisitions by the Company individually or in the aggregate for the three and six months ended June 30, 2008 and 2007.
5.	Stock-Based Compensation
	Stock-based compensation for the periods ended June 30 is as follows:

	Three Months				Six Months
	2008		2007		2008		2007
Stock option expense	$	7,009	$	7,155	$	13,441	$	16,617
Restricted stock awards expense		14,947		24,543		29,559		46,194
Total stock-based compensation expense	$	21,956	$	31,698	$	43,000	$	62,811

8

The number of common shares issued upon exercise of stock options and the vesting of restricted stock awards are as follows:

	June 30,		December 31,		June 30,
(in thousands)	2008		2007		2007
Stock options exercised		1,088		4,520		3,460
Restricted stock awards vested		670		829		1,320
Total shares issued		1,758		5,349		4,780

6.	Allowances, Inventories and Accumulated Amortization of Prepublication Costs
	The allowances for doubtful accounts and sales returns, the components of inventory and the accumulated amortization of prepublication costs are as follows:

	June 30,		December 31,		June 30,
	2008		2007		2007
Allowance for doubtful accounts	$	68,038	$	70,586	$	71,378
Allowance for sales returns	$	127,561	$	197,095	$	129,199
Inventories:
Finished goods	$	471,815	$	324,864	$	401,251
Work-in-process		7,138		8,640		8,637
Paper and other materials		17,641		17,164		20,306
Total inventories	$	496,594	$	350,668	$	430,194
Accumulated amortization of prepublication costs	$	787,619	$	940,298	$	808,739

7.	Debt
	A summary of short-term and long-term debt outstanding follows:

	June 30,		December 31,		June 30,
	2008		2007		2007
5.375% Senior notes, due 2012 (a)	$	399,692	$	399,656	$	—
5.900% Senior notes, due 2017 (b)		399,104		399,056		—
6.550% Senior notes, due 2037 (c)		398,455		398,429		—
Commercial paper		526,200		—		536,100
Promissory note		—		—		392,000
Extendible commercial notes		—		—		66,071
Note payable		290		306		322
Total debt		1,723,741		1,197,447		994,493
Less: short-term debt including current maturities		526,222		22		994,193
Long-term debt	$	1,197,519	$	1,197,425	$	300

Senior Notes
(a)	As of June 30, 2008, the Company had outstanding $399.7 million of 2012 senior notes consisting of $400 million principal and an unamortized debt discount of $0.3 million. The 2012 senior notes, when issued in November 2007, were priced at 99.911% with a yield of 5.399%. Interest payments are required to be made semiannually on February 15 and August 15.
(b)	As of June 30, 2008, the Company had outstanding $399.1 million of 2017 senior notes consisting of $400 million principal and an unamortized debt discount of $0.9 million. The 2017 senior notes, when issued in November 2007, were priced at 99.76% with a yield of 5.933%. Interest payments are required to be made semiannually on April 15 and October 15.
(c)	As of June 30, 2008, the Company had outstanding $398.5 million of 2037 senior notes consisting of $400 million principal and an unamortized debt discount of $1.5 million. The 2037 senior notes, when issued in November 2007, were priced at 99.605% with a yield of 6.580%. Interest payments are required to be made semiannually on May 15 and November 15.

9

Other Available Financing

On June 22, 2007, the Company completed the conversion of its commercial paper program from the Section 3a (3) to the Section 4(2) classification as defined under the Securities Act of 1933. This conversion provides the Company with greater flexibility relating to the use of proceeds received from the issuance of commercial paper which may be sold to qualified institutional buyers and accredited investors. All commercial paper issued by the Company subsequent to this conversion date will be executed under the Section 4(2) program. The Section 3a (3) program was officially terminated when all existing commercial paper outstanding under this program matured in July 2007. The size of the Company’s total commercial paper program remains $1.2 billion and is supported by the revolving credit agreement described below. Commercial paper borrowings outstanding at June 30, 2008 and 2007 totaled $526.2 million and $536.1 million, respectively, with an average interest rate and average term of 2.2% and 27 days, and 5.4% and 43 days, respectively. These total borrowings are classified as current notes payable. There were no outstanding commercial paper borrowings as of December 31, 2007.

The Company has a five-year revolving credit facility agreement of $1.2 billion that expires on July 20, 2009. The Company pays a facility fee of seven basis points on the credit facility agreement whether or not amounts have been borrowed, and borrowings may be made at a spread of 13 basis points above the prevailing London Inter-Bank Offer Rate (“LIBOR”). This spread increases to 18 basis points for borrowings exceeding 50% of the total capacity available under the facility.

The revolving credit facility contains certain covenants. The only financial covenant requires that the Company not exceed indebtedness to cash flow ratio, as defined, of 4 to 1 at any time. This restriction has never been exceeded. There were no borrowings under the facility as of June 30, 2008, December 31, 2007 and June 30, 2007.

The Company has the capacity to issue Extendible Commercial Notes (“ECN“s) of up to $240 million, provided that sufficient investor demand for the ECNs exists. ECNs replicate commercial paper, except that the Company has an option to extend the note beyond its initial redemption date to a maximum final maturity of 390 days. However, if exercised, such an extension is at a higher reset rate, which is at a predetermined spread over LIBOR and is related to the Company’s commercial paper rating at the time of extension. As a result of the extension option, no backup facilities for these borrowings are required. As is the case with commercial paper, ECNs have no financial covenants. There were no ECN borrowings outstanding as of June 30, 2008 and December 31, 2007. There were $66.1 million in ECN borrowings outstanding as of June 30, 2007.

On April 19, 2007, the Company signed a promissory note with one of its providers of banking services to enable the Company to borrow additional funds, on an uncommitted basis, from time to time to supplement its commercial paper and ECN borrowings. The specific terms (principal, interest rate and maturity date) of each borrowing governed by this promissory note are determined on the borrowing date of each loan. These borrowings have no financial covenants. There were no promissory note borrowings outstanding as of June 30, 2008 and December 31, 2007. There were $392.0 million in promissory note borrowings outstanding as of June 30, 2007.

Under the shelf registration that became effective with the Securities and Exchange Commission in 1990, an additional $250 million of debt securities can be issued.

Long-term debt was $1,197.5 million, $1,197.4 million and $0.3 million as of June 30, 2008, December 31, 2007 and June 30, 2007, respectively. The carrying amount of the Company’s borrowings approximates fair value. The Company paid interest on its debt totaling $26.9 million and $10.8 million during the three months ended June 30, 2008 and 2007, respectively, and $34.2 million and $14.0 million during the six months ended June 30, 2008 and 2007, respectively.

In the second quarter of 2008, cash was utilized to repurchase approximately 3.3 million shares for $141.5 million on a settlement basis. An additional 0.7 million shares were repurchased in the second quarter of 2008, which settled in July 2008. In the second quarter of 2007, cash was utilized to repurchase approximately 8.6 million shares for $567.2 million on a settlement basis. An additional 1.4 million shares were repurchased in the second quarter of 2007, which settled in July 2007. Accordingly, the Company recorded a liability of $29.2 million and $95.6 million, classified in other current liabilities at June 30, 2008 and 2007, respectively.

10

8.	Common Shares Outstanding
	A reconciliation of the number of shares used for calculating basic and diluted earnings per common share for the periods ended June 30 is as follows:

	Three Months				Six Months
(in thousands)	2008		2007		2008		2007
Average number of common shares outstanding		317,746		340,183		318,875		345,488
Effect of stock options and other dilutive securities		3,341		10,115		3,398		10,199
Average number of common shares outstanding including effect of dilutive securities		321,087		350,298		322,273		355,687

	Restricted performance shares outstanding of 3.3 million and 2.3 million at June 30, 2008 and 2007, respectively, were not included in the computation of diluted earnings per common share because the necessary vesting conditions have not yet been met.
	The weighted-average diluted shares outstanding for the three and six months ended June 30, 2008 excludes the effect of approximately 16.1 million for both periods, of potentially dilutive outstanding stock options from the calculation of diluted earnings per common share because the effects were anti-dilutive. The weighted-average diluted shares outstanding for the three and six months ended June 30, 2007 did not exclude any potentially dilutive outstanding stock options from the calculation of diluted earnings per common share.
9.	Retirement Plans and Postretirement Healthcare and Other Benefits
	A summary of net periodic benefit cost for the Company’s defined benefit plans and postretirement healthcare and other benefits plan for the periods ended June 30 is as follows:

	Three Months						Six Months
Pension Benefits	2008			2007			2008			2007
Service cost	$	14,211		$	17,687		$	29,480		$	33,350
Interest cost		21,744			21,652			43,333			41,044
Expected return on plan assets		(27,736	)		(25,655	)		(55,444	)		(50,001	)
Amortization of prior service credit		(111	)		(143	)		(222	)		(146	)
Amortization of loss		884			5,560			1,608			8,237
Net periodic benefit cost	$	8,992		$	19,101		$	18,755		$	32,484

	Three Months						Six Months
Postretirement Healthcare and Other Benefits	2008			2007			2008			2007
Service cost	$	517		$	713		$	1,187		$	1,252
Interest cost		2,181			1,967			4,226			3,931
Amortization of prior service credit		(296	)		(297	)		(593	)		(594	)
Net periodic benefit cost	$	2,402		$	2,383		$	4,820		$	4,589

The amortization of prior service credit and amortization of loss for the three and six months ended June 30, 2008 and 2007, included in the above table, have been recognized in the net periodic benefit cost and included in other comprehensive income, net of tax.

In 2008, the expected rate of return on plan assets is 8.0% based on a market-related value of assets, which recognizes changes in market value over five years. The Company changed certain assumptions on its pension and postretirement healthcare and other benefit plans which became effective on January 1, 2008:

• The Company changed its discount rate assumption on its U.S. retirement plans to 6.25% from 5.90% in 2007.

• The Company changed its discount rate assumption on its United Kingdom (“U.K.”) retirement plan to 5.40% from 4.90% in 2007 and its assumed compensation increase factor for its U.K. retirement plan to 5.95% from 5.75% in 2007.

• The Company changed its discount rate and healthcare cost trend rate assumptions on its postretirement healthcare benefit plan. In 2008, the discount rate assumption changed to 6.0% from 5.75% in 2007, and the healthcare cost trend rate changed to 8.5% from 9.0% in 2007.

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	The effect of the assumption changes on pension and other postretirement healthcare expense for the three and six months ended June 30, 2008 did not have a material impact on earnings per common share.
10.	Sale-Leaseback Transaction
	In December 2003, the Company sold its 45% equity investment in Rock-McGraw, Inc., which owns the Company’s headquarters building in New York City. The transaction was valued at $450.0 million, including assumed debt. Proceeds from the disposition were $382.1 million. The sale resulted in a pre-tax gain of $131.3 million and an after-tax benefit of $58.4 million, or $0.15 per diluted share in 2003.
	The Company remains an anchor tenant of what continues to be known as The McGraw-Hill Companies building and will continue to lease space from Rock-McGraw, Inc., under an existing lease through 2020. As of December 31, 2007, the Company leased approximately 17% of the building space. This lease is being accounted for as an operating lease. Pursuant to sale-leaseback accounting rules, as a result of the Company’s continued involvement, a pre-tax gain of approximately $212.3 million ($126.3 million after-tax) was deferred and will be amortized over the remaining lease term as a reduction in rent expense. Information relating to the sale-leaseback transaction for the periods ended June 30 is as follows:

	Three Months						Six Months
	2008			2007			2008			2007
Reduction in rent expense	$	(4,591	)	$	(4,412	)	$	(9,183	)	$	(8,824	)
Interest expense	$	2,037		$	2,148		$	4,103		$	4,322

11.	Income Taxes
	The Company calculates its interim income tax provision in accordance with Accounting Principles Board Opinion No. 28, “Interim Financial Reporting” and FASB Interpretation No. 18, “Accounting for Income Taxes in Interim Periods”. At the end of each interim period, the Company estimates the annual effective tax rate and applies that rate to its ordinary quarterly earnings. The tax expense or benefit related to significant, unusual, or extraordinary items that will be separately reported or reported net of their related tax effect, and are individually computed are recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws or rates or tax status is recognized in the interim period in which the change occurs.
	The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in foreign jurisdictions, permanent and temporary differences, and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is acquired, additional information is obtained or as the tax environment changes.
	For the three and six months ended June 30, 2008 the provision for income taxes resulted in an effective tax rate of 37.5%. For the three and six months ended June 30, 2007 the provision for income taxes resulted in an effective tax rate of 37.5% and 37.6%, respectively. The minor decrease in the effective tax rate for the six month period ended June 30, 2008, compared with the prior period, is primarily attributable to the impact of the 2007 divestiture of the mutual fund data business.
12.	Commitments and Contingencies
	A writ of summons was served on The McGraw-Hill Companies, SRL and on The McGraw-Hill Companies, SA (both indirect subsidiaries of the Company) (collectively, “Standard & Poor’s”) on September 29, 2005 and October 7, 2005, respectively, in an action brought in the Tribunal of Milan, Italy by Enrico Bondi (“Bondi”), the Extraordinary Commissioner of Parmalat Finanziaria S.p.A. and Parmalat S.p.A. (collectively, “Parmalat”). Bondi has brought numerous other lawsuits in both Italy and the United States against entities and individuals who had dealings with Parmalat. In this suit, Bondi claims that Standard & Poor’s, which had issued investment grade ratings on Parmalat until shortly before Parmalat’s collapse in December 2003, breached its duty to issue an independent and professional rating and negligently and knowingly assigned inflated ratings in order to retain Parmalat’s business. Alleging joint and several liability, Bondi claims damages of euros 4,073,984,120 (representing the value of bonds issued by Parmalat and the rating fees paid by Parmalat) with interest, plus damages to be ascertained for Standard & Poor’s alleged complicity in aggravating Parmalat’s financial difficulties and/or for having contributed in bringing about Parmalat’s indebtedness towards its

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bondholders, and legal fees. The Company believes that Bondi’s allegations and claims for damages lack legal or factual merit. Standard & Poor’s filed its answer, counterclaim and third-party claims on March 16, 2006 and will continue to vigorously contest the action.

In a separate proceeding, the prosecutor’s office in Parma, Italy is conducting an investigation into the bankruptcy of Parmalat. In June 2006, the prosecutor’s office issued a Note of Completion of an Investigation (“Note of Completion”) concerning allegations, based on Standard & Poor’s investment grade ratings of Parmalat, that individual Standard & Poor’s rating analysts conspired with Parmalat insiders and rating advisors to fraudulently or negligently cause the Parmalat bankruptcy. The Note of Completion was served on eight Standard & Poor’s rating analysts. While not a formal charge, the Note of Completion indicates the prosecutor’s intention that the named rating analysts should appear before a judge in Parma for a preliminary hearing, at which hearing the judge will determine whether there is sufficient evidence against the rating analysts to proceed to trial. No date has been set for the preliminary hearing. On July 7, 2006, a defense brief was filed with the Parma prosecutor’s office on behalf of the rating analysts. The Company believes that there is no basis in fact or law to support the allegations against the rating analysts, and they will be vigorously defended by the subsidiaries involved.

The Company learned on August 9, 2007 that a pro se action titledBlomquist v. Washington Mutual, et al., was filed in the District Court for the Northern District of California against numerous financial institutions, government agencies and individuals, including the Company and Mr. Harold McGraw III, the CEO of the Company, alleging various state and federal claims. The claims against the Company and Mr. McGraw concern Standard & Poor’s ratings of subprime mortgage-backed securities. An amended Complaint was filed in theBlomquist action on September 10, 2007 which added two other rating agencies as defendants. On February 19, 2008 the Company was served with the Complaint and, on February 29, 2008, Mr. McGraw was served with the Complaint. On May 12, 2008, the Company and Mr. McGraw filed a motion to dismiss all claims asserted against them. Similar motions were filed by other defendants. Plaintiff filed papers opposing the motions on July 1, 2008. A hearing on the motions was held on July 11, 2008 and, by Order dated July 23, 2008, the Court dismissed all claims asserted against the Company and Mr. McGraw and denied plaintiff leave to amend as against them.

The Company also learned that on August 28, 2007 a putative shareholder class action titledReese v. Bahashwas filed in the District Court for the District of Columbia against Mr. Robert Bahash, the CFO of the Company, alleging claims under the federal securities laws and state tort law concerning Standard & Poor’s ratings, particularly its ratings of subprime mortgage-backed securities. Mr. Bahash was not served with the Complaint. On February 11, 2008, the District Court in theReesematter entered an order appointing a lead plaintiff in that action and permitting plaintiffs to amend the Complaint on or before April 16, 2008. On April 7, 2008, the District Court granted the application of the lead plaintiff to extend the deadline for its amendment of the Complaint to May 7, 2008. On May 7, 2008 an amended Complaint was filed alleging violations of the federal securities laws; the Company and Mr. McGraw were named as additional defendants. The amended Complaint asserts, among other things, that the defendants failed to warn investors that problems in the structured finance market, particularly the sub-prime lending market, would negatively affect the Company’s financial performance. Service of the amended Complaint was thereafter effectuated. On June 18, 2008, in response to a Consent Motion filed on behalf of the Company and Messrs. McGraw and Bahash, the District Court entered an Order transferring the action to the United States District Court for the Southern District of New York. A scheduling order has not yet been entered. The Company believes the litigation to be without merit and intends to vigorously defend against it.

Three actions were recently filed in New York State Supreme Court, New York County, naming The McGraw-Hill Companies, Inc. (“McGraw-Hill” or the “Company”) as a defendant. The first case, brought by the New Jersey Carpenters Vacation Fund, on behalf of itself and all others similarly situated, was filed on May 14, 2008 and relates to certain mortgage-backed securities issued by various HarborView Mortgage Loan Trusts. The second, brought by the New Jersey Carpenters Health Fund, on behalf of itself and all others similarly situated, was filed on May 21, 2008 and relates to certain mortgage-backed securities issued by various NovaStar Mortgage Funding Trusts. The third case, brought again by the New Jersey Carpenters Vacation Fund, on behalf of itself and all others similarly situated, was filed on June 3, 2008 and relates to an October 30, 2006 offering by Home Equity Mortgage Trust 2006-5. The central allegation against the Company in each of these cases is that the Company issued inappropriate credit ratings on the applicable mortgage-backed securities in alleged violation of Section 11 of the Securities Exchange Act of 1933. In each, Plaintiff seeks as relief compensatory damages for the alleged decline in value of the securities, as well as an award of reasonable costs and expenses. Plaintiff has sued other parties, including the issuers and underwriters of the securities, in each case as well. All three cases were originally filed in New York State Supreme Court, New York County and

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	have been subsequently removed to the United States District Court for the Southern District of New York. Plaintiff is seeking to remand in the three cases, and those motions are in the process of being briefed. The Company believes the litigations to be without merit and intends to defend against them vigorously.
	On July 11, 2008, plaintiff Oddo Asset Management filed an action in New York State Supreme Court, New York County, against a number of defendants, including the Company. The action, titledOddo Asset Management v. Barclays Bank PLC, arises out of plaintiff’s investment in two structured investment vehicles, or SIV-Lites, that plaintiff alleges suffered losses as a result of violations of law by those who created, managed, arranged, and issued credit ratings for those investments. Plaintiff alleges various common law causes of action against the defendants. The central allegation against the Company is that it aided and abetted breaches of fiduciary duty by the collateral managers of the two SIV-Lites by falsely confirming the credit ratings it had previously given those investments. Plaintiff seeks compensatory and punitive damages plus reasonable costs, expenses, and attorneys fees. The Company believes the litigation to be without merit and intends to defend against it vigorously.
	In addition, in the normal course of business both in the United States and abroad, the Company and its subsidiaries are defendants in numerous legal proceedings and are involved, from time to time, in governmental and self-regulatory agency proceedings, which may result in adverse judgments, damages, fines or penalties. Also, various governmental and self-regulatory agencies regularly make inquiries and conduct investigations concerning compliance with applicable laws and regulations. Based on information currently known by the Company’s management, the Company does not believe that any pending legal, governmental or self-regulatory proceedings or investigations will result in a material adverse effect on its financial condition or results of operations.
13.	Restructuring
	2008 Restructuring
	During the second quarter of 2008, the Company implemented a restructuring plan related to a limited number of business operations in Financial Services and McGraw-Hill Education to more efficiently serve its markets and strengthen its long-term growth prospects. The Company recorded a pre-tax restructuring charge of $23.7 million, consisting primarily of employee severance costs related to a workforce reduction of 395 positions. This charge consisted of $15.2 million for Financial Services and $8.5 million for McGraw-Hill Education. The after-tax charge recorded was $14.8 million, or $0.05 per diluted share. Restructuring expenses for Financial Services were classified as selling and general service expenses within the statement of income. Restructuring expenses for McGraw-Hill Education were classified within the statement of income as $4.8 million selling and general product expenses and $3.7 million selling and general service expense.
	During the three and six months ended June 30, 2008, the Company has paid approximately $1.6 million related to the 2008 restructuring, consisting primarily of employee severance costs. The remaining reserve at June 30, 2008 is approximately $22.1 million and is included in other current liabilities.
	2007 Restructuring
	In the fourth quarter of 2007, the Company implemented a restructuring plan related to a limited number of business operations across the Company to gain efficiencies, reflect current business conditions and to fortify its long-term growth prospects. As a result, the Company recorded a pre-tax restructuring charge of $43.7 million, consisting primarily of employee severance costs related to a workforce reduction of approximately 600 positions across the Company. This charge consisted of $16.3 million for McGraw-Hill Education, $18.8 million for Financial Services, $6.7 million for Information & Media and $1.9 million for Corporate. The after-tax charge recorded was $27.3 million, or $0.08 per diluted share. Restructuring expenses for Financial Services and Corporate were classified as selling and general service expenses within the statement of income. Restructuring expenses for McGraw-Hill Education were $15.0 million classified as selling and general product expenses, and $1.3 million classified as selling and general service expense, within the statement of income. Restructuring expenses for Information and Media were $0.4 million classified as selling and general product expenses, and $6.3 million classified as selling and general service expense, within the statement of income. At December 31, 2007, the remaining liability was approximately $38.8 million.
	For the three and six months ended June 30, 2008, the Company has paid approximately $8.4 and $20.0 million, respectively, related to the 2007 restructuring consisting primarily of employee severance costs. The remaining reserve at June 30, 2008 is approximately $18.8 million and is included in other current liabilities.

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	2006 Restructuring
	During 2006, the Company completed a restructuring of a limited number of business operations in McGraw-Hill Education, Information & Media and Corporate, to enhance the Company’s long-term growth prospects. The restructuring included the integration of the Company’s elementary and secondary basal publishing businesses. The Company recorded a pre-tax restructuring charge of $31.5 million, consisting primarily of employee severance and benefit costs related to the reduction of approximately 700 positions across the Company and vacant facilities. This charge was comprised of $16.0 million for McGraw-Hill Education, $8.7 million for Information & Media and $6.8 million for Corporate. The after-tax charge recorded was $19.8 million, or $0.06 per diluted share. Restructuring expenses for Information & Media and Corporate were classified as selling and general service expenses within the statement of income. Restructuring expenses for McGraw-Hill Education were $9.3 million classified as selling and general product expenses, and $6.7 million classified as selling and general service expense within the statement of income. At December 31, 2007, the remaining liability was approximately $9.6 million.
	For the three and six months ended June 30, 2008, the Company paid approximately $0.4 million and $0.8 million, respectively, related to the 2006 restructuring consisting of facility costs. The remaining reserve at June 30, 2008, which consists of facility costs is approximately $8.8 million payable through 2014.
14.	Recently Issued Accounting Standards
	In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements,” (“SFAS No. 157”) to clarify the definition of fair value, establish a framework for measuring fair value and expand the disclosures on fair value measurements. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS No. 157 also stipulates that, as a market-based measurement, fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability, and establishes a fair value hierarchy that distinguishes between (a) market participant assumptions developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (b) the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The Company adopted SFAS No. 157 as of January 1, 2008 for financial assets and liabilities. The adoption of SFAS No. 157 for financial assets and liabilities did not have a material impact on the consolidated financial statements. Further, in February 2008, the FASB issued FASB Staff Position (“FSP”) 157-2, “Effective Date of FASB Statement No. 157,” (“FSP FAS 157-2”) which delays the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities until fiscal years beginning after November 15, 2008, which for the Company is 2009. The Company is currently evaluating the impact FSP FAS 157-2 will have on its consolidated financial statements.
	In December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51,” (“SFAS No. 160”). SFAS No. 160 amends Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to establish accounting and reporting standards for any noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary should be reported as a component of equity in the consolidated financial statements and requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolled interest. SFAS No. 160 is effective for the Company beginning January 1, 2009 and is to be applied prospectively, except for the presentation and disclosure requirements, which upon adoption will be applied retrospectively for all periods presented. Early adoption of SFAS No. 160 is prohibited. The Company is currently evaluating the impact SFAS No. 160 will have on its consolidated financial statements.
	In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” (“SFAS No. 141(R)”). SFAS No. 141(R) fundamentally changes many aspects of existing accounting requirements for business combinations. SFAS No. 141(R) includes guidance for the recognition and measurement of the identifiable assets acquired, the liabilities assumed, and any noncontrolling or minority interest in the acquired company. It also provides guidance for the measurement of goodwill, the recognition of contingent consideration, the accounting for pre-acquisition gain and loss contingencies as well as acquisition-related transaction costs. SFAS No. 141(R) applies prospectively and is effective for business combinations made by the Company beginning January 1, 2009. Early adoption of SFAS No. 141(R) is prohibited. The Company is currently evaluating the impact SFAS No. 141(R) will have on its consolidated financial statements.
	In June 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1 concludes

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that unvested share-based payment awards that contain rights to receive nonforfeitable dividends or dividend equivalents are participating securities, and thus, should be included in the two-class method of computing earnings per share (“EPS”). FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. Early application of EITF 03-6-1 is prohibited. This FSP also requires that all prior-period EPS data be adjusted retrospectively. The Company is currently evaluating the impact FSP EITF 03-6-1 will have on its consolidated financial statements.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Dollars in thousands, except per share or as noted)

Results of Operations — Comparing Three Months Ended June 30, 2008 and 2007

Consolidated Review

The Segment Review that follows is incorporated herein by reference.

Revenue and Operating Profit

	Second						Second
	Quarter			%			Quarter
	2008			Decrease			2007
Revenue	$	1,673,225			(2.6	)%	$	1,718,179
Operating profit *	$	393,561			(20.7	)%	$	496,510
% Operating margin		23.5	%					28.9	%

* Operating profit is income before taxes on income, interest expense and corporate expense.

In the second quarter of 2008 revenue and operating profit declined by 2.6% and 20.7%, respectively. The decrease in revenue and operating profit is primarily attributable to the decline in the Financial Services segment of 10.4% and 25.4%, respectively, primarily due to weakness in Credit Market Services. Partially offsetting the revenue decrease was an increase of 3.6% in the McGraw-Hill Education segment driven by the School Education Group and an increase of 6.8% in the Information & Media segment driven by the Business-to-Business Group. Lower 2008 incentive compensation helped mitigate the operating profit decline. Foreign exchange rates positively impacted both revenue and operating profit by $22.5 million and $7.8 million, respectively, during the second quarter of 2008.

In the second quarter of 2008, the Company restructured a limited number of business operations in its Financial Services and McGraw-Hill Education segments to more efficiently serve its markets and strengthen its long-term growth prospects. The Company incurred a pre-tax restructuring charge of $23.7 million ($14.8 million after-tax, or $0.05 per diluted share), which consisted primarily of severance costs related to a workforce reduction of 395 positions.

Product revenue increased 4.7% in the second quarter of 2008, due primarily to growth in the McGraw-Hill Education and Information & Media segments as compared to the second quarter of 2007.

Product operating-related expenses increased 4.9%, as compared to the second quarter of 2007, primarily due to the growth in expenses at McGraw-Hill Education related to major product launches in a strong 2008 state adoption market. Amortization of prepublication costs increased by $9.2 million or 16.2%, as compared with the second quarter of 2007, as a result of adoption cycles.

Product related selling and general expenses increased 10.1% and product margin decreased 2.2%, as compared to the second quarter of 2007, primarily due to the growth in expenses at McGraw-Hill Education related to major product launches in a strong 2008 state adoption market.

Service revenue decreased 6.6% in the second quarter of 2008 as compared to the same period in 2007, due primarily to a 10.4% decrease in Financial Services. Financial Services revenue decreased primarily due to Credit Market Services in light of the significant declines in the structured finance market resulting from the current credit problems experienced in the U.S. and in Europe, partially offset by growth in Investment Services. Additionally, growth in the Information & Media segment helped partially offset this revenue decline. The service margin decreased 5.3% to 31.3% for the second quarter of 2008 primarily due to the decline in Credit Market Services, partially offset by reduced 2008 incentive compensation expense.

Total expenses in the second quarter of 2008 increased $50.4 million or 4.0% as compared to the same period in 2007 driven by increased sales opportunities in the McGraw-Hill Education segment and the restructuring charge incurred by the Company in the second quarter of 2008.

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Interest expense increased to $20.4 million in the second quarter of 2008, as compared with interest expense of $12.1 million for the second quarter of 2007. The increase was mainly driven by the impact of $1.2 billion in senior notes issued in the fourth quarter of 2007. Also included in the second quarter of 2008 and 2007 is interest income earned on investment balances.

For the quarters ended June 30, 2008 and 2007, the effective tax rate was 37.5%.

The Company expects the effective tax rate to be at 37.5% for the remainder of the year absent the impact of events such as intervening audit settlements, changes in federal, state or foreign law and changes in the geographical mix of the Company’s pre-tax income.

Net income for the quarter decreased 23.4% as compared with the second quarter of 2007. Diluted earnings per share decreased 16.5% to $0.66 from $0.79 in 2007. Included in the second quarter diluted earnings per share is the $0.05 after-tax impact of the restructuring charge.

Segment Review

McGraw-Hill Education

	Second			%			Second
	Quarter			Increase/			Quarter
	2008			(Decrease)			2007
Revenue
School Education Group	$	438,194			6.9	%	$	409,720
Higher Education, Professional and International		232,652			(2.1	)%		237,604
Total revenue	$	670,846			3.6	%	$	647,324
Operating profit	$	69,535			(13.5	)%	$	80,402
% Operating margin		10.4	%					12.4	%

In the second quarter of 2008, revenue for the McGraw-Hill Education (“MHE”) segment increased 3.6% or $23.5 million from the prior year, while operating profit decreased 13.5%. Foreign exchange rates favorably affected revenue by $5.3 million and had an immaterial impact on operating profit for the quarter.

During the second quarter of 2008, the MHE segment incurred a pre-tax restructuring charge of $8.5 million consisting primarily of employee severance costs related to the reduction of 149 positions, primarily in the assessment business, where MHE is taking steps to consolidate its resources, better leverage partnerships with key strategic suppliers, and facilitate a strategic shift toward increased investments in its digital and custom offerings. Across other parts of the segment, MHE is taking steps to enable greater efficiencies, better address new and existing revenue streams, and shift investments toward digital products.

In the second quarter of 2008, revenue for the McGraw-Hill School Education Group (“SEG”) increased 6.9% or $28.5 million compared with the second quarter of 2007. Strong basal sales of K-5 reading in Florida and K-5 math in Texas were partially offset by lower reorders of workbooks and other consumable reading materials in several states due to timing and budget concerns. Total U.S. PreK-12 enrollment for 2007-2008 is estimated at 56 million students, up 0.4% from 2006-2007, according to the National Center for Education Statistics (“NCES”). The total available state new adoption market in 2008 is estimated at between $900 million and $950 million compared with approximately $820 million in 2007.

The year’s key opportunities in the state new adoption market are primarily offered by K-5 reading in Florida, K-5 math in Texas, and K-8 math in California. Other opportunities for 2008 include science in California, reading in Alabama, Indiana, Louisiana, and Oklahoma, and social studies in Arkansas and Tennessee. With decision-making largely completed in the adoption states that are buying reading in 2008, the Company expects to capture a majority share of the important Florida K-5 market as well as a major share of the overall K-12 reading/literature state new adoption market. In the overall K-12 math state new adoption market, SEG projects a strong share based on solid results in the K-5 Texas adoption as well as announced K-8 decisions in California, where some sales activity may continue into the fall. Despite concerns about the economy in many areas, no state adoptions scheduled for purchasing in 2008 were cancelled and adoption activity remained brisk at the district level in most states within this market.

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Open territory sales, which have remained flat over the past two years, are projected to increase modestly owing to pent-up demand for new instructional materials. Open territory net basal sales for the industry remained flat as compared to the prior year through May 2008, the most recent period for which detailed information is currently available. However, the bulk of open territory purchasing traditionally occurs in the third quarter. Despite budget pressures, most states have maintained or increased education funding levels in their new fiscal-year budgets.

According to statistics compiled by the Association of American Publishers (“AAP”), total net basal and supplementary sales of elementary and secondary instructional materials increased 1.5% through May 2008 compared to the same period in 2007. The supplementary market has been declining in recent years, in large part because basal programs are increasingly comprehensive, offering integrated ancillary materials that reduce the need for separate supplemental products. According to the AAP report, the industry’s total basal sales increased by 6.0% through May 2008, driven by growth in the adoption states.

In the testing market, SEG’s second-quarter non-custom or “shelf” testing revenue increased over the prior year primarily due to increasedAcuityrevenues in New York City and sales of theTABEseries of assessments for adult learners and theLAS series for English-language learners, gains which more than offset declines in older products. Custom contract work decreased in 2008 compared to the same period last year primarily due to reductions in scope and price on contracts in Florida and Missouri, partially offset by an increase in scope on a West Virginia contract.

At the McGraw-Hill Higher Education, Professional and International Group (“HPI”), revenue decreased $5.0 million or 2.1% for the quarter compared to prior year. Foreign exchange rates favorably affected revenue by $5.3 million.

Higher Education revenue declined in comparison to the prior year, although the Career product line showed strong growth. A variation in bookstore ordering trends from June to July affected quarterly results. Key titles contributing to second-quarter performance included Thomson,Crafting an Executive Strategy,16/e; Hill,International Business,7/e; Silberberg,Chemistry, 5/e; Knorre,Puntos de partida,8/e; and Ober,Keyboarding, 10/e.

Revenue in the professional market declined versus the prior-year quarter due to strong first-year sales ofMcGraw-Hill Encyclopedia of Science and Technology, which was published in May 2007, and overall softness in the market in 2008 as some retailers cut back on orders and reduced inventory through higher returns. Compared with the second quarter of 2007, HPI’s overall international revenue increased in most regions, notably India, Asia, Canada, Latin America and the Middle East, partially offset by sales declines in Spain and Italy.

Financial Services

	Second			%			Second
	Quarter			(Decrease)/			Quarter
	2008			Increase			2007
Revenue
Credit Market Services	$	507,896			(20.1	)%	$	635,717
Investment Services		227,581			22.8	%		185,276
Total Revenue	$	735,477			(10.4	)%	$	820,993
Operating profit	$	299,227			(25.4	)%	$	401,368
% Operating margin		40.7	%					48.9	%

Financial Services revenue and operating profit for the second quarter of 2008 decreased 10.4% and 25.4%, respectively, from the second quarter of 2007. The revenue and operating profit declines from prior year are mainly due to lower revenue in Credit Market Services (“CMS”), partially offset by revenue growth in Investment Services (“IS”). A reduction in 2008 incentive compensation helped mitigate the operating profit reduction. Foreign exchange positively impacted revenue by $16.8 million and operating profit by $7.9 million.

During the second quarter of 2008, the Financial Services segment incurred a pre-tax restructuring charge of $15.2 million consisting primarily of employee severance costs related to the reduction of 246 positions, driven by the current credit market environment as well as the consolidation of several support functions.

CMS revenue declined $127.8 million or 20.1% from prior year, primarily as a result of significant decreases in structured finance as well as decreases in corporate (industrial and financial services) ratings, partially offset by increases in public finance ratings and credit ratings-related information products such as RatingsXpress and RatingsDirect and credit risk evaluation products and services.

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During the second quarter of 2008, significant decreases in issuance volumes in both the United States and Europe of residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”), collateralized debt obligations (“CDO”) and asset-backed securities (“ABS”) contributed to the decrease in revenue.

Total U.S. structured finance new issue dollar volume decreased 81.0% in the second quarter versus prior year. U.S. CDO issuance decreased 88.2%, according to Harrison Scott Publications and Standard & Poor’s internal estimates (Harrison Scott Publications/S&P). The large decline in CDO issuance resulted from continued lack of investor appetite for the complex deal structures which were in demand in the second quarter of 2007 and secondary market trading liquidity concerns. Continued deterioration in the subprime mortgage market has significantly impacted dollar volume issuance in the U.S. RMBS market, which decreased 97.0% compared to prior year. U.S. CMBS issuance decreased 85.3% over the prior year due to the market dislocation attributed to high credit spreads resulting in high interest rates which are not economical to borrowers. U.S. ABS issuance decreased 19.1% compared to prior year. According to Thomson Financial, U.S. corporate issuance by dollar volume for the second quarter of 2008 decreased 15.1%, with investment grade down 7.2% and high yield issuance down 59.4%, driven by higher credit spreads and decreased merger and acquisition activity. The U.S. municipal market increased 18.7% resulting from issuance to refund existing debt, in addition to raise new money to fund infrastructure projects.

In Europe for the second quarter, structured finance issuance decreased 75.2% compared to the prior year and corporate and government issuance increased 8.6%. European RMBS issuance decreased 76.7%. European CDO and CMBS issuance declined 56.7% and 99.3%, respectively, which is primarily attributed to higher credit spreads. ABS issuance decreased 68.7% compared to the prior year.

IS revenue increased $42.3 million or 22.8%, driven by growth in index services and Capital IQ products. Revenue related to Standard & Poor’s indices increased as assets under management for exchange-traded funds (“ETF”) rose 15.5% from June 30, 2007 to $206.3 billion as of June 30, 2008 and license fee revenue increased. ETF assets under management at December 31, 2007 were $235.3 billion. The number of exchange-traded futures and option contracts based on S&P indices exhibited strong increases in the second quarter of 2008 compared to the same period of the prior year, thereby also contributing to the revenue growth. The number of Capital IQ clients increased 23% from the second quarter end of 2007 to second quarter end of 2008.

Because of the current credit market conditions, issuance levels deteriorated significantly across all asset classes. It is possible that the current market conditions and global issuance levels in structured finance could persist through 2008. The outlook for RMBS, CMBS and CDO asset classes as well as other asset classes is dependent upon many factors, including the general condition of the economy, interest rates, credit quality and spreads, and the level of liquidity in the financial markets.

The financial services industry is subject to the potential for increased regulation in the United States and abroad. The businesses conducted by the Financial Services segment are in certain cases regulated under the Credit Rating Agency Reform Act of 2006, U.S. Investment Advisers Act of 1940, the U.S. Securities Exchange Act of 1934 and/or the laws of the states or other jurisdictions in which they conduct business.

Standard & Poor’s Ratings Services is a credit rating agency that is registered with the Securities and Exchange Commission (“SEC”) as one of ten Nationally Recognized Statistical Rating Organizations, or NRSROs. The SEC first began designating NRSROs in 1975 for use of their credit ratings in the determination of capital charges for registered brokers and dealers under the SEC’s Net Capital Rule.

Credit rating agency legislation entitled “Credit Rating Agency Reform Act of 2006” (the “Act”) was signed into law on September 29, 2006. The Act created a new SEC registration system for rating agencies that volunteer to be recognized as NRSROs. Under the Act, the SEC is given authority and oversight of NRSROs and can censure NRSROs, revoke their registration or limit or suspend their registration in certain cases. The SEC is not authorized to review the analytical process, ratings criteria or methodology of the NRSROs. An agency’s decision to register and comply with the Act will not constitute a waiver of or diminish any right, defense or privilege available under applicable law. Pre-emption language is included in the Act consistent with other legal precedent. The Company does not believe the Act will have a material adverse effect on its financial condition or results of operations.

The SEC issued rules to implement the Act, effective June 2007. Standard & Poor’s submitted its application on Form NRSRO on June 25, 2007. On September 24, 2007, the SEC granted Standard & Poor’s registration as an

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NRSRO under the Act. In March 2008, S&P filed its first annual update of its registration with the SEC. The public portions of S&P’s Form NRSRO are available on S&P’s website.

On June 16, 2008, the SEC issued proposed rules that focus largely on NRSROs’ structured finance ratings process. The proposed rules address a broad range of issues, including disclosure and management of conflicts related to the issuer-pays model, prohibitions against analysts’ accepting gifts or making “recommendations” when rating a security, and limitations on analyst participation in fee discussions. Under the proposed rules, additional records of all rating actions must be created, retained and made public, and records must be kept of material deviations in ratings assigned from model outputs as well as complaints about analysts’ performance. The proposals require more disclosure of performance statistics and methodologies, a new annual report by NRSROs of their rating actions to be provided confidentially to the SEC, and unless structured finance ratings are distinguished from other ratings, NRSROs will be required to issue a report describing the differences for each structured rating. The deadline for comments was July 25, 2008. S&P submitted comments on the proposals. The Company believes that some of the proposals raise serious legal issues. On July 1, 2008, the SEC also proposed changes to numerous SEC rules and forms that expressly utilize NRSRO ratings. The deadline for comments is September 5, 2008. S&P currently plans to submit comments on some of the SEC’s key proposals.

In the third quarter of 2007, rating agencies became subject to scrutiny for their ratings on structured finance transactions that involve the packaging of subprime residential mortgages, including residential mortgage-backed securities (“RMBS”) and collateralized debt obligations (“CDOs”).

On August 29, 2007, Standard & Poor’s received a subpoena from the New York Attorney General’s Office requesting information and documents relating to Standard & Poor’s ratings of securities backed by residential real estate mortgages. Standard & Poor’s has entered into an agreement with the New York Attorney General’s Office which calls for S&P to implement certain structural reforms. The agreement resolves the Attorney General’s investigation with no monetary payment and no admission of wrongdoing.

In September 2007, the SEC commenced an examination of rating agencies’ policies and procedures regarding conflicts of interest and the application of those policies and procedures to ratings on RMBS and related CDOs. Standard & Poor’s is cooperating with the SEC staff in connection with this examination. The SEC issued its public Report on July 8, 2008. The SEC findings and recommendations addressed the following subjects: (a) the SEC noted there was a substantial increase in the number and complexity of RMBS and CDO deals since 2002, and some rating agencies appeared to struggle with the growth; (b) significant aspects of the rating process were not always disclosed; (c) policies and procedures for rating RMBS and CDOs could be better documented; (d) the implementation of new practices by rating agencies with respect to the information provided to them; (e) rating agencies did not always document significant steps in the ratings process and they did not always document significant participants in the ratings process; (f) the surveillance processes used by the rating agencies appear to have been less robust than their initial ratings processes; (g) issues were identified in the management of conflicts of interest and improvements could be made; and (h) internal audit processes. S&P has advised the SEC it will be taking steps to enhance S&P’s policies and procedures consistent with the SEC’s recommendations.

On October 16, 2007, Standard & Poor’s received a subpoena from the Connecticut Attorney General’s Office requesting information and documents relating to the conduct of Standard & Poor’s credit ratings business. The subpoena appears to relate to an investigation by the Connecticut Attorney General into whether Standard & Poor’s, in the conduct of its credit ratings business, violated the Connecticut Antitrust Act. Subsequently, a second subpoena dated December 6, 2007, seeking information and documents relating to the rating of securities backed by residential real estate mortgages, and a third subpoena dated January 14, 2008, seeking information and documents relating to the rating of municipal and corporate debt, were served. The Attorney General’s Office has also indicated that its investigation is looking into whether Standard & Poor’s may have violated the Connecticut Unfair Trade Practices Act. The Company is responding to the subpoenas.

On November 8, 2007, Standard & Poor’s received a civil investigative demand from the Massachusetts Attorney General’s Office requesting information and documents relating to Standard & Poor’s ratings of securities backed by residential real estate mortgages. Standard & Poor’s is responding to this request.

On April 22, 2008, the Senate Committee on Banking, Housing and Urban Affairs held a hearing on the role of rating agencies in U.S. credit markets. S&P participated in this hearing.

Outside the United States, particularly in Europe, regulators and government officials have reviewed whether credit rating agencies should be subject to formal oversight. In the past several years, the European Commission, the

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Committee of European Securities Regulators (“CESR”) which is charged with monitoring and reporting to the European Commission on rating agencies’ compliance with IOSCO’s Code of Conduct (see below), and the International Organization of Securities Commissions (“IOSCO”) have issued reports, consultations and questionnaires concerning the role of credit rating agencies and potential regulation. In May 2008, IOSCO issued a report on the role of rating agencies in the structured finance market and related changes to its 2004 Code of Conduct Fundamentals for Credit Rating Agencies. IOSCO’s report reflects comments received during a public consultation process. S&P and other global rating agencies contributed to this process. S&P has started to implement many of IOSCO’s recommendations and expects to update its Code of Conduct as appropriate. In May 2008, CESR issued its second report to the European Commission on rating agencies’ compliance with IOSCO’s original Code of Conduct, the role of rating agencies in structured finance and recommendations for, among other things, additional monitoring and oversight of rating agencies. CESR also requested public comments during a consultation period leading up to the final report. In June 2008, the European Securities Markets Expert Group (ESME), a group of senior practitioners and advisors to the European Commission, issued its report on the role of rating agencies and a separate set of recommendations. S&P engaged with ESME during its review process. The European review of rating agencies and potential additional oversight is expected to continue into the fall and, possibly, 2009.

Other regulatory developments include: a March 2008 report by the President’s Working Group on Financial Markets that includes recommendations relating to rating agencies; an April 2008 report by the Financial Stability Forum that recommends changes in the role and uses of credit ratings; and a July 2008 report by the Committee on the Global Financial System (Bank for International Settlements) on ratings in structured finance. S&P expects to continue to be involved in the follow up to these reports. In many countries, S&P is also an External Credit Assessment Institution (ECAI) under Basel II for purposes of allowing banks to use its ratings in determining risk weightings for many credit exposures. Recognized ECAIs may be subject to additional oversight in the future.

New legislation, regulations or judicial determinations applicable to credit rating agencies in the United States and abroad could affect the competitive position of Standard & Poor’s Ratings Services; however, the Company does not believe that any new or currently proposed legislation, regulations or judicial determinations would have a materially adverse effect on its financial condition or results of operations.

The market for credit ratings as well as research and investment advisory services is very competitive. The Financial Services segment competes domestically and internationally on the basis of a number of factors, including quality of ratings, research and investment advice, client service, reputation, price, geographic scope, range of products and technological innovation. In addition, in some of the countries in which Standard & Poor’s competes, governments may provide financial or other support to locally-based rating agencies and may from time to time establish official credit rating agencies, credit ratings criteria or procedures for evaluating local issuers.

A writ of summons was served on The McGraw-Hill Companies, SRL and on The McGraw-Hill Companies, SA (both indirect subsidiaries of the Company) (collectively, “Standard & Poor’s”) on September 29, 2005 and October 7, 2005, respectively, in an action brought in the Tribunal of Milan, Italy by Enrico Bondi (“Bondi”), the Extraordinary Commissioner of Parmalat Finanziaria S.p.A. and Parmalat S.p.A. (collectively, “Parmalat”). Bondi has brought numerous other lawsuits in both Italy and the United States against entities and individuals who had dealings with Parmalat. In this suit, Bondi claims that Standard & Poor’s, which had issued investment grade ratings on Parmalat until shortly before Parmalat’s collapse in December 2003, breached its duty to issue an independent and professional rating and negligently and knowingly assigned inflated ratings in order to retain Parmalat’s business. Alleging joint and several liability, Bondi claims damages of euros 4,073,984,120 (representing the value of bonds issued by Parmalat and the rating fees paid by Parmalat) with interest, plus damages to be ascertained for Standard & Poor’s alleged complicity in aggravating Parmalat’s financial difficulties and/or for having contributed in bringing about Parmalat’s indebtedness towards its bondholders, and legal fees. The Company believes that Bondi’s allegations and claims for damages lack legal or factual merit. Standard & Poor’s filed its answer, counterclaim and third-party claims on March 16, 2006 and will continue to vigorously contest the action.

In a separate proceeding, the prosecutor’s office in Parma, Italy is conducting an investigation into the bankruptcy of Parmalat. In June 2006, the prosecutor’s office issued a Note of Completion of an Investigation (“Note of Completion”) concerning allegations, based on Standard & Poor’s investment grade ratings of Parmalat, that individual Standard & Poor’s rating analysts conspired with Parmalat insiders and rating advisors to fraudulently or negligently cause the Parmalat bankruptcy. The Note of Completion was served on eight Standard & Poor’s rating analysts. While not a formal charge, the Note of Completion indicates the prosecutor’s intention that the named rating analysts should appear before a judge in Parma for a preliminary hearing, at which hearing the judge will determine whether there is sufficient evidence against the rating analysts to proceed to trial. No date has been set for the preliminary hearing. On July 7, 2006, a defense brief was filed with the Parma prosecutor’s office on behalf of

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the rating analysts. The Company believes that there is no basis in fact or law to support the allegations against the rating analysts, and they will be vigorously defended by the subsidiaries involved.

The Company learned on August 9, 2007 that a pro se action titledBlomquist v. Washington Mutual, et al., was filed in the District Court for the Northern District of California against numerous financial institutions, government agencies and individuals, including the Company and Mr. Harold McGraw III, the CEO of the Company, alleging various state and federal claims. The claims against the Company and Mr. McGraw concern Standard & Poor’s ratings of subprime mortgage-backed securities. An amended Complaint was filed in theBlomquistaction on September 10, 2007 which added two other rating agencies as defendants. On February 19, 2008 the Company was served with the Complaint and, on February 29, 2008, Mr. McGraw was served with the Complaint. On May 12, 2008, the Company and Mr. McGraw filed a motion to dismiss all claims asserted against them. Similar motions were filed by other defendants. Plaintiff filed papers opposing the motions on July 1, 2008. A hearing on the motions was held on July 11, 2008 and, by Order dated July 23, 2008, the Court dismissed all claims asserted against the Company and Mr. McGraw and denied plaintiff leave to amend as against them.

The Company also learned that on August 28, 2007 a putative shareholder class action titledReese v. Bahashwas filed in the District Court for the District of Columbia against Mr. Robert Bahash, the CFO of the Company, alleging claims under the federal securities laws and state tort law concerning Standard & Poor’s ratings, particularly its ratings of subprime mortgage-backed securities. Mr. Bahash was not served with the Complaint. On February 11, 2008, the District Court in theReese matter entered an order appointing a lead plaintiff in that action and permitting plaintiffs to amend the Complaint on or before April 16, 2008. On April 7, 2008, the District Court granted the application of the lead plaintiff to extend the deadline for its amendment of the Complaint to May 7, 2008. On May 7, 2008 an amended Complaint was filed alleging violations of the federal securities laws; the Company and Mr. McGraw were named as additional defendants. The amended Complaint asserts, among other things, that the defendants failed to warn investors that problems in the structured finance market, particularly the sub-prime lending market, would negatively affect the Company’s financial performance. Service of the amended Complaint was thereafter effectuated. On June 18, 2008, in response to a Consent Motion filed on behalf of the Company and Messrs. McGraw and Bahash, the District Court entered an Order transferring the action to the United States District Court for the Southern District of New York. A scheduling order has not yet been entered. The Company believes the litigation to be without merit and intends to vigorously defend against it.

Three actions were recently filed in New York State Supreme Court, New York County, naming The McGraw-Hill Companies, Inc. (“McGraw-Hill” or the “Company”) as a defendant. The first case, brought by the New Jersey Carpenters Vacation Fund, on behalf of itself and all others similarly situated, was filed on May 14, 2008 and relates to certain mortgage-backed securities issued by various HarborView Mortgage Loan Trusts. The second, brought by the New Jersey Carpenters Health Fund, on behalf of itself and all others similarly situated, was filed on May 21, 2008 and relates to certain mortgage-backed securities issued by various NovaStar Mortgage Funding Trusts. The third case, brought again by the New Jersey Carpenters Vacation Fund, on behalf of itself and all others similarly situated, was filed on June 3, 2008 and relates to an October 30, 2006 offering by Home Equity Mortgage Trust 2006-5. The central allegation against the Company in each of these cases is that the Company issued inappropriate credit ratings on the applicable mortgage-backed securities in alleged violation of Section 11 of the Securities Exchange Act of 1933. In each, Plaintiff seeks as relief compensatory damages for the alleged decline in value of the securities, as well as an award of reasonable costs and expenses. Plaintiff has sued other parties, including the issuers and underwriters of the securities, in each case as well. All three cases were originally filed in New York State Supreme Court, New York County and have been subsequently removed to the United States District Court for the Southern District of New York. Plaintiff is seeking to remand in the three cases, and those motions are in the process of being briefed. The Company believes the litigations to be without merit and intends to defend against them vigorously.

On July 11, 2008, plaintiff Oddo Asset Management filed an action in New York State Supreme Court, New York County, against a number of defendants, including the Company. The action, titledOddo Asset Management v. Barclays Bank PLC, arises out of plaintiff’s investment in two structured investment vehicles, or SIV-Lites, that plaintiff alleges suffered losses as a result of violations of law by those who created, managed, arranged, and issued credit ratings for those investments. Plaintiff alleges various common law causes of action against the defendants. The central allegation against the Company is that it aided and abetted breaches of fiduciary duty by the collateral managers of the two SIV-Lites by falsely confirming the credit ratings it had previously given those investments. Plaintiff seeks compensatory and punitive damages plus reasonable costs, expenses, and attorneys fees. The Company believes the litigation to be without merit and intends to defend against it vigorously.

In addition, in the normal course of business both in the United States and abroad, the Company and its subsidiaries are defendants in numerous legal proceedings and are involved, from time to time, in governmental and self-

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regulatory agency proceedings, which may result in adverse judgments, damages, fines or penalties. Also, various governmental and self-regulatory agencies regularly make inquiries and conduct investigations concerning compliance with applicable laws and regulations. Based on information currently known by the Company’s management, the Company does not believe that any pending legal, governmental or self-regulatory proceedings or investigations will result in a material adverse effect on its financial condition or results of operations.

Information & Media

	Second			%			Second
	Quarter			Increase/			Quarter
	2008			(Decrease)			2007
Revenue
Business-to-Business	$	240,374			7.8	%	$	223,072
Broadcasting		26,528			(1.0	)%		26,790
Total revenue	$	266,902			6.8	%	$	249,862
Operating profit	$	24,799			68.2	%	$	14,740
% Operating margin		9.3	%					5.9	%

In the second quarter 2008, revenue grew by 6.8% or $17.0 million over the prior year while operating profit increased 68.2% or $10.1 million, driven by the Business-to-Business Group. Foreign exchange rates had an immaterial impact on segment revenue and operating profit growth.

At the Business-to-Business Group, revenue increased 7.8% in the second quarter of 2008 as compared to prior year driven by Platts, a leading provider of energy and other commodities information, as well as J.D. Power and Associates, partially offset by declines inBusinessWeek.

Oil, natural gas and power news and pricing products experienced growth as the increased volatility in crude oil and other commodity prices drove the increased need for market information.

Improved market penetration in the international consumer research studies, particularly in Asia, positively influenced growth for the Business-to-Business Group in the second quarter of 2008 over the second quarter of 2007.

In the second quarter of 2008, the dollar value of total U.S. construction starts was down 17% against the same period of the prior year. Most of the decline was due to reduced residential building activity, down 38% from the second quarter of 2007. Nonresidential construction fell 5% from the second quarter of 2007, as a drop in commercial building activity outweighed gains in the manufacturing sector, while non-building construction increased 4%.

According to the Publishing Information Bureau (“PIB”),BusinessWeek’sadvertising pages in the global edition for the second quarter were down 11%, with a comparable number of issues year to year for PIB purposes and a comparable number of issues for revenue recognition purposes.

Broadcasting revenue for the quarter declined by 1.0% compared to the second quarter of 2007 as increases in political advertising were offset by declines in base advertising due to economic weakness in key markets.

Results of Operations — Comparing Six Months Ended June 30, 2008 and 2007

Consolidated Review

The Segment Review that follows is incorporated herein by reference.

Revenue and Operating Profit

	Six						Six
	Months			%			Months
	2008			Decrease			2007
Revenue	$	2,891,096			(4.1	)%	$	3,014,597
Operating profit *	$	575,024			(24.7	)%	$	763,728
% Operating margin		19.9	%					25.3	%

* Operating profit is income before taxes on income, interest expense and corporate expense.

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In the first six months of 2008 revenue and operating profit declined by 4.1% and 24.7%, respectively. The decrease in revenue and operating profit is primarily attributable to the decline in the Financial Services segment of 11.0% and 25.4%, respectively, primarily due to weakness in Credit Market Services. Partially offsetting the revenue decrease was an increase of 5.1% in the Information & Media segment driven by the Business-to-Business Group and an increase of 2.2% in the McGraw-Hill Education segment driven by the School Education Group. Lower 2008 incentive compensation helped mitigate the operating profit decline. Foreign exchange rates positively impacted both revenue and operating profit by $42.1 million and $11.0 million, respectively, during the first six months of 2008.

In the second quarter of 2008, the Company restructured a limited number of business operations in its Financial Services and McGraw-Hill Education segments to more efficiently serve its markets and strengthen its long-term growth prospects. The Company incurred a pre-tax restructuring charge of $23.7 million ($14.8 million after-tax, or $0.05 per diluted share), which consisted primarily of severance costs related to a workforce reduction of 395 positions.

In March 2007, the Company sold its mutual fund data business, which was part of the Financial Services segment. The sale resulted in a $17.3 million pre-tax gain ($10.3 million after-tax, or $0.03 per diluted share), recorded as other income. The divestiture of the mutual fund data business was consistent with the Financial Services segment’s strategy of directing resources to those businesses which have the best opportunities to achieve both significant financial growth and market leadership. The divestiture will enable the Financial Services segment to focus on its core business of providing independent research, ratings, data, indices and portfolio services.

Product revenue increased 3.7% in the first six months of 2008, due primarily to growth in the McGraw-Hill Education and the Information & Media segments.

Product operating-related expenses increased 5.5%, as compared to the first six months of 2007, primarily due to the growth in expenses at McGraw-Hill Education related to major product launches in a strong 2008 state adoption market. Amortization of prepublication costs increased by $9.3 million or 10.9%, as compared with the same period of 2007, as a result of adoption cycles.

Product related selling and general expenses increased 4.1% and product margin declined 1.0%, as compared to the first six months of 2007, primarily due to the growth in expenses at McGraw-Hill Education related to major product launches in a strong 2008 state adoption market.

Service revenue decreased 7.5% in the first six months of 2008 as compared to the same period of 2007, due primarily to an 11.0% decrease in Financial Services. Financial Services revenue decreased primarily due to Credit Market Services in light of the significant declines in the structured finance market resulting from the current credit problems experienced in the U.S. and in Europe, partially offset by growth in Investment Services. Additionally, growth in the Information & Media segment helped partially offset this revenue decline. The service margin decreased 4.9% to 29.7% for the first six months of 2008 primarily due to the decline in Credit Market Services, partially offset by reduced 2008 incentive compensation expense.

Total expenses in the first six months of 2008 increased $39.2 million or 1.7% as compared to the same period in 2007 driven by increased sales opportunities in the McGraw-Hill Education segment, and the restructuring charge incurred by the Company in the second quarter of 2008.

Interest expense increased to $38.2 million in the first six months of 2008, as compared with interest expense of $13.3 million for the first half of 2007. The increase was mainly driven by the impact of $1.2 billion in senior notes issued in the fourth quarter of 2007. Also included in the first six months of 2008 and 2007 is interest income earned on investment balances.

For the six months ended June 30, 2008 and 2007, the effective tax rate was 37.5% and 37.6%, respectively. The minor decrease in the effective tax rate for the period ended June 30, 2008, compared with the same period during the prior year, is primarily attributable to the impact of the 2007 divestiture of the mutual fund data business.

The Company expects the effective tax rate to be at 37.5% for the remainder of the year absent the impact of events such as intervening audit settlements, changes in federal, state or foreign law and changes in the geographical mix of the Company’s pre-tax income.

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Net income for the first six months of 2008 decreased 30.3% as compared with the first six months of 2007. Diluted earnings per share decreased 22.9% to $0.91 from $1.18 in 2007. Included in the 2008 diluted earnings per share is the $0.05 after-tax impact of the restructuring charge. Included in the 2007 diluted earnings per share is the $0.03 after-tax favorable impact of the divestiture of the Financial Services’ mutual fund data business.

Segment Review

McGraw-Hill Education

	Six						Six
	Months			%			Months
	2008			Increase			2007
Revenue
School Education Group	$	576,935			3.9	%	$	555,411
Higher Education, Professional and International		424,067			0.1	%		423,593
Total revenue	$	1,001,002			2.2	%	$	979,004
Operating loss	$	(20,731	)		(101.7	)%	$	(10,278	)
% Operating margin		(2.1	)%					(1.1	)%

Revenue for the McGraw-Hill Education (“MHE”) segment increased 2.2% or $22.0 million from the prior year, while the operating loss grew $10.5 million. Results over the six months reflect the seasonal nature of the Company’s educational publishing operations, with the first quarter being the least significant, and the third quarter being the most significant. Foreign exchange rates positively affected revenue by $9.7 million and had an immaterial impact on the operating loss.

During the second quarter of 2008, the MHE segment incurred a pre-tax restructuring charge of $8.5 million consisting primarily of employee severance costs related to the reduction of 149 positions, primarily in the assessment business, where MHE is taking steps to consolidate its resources, better leverage partnerships with key strategic suppliers, and facilitate a strategic shift toward increased investments in its digital and custom offerings. Across other parts of the segment, MHE is taking steps to enable greater efficiencies, better address new and existing revenue streams, and shift investments toward digital products.

During the first six months of 2008, revenue for the McGraw-Hill School Education Group (“SEG”) increased 3.9% or $21.5 million compared with the first six months of 2007. The increase was primarily due to strong basal sales of K-5 reading in Florida and K-5 math in Texas partially offset by lower reorders of workbooks and other consumable reading materials in several states due to timing and budget concerns. Total U.S. PreK-12 enrollment for 2007-2008 is estimated at 56 million students, up 0.4% from 2006-2007, according to the National Center for Education Statistics (“NCES”). The total available state new adoption market in 2008 is estimated at between $900 million and $950 million compared with approximately $820 million in 2007.

The year’s key opportunities in the state new adoption market are primarily offered by K-5 reading in Florida, K-5 math in Texas, and K-8 math in California. Other opportunities for 2008 include science in California, reading in Alabama, Indiana, Louisiana, and Oklahoma, and social studies in Arkansas and Tennessee. With decision-making largely completed in the adoption states that are buying reading in 2008, the Company expects to capture a majority share of the important Florida K-5 market as well as a major share of the overall K-12 reading/literature state new adoption market. In the overall K-12 math state new adoption market, the School Group projects a strong share based on solid results in the K-5 Texas adoption as well as announced K-8 decisions in California, where some sales activity may continue into the fall. Despite concerns about the economy in many areas, no state adoptions scheduled for purchasing in 2008 were cancelled and adoption activity remained brisk at the district level in most states within this market.

Open territory sales, which have remained flat over the past two years, are projected to increase modestly due to pent-up demand for new instructional materials. Open territory net basal sales for the industry remained flat as compared to the prior year through May 2008, the most recent period for which detailed information is currently available. However, the bulk of open territory purchasing traditionally occurs in the third quarter. Despite budget pressures, most states have maintained or increased education funding levels in their new fiscal-year budgets.

According to statistics compiled by the Association of American Publishers (“AAP”), total net basal and supplementary sales of elementary and secondary instructional materials increased 1.5% through May 2008

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compared to the same period in 2007. The supplementary market has been declining in recent years, in large part because basal programs are increasingly comprehensive, offering integrated ancillary materials that reduce the need for separate supplemental products. According to the AAP report, the industry’s total basal sales increased by 6.0% through May 2008, driven by growth in the adoption states.

In the testing market, SEG’s non-custom or “shelf” testing revenue increased over the prior year primarily due to increasedAcuityrevenues in New York City and sales of theTABEseries of assessments for adult learners and theLASseries for English-language learners, gains which more than offset declines in older products. Custom contract work decreased in 2008 compared to the same period last year primarily due to reductions in scope and price on contracts in Florida and Missouri, partially offset by an increase in scope on a West Virginia contract.

At the McGraw-Hill Higher Education, Professional and International Group (“HPI”), revenue was flat compared to the prior year. Foreign exchange rates positively affected revenue by $9.7 million.

Higher Education revenue declined from the prior-year period, although the Career product line showed strong growth. A variation in bookstore ordering trends from June to July affected first-half results. Key titles contributing to six-month performance included Lucas,The Art of Public Speaking,9/e; Garrison,Managerial Accounting, 12/e; Nickels,Understanding Business, 8/e; Wardlaw,Contemporary Nutrition, 7/e; and Ober,Keyboarding, 10/e.

Revenue in the professional market declined for the six months versus the prior year due to strong first-year sales ofMcGraw-Hill Encyclopedia of Science and Technology, which was published in May 2007, and overall softness in the market in 2008 as some retailers cut back on orders and reduced inventory through higher returns. Compared with 2007, HPI’s overall international revenue increased in most regions, notably India, Asia, Canada and the Middle East, partially offset by sales declines in Spain, Italy and Latin America.

Financial Services

	Six			%			Six
	Months			(Decrease)/			Months
	2008			Increase			2007
Revenue
Credit Market Services	$	935,210			(20.8	)%	$	1,180,728
Investment Services		444,568			20.4	%		369,147
Total Revenue	$	1,379,778			(11.0	)%	$	1,549,875
Operating profit	$	559,230			(25.4	)%	$	749,380
% Operating margin		40.5	%					48.4	%

Financial Services revenue and operating profit for the first six months of 2008 decreased 11.0% and 25.4%, respectively, from the same period in 2007. The revenue and operating profit declines from prior year are mainly due to lower revenue in Credit Market Services (“CMS”), partially offset by revenue growth in Investment Services (“IS”). A reduction in 2008 incentive compensation helped mitigate the operating profit reduction. Foreign exchange positively impacted revenue by $31.6 million and operating profit by $14.4 million.

During the second quarter of 2008, the Financial Services segment incurred a pre-tax restructuring charge of $15.2 million consisting primarily of employee severance costs related to the reduction of 246 positions, driven by the current credit market environment as well as the consolidation of several support functions.

In March 2007, the Company sold its mutual fund data business, which resulted in a $17.3 million pre-tax gain. Included in IS in the first six months of 2007 was $7.8 million of revenue relating to this mutual fund data business, with no comparable amount in the first six months of 2008.

CMS revenue declined $245.5 million or 20.8% from prior year, primarily as a result of significant decreases in structured finance as well as decreases in corporate (industrial and financial services) ratings partially offset by increases in public finance ratings and credit ratings-related information products such as RatingsXpress and RatingsDirect and credit risk evaluation products and services.

During the first six months of 2008, significant decreases in issuance volumes in both the United States and Europe for residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and collateralized debt obligations (“CDO”) contributed to the decrease in revenue. In Europe, a decrease in issuance volume of asset-backed securities (“ABS”) also contributed to the decrease in revenue.

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Total U.S. structured finance new issue dollar volume decreased 79.0% in the first six months versus prior year. U.S. CDO issuance decreased 89.7%, according to Harrison Scott Publications and Standard & Poor’s internal estimates (Harrison Scott Publications/S&P). The large decline in CDO issuance resulted from continued lack of investor appetite for the complex deal structures which were in demand in the first six months of 2007 and secondary market trading liquidity concerns. Continued deterioration in the subprime mortgage market has significantly impacted dollar volume issuance in the U.S. RMBS market, which decreased 96.0% compared to prior year. U.S. CMBS issuance decreased 87.9% over the prior year due to the market dislocation attributed to high credit spreads resulting in high interest rates which are not economical to borrowers. U.S. ABS issuance was flat compared to prior year, driven by a large private placement of $29 billion in the first quarter of 2008. Excluding the impact of this private placement deal, U.S. ABS was down 18.5% as compared to the same period in 2007. According to Thomson Financial, U.S. corporate issuance by dollar volume for the first six months of 2008 decreased 22.0%, with investment grade down 13.8% and high yield issuance down 71.5%, driven by higher credit spreads and decreased merger and acquisition activity.

In Europe for the first six months, structured finance issuance declined 77.9% compared to the prior year and corporate and government issuance declined 14.6%, contributing to the revenue decline in CMS. RMBS issuance in Europe decreased 81.3%. European CDO and CMBS issuance declined 63.7% and 97.2%, respectively, which is also primarily attributed to higher credit spreads. ABS issuance decreased 63.3% compared to the prior year.

IS revenue increased $75.4 million or 20.4%, driven by growth in index services and Capital IQ products. Revenue related to Standard & Poor’s indices increased as assets under management for exchange-traded funds (“ETF”) rose 15.5% from June 30, 2007 to $206.3 billion as of June 30, 2008 and license fee revenue increased. ETF assets under management at December 31, 2007 were $235.3 billion. The number of exchange-traded futures and option contracts based on S&P indices exhibited strong increases in the first six months of 2008 compared to the same period of the prior year, thereby also contributing to the revenue growth. The number of Capital IQ clients increased 23% from the second quarter end of 2007 to second quarter end of 2008.

Because of the current credit market conditions, issuance levels deteriorated significantly across all asset classes. It is possible that the current market conditions and global issuance levels in structured finance could persist through 2008. The outlook for RMBS, CMBS and CDO asset classes as well as other asset classes is dependent upon many factors, including the general condition of the economy, interest rates, credit quality and spreads, and the level of liquidity in the financial markets.

The financial services industry is subject to the potential for increased regulation in the United States and abroad. The businesses conducted by the Financial Services segment are in certain cases regulated under the Credit Rating Agency Reform Act of 2006, U.S. Investment Advisers Act of 1940, the U.S. Securities Exchange Act of 1934 and/or the laws of the states or other jurisdictions in which they conduct business.

Standard & Poor’s Ratings Services is a credit rating agency that is registered with the Securities and Exchange Commission (“SEC”) as one of ten Nationally Recognized Statistical Rating Organizations, or NRSROs. The SEC first began designating NRSROs in 1975 for use of their credit ratings in the determination of capital charges for registered brokers and dealers under the SEC’s Net Capital Rule.

Credit rating agency legislation entitled “Credit Rating Agency Reform Act of 2006” (the “Act”) was signed into law on September 29, 2006. The Act created a new SEC registration system for rating agencies that volunteer to be recognized as NRSROs. Under the Act, the SEC is given authority and oversight of NRSROs and can censure NRSROs, revoke their registration or limit or suspend their registration in certain cases. The SEC is not authorized to review the analytical process, ratings criteria or methodology of the NRSROs. An agency’s decision to register and comply with the Act will not constitute a waiver of or diminish any right, defense or privilege available under applicable law. Pre-emption language is included in the Act consistent with other legal precedent. The Company does not believe the Act will have a material adverse effect on its financial condition or results of operations.

The SEC issued rules to implement the Act, effective June 2007. Standard & Poor’s submitted its application on Form NRSRO on June 25, 2007. On September 24, 2007, the SEC granted Standard & Poor’s registration as an NRSRO under the Act. In March 2008, S&P filed its first annual update of its registration with the SEC. The public portions of S&P’s Form NRSRO are available on S&P’s website.

On June 16, 2008, the SEC issued proposed rules that focus largely on NRSROs’ structured finance ratings process. The proposed rules address a broad range of issues, including disclosure and management of conflicts related to the issuer-pays model, prohibitions against analysts’ accepting gifts or making “recommendations” when rating a

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security, and limitations on analyst participation in fee discussions. Under the proposed rules, additional records of all rating actions must be created, retained and made public, and records must be kept of material deviations in ratings assigned from model outputs as well as complaints about analysts’ performance. The proposals require more disclosure of performance statistics and methodologies, a new annual report by NRSROs of their rating actions to be provided confidentially to the SEC, and unless structured finance ratings are distinguished from other ratings, NRSROs will be required to issue a report describing the differences for each structured rating. The deadline for comments was July 25, 2008. S&P submitted comments on the proposals. The Company believes that some of the proposals raise serious legal issues. On July 1, 2008, the SEC also proposed changes to numerous SEC rules and forms that expressly utilize NRSRO ratings. The deadline for comments is September 5, 2008. S&P currently plans to submit comments on some of the SEC’s key proposals.

In the third quarter of 2007, rating agencies became subject to scrutiny for their ratings on structured finance transactions that involve the packaging of subprime residential mortgages, including residential mortgage-backed securities (“RMBS”) and collateralized debt obligations (“CDOs”).

On August 29, 2007, Standard & Poor’s received a subpoena from the New York Attorney General’s Office requesting information and documents relating to Standard & Poor’s ratings of securities backed by residential real estate mortgages. Standard & Poor’s has entered into an agreement with the New York Attorney General’s Office which calls for S&P to implement certain structural reforms. The agreement resolves the Attorney General’s investigation with no monetary payment and no admission of wrongdoing.

In September 2007, the SEC commenced an examination of rating agencies’ policies and procedures regarding conflicts of interest and the application of those policies and procedures to ratings on RMBS and related CDOs. Standard & Poor’s is cooperating with the SEC staff in connection with this examination. The SEC issued its public Report on July 8, 2008. The SEC findings and recommendations addressed the following subjects: (a) the SEC noted there was a substantial increase in the number and complexity of RMBS and CDO deals since 2002, and some rating agencies appeared to struggle with the growth; (b) significant aspects of the rating process were not always disclosed; (c) policies and procedures for rating RMBS and CDOs could be better documented; (d) the implementation of new practices by ratings agencies with respect to the information provided to them; (e) rating agencies did not always document significant steps in the ratings process and they did not always document significant participants in the ratings process; (f) the surveillance processes used by the rating agencies appear to have been less robust than their initial ratings processes; (g) issues were identified in the management of conflicts of interest and improvements could be made; and (h) internal audit processes. S&P has advised the SEC it will be taking steps to enhance S&P’s policies and procedures consistent with the SEC’s recommendations.

On October 16, 2007, Standard & Poor’s received a subpoena from the Connecticut Attorney General’s Office requesting information and documents relating to the conduct of Standard & Poor’s credit ratings business. The subpoena appears to relate to an investigation by the Connecticut Attorney General into whether Standard & Poor’s, in the conduct of its credit ratings business, violated the Connecticut Antitrust Act. Subsequently, a second subpoena dated December 6, 2007, seeking information and documents relating to the rating of securities backed by residential real estate mortgages, and a third subpoena dated January 14, 2008, seeking information and documents relating to the rating of municipal and corporate debt, were served. The Attorney General’s Office has also indicated that its investigation is looking into whether Standard & Poor’s may have violated the Connecticut Unfair Trade Practices Act. The Company is responding to the subpoenas.

On November 8, 2007, Standard & Poor’s received a civil investigative demand from the Massachusetts Attorney General’s Office requesting information and documents relating to Standard & Poor’s ratings of securities backed by residential real estate mortgages. Standard & Poor’s is responding to this request.

On April 22, 2008, the Senate Committee on Banking, Housing and Urban Affairs held a hearing on the role of rating agencies in U.S. credit markets. S&P participated in this hearing.

Outside the United States, particularly in Europe, regulators and government officials have reviewed whether credit rating agencies should be subject to formal oversight. In the past several years, the European Commission, the Committee of European Securities Regulators (“CESR”) which is charged with monitoring and reporting to the European Commission on rating agencies’ compliance with IOSCO’s Code of Conduct (see below), and the International Organization of Securities Commissions (“IOSCO”) have issued reports, consultations and questionnaires concerning the role of credit rating agencies and potential regulation. In May 2008, IOSCO issued a report on the role of rating agencies in the structured finance market and related changes to its 2004 Code of Conduct Fundamentals for Credit Rating Agencies. IOSCO’s report reflects comments received during a public

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consultation process. S&P and other global rating agencies contributed to this process. S&P has started to implement many of IOSCO’s recommendations and expects to update its Code of Conduct as appropriate. In May 2008, CESR issued its second report to the European Commission on rating agencies’ compliance with IOSCO’s original Code of Conduct, the role of rating agencies in structured finance and recommendations for, among other things, additional monitoring and oversight of rating agencies. CESR also requested public comments during a consultation period leading up to the final report. In June 2008, the European Securities Markets Expert Group (ESME), a group of senior practitioners and advisors to the European Commission, issued its report on the role of rating agencies and a separate set of recommendations. S&P engaged with ESME during its review process. The European review of rating agencies and potential additional oversight is expected to continue into the fall and, possibly, 2009.

Other regulatory developments include: a March 2008 report by the President’s Working Group on Financial Markets that includes recommendations relating to rating agencies; an April 2008 report by the Financial Stability Forum that recommends changes in the role and uses of credit ratings; and a July 2008 report by the Committee on the Global Financial System (Bank for International Settlements) on ratings in structured finance. S&P expects to continue to be involved in the follow up to these reports. In many countries, S&P is also an External Credit Assessment Institution (ECAI) under Basel II for purposes of allowing banks to use its ratings in determining risk weightings for many credit exposures. Recognized ECAIs may be subject to additional oversight in the future.

New legislation, regulations or judicial determinations applicable to credit rating agencies in the United States and abroad could affect the competitive position of Standard & Poor’s Ratings Services; however, the Company does not believe that any new or currently proposed legislation, regulations or judicial determinations would have a materially adverse effect on its financial condition or results of operations.

The market for credit ratings as well as research and investment advisory services is very competitive. The Financial Services segment competes domestically and internationally on the basis of a number of factors, including quality of ratings, research and investment advice, client service, reputation, price, geographic scope, range of products and technological innovation. In addition, in some of the countries in which Standard & Poor’s competes, governments may provide financial or other support to locally-based rating agencies and may from time to time establish official credit rating agencies, credit ratings criteria or procedures for evaluating local issuers.

A writ of summons was served on The McGraw-Hill Companies, SRL and on The McGraw-Hill Companies, SA (both indirect subsidiaries of the Company) (collectively, “Standard & Poor’s”) on September 29, 2005 and October 7, 2005, respectively, in an action brought in the Tribunal of Milan, Italy by Enrico Bondi (“Bondi”), the Extraordinary Commissioner of Parmalat Finanziaria S.p.A. and Parmalat S.p.A. (collectively, “Parmalat”). Bondi has brought numerous other lawsuits in both Italy and the United States against entities and individuals who had dealings with Parmalat. In this suit, Bondi claims that Standard & Poor’s, which had issued investment grade ratings on Parmalat until shortly before Parmalat’s collapse in December 2003, breached its duty to issue an independent and professional rating and negligently and knowingly assigned inflated ratings in order to retain Parmalat’s business. Alleging joint and several liability, Bondi claims damages of euros 4,073,984,120 (representing the value of bonds issued by Parmalat and the rating fees paid by Parmalat) with interest, plus damages to be ascertained for Standard & Poor’s alleged complicity in aggravating Parmalat’s financial difficulties and/or for having contributed in bringing about Parmalat’s indebtedness towards its bondholders, and legal fees. The Company believes that Bondi’s allegations and claims for damages lack legal or factual merit. Standard & Poor’s filed its answer, counterclaim and third-party claims on March 16, 2006 and will continue to vigorously contest the action.

In a separate proceeding, the prosecutor’s office in Parma, Italy is conducting an investigation into the bankruptcy of Parmalat. In June 2006, the prosecutor’s office issued a Note of Completion of an Investigation (“Note of Completion”) concerning allegations, based on Standard & Poor’s investment grade ratings of Parmalat, that individual Standard & Poor’s rating analysts conspired with Parmalat insiders and rating advisors to fraudulently or negligently cause the Parmalat bankruptcy. The Note of Completion was served on eight Standard & Poor’s rating analysts. While not a formal charge, the Note of Completion indicates the prosecutor’s intention that the named rating analysts should appear before a judge in Parma for a preliminary hearing, at which hearing the judge will determine whether there is sufficient evidence against the rating analysts to proceed to trial. No date has been set for the preliminary hearing. On July 7, 2006, a defense brief was filed with the Parma prosecutor’s office on behalf of the rating analysts. The Company believes that there is no basis in fact or law to support the allegations against the rating analysts, and they will be vigorously defended by the subsidiaries involved.

The Company learned on August 9, 2007 that a pro se action titledBlomquist v. Washington Mutual, et al., was filed in the District Court for the Northern District of California against numerous financial institutions, government agencies and individuals, including the Company and Mr. Harold McGraw III, the CEO of the Company, alleging

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various state and federal claims. The claims against the Company and Mr. McGraw concern Standard & Poor’s ratings of subprime mortgage-backed securities. An amended Complaint was filed in theBlomquistaction on September 10, 2007 which added two other rating agencies as defendants. On February 19, 2008 the Company was served with the Complaint and, on February 29, 2008, Mr. McGraw was served with the Complaint. On May 12, 2008, the Company and Mr. McGraw filed a motion to dismiss all claims asserted against them. Similar motions were filed by other defendants. Plaintiff filed papers opposing the motions on July 1, 2008. A hearing on the motions was held on July 11, 2008 and, by Order dated July 23, 2008, the Court dismissed all claims asserted against the Company and Mr. McGraw and denied plaintiff leave to amend as against them.

The Company also learned that on August 28, 2007 a putative shareholder class action titledReese v. Bahashwas filed in the District Court for the District of Columbia against Mr. Robert Bahash, the CFO of the Company, alleging claims under the federal securities laws and state tort law concerning Standard & Poor’s ratings, particularly its ratings of subprime mortgage-backed securities. Mr. Bahash was not served with the Complaint. On February 11, 2008, the District Court in theReesematter entered an order appointing a lead plaintiff in that action and permitting plaintiffs to amend the Complaint on or before April 16, 2008. On April 7, 2008, the District Court granted the application of the lead plaintiff to extend the deadline for its amendment of the Complaint to May 7, 2008. On May 7, 2008 an amended Complaint was filed alleging violations of the federal securities laws; the Company and Mr. McGraw were named as additional defendants. The amended Complaint asserts, among other things, that the defendants failed to warn investors that problems in the structured finance market, particularly the sub-prime lending market, would negatively affect the Company’s financial performance. Service of the amended Complaint was thereafter effectuated. On June 18, 2008, in response to a Consent Motion filed on behalf of the Company and Messrs. McGraw and Bahash, the District Court entered an Order transferring the action to the United States District Court for the Southern District of New York. A scheduling order has not yet been entered. The Company believes the litigation to be without merit and intends to vigorously defend against it.

Three actions were recently filed in New York State Supreme Court, New York County, naming The McGraw-Hill Companies, Inc. (“McGraw-Hill” or the “Company”) as a defendant. The first case, brought by the New Jersey Carpenters Vacation Fund, on behalf of itself and all others similarly situated, was filed on May 14, 2008 and relates to certain mortgage-backed securities issued by various HarborView Mortgage Loan Trusts. The second, brought by the New Jersey Carpenters Health Fund, on behalf of itself and all others similarly situated, was filed on May 21, 2008 and relates to certain mortgage-backed securities issued by various NovaStar Mortgage Funding Trusts. The third case, brought again by the New Jersey Carpenters Vacation Fund, on behalf of itself and all others similarly situated, was filed on June 3, 2008 and relates to an October 30, 2006 offering by Home Equity Mortgage Trust 2006-5. The central allegation against the Company in each of these cases is that the Company issued inappropriate credit ratings on the applicable mortgage-backed securities in alleged violation of Section 11 of the Securities Exchange Act of 1933. In each, Plaintiff seeks as relief compensatory damages for the alleged decline in value of the securities, as well as an award of reasonable costs and expenses. Plaintiff has sued other parties, including the issuers and underwriters of the securities, in each case as well. All three cases were originally filed in New York State Supreme Court, New York County and have been subsequently removed to the United States District Court for the Southern District of New York. Plaintiff is seeking to remand in the three cases, and those motions are in the process of being briefed. The Company believes the litigations to be without merit and intends to defend against them vigorously.

On July 11, 2008, plaintiff Oddo Asset Management filed an action in New York State Supreme Court, New York County, against a number of defendants, including the Company. The action, titledOddo Asset Management v. Barclays Bank PLC, arises out of plaintiff’s investment in two structured investment vehicles, or SIV-Lites, that plaintiff alleges suffered losses as a result of violations of law by those who created, managed, arranged, and issued credit ratings for those investments. Plaintiff alleges various common law causes of action against the defendants. The central allegation against the Company is that it aided and abetted breaches of fiduciary duty by the collateral managers of the two SIV-Lites by falsely confirming the credit ratings it had previously given those investments. Plaintiff seeks compensatory and punitive damages plus reasonable costs, expenses, and attorneys fees. The Company believes the litigation to be without merit and intends to defend against it vigorously.

In addition, in the normal course of business both in the United States and abroad, the Company and its subsidiaries are defendants in numerous legal proceedings and are involved, from time to time, in governmental and self-regulatory agency proceedings, which may result in adverse judgments, damages, fines or penalties. Also, various governmental and self-regulatory agencies regularly make inquiries and conduct investigations concerning compliance with applicable laws and regulations. Based on information currently known by the Company’s management, the Company does not believe that any pending legal, governmental or self-regulatory proceedings or investigations will result in a material adverse effect on its financial condition or results of operations.

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Information & Media

	Six			%			Six
	Months			Increase/			Months
	2008			(Decrease)			2007
Revenue
Business-to-Business	$	460,061			5.7	%	$	435,255
Broadcasting		50,255			(0.4	)%		50,463
Total revenue	$	510,316			5.1	%	$	485,718
Operating profit	$	36,525			48.3	%	$	24,626
% Operating margin		7.2	%					5.1	%

In the first six months of 2008, revenue grew by 5.1% or $24.6 million over the prior year while operating profit increased 48.3% or $11.9 million, driven by the Business-to-Business Group. Foreign exchange rates had an immaterial impact on segment revenue and a negative impact of $2.1 million on segment operating profit growth.

At the Business-to-Business Group, revenue increased 5.7% or $24.8 million in the first six months of 2008 as compared to prior year driven by Platts, a leading provider of energy and other commodities information, as well as J.D. Power and Associates, partially offset by declines inBusinessWeek.

Oil, natural gas and power news and pricing products experienced growth as the increased volatility in crude oil and other commodity prices drove the increased need for market information.

Improved market penetration of international consumer research studies, particularly in Asia, positively influenced growth for the Business-to-Business Group in the first six months of 2008 over the first half of 2007.

In the first six months of 2008, the dollar value of total U.S. construction starts was down 16% compared to the same period of the prior year. Most of the decline was due to reduced residential building activity, down 39% from the first half of 2007. Nonresidential construction was up 6% from the first half of 2007 as gains in the manufacturing sector outweighed a drop in commercial building activity, while non-building construction slipped 3%.

According to the Publishing Information Bureau (“PIB”),BusinessWeek’sadvertising pages in the global edition for the first six months were down 15%, with comparable number of issues year to year for PIB purposes and comparable number of issues for revenue recognition purposes. The Company continues to make investments in theBusinessWeek.combrand.

Broadcasting revenue for the first six months was flat compared to the same period of the prior year as increases in political advertising were offset by declines in base advertising due to economic weakness in key markets.

Liquidity and Capital Resources

The Company continues to maintain a strong financial position. The Company’s primary source of funds for operations is cash generated by operating activities. The Company’s core businesses have been strong cash generators. Income and, consequently, cash provided from operations during the year are significantly impacted by the seasonality of businesses, particularly educational publishing. This seasonality also impacts cash flow and related borrowing patterns. The Company’s cash flow is typically weaker in the first half of the year and strengthens during the third and fourth quarters. Debt financing is used as necessary for share repurchases, seasonal fluctuations in working capital and acquisitions. Cash and cash equivalents were $355.3 million at June 30, 2008, a decrease of $40.8 million from December 31, 2007. Most of the cash and equivalents as of June 30, 2008 are held outside the United States. The Company’s subsidiaries maintain cash balances at financial institutions located throughout the world. These cash balances are subject to normal currency exchange fluctuations. Typically, cash held outside the U.S. is anticipated to be utilized to fund international operations or to be reinvested outside the U.S. as a significant portion of the Company’s opportunities for growth in the coming years are expected to be abroad.

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Cash Flow

Operating Activities: Cash provided by operations was $37.4 million for the first six months of 2008, as compared to $388.5 million during the same period in 2007. The decrease in cash from operating activities from the prior year is primarily the result of a decline in income from operations as well as decreases in accounts payable and accrued expenses.

As of June 30, 2008, accounts receivable (before reserves) increased $77.4 million from the prior year-end, primarily due to the seasonality of the educational business and growth in the Information & Media segment. This increase compares to a $49.7 million increase in 2007. Year-to-date, the number of days sales outstanding for operations have increased by 2 days year over year, primarily due to the Financial Services segment, particularly related to declines in structured finance transactions. Inventories increased by $143.1 million from the end of 2007 as the Company’s education business prepares for its selling season. The increase in inventories over the prior year is primarily the result of the stronger adoption opportunities in 2008 compared with 2007.

Accounts payable and accrued expenses decreased by $324.6 million versus year-end primarily due to the timing of performance based compensation payments in the first quarter of 2008, and a reduction in 2008 incentive compensation accruals. This decrease compares to a $187.4 million decrease in 2007.

Investing Activities: Cash used for investing activities was $225.3 million and $208.8 million in the first six months of 2008 and 2007, respectively. The increase over the prior year is primarily due to increased investment in technology projects in the first half of 2008 as compared to 2007, and the disposition of the mutual fund data business in the first quarter of 2007.

Purchases of property and equipment totaled $48.8 million in the first six months of 2008 compared with $83.4 million in 2007. For 2008, capital expenditures are expected to be approximately $160 million and primarily relate to increased investment in the Company’s information technology data centers and other technology initiatives.

Net prepublication costs increased $40.8 million to $614.0 million from December 31, 2007, as spending outpaced amortization. Prepublication investment in the current year totaled $131.9 million as of June 30, 2008, in line with the same period in 2007. Prepublication investment for 2008 is expected to be approximately $270 million, reflecting new product development in light of the significant adoption opportunities in key states in 2008 and beyond.

Financing Activities: Cash provided by financing activities was $140.6 million as of June 30, 2008 compared to cash used for financing activities of $182.7 million in for the same period in 2007. The difference is primarily attributable to the reduced share repurchases in 2008 partially offset by a reduction of $465.6 million in borrowings of commercial paper. In 2008, cash was utilized to repurchase approximately 6.7 million shares for $275.5 million on a settlement date basis. An additional 0.7 million shares were repurchased in the second quarter of 2008 for $29.2 million, which settled in July 2008. In 2007, cash was utilized to repurchase approximately 18.1 million shares for $1,178.3 million on a settlement basis. An additional 1.4 million shares were repurchased in the second quarter of 2007 for $95.6 million, which settled in July 2007. Shares repurchased under the repurchase program were used for general corporate purposes, including the issuance of shares for stock compensation plans and to offset the dilutive effect of the exercise of employee stock options.

There were $526.2 million and $536.1 million in commercial paper borrowings outstanding as of June 30, 2008 and 2007, respectively. Commercial paper borrowings are supported by the Company’s five-year revolving credit facility agreement of $1.2 billion which expires on July 20, 2009. The Company pays a facility fee of seven basis points on the credit facility whether or not amounts have been borrowed, and borrowings may be made at a spread of 13 basis points above the prevailing LIBOR rates. This spread increases to 18 basis points for borrowings exceeding 50% of the total capacity available under the facility. The facility contains certain covenants, and the only financial covenant requires that the Company not exceed indebtedness to cash flow ratio, as defined, of 4 to 1 at any time. This restriction has never been exceeded. There were no borrowings under this agreement as of June 30, 2008 and 2007.

The Company also has the capacity to issue Extendible Commercial Notes (“ECNs”) of up to $240 million. ECNs replicate commercial paper, except that the Company has an option to extend the note beyond its initial redemption date to a maximum final maturity of 390 days. However, if exercised, such an extension is at a higher reset rate, which is at a predetermined spread over LIBOR and is related to the Company’s commercial paper rating at the time of extension. As a result of the extension option, no backup facilities for these borrowings are required. As is the

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case with commercial paper, ECNs have no financial covenants. There were no ECNs outstanding at June 30, 2008 and there were $66.1 million outstanding at June 30, 2007.

On April 19, 2007, the Company signed a promissory note with one of its providers of banking services to enable the Company to borrow additional funds, on an uncommitted basis, from time to time to supplement its commercial paper borrowings. The specific terms (principal, interest rate and maturity date) of each borrowing governed by this promissory note will be determined on the borrowing date of each loan. There were no borrowings outstanding under this promissory note at June 30, 2008 and there were $392.0 million outstanding at June 30, 2007.

Under the shelf registration that became effective with the Securities and Exchange Commission in 1990, an additional $250 million of debt securities can be issued.

On January 31, 2007, the Board of Directors approved a stock repurchase program (the “2007 program”) authorizing the purchase of up to 45 million shares, which was approximately 12.7% of the total shares of the Company’s outstanding common stock at that time. The repurchased shares may be used for general corporate purposes, including the issuance of shares in connection with the exercise of employee stock options. Purchases under this program may be made from time to time on the open market and in private transactions depending on market conditions. At December 31, 2007, authorization for the repurchase of 28 million shares remained under the 2007 program. The Company repurchased 7.4 million shares (on a trade date basis) from the 2007 program during the first six months of 2008 for $304.8 million at an average price of $41.19 per share. At June 30, 2008, authorization for the repurchase of 20.6 million shares remained under the 2007 program.

On January 30, 2008, the Board of Directors approved an increase in the quarterly common stock dividend from $0.205 to $0.22 per share.

Quantitative and Qualitative Disclosure about Market Risk

The Company is exposed to market risk from changes in foreign exchange rates. The Company has operations in various foreign countries. For most international operations, the functional currency is the local currency. For international operations that are determined to be extensions of the Parent Company, the U.S. dollar is the functional currency. For hyper-inflationary economies, the functional currency is the U.S. dollar. In the normal course of business, these operations are exposed to fluctuations in currency values. The Company does not generally enter into derivative financial instruments in the normal course of business, nor are such instruments used for speculative purposes. The Company has no such instruments outstanding at this time.

The Company has naturally hedged positions in most countries from a local currency perspective with offsetting assets and liabilities. The gross amount of the Company’s foreign exchange balance sheet exposure from operations is $168.9 million as of June 30, 2008. Management has estimated using an undiversified average value-at-risk analysis with a 95% confidence level that the foreign exchange gains and losses should not exceed $15.9 million over the next year based on the historical volatilities of the portfolio.

The Company’s net interest expense is sensitive to changes in the general level of U.S. and foreign interest rates. Based on average debt and investments outstanding over the past three months, the following is the projected annual impact on interest expense on current operations:

Percent change in interest rates	Projected annual pre-tax impact on
(+/-)	operations (millions)
1%	$1.0

Recently Issued Accounting Standards

See Footnote 14.

Since the date of the Annual Report, there have been no other material changes to the Company’s critical accounting policies.

“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995

This section, as well as other portions of this document, includes certain forward-looking statements about the Company’s businesses, new products, sales, expenses, tax rates, cash flows, prepublication investments and operating and capital requirements. Such forward-looking statements include, but are not limited to: the strength and

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sustainability of the U.S. and global economy; Educational Publishing’s level of success in 2008 adoptions and in open territories and enrollment and demographic trends; the level of educational funding; the strength of School Education including the testing market, Higher Education, Professional and International publishing markets and the impact of technology on them; the level of interest rates and the strength of the economy, profit levels and the capital markets in the U.S. and abroad; the level of success of new product development and global expansion and strength of domestic and international markets; the demand and market for debt ratings, including collateralized debt obligations (“CDO”), residential mortgage and asset-backed securities and related asset classes; the continued difficulties in the credit markets and their impact on Standard & Poor’s and the economy in general; the regulatory environment affecting Standard & Poor’s; the level of merger and acquisition activity in the U.S. and abroad; the strength of the domestic and international advertising markets; the volatility of the energy marketplace; the contract value of public works, manufacturing and single-family unit construction; the level of political advertising; and the level of future cash flow, debt levels, manufacturing expenses, distribution expenses, prepublication, amortization and depreciation expense, income tax rates, capital, technology, restructuring charges and other expenditures and prepublication cost investment.

Actual results may differ materially from those in any forward-looking statements because any such statements involve risks and uncertainties and are subject to change based upon various important factors, including, but not limited to, worldwide economic, financial, political and regulatory conditions; currency and foreign exchange volatility; the health of debt and equity markets, including interest rates, credit quality and spreads, the level of liquidity, future debt issuances including residential mortgage backed securities and CDOs backed by residential mortgages and related asset classes; the implementation of an expanded regulatory scheme affecting Standard & Poor’s ratings and services; the level of funding in the education market (both domestically and internationally); the pace of recovery in advertising; continued investment by the construction, computer and aviation industries; the successful marketing of new products, and the effect of competitive products and pricing.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

The Company has no material changes to the disclosure made on this matter in the Company’s report on Form 10-K for the year ended December 31, 2007. Please see Item 2 of this Form 10-Q for additional market risk disclosures.

Item 4.Controls and Procedures

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed with the Securities and Exchange Commission (“SEC”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

As of June 30, 2008, an evaluation was performed under the supervision and with the participation of the Company’s management, including the CEO and CFO, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the U.S. Securities Exchange Act of 1934). Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2008.

Other Matters

There have been no changes in the Company’s internal controls over financial reporting during the most recent quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II
Other Information

Item 1.Legal Proceedings

A writ of summons was served on The McGraw-Hill Companies, SRL and on The McGraw-Hill Companies, SA (both indirect subsidiaries of the Company) (collectively, “Standard & Poor’s”) on September 29, 2005 and October 7, 2005, respectively, in an action brought in the Tribunal of Milan, Italy by Enrico Bondi (“Bondi”), the Extraordinary Commissioner of Parmalat Finanziaria S.p.A. and Parmalat S.p.A. (collectively, “Parmalat”). Bondi has brought numerous other lawsuits in both Italy and the United States against entities and individuals who had dealings with Parmalat. In this suit, Bondi claims that Standard & Poor’s, which had issued investment grade ratings on Parmalat until shortly before Parmalat’s collapse in December 2003, breached its duty to issue an independent and professional rating and negligently and knowingly assigned inflated ratings in order to retain Parmalat’s business. Alleging joint and several liability, Bondi claims damages of euros 4,073,984,120 (representing the value of bonds issued by Parmalat and the rating fees paid by Parmalat) with interest, plus damages to be ascertained for Standard & Poor’s alleged complicity in aggravating Parmalat’s financial difficulties and/or for having contributed in bringing about Parmalat’s indebtedness towards its bondholders, and legal fees. The Company believes that Bondi’s allegations and claims for damages lack legal or factual merit. Standard & Poor’s filed its answer, counterclaim and third-party claims on March 16, 2006 and will continue to vigorously contest the action.

In a separate proceeding, the prosecutor’s office in Parma, Italy is conducting an investigation into the bankruptcy of Parmalat. In June 2006, the prosecutor’s office issued a Note of Completion of an Investigation (“Note of Completion”) concerning allegations, based on Standard & Poor’s investment grade ratings of Parmalat, that individual Standard & Poor’s rating analysts conspired with Parmalat insiders and rating advisors to fraudulently or negligently cause the Parmalat bankruptcy. The Note of Completion was served on eight Standard & Poor’s rating analysts. While not a formal charge, the Note of Completion indicates the prosecutor’s intention that the named rating analysts should appear before a judge in Parma for a preliminary hearing, at which hearing the judge will determine whether there is sufficient evidence against the rating analysts to proceed to trial. No date has been set for the preliminary hearing. On July 7, 2006, a defense brief was filed with the Parma prosecutor’s office on behalf of the rating analysts. The Company believes that there is no basis in fact or law to support the allegations against the rating analysts, and they will be vigorously defended by the subsidiaries involved.

The Company learned on August 9, 2007 that a pro se action titledBlomquist v. Washington Mutual, et al., was filed in the District Court for the Northern District of California against numerous financial institutions, government agencies and individuals, including the Company and Mr. Harold McGraw III, the CEO of the Company, alleging various state and federal claims. The claims against the Company and Mr. McGraw concern Standard & Poor’s ratings of subprime mortgage-backed securities. An amended Complaint was filed in theBlomquistaction on September 10, 2007 which added two other rating agencies as defendants. On February 19, 2008 the Company was served with the Complaint and, on February 29, 2008, Mr. McGraw was served with the Complaint. On May 12, 2008, the Company and Mr. McGraw filed a motion to dismiss all claims asserted against them. Similar motions were filed by other defendants. Plaintiff filed papers opposing the motions on July 1, 2008. A hearing on the motions was held on July 11, 2008 and, by Order dated July 23, 2008, the Court dismissed all claims asserted against the Company and Mr. McGraw and denied plaintiff leave to amend as against them.

The Company also learned that on August 28, 2007 a putative shareholder class action titledReese v. Bahashwas filed in the District Court for the District of Columbia against Mr. Robert Bahash, the CFO of the Company, alleging claims under the federal securities laws and state tort law concerning Standard & Poor’s ratings, particularly its ratings of subprime mortgage-backed securities. Mr. Bahash was not served with the Complaint. On February 11, 2008, the District Court in theReese matter entered an order appointing a lead plaintiff in that action and permitting plaintiffs to amend the Complaint on or before April 16, 2008. On April 7, 2008, the District Court granted the application of the lead plaintiff to extend the deadline for its amendment of the Complaint to May 7, 2008. On May 7, 2008 an amended Complaint was filed alleging violations of the federal securities laws; the Company and Mr. McGraw were named as additional defendants. The amended Complaint asserts, among other things, that the defendants failed to warn investors that problems in the structured finance market, particularly the sub-prime lending market, would negatively affect the Company’s financial performance. Service of the amended Complaint was thereafter effectuated. On June 18, 2008, in response to a Consent Motion filed on behalf of the Company and Messrs. McGraw and Bahash, the District Court entered an Order transferring the action to the United States District Court for the Southern District of New York. A scheduling order has not yet been entered. The Company believes the litigation to be without merit and intends to vigorously defend against it.

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Three actions were recently filed in New York State Supreme Court, New York County, naming The McGraw-Hill Companies, Inc. (“McGraw-Hill” or the “Company”) as a defendant. The first case, brought by the New Jersey Carpenters Vacation Fund, on behalf of itself and all others similarly situated, was filed on May 14, 2008 and relates to certain mortgage-backed securities issued by various HarborView Mortgage Loan Trusts. The second, brought by the New Jersey Carpenters Health Fund, on behalf of itself and all others similarly situated, was filed on May 21, 2008 and relates to certain mortgage-backed securities issued by various NovaStar Mortgage Funding Trusts. The third case, brought again by the New Jersey Carpenters Vacation Fund, on behalf of itself and all others similarly situated, was filed on June 3, 2008 and relates to an October 30, 2006 offering by Home Equity Mortgage Trust 2006-5. The central allegation against the Company in each of these cases is that the Company issued inappropriate credit ratings on the applicable mortgage-backed securities in alleged violation of Section 11 of the Securities Exchange Act of 1933. In each, Plaintiff seeks as relief compensatory damages for the alleged decline in value of the securities, as well as an award of reasonable costs and expenses. Plaintiff has sued other parties, including the issuers and underwriters of the securities, in each case as well. All three cases were originally filed in New York State Supreme Court, New York County and have been subsequently removed to the United States District Court for the Southern District of New York. Plaintiff is seeking to remand in the three cases, and those motions are in the process of being briefed. The Company believes the litigations to be without merit and intends to defend against them vigorously.

On July 11, 2008, plaintiff Oddo Asset Management filed an action in New York State Supreme Court, New York County, against a number of defendants, including the Company. The action, titledOddo Asset Management v. Barclays Bank PLC, arises out of plaintiff’s investment in two structured investment vehicles, or SIV-Lites, that plaintiff alleges suffered losses as a result of violations of law by those who created, managed, arranged, and issued credit ratings for those investments. Plaintiff alleges various common law causes of action against the defendants. The central allegation against the Company is that it aided and abetted breaches of fiduciary duty by the collateral managers of the two SIV-Lites by falsely confirming the credit ratings it had previously given those investments. Plaintiff seeks compensatory and punitive damages plus reasonable costs, expenses, and attorneys fees. The Company believes the litigation to be without merit and intends to defend against it vigorously.

In addition, in the normal course of business both in the United States and abroad, the Company and its subsidiaries are defendants in numerous legal proceedings and are involved, from time to time, in governmental and self-regulatory agency proceedings, which may result in adverse judgments, damages, fines or penalties. Also, various governmental and self-regulatory agencies regularly make inquiries and conduct investigations concerning compliance with applicable laws and regulations. Based on information currently known by the Company’s management, the Company does not believe that any pending legal, governmental or self-regulatory proceedings or investigations will result in a material adverse effect on its financial condition or results of operations.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

On January 31, 2007 the Board of Directors approved a new stock repurchase program authorizing the purchase of up to 45 million shares, which was approximately 12.7% of the total shares of the Company’s outstanding common stock at that time. During the second quarter of 2008, the Company repurchased 4.0 million shares under the 2007 repurchase program. As of June 30, 2008, 20.6 million shares remained available under the 2007 repurchase program. The repurchase program has no expiration date. The repurchased shares may be used for general corporate purposes, including the issuance of shares in connection with the exercise of employee stock options. Purchases under this program may be made from time to time on the open market and in private transactions, depending on market conditions.

The following table provides information on purchases made by the Company of its outstanding common stock during the second quarter of 2008 pursuant to the stock repurchase program authorized by the Board of Directors on January 31, 2007 (column c). In addition to purchases under the 2007 stock repurchase program, the number of shares in column (a) include: 1) shares of common stock that are tendered to the Registrant to satisfy the employees’ tax withholding obligations in connection with the vesting of awards of restricted performance shares (such shares are repurchased by the Registrant based on their fair market value on the vesting date), and 2) shares of the Registrant deemed surrendered to the Registrant to pay the exercise price and to satisfy the employees’ tax withholding obligations in connection with the exercise of employee stock options. There were no other share repurchases during the quarter outside the stock repurchases noted below:

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							(d) Maximum Number
					(c)Total Number of		of Shares that may
					Shares Purchased as		yet be Purchased
	(a)Total Number of				Part of Publicly		Under
	Shares Purchased		(b)Average Price		Announced Programs		the Programs
Period	(in millions)		Paid per Share		(in millions)		(in millions)
(Apr. 1 — Apr. 30, 2008)		—		—		—		24.6
(May 1 — May 31, 2008)		0.1	$	41.18		0.1		24.5
(Jun. 1 — Jun. 30, 2008)		3.9	$	42.73		3.9		20.6
Total — Qtr		4.0	$	42.69		4.0		20.6

Item 4.Submission of Matters to a Vote of Security Holders

(a) The 2008 Annual Meeting of Shareholders of the Registrant was held on April 30, 2008.

(b) The following nominees, having received the FOR votes set forth opposite their respective names, constituting a plurality of the votes cast at the Annual Meeting for the election of Directors, were duly elected Directors of the Registrant:

Director	For		Withhold Authority
Sir Winfried F. W. Bischoff		159,681,325		100,299,286
Douglas N. Daft		168,047,343		91,933,268
Linda Koch Lorimer		146,478,445		113,502,166
Harold McGraw III		167,426,659		92,553,952
Sir Michael Rake		251,916,863		8,063,748

	The terms of office of the following Directors continued after the meeting:
	Pedro Aspe, Robert P. McGraw, Hilda Ochoa-Brillembourg, James H. Ross, Edward B. Rust, Jr., Kurt L. Schmoke and Sidney Taurel.
(c)	Shareholders ratified the appointment of Ernst & Young LLP as independent Registered Public Accounting Firm for the Registrant and its subsidiaries for 2008. The vote was 251,337,521 shares FOR and 6,078,447 shares AGAINST, with 2,564,643 shares abstaining.
(d)	The shareholder proposal requesting a shareholder vote on the annual election of each Director received the following number of votes: 161,456,279 shares FOR and 70,191,659 shares AGAINST, with 3,377,081 shares abstaining.
(e)	The shareholder proposal requesting adoption of a simple majority vote received the following number of votes: 170,254,199 shares FOR and 61,323,577 shares AGAINST, with 3,447,243 shares abstaining.
	There were 24,955,592 broker non-votes with respect to items (d) and (e).

Item 6.Exhibits

(15)	Letter on Unaudited Interim Financials
(31.1)	Quarterly Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(31.2)	Quarterly Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(32)	Quarterly Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	THE MCGRAW-HILL COMPANIES, INC.
Date: July 30, 2008	By	/s/ Robert J. Bahash
		Robert J. Bahash
		Executive Vice President and Chief Financial Officer
Date: July 30, 2008	By	/s/ Kenneth M. Vittor
		Kenneth M. Vittor
		Executive Vice President and General Counsel

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