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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: April 29, 2003
THE MCGRAW-HILL COMPANIES, INC.
-------------------------------
(Exact Name of Registrant as specified in its charter)
New York 1-1023 13-1026995
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(State or other (Commission (IRS Employer
jurisdiction of File No.) Identification No.)
incorporation or
organization)
1221 Avenue of the Americas, New York, New York 10020
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(Address of Principal Executive Offices) (Zip Code)
(212) 512-2564
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(Registrant's telephone number, including area code)
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Item 9. Regulation FD Disclosure/Disclosure of Results of Operations
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and Financial Condition (Furnished Pursuant to Item 12 of Form 8-K)
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On April 29, 2003 Registrant issued an earnings release (the "Earnings
Release") containing a discussion of Registrant's results of operations and
financial condition for the quarter ending March 31, 2003.
In addition to the Registrant's financial results presented in accordance
with U.S. generally accepted accounting principles ("GAAP"), the Earnings
Release contains data that would not be presented in a GAAP statement of
earnings. This data consists of the disclosure of the impact of the divestiture
of MMS International, which occurred in September 2002, on the 2002 results for
the Financial Services segment. This data is presented because the Registrant
believes it will assist shareholders and analysts in evaluating the strengths
and weaknesses of the Registrant's continuing businesses and will facilitate
period-to-period comparisons of the financial performance of the Financial
Services business. The reconciliation between this Non-GAAP data and the most
comparable GAAP data is set forth in the Earnings Release.
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Item 7. Exhibits
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(99) Earnings Release of the Registrant, dated April 29, 2003, containing a
discussion of Registrant's results of operations and financial condition for the
quarter ending March 31, 2003.
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Form 8-K Report to be signed on its behalf by
the undersigned hereunto duly authorized.
THE McGRAW-HILL COMPANIES, INC.
By:
-------------/s/-------------
Kenneth M. Vittor
Executive Vice President and
General Counsel
Dated: April 29, 2003
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INDEX TO EXHIBITS
Exhibit Number
(99) Earnings Release of the Registrant, dated April 29, 2003, containing a
discussion of Registrant's results of operations and financial condition for the
quarter ending March 31, 2003.
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THE MCGRAW-HILL COMPANIES REPORTS
33.3% INCREASE IN EPS FROM CONTINUING OPERATIONS
FOR THE FIRST QUARTER OF 2003
Results Exceed First Call Consensus Forecast
New York, N.Y., April 29, 2003-The McGraw-Hill Companies (NYSE: MHP) today
announced first quarter 2003 diluted earnings per share from continuing
operations of 20 cents, a 33.3% increase over the 15 cents reported for the same
period last year. Including the after-tax results of $57.2 million on the
disposition of S&P ComStock in February 2003, diluted earnings per share for the
first quarter were 50 cents.
Income from continuing operations in the first quarter grew by 33.5% to $38.2
million. Net income for the first quarter increased $66.2 million to $95.4
million. Revenue for the first quarter rose by 1.9% to $846.5 million.
"A solid performance by Financial Services and excellent cost containment
enabled us to overcome a slow start in advertising and the seasonal softness in
the education market in the first quarter," said Harold McGraw III, chairman,
president and chief executive officer of The McGraw-Hill Companies. "As a
result, we also improved our operating margin in the first quarter to 10%.
"Earnings per share from operations exceeded the First Call consensus forecast
of 19 cents for the first quarter by one cent.
Financial Services: "Revenue in this segment increased 8.3% to $394.9 million
and operating profits climbed by 9.6% to $145.0 million in the first quarter
compared to the same period last year. Included in the results for 2002 is the
operating performance of MMS International, which was divested in September
2002. On a comparative basis, the absence of MMS International negatively
impacted operating revenue by 2.8% and operating profits by 0.5%. Excluding MMS
International from 2002 results, continuing operations produced double-digit
increases in revenue and operating profits in the first quarter of 2003.
"A robust, global market for structured finance and non-traditional ratings and
services as well as a solid gain in public finance helped keep Standard & Poor's
moving ahead in the first quarter. Such non-traditional services as bank loan
ratings, counterparty credit ratings, ratings evaluations services, financial
strength and global infrastructure ratings all showed strong growth in the first
quarter.
"New issue dollar volume grew in the United States and European bond markets in
the first quarter. In the U.S., new issue dollar volume was up by 11.1%.
Corporate issuance decreased by 5.2%. Public finance grew by 21.0%. Asset-backed
issuance was up by 21.1%, and mortgage-backed issuance grew 38.8%, according to
figures from Securities Data Corporation and Harrison Scott Publications.
"In Europe, new issue dollar volume grew by 39.2%, according to Bondware.
"Adverse market conditions in the financial services industry reduced demand for
Standard & Poor's products and services among retail brokers. But Standard &
Poor's index services continues to produce solid growth. Trading of derivative
contracts based on Standard & Poor's indices increased in the first quarter.
Assets under management based on Standard & Poor's indices rose to $60.4 billion
at the end of the first quarter, up from $51.5 billion for the comparable
quarter last year.
"Valuation services increased as sales of litigation support and other services
helped offset a sluggish mergers and acquisition market.
Education: "Revenue for this segment declined by 1.6% in the first quarter to
$277.2 million and the operating loss increased by 1.4% to $72.8 million.
Revenue for the McGraw-Hill Higher Education, Professional and International
Group grew by 2.9% to $149.3 million. For McGraw-Hill School Education Group,
revenue declined 6.3% to $127.9 million.
"In a seasonally slow quarter for education, gains in reading and math and early
success in the secondary social studies market could not offset soft
supplemental sales in the educational dealer, home and school markets. The
discontinuation of coloring and activity book product lines in the second half
of 2002 also made year-over-year comparisons more difficult for the School
Education Group's supplemental operations.
"Technology continues to play a key role in the global growth of higher
education products. By combining content with digital solutions for students and
instructors, we are improving the value proposition and winning new adoptions in
college and university markets both here and abroad.
"Sales of professional titles increased in the first quarter. Growth in
scientific, technical, medical, and professional reference works offset the
continuing weakness in computer and technology imprints.
"Concern over state deficits continues to create uncertainty about the outlook
for educational funding. Kentucky recently responded to the fiscal pressure by
postponing this year's elementary math adoption. Some Kentucky school districts
still plan to purchase new materials with local funds, but the state's decision
to delay the adoption clearly reduces the opportunity this year. The Texas
legislature is still debating the appropriate level of funding for the upcoming
adoptions. We also know that 30 states have already received $541 million in
Reading First grants from the Department of Education. Based on these
developments, we expect the K-12 market to grow in 2003.
Information and Media Services: "Revenue for this segment decreased 5.2% to
$174.5 million, but operating profits increased 4.3% to $12.5 million in the
first quarter.
"Excellent cost controls helped offset weakness in advertising, which was
exacerbated by the start of the war with Iraq. At Broadcasting, revenue was
virtually flat at $23.4 million.
"For the Business-to-Business Group, which includes BusinessWeek, construction,
energy and healthcare products and services, revenue declined by 6.0% to $151.1
million.
"With one more issue in the first quarter this year, BusinessWeek ad pages for
the North American edition were up 2.2%, as reported by the Publisher's
Information Bureau. But there was softness in international editions.
"Revenue from conferences also declined as major industrial shows held last year
in the first quarter were not repeated in 2003.
The outlook: "Geopolitical events unquestionably interrupted the recovery in the
advertising market and we expect to see some spillover effect in the second
quarter. The K-12 school market still lacks visibility as states assess budgets
in light of April tax receipts, but new federal dollars are reaching the market
and should help mitigate funding issues. We now anticipate modest growth in the
second quarter followed by a pickup in business in the second half. As a result,
we fully expect to achieve the 7-to-9% earnings per share growth that we
originally forecasted for 2003."
Conference Call Schedule: The Corporation's senior management will review the
first quarter 2003 earnings results on a conference call scheduled for this
morning, April 29th, at 8:30 AM Eastern Time. This call is open to all
interested parties. Discussions may include forward-looking information.
Additional information presented on the conference call may be made available on
the Management Commentary page of the Investor Relations section of the
Corporation's website at www.mcgraw-hill.com/investor_relations. To participate
by telephone, please dial-in by 8:15 AM Eastern Time and register before the
start of the call. Domestic participants may call toll-free (877) 546-1565;
international participants may call +1 (630) 395-0062 (long distance charges
will apply). The passcode is McGraw-Hill and the conference leader is Harold
McGraw III. The conference call will also be webcast. Go to the Corporation's
Investor Relations website and click on the 1Q Earnings button. At the next
screen, select the Webcast link under Listening Options. You will need Windows
Media Player. The prepared remarks and slides will be available for downloading
from the Investor Relations website's Management Commentary archive several
hours after the end of the call. The Webcast replay will be available until May
6, 2003.
The forward-looking statements in this news release involve risks and
uncertainties and are subject to change based on various important factors,
including worldwide economic, financial and political conditions, the health of
capital and equity markets, including possible future interest rate changes, the
pace of recovery in the economy and in advertising, the level of expenditures in
the education market, the successful marketing of competitive products and the
effect of competitive products and pricing.
About the McGraw-Hill Companies: Founded in 1888, The McGraw-Hill Companies is a
global information services provider meeting worldwide needs in the financial
services, education and business information markets through leading brands such
as Standard & Poor's, BusinessWeek and McGraw-Hill Education. The Corporation
has more than 320 offices in 34 countries. Sales in 2002 were $4.8 billion.
Additional information is available at http://www.mcgraw-hill.com.
The McGraw-Hill Companies
Statements of Income
Periods ended March 31, 2003 and 2002
(in thousands, except per share data)
(unaudited) Three Months
------------------------------
<table>
<caption>
2003 2002 % Change
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Operating revenue $846,543 $830,543 1.9
Expenses, net 783,216 778,340 0.6
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Income from operations 63,327 52,203 21.3
Interest expense 2,679 6,422 (58.3)
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Income from continuing operations
before taxes on income 60,648 45,781 32.5
Provision for taxes on income 22,439 17,168 30.7
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Income from continuing operations $ 38,209 $ 28,613 33.5
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Discontinued operations:
Earnings from operations of
discontinued component $ 87,490 $ 942 N/M
Income tax expense $ 30,304 $ 353 N/M
-------- --------
Earnings from discontinued
operations $ 57,186 $ 589 N/M
Net income $ 95,395 $ 29,202 N/M
======== ========
Earnings per common share:
Basic earnings per share
Income from continuing operations $ 0.20 $ 0.15 33.3
======== ========
Net income $ 0.50 $ 0.15 N/M
======== ========
Diluted earnings per share
Income from continuing operations $ 0.20 $ 0.15 33.3
======== ========
Net income $ 0.50 $ 0.15 N/M
======== ========
Dividend per common share: $ 0.270 $ 0.255 5.9
-------- --------
Average number of common shares outstanding:
Basic 190,933 192,889
Diluted 191,982 194,967
N/M - not meaningful
Exhibit 1
</table>
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The McGraw-Hill Companies
Operating Results by Segment
Periods ended March 31, 2003 and 2002
(unaudited) (dollars in thousands)
<table>
Revenue
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<caption>
% Favorable
Three Months 2003 2002 (Unfavorable)
- ------------ ------ ---- -------------
McGraw-Hill Education $277,159 $281,621 (1.6)
Financial Services 394,895 364,769 8.3
Information and Media Services 174,489 184,153 (5.2)
-------- -------- -----
Total operating segments 846,543 830,543 1.9
General corporate expense - - -
Interest expense - - -
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Total company $846,543 $830,543 1.9
======== ======== =====
</table>
The McGraw-Hill Companies
Operating Results by Segment
Periods ended March 31, 2003 and 2002
(unaudited) (dollars in thousands)
<table>
Operating Profit
----------------------------------
<caption>
% Favorable
Three Months 2003 2002 (Unfavorable)
- ------------ ------ ---- -------------
McGraw-Hill Education $(72,805) $(71,810) (1.4)
Financial Services 144,991 132,312 9.6
Information and Media Services 12,476 11,962 4.3
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Total operating segments 84,662 72,464 16.8
General corporate expense (21,335) (20,261) (5.3)
Interest expense (2,679) (6,422) 58.3
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Total company $ 60,648* $ 45,781* 32.5
======== ======== =====
*Income from continuing operations before taxes on income
Exhibit 2
</table>