EXHIBIT 99
The McGraw-Hill Companies Reports
14.7% Increase in EPS from Continuing Operations
for the Second Quarter of 2004
NEW YORK, July 27 /PRNewswire-FirstCall/ -- The McGraw-Hill Companies
(NYSE: MHP) today announced second quarter 2004 diluted earnings per share
from continuing operations of 86 cents, an increase of 14.7% over the 75 cents
reported for the same period last year.
Income from continuing operations in the second quarter grew by 16.0% to
$165.6 million. Operating revenue for the second quarter increased by 5.0% to
$1.2 billion.
"Another record performance in Financial Services, growth in higher
education around the globe, improvement in advertising and effective cost
containment were hallmarks of our second quarter performance," said Harold
McGraw III, chairman, president and chief executive officer of The McGraw-Hill
Companies. "As a result, we improved the operating margin to 24.1% in the
second quarter.
"For the first half of 2004, diluted earnings per share from continuing
operations grew to $1.25. The results include a first quarter non-cash
benefit of $20 million, or 10 cents per share, of accrued tax liabilities
following the completion of various federal, state, local and foreign tax
audits. Income from continuing operations for the first half increased to
$241.9 million. Diluted earnings per share from net income of $1.25 compares
with $1.24 in 2003, which includes the after-tax impact of 29 cents from
discontinued operations.
"Revenue grew to $2.1 billion in the first half of 2004, an increase of
6.9% over the comparable period last year.
Education: "Revenue for the segment in the second quarter decreased 2.1%
to $531.7 million, but the operating profit improved by 2.6% to $57.1 million,
compared to the same period last year. Favorable foreign exchange rates
contributed $1.5 million to revenue and had an immaterial impact on operating
profit.
"Revenue for the McGraw-Hill Higher Education, Professional and
International Group (HPI) increased 7.2% to $191.5 million in the second
quarter. Revenue for the McGraw-Hill School Education Group (SEG) declined by
6.7% to $340.2 million.
"At HPI, improved college and university business here and abroad, growth
in Spanish-language products in international markets and increased business
and professional sales all contributed to the better performance.
"A sophisticated combination of content and technology that enhances the
learning experience for students and course management capabilities for
instructors is a key to our growth in the college and university market. As a
result, we produced gains in all our major imprints -- business and economics;
science, engineering and mathematics; and the humanities, social sciences and
language -- in the second quarter and expect to outperform the market this
year.
"Orders for secondary school products in Mexico, Argentina and Spain
contributed to the increase in Spanish-language sales. There was also
improvement in the sale of English-language products overseas.
"Gains in business, general reference and medical titles offset the
ongoing softness in the computer and technology market.
"For the McGraw-Hill School Education Group, reduced opportunities in this
year's new state adoption market and the timing of orders skewed
year-over-year comparisons in the second quarter. In 2003, SEG benefited from
early ordering of social studies and a record open territory math adoption of
approximately $20 million from New York City. In 2004, major adoption states
like Texas are ordering less and buying later in the year. As a result, the
state adoption market this year will shrink by about 30%.
"The biggest new state adoption opportunity this year is in mathematics.
We expect to be the K-12 leader in the new math state adoptions by capturing
more than 30% of the available dollars despite softness in K-6 basal sales.
"We continue to see stepped up activity in the reading market in the
second quarter as No Child Left Behind programs are funded. In California,
for example, Reading First funds were used to purchase reading materials in
Los Angeles, Oakland and Fontana. We expect more Reading First funding to
reach the market in the third quarter as eligible school districts obtain
approval for their programs from state education authorities.
"Our testing business, despite additional expenses incurred for increased
scoring requirements, is growing as states prepare for the No Child Left
Behind's mandated testing in reading and math for grades three through eight
starting in the 2005-06 school year. We continue to win new statewide
contracts and important multi-year extensions. Major new contracts have been
awarded to us in Arizona, Massachusetts, New York and North Dakota.
Financial Services: "Revenue for this segment in the second quarter
increased 14.8% to $504.5 million and the operating profit grew by 24.9% to
$214.2 million compared to the same period last year. Favorable foreign
exchange rates contributed $6.6 million to revenue and $1.3 million to
operating profit in the second quarter.
"Strength in international and domestic ratings in the face of a decline
in the U.S. new issue market and an improving performance in equity services
helped Standard & Poor's produce record results in the second quarter.
"Structured finance set the pace globally with growth in all asset
classes. International ratings accounted for approximately 33% of ratings
revenue and grew faster than domestic operations in the second quarter.
"In the United States, residential mortgage-backed and commercial
mortgage-backed securitizations were particularly strong as structured finance
repeated its usual quarterly pattern with a surge of activity in the final
month of the quarter.
"Asset-backed securitization also picked up late in the second quarter
because of new credit card, auto and student loan activity.
"Rapid growth in bank loan ratings, counterparty credit ratings and
ratings evaluation services offset softness in corporate and public finance
ratings.
"New issue dollar volume declined by 8.7% in the United States bond market
and grew by 11.4% in Europe in the second quarter versus the same period in
2003. In the U.S., corporate new issuance was off 44.8%. Public finance
declined by 22.6%. Mortgage-backed securities issuance was up 47.2%, and
asset-backed securities issuance rose 9.3%, according to reports from
Securities Data Corporation and Harrison Scott Publications.
"With assets under management for Exchange-Traded Funds based on S&P
indexes climbing by 25.4% in the second quarter, our indexes produced a solid
gain. At the end of June 2004, assets under management in S&P-based Exchange-
Traded Funds hit $90.1 billion compared to $71.9 billion for the same period
last year. Trading of derivative contracts linked to S&P indexes at the
Chicago Board of Options Exchange and the e-Mini version of the S&P 500
futures contract at the Chicago Mercantile Exchange also picked up in the
second quarter.
"The sale of S&P Stock Reports and other information products for the
financial community also climbed in the second quarter.
"Increased merger and acquisition activity and continued growth in such
non-valuation services as litigation support and real estate produced a gain
in valuation services.
Information and Media Services: "Revenue for this segment in the second
quarter increased 2.5% to $194.1 million, and the operating profit grew by
1.6% to $24.8 million compared to the same period last year.
"A pickup in advertising was a key factor in the segment's second quarter
performance. Revenue for the Broadcasting Group grew by 3.5% to $28.0 million
as local time sales improved in all our markets. We also benefited from
political advertising.
"For the Business-to-Business Group, which includes BusinessWeek,
construction, energy, aviation and healthcare products and services, revenue
was up 2.3% to $166.1 million.
"After a 2.6% increase in advertising pages in the first quarter,
BusinessWeek produced a 14.6% gain in the second quarter despite one less
issue, according to the Publishers Information Bureau. In June, we also
successfully launched BusinessWeek SmallBiz, a new controlled-circulation
publication for 500,000 small business entrepreneurs and owners. The next
edition of BusinessWeek SmallBiz will be published in October.
"Softness in advertising in some construction publications and the
postponement of a conference in the second quarter were offset by gains at the
McGraw-Hill Construction Network and Architectural Record. With 294
advertising pages, Architectural Record's June issue was the second largest in
the publication's 113-year history.
"Our energy services benefited from the continuing volatility in oil
markets.
"After some turmoil, the advertising market in aviation was stabilizing
but couldn't overcome the absence of the biennial Paris Air Show, which was
held in the second quarter of 2003. Advertising was soft in healthcare.
The outlook: "The market environment for the first half of 2004 was
stronger than originally anticipated, and, as a result, we are refining our
earnings guidance for the full year. Our earlier forecast called for mid-to-
high single-digit growth in earnings per share from continuing operations in
2004 without the reoccurrence of the 30-cent after-tax benefit from the sale
of the equity interest in Rock-McGraw, Inc. We now expect high single digit
growth in earnings per share from continuing operations in 2004 without the
reoccurrence of the 30-cent after-tax benefit from the sale of the equity
interest in Rock-McGraw, Inc.
"The second half of the year is seasonally the most important but offers
some challenges. The third quarter will be influenced by the lightest new
adoption calendar of the decade for the elementary-high school market. We
also expect tougher second-half comparisons in the torrid Residential
Mortgage-Backed Securities (RMBS) market. RMBS new issue dollar volume in the
U.S. market surged by nearly 50% in the second half of 2003, a rate of gain
that is unlikely to be repeated this year. Nevertheless, we are confident in
achieving our revised full year earnings guidance."
Conference Call Schedule: The Corporation's senior management will review
the second quarter 2004 earnings results on a conference call scheduled for
this morning, July 27th, 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 http://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 (888)
673-9805; international participants may call +1 (773) 756-4711 (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 and a Webcast replay will be
available until August 3, 2004.
The forward-looking statements in this news release involve risks and
uncertainties and are subject to change based on various important factors,
including worldwide economic, financial, political and regulatory conditions,
the health of 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 leading global information
services provider meeting worldwide needs in the financial services, education
and business information markets through leading brands such as Standard &
Poor's, BusinessWeek and McGraw-Hill Education. The Corporation has more than
280 offices in 40 countries. Sales in 2003 were $4.8 billion. Additional
information is available at http://www.mcgraw-hill.com.
The McGraw-Hill Companies
Statements of Income
Periods ended June 30, 2004 and 2003
(in thousands, except per share data)
(unaudited) Three Months Six Months
----------------------------- ---------------------------
2004 2003 % Change 2004 2003 % Change
------ ------- -------- ------ ------- -------
Operating
revenue $1,230,297 $1,172,019 5.0 $2,141,872 $2,002,833 6.9
Expenses,
net 965,237 942,688 2.4 1,785,764 1,707,550 4.6
----------- --------- ------------ -----------
Income from
operations 265,060 229,331 15.6 356,108 295,283 20.6
Interest
expense 2,161 2,673 -19.2 3,898 5,352 -27.2
----------- -------- ----------- -----------
Income from
continuing
operations
before taxes
on income 262,899 226,658 16.0 352,210 289,931 21.5
Provision for
taxes on
income 97,273 83,863 16.0 110,318 107,273 2.8
----------- --------- ----------- -----------
Income from
continuing
operations $ 165,626 $142,795 16.0 $241,892 $182,658 32.4
----------- --------- ----------- -----------
Discontinued
operations:
Earnings/(loss)
from operations
of discontinued
components $- $(1,206) N/M $(931) $83,659 N/M
Income tax
expense/
(benefit) - (446) N/M (344) 28,887 N/M
----------- --------- ------------ -----------
Earnings/(loss)
from
discontinued
operations $- $(760) N/M $(587) $54,772 N/M
Net income $ 165,626 $142,035 16.6 $241,305 $237,430 1.6
----------- --------- ----------- -----------
Earnings per
common share:
Basic earnings
per share:
Income from
continuing
operations $0.87 $0.75 16.0 $1.27 $0.96 32.3
========= ======= =========== ========
Net income $0.87 $0.75 16.0 $1.27 $1.25 1.6
========= ======= =========== ========
Diluted earnings
per share:
Income from
continuing
operations $0.86 $0.75 14.7 $1.25 $0.95 31.6
========= ======= =========== ========
Net income $0.86 $0.74 16.2 $1.25 $1.24 0.8
========= ======= =========== ========
Dividend per
common share $0.30 $0.27 11.1 $0.60 $0.54 11.1
========= ======= =========== ========
Average number
of common shares
outstanding:
Basic 189,590 189,830 190,113 190,485
Diluted 192,607 191,274 193,076 191,705
N/M - not meaningful
The McGraw-Hill Companies
Operating Results by Segment
Periods ended June 30, 2004 and 2003
(dollars in thousands)
(unaudited) Revenue Operating Profit
------------------------------ --------------------------
% Favor-
able
% Favorable (Un-
2004 2003 (Unfavorable) 2004 2003 favor-
able)
------- ------ -------------- ------- ------ --------
Three Months:
McGraw-Hill
Education(a) $531,721 $543,236 (2.1) $57,055 $55,626 2.6
Financial
Services 504,472 439,365 14.8 214,205 171,557 24.9
Information
and Media
Services 194,104 189,418 2.5 24,841 24,443 1.6
--------- --------- ----- -------- -------- ----
Total operating
segments 1,230,297 1,172,019 5.0 296,101 251,626 17.7
General
corporate
expense - - - (31,041) (22,295) (39.2)
Interest
expense - - - (2,161) (2,673) 19.2
--------- --------- ---- -------- --------- ------
Total
company $1,230,297 $1,172,019 5.0 $262,899* $226,658* 16.0
========== =========== ==== ========= ========== ======
(dollars in thousands)
(unaudited) Revenue Operating Profit
% Favor-
able
% Favorable (Un-
2004 2003 (Unfavorable) 2004 2003 favor-
able)
------- ------ -------------- ------- ------ --------
Six Months:
McGraw-Hill
Education(a) $809,918 $804,666 0.7 $(11,741) $(14,554) 19.3
Financial
Services 961,107 834,260 15.2 388,044 316,548 22.6
Information
and Media
Services 370,847 363,907 1.9 38,492 36,919 4.3
--------- --------- ----- -------- -------- ----
Total
operating
segments 2,141,872 2,002,833 6.9 414,795 338,913 22.4
General
corporate
expense - - - (58,687) (43,630) (34.5)
Interest
expense - - - (3,898) (5,352) 27.2
--------- --------- ---- -------- --------- ------
Total
company $2,141,872 $2,002,833 6.9 $352,210* $289,931* 21.5
========== =========== ==== ========= ========== ======
* Income from continuing operations before taxes on income
(a) The three and six months ended June 30, 2004 have been restated to
exclude discontinued operations as a result of the disposition
of the Landoll, Frank Schaffer and related juvenile retail publishing
businesses.
N/M - not meaningful
SOURCE McGraw-Hill Companies
-0- 07/27/2004
/CONTACT: Media Relations Contacts -
Steven H. Weiss
Vice President, Corporate Communications
The McGraw-Hill Companies
(212) 512-2247 (office)
(917) 374-2024 (mobile)
(212) 580-2565 (home)
weissh@mcgraw-hill.com;
Tom DiPiazza
Director, Corporate Communications
The McGraw-Hill Companies
(212) 512-4145 (office)
(917) 328-7582 (mobile)
tom_dipiazza@mcgraw-hill.com;
Investor Relations Contact:
Donald S. Rubin
Senior Vice President, Investor Relations
The McGraw-Hill Companies
(212) 512-4321 (office)
(212) 512-3840 (fax)
donald_rubin@mcgraw-hill.com /
/Web site: http://www.mcgraw-hill.com/investor_relations
http://www.mcgraw-hill.com /
(MHP)
CO: McGraw-Hill Companies
ST: New York
IN: PUB FIN CPR MAG EDU
SU: ERN CCA