<page>
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: July 29, 2003
THE MCGRAW-HILL COMPANIES, INC.
-------------------------------
(Exact Name of Registrant as specified in its charter)
New York 1-1023 13-1026995
- --------- ------ ----------
(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
----------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(212) 512-2564
---------------
(Registrant's telephone number, including area code)
<page>
Item 9. Regulation FD Disclosure/Disclosure of Results of Operations and
----------------------------------------------------------------
Financial Condition (Furnished Pursuant to Item 12 of Form 8-K)
----------------------------------------------------------------
On July 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 June 30, 2003.
<page>
Item 7. Exhibits
--------
(99) Earnings Release of the Registrant, dated July 29, 2003, containing a
discussion of Registrant's results of operations and financial condition for the
quarter ending June 30, 2003.
<page>
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: July 29, 2003
<page>
INDEX TO EXHIBITS
Exhibit 99
(99) Earnings Release of the Registrant, dated July 29, 2003, containing a
discussion of Registrant's results of operations and financial condition for the
quarter ending June 30, 2003.
<page>
THE McGRAW-HILL COMPANIES REPORTS
7.2% INCREASE IN EPS FROM CONTINUING OPERATIONS
FOR THE SECOND QUARTER OF 2003
Results Exceed First Call Consensus Forecast
New York, NY, July 29, 2003-The McGraw-Hill Companies (NYSE: MHP) today
announced second quarter 2003 diluted earnings per share from continuing
operations of 74 cents, a 7.2% increase over the 69 cents reported for the same
period last year.
Income from continuing operations in the second quarter increased 4.9% to
$142.0 million over the comparable quarter last year. Including the impact of
S&P ComStock, which was divested in February 2003, net income increased $5.6
million, or 4.1%.
Operating revenue for the second quarter grew by 1.3% to $1.2 billion
compared to the second quarter of 2002.
"Solid global gains in Financial Services, growth in worldwide college and
university sales, stringent cost containment and favorable foreign exchange
rates all contributed to improved second quarter results," said Harold McGraw
III, chairman, president and chief executive officer of The McGraw-Hill
Companies. "Despite a slow recovery in advertising and some pockets of softness
in education, we improved our operating margin to 18.9% for the second quarter.
"Earnings per share from operations exceeded the First Call consensus
forecast of 73 cents for the second quarter by one cent.
"For the first half of 2003, diluted earnings per share from continuing
operations were 94 cents, an 11.9% increase over the 84 cents reported for the
same period last year. Including the after tax results of $57.2 million on the
disposition of S&P ComStock, diluted earnings per share for the first half were
$1.24.
"Income from continuing operations increased 9.9% to $180.2 million over
the first half of 2002. Including the after-tax gain on S&P ComStock, net income
for the period increased $71.8 million over the comparable period last year to
$237.4 million.
"Operating revenue for the first half of 2003 increased 1.6%, or $31.2
million, to $2.0 billion compared to the same period last year.
Education: "Revenue for this segment in the second quarter decreased 2.6%
to $561.7 million and operating profits declined 15.0% to $54.4 million compared
to the same period last year. McGraw-Hill School Education Group's revenue
declined 3.1% in the second quarter to $386.2 million. McGraw-Hill Higher
Education, Professional and International Group's revenue for the period slipped
1.7% to $175.5 million.
"A market-leading 38% share of the Texas middle and high school social
studies adoption, a record open territory math adoption of approximately $20
million for elementary and middle school programs in New York City and growth in
testing were among the bright spots for the School Education Group in the second
quarter. But a stronger market last year for reading, math and language arts and
the discontinuation of coloring and activity book products lines made
year-over-year comparisons more difficult for the School Education Group. The
situation was exacerbated by a lackluster performance in the Texas elementary
school social studies adoption and lagging supplementary sales in the
educational dealer, home and school markets.
"The developing early childhood market continues to show promise. We
captured 35% of the Texas pre-kindergarten adoption with Developmental Learning
Materials. Other early learning programs, including Breakthrough to Literacy,
Doors to Discovery and Growing With Math, are steadily building sales, many of
which are funded by federal grants from the No Child Left Behind Act. We expect
to see more No Child Left Behind funding in the second half for materials,
assessment and professional training.
"To strengthen operations and improve efficiency in the supplemental
market, we formed in June the McGraw-Hill Learning Group. It combines operations
of SRA/McGraw-Hill, Wright Group/McGraw-Hill and McGraw-Hill/Contemporary to
offer learning programs in the alternative basal and supplemental markets.
"In the Higher Education, Professional and International Group, college and
university sales continued to grow in domestic and international markets.
Increasing enrollments and the sophisticated application of technology to
enhance features in new editions contributed to the improvement in global sales.
Best-sellers include Brealey, Principles of Corporate Finance, 7/e; Garrison,
Managerial Accounting, 10/e; Slater, Practical Business Math Procedures, 7/e;
Silberberg, Chemistry: the Molecular Nature of Matter and Change, 3/e; Mader,
Biology, 8/e, and Libby, Financial Accounting, 4/e.
"But the gains in Higher Education were offset by the continuing worldwide
slump in computer and technology books and a softer retail market for
professional titles. Furthermore, year-over-year comparisons were made more
difficult by the successful introduction last year in the second quarter of a
new edition of our classic, The McGraw-Hill Encyclopedia of Science and
Technology.
<page>
Financial Services: "Revenue for this segment in the second quarter
increased 9.7% to $439.4 million and operating profits improved by 12.3% to
$171.6 million compared to the same period last year. Included in the operating
results for 2002 is the performance of MMS International, which was divested in
September 2002. On a comparative basis, the absence of MMS International reduced
operating revenue by 2.5% and had a negligible impact on operating profits in
the second quarter. Financial Services' revenue also benefited from the
weakening dollar.
"Strong performances in domestic and international ratings markets combined
to produce another outstanding quarter for Standard & Poor's. Structured finance
showed strong growth worldwide, benefiting from low interest rates and the
ongoing surge in securitization. High yield issuance picked up as investors
turned to speculative grade issues in the search for higher returns. There also
was increased activity in investment grade issues late in the second quarter as
corporations financed expansion and capital expenditures. The public finance
market continued to grow, buoyed by refinancing activities and increased use of
debt by states.
"New issue dollar volume grew in the United States and European bond
markets in the second quarter compared to the same quarter last year. In the
U.S., new issue dollar volume increased 23.3% in the second quarter. Corporate
issuance was up by 23.8%. Public Finance grew by 17.8%. Asset-backed issuance
declined by 3.7% while mortgage-backed issuance soared 53.1%, according to
figures from Securities Data Corporation and Harrison Scott Publications.
"In Europe, new issue dollar volume grew by 50.7%, according to Bondware.
"Non-traditional ratings, including Bank Loan Ratings and global
infrastructure ratings, again showed substantial growth, outperforming
traditional ratings products in the second quarter.
"Standard & Poor's index services produced another solid quarter as assets
under management based on S&P indexes rose to $71.9 billion at the end of the
second quarter, up from $52.4 billion for the comparable quarter last year.
Trading of derivative contracts linked to Standard & Poor's indexes also
increased in the second quarter as did the sale of information from GICS Direct,
which is based on the Global Industry Classification Standard that classifies
25,000 publicly traded companies worldwide by sector and industry. There was
continuing softness in sales of information products to retail brokers.
"Valuation services increased as sales of litigation support services
continued to offset a soft mergers and acquisition market.
Information and Media Services: "Revenue for this segment in the second
quarter declined 4.2% to $189.4 million and operating profit decreased 8.0% to
$24.4 million compared to the same period last year.
"Stringent cost controls helped offset softness in advertising. At
Broadcasting, revenue was off 1.2% to $27.0 million. For the
Business-to-Business Group, which includes BusinessWeek, construction, energy,
aviation and healthcare products and services, revenue dropped 4.7% to $162.4
million.
"At BusinessWeek, advertising pages for the North American edition were
down 15.3% in the second quarter according to the Publishers Information Bureau.
"The Business-to-Business Group benefited from conferences and shows in the
second quarter. The Global Power Conference and the Paris Air Show, which also
boosted ad pages in the aviation sector, were not held in the second quarter
last year. Cost containment actions led to improved margins in construction, but
a soft market for construction contractors and a decline in advertising offset
an increase in sales to building product manufacturers. Platts' energy
information services produced an increase in the second quarter. With two more
issues than in 2002, advertising pages increased in the power sector. Ad pages
declined in the healthcare sector.
The outlook: "Despite some uncertainty about the pace of economic recovery,
we are still on track to make 2003 another year of growth with guidance of a 7
to 9% increase in earnings per share, which includes a 5-cents non-cash, non
operating change in pension accounting assumptions."
Conference Call Schedule: The Corporation's senior management will review
the second quarter 2003 earnings results on a conference call scheduled for this
morning, July 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 2Q 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
August 5, 2003.
<page>
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.
* * *
Media Relations Contacts: Investor Relations Contact:
Steven H. Weiss Donald S. Rubin
Vice President, Corporate Communications Senior Vice President, Investor
The McGraw-Hill Companies Relations
(212) 512-2247 (office) The McGraw-Hill Companies
(917) 374-2024 (mobile) (212) 512-4321 (office)
(212) 580-2565 (home) (212) 512-3840 (fax)
weissh@mcgraw-hill.com donald_rubin@mcgraw-hill.com
Tom DiPiazza
Director, Corporate Communications
The McGraw-Hill Companies
(212) 512-4145 (office)
(917) 328-7582 (mobile)
(201) 802-9053 (home)
tom_dipiazza@mcgraw-hill.com
<page>
The McGraw-Hill Companies
Statements of Income
Periods ended June 30, 2003 and 2002
(in thousands, except per share data)
(unaudited) Three Months
------------------------------------
<table>
<caption>
2003 2002 % Change
---------- -------- ---------
Operating revenue $1,190,478 $1,175,272 1.3%
Expenses, net 962,353 951,500 1.1%
---------- ----------
Income from operations 228,125 223,772 1.9%
Interest expense 2,673 7,151 -62.6%
---------- ----------
Income from continuing operations before
taxes on income 225,452 216,621 4.1%
Provision for taxes on income 83,417 81,233 2.7%
---------- ----------
Income from continuing operations $ 142,035 $ 135,388 4.9%
---------- ----------
Discontinued operations:
Earnings from operations of discontinued
component $ - $ 1,731 N/M
Income tax expense $ - $ 649 N/M
---------- ----------
Earnings from discontinued operations $ - $ 1,082 N/M
Net income $ 142,035 $ 136,470 4.1%
========== ==========
Earnings per common share:
Basic earnings per share:
Income from continuing operations $ 0.75 $ 0.70 7.1%
========== ==========
Net income $ 0.75 $ 0.71 5.6%
========== ==========
Diluted earnings per share:
Income from continuing operations $ 0.74 $ 0.69 7.2%
========== ==========
Net income $ 0.74 $ 0.70 5.7%
========== ==========
Dividend per common share: $ 0.270 $ 0.255 5.9%
---------- ----------
Average number of common shares outstanding:
Basic 189,830 193,267
Diluted 191,274 195,050
N/M - not meaningful
</table>
<page>
The McGraw-Hill Companies
Statements of Income
Periods ended June 30, 2003 and 2002
(in thousands, except per share data)
(unaudited) Six Months
------------------------------------
<table>
<caption>
2003 2002 % Change
---------- -------- ---------
Operating revenue $2,037,021 $2,005,815 1.6%
Expenses, net 1,745,569 1,729,840 0.9%
---------- ----------
Income from operations 291,452 275,975 5.6%
Interest expense 5,352 13,573 -60.6%
---------- ----------
Income from continuing operations before
taxes on income 286,100 262,402 9.0%
Provision for taxes on income 105,856 98,401 7.6%
---------- ----------
Income from continuing operations $ 180,244 $ 164,001 9.9%
---------- ----------
Discontinued operations:
Earnings from operations of discontinued
component $ 87,490 $ 2,673 N/M
Income tax expense $ 30,304 $ 1,002 N/M
---------- ----------
Earnings from discontinued operations $ 57,186 $ 1,671 N/M
Net income $ 237,430 $ 165,672 43.3%
========== ==========
Earnings per common share:
Basic earnings per share:
Income from continuing operations $ 0.95 $ 0.85 11.8%
========== ==========
Net income $ 1.25 $ 0.86 45.3%
========== ==========
Diluted earnings per share:
Income from continuing operations $ 0.94 $ 0.84 11.9%
========== ==========
Net income $ 1.24 $ 0.85 45.9%
========== ==========
Dividend per common share: $ 0.540 $ 0.510 5.9%
---------- ----------
Average number of common shares outstanding:
Basic 190,458 193,026
Diluted 191,705 194,956
N/M - not meaningful
</table>
<page>
The McGraw-Hill Companies
Operating Results by Segment
Periods ended June 30, 2003 and 2002
(unaudited)
<table>
(dollars in thousands)
Revenue
------------------------------------
<caption>
%Favorable
2003 2002 (Unfavorable)
------- ---------- ------------
Three Months
- ------------
McGraw-Hill Education $ 561,695 $ 576,963 (2.6)
Financial Services 439,365 400,586 9.7
Information and Media Services 189,418 197,723 (4.2)
---------- ---------- ------
Total Operating Segments 1,190,478 1,175,272 1.3
General Corporate Expense - - -
Interest Expense - - -
---------- ---------- ------
Total Company $1,190,478 $1,175,272 1.3
========== ========== ======
</table>
The McGraw-Hill Companies
Operating Results by Segment
Periods ended June 30, 2003 and 2002
(unaudited) (dollars in thousands)
<table>
Operating Profit
------------------------------------
%Favorable
2003 2002 (Unfavorable)
------- ---------- ------------
Three Months
- ------------
McGraw-Hill Education $ 54,420 $ 64,042 (15.0)
Financial Services 171,557 152,714 12.3
Information and Media Services 24,443 26,556 (8.0)
---------- ---------- ------
Total Operating Segments 250,420 243,312 2.9
General Corporate Expense (22,295) (19,540) (14.1)
Interest Expense (2,673) (7,151) 62.6
---------- ---------- ------
Total Company $ 225,452* $ 216,621* 4.1
========== ========== ======
*Income from continuing operations before
taxes on income
</table>
<page>
The McGraw-Hill Companies
Operating Results by Segment
Periods ended June 30, 2003 and 2002
(unaudited) (dollars in thousands)
<table>
Revenue
------------------------------------
%Favorable
2003 2002 (Unfavorable)
------- ---------- ------------
Six Months
- ------------
McGraw-Hill Education $ 838,854 $ 858,584 (2.3)
Financial Services 834,260 765,355 9.0
Information and Media Services 363,907 381,876 (4.7)
---------- ---------- ------
Total Operating Segments 2,037,021 2,005,815 1.6
General Corporate Expense - - -
Interest Expense - - -
---------- ---------- ------
Total Company $2,037,021 $2,005,815 1.6
========== ========== ======
</table>
The McGraw-Hill Companies
Operating Results by Segment
Periods ended June 30, 2003 and 2002
(unaudited) (dollars in thousands)
<table>
Operating Profit
------------------------------------
%Favorable
2003 2002 (Unfavorable)
------- ---------- ------------
Six Months
- ------------
McGraw-Hill Education $ (18,385) $ (7,768) (136.7)
Financial Services 316,548 285,026 11.1
Information and Media Services 36,919 38,518 (4.2)
---------- ---------- ------
Total Operating Segments 335,082 315,776 6.1
General Corporate Expense (43,630) (39,801) (9.6)
Interest Expense (5,352) (13,573) 60.6
---------- ---------- ------
Total Company $ 286,100* $ 262,402* 9.0
========== ========== ======
*Income from continuing operations before
taxes on income
</table>