The McGraw-Hill Companies Reports 4Q EPS of $0.50; Adjusted EPS of $0.55

NEW YORK, Feb. 1, 2011 /PRNewswire-FirstCall/ -- The McGraw-Hill Companies (NYSE: MHP) today announced diluted earnings per share for the fourth quarter of 2010 of $0.50, compared to $0.53 for the same period last year.  On an adjusted basis (see Exhibit 5), fourth quarter diluted earnings per share were $0.55 versus $0.51 for the same period last year.  Fourth quarter 2010 results included $0.01 dilution for acquisitions.

Net income in the fourth quarter declined 8.0% to $153.8 million compared to 2009.  On an adjusted basis, net income in the fourth quarter increased by 6.2% to $170.5 million compared to 2009.  Revenue in the fourth quarter grew by 4.2% to $1.5 billion.

For full year 2010, diluted earnings per share were $2.65 compared to $2.33 for 2009.    On an adjusted basis, full year 2010 earnings were $2.69 compared to $2.37 in 2009.  Full year 2010 results included dilution of $0.02 for acquisitions.  Net income increased 13.4% to $828.1 million.  On an adjusted basis, net income for 2010 increased 13.2% to $840.0 million compared to 2009.  Revenue for 2010 grew by 3.6% to $6.2 billion.

"Double-digit EPS growth and the maintenance of a rock-solid financial position were the hallmarks of our performance in 2010," said Harold McGraw III, Chairman, President and Chief Executive Officer of The McGraw-Hill Companies.  "In the fourth quarter, the best performance of the year by Standard & Poor's Investment Services set the stage for the launch of our new segment, McGraw-Hill Financial.  Double-digit growth at Standard & Poor's Credit Market Services and a fine performance in global energy markets by Platts also helped offset fourth quarter softness in education markets."

(Exhibits 7 and 8 recast revenue and operating profit for the Financial Services segment into the two new operating segments: McGraw-Hill Financial and Standard & Poor's. Recasted financials are provided for 2009 and 2010.)

Financial Services:  Revenue for the segment increased by 13.0% to $778.5 million in the fourth quarter compared to the same period last year.  Operating profit grew by 11.8% to $279.4 million compared to $250.0 million in the fourth quarter last year.  Foreign exchange rates reduced revenue by $4.8 million, but did not have a material impact on operating profit.

For the full year 2010, revenue for Financial Services increased by 8.3% to $2.8 billion compared to $2.6 billion last year.  Operating profit grew by 6.2% to $1.1 billion in 2010, compared to $1.0 billion in 2009.  Adjusted operating profit grew by 4.1% to $1.1 billion in 2010 compared to $1.0 billion in 2009.  Foreign exchange rates had an immaterial effect on revenue and operating profit in 2010.

Standard & Poor's Credit Market Services' revenue increased by 11.4% to $527.1 million in the fourth quarter and by 9.2% to $1.9 billion for the full year 2010 compared to 2009.

Standard & Poor's Investment Services' revenue, including $12.7 million from the acquisition of TheMarkets.com, grew by 16.5% to $251.4 million in the fourth quarter and by 6.5% to $918.1 million for the full year 2010 compared to 2009.

Record worldwide corporate high-yield new issue dollar volume, and a surge in bank loan ratings and the public finance market helped produce a 30.6% increase in transaction revenue to $199.9 million, or 37.9% of Standard & Poor's Credit Markets Services' fourth quarter revenue.  In the fourth quarter of 2009, transactions accounted for 32.3% of Standard & Poor's Credit Market Services' revenue.  For 2010, transaction revenue grew by 22.9% to $662.8 million as new issue dollar volume for high-yield corporate bonds in the United States and Europe, and U.S. public finance set records for the year.

Non-transaction revenue at Standard & Poor's Credit Market Services, which includes annual contracts, surveillance and subscription fees, grew by 2.1% in the fourth quarter to $327.2 million compared to the same period last year.  For the full year 2010, non-transaction revenue increased by 3.1% to $1.2 billion, and represented 65.3% of Standard & Poor's Credit Market Services' total revenue compared to 69.2% in 2009.

U.S. revenue for Standard & Poor's Credit Market Services outpaced international revenue for the fourth quarter and the full year in 2010.   In the fourth quarter, U.S. revenue grew by 16.6% to $279.5 million and accounted for 53.0% of the total for 2010.  For 2010, it was up by 13.2% to $1.0 billion and represented 54.3% of the total.  International revenue grew by 6.0% in the fourth quarter to $247.6 million and by 4.8% for 2010 to $872.7 million.

New issue dollar volume grew by 15.9% in the U.S. market in the fourth quarter compared to the same period last year, according to S&P estimates and information from Thomson Financial and Harrison Scott Publications.  U.S. corporate issuance was up 10.9% as refinancing activity, tightening credit spreads, and investors' search for yield helped produce a 73.8% increase in speculative-grade issuance in the fourth quarter.   Public finance issuance was up by 15.3%.  Mortgage-backed securities grew by 8.9%. Asset-backed securities declined by 8.8%.  Issuance of collateralized debt obligations climbed to $19.1 billion from less than $1 billion in the fourth quarter of 2009.  In Europe, total new issue dollar volume declined in the fourth quarter by 8.4%.  

Standard & Poor's Investment Services turned in the strongest revenue growth of the year in the fourth quarter to produce 32.3%, or $251.4 million of Financial Services' top line, compared to 31.3%, or $215.8 million for the same period last year.  For 2010, Standard & Poor's Investment Services contributed 32.5%, or $918.1 million of the segment's revenue versus 33.0%, or $861.9 million in 2009.

Solid performances in the fourth quarter by S&P Indices, Capital IQ, and the acquisition of TheMarkets.com offset declines in investment research products and services for retail markets.

Recovery in global equity markets and a substantial increase in the number of exchange-traded funds using S&P indices contributed to the growth of assets under management.  At the end of the fourth quarter, assets under management in exchange-traded funds based on S&P indices climbed to $300.3 billion, a 21.6% year-over-year increase.  There were 301 exchange-traded funds based on S&P indices at the end of 2010 versus 217 in 2009.  The average daily volume of contracts for major exchange-traded derivatives based on S&P indices increased by 4.6% in the fourth quarter to 2,963,000.  S&P is paid a royalty each time a contract is traded.

Capital IQ added new functionality and more new clients in the fourth quarter to end 2010 with more than 3,400 customers, an increase of 15.8% for the year.

Education:  Revenue for this segment in the fourth quarter of 2010 decreased by 4.6% to $496.3 million compared to the same period last year. Operating profit declined by 51.7% to $16.2 million.  Foreign exchange rates had no material impact on revenue or operating profit.

For the full year 2010, revenue increased by 1.9% to $2.4 billion.  Operating profit for the segment grew by 31.7% to $363.4 million compared to $276.0 million in 2009.  Adjusted operating profit grew by 25.0% to $359.6 million compared to $287.6 million in 2009.  Foreign exchange rates increased revenue by $11.3 million, but had an immaterial impact on operating profit.

The McGraw-Hill School Education Group's revenue declined by 7.7% in the fourth quarter to $138.2 million and was $1.1 billion in 2010, flat when compared to 2009.

The McGraw-Hill Higher Education, Professional and International Group's revenue declined 3.3% to $358.0 million in the fourth quarter, but grew by 3.8% to $1.3 billion in 2010 compared to 2009.

Late decisions to purchase basal materials in adoption states including Texas, Florida, South Carolina, and New Mexico could not offset a decline in open territory sales in the fourth quarter for the McGraw-Hill School Education Group.  In the fourth quarter of 2009, the McGraw-Hill School Education Group benefited from large federal stimulus-funded orders of intervention materials, which are designed to help students who have fallen behind or need extra help to reach grade-level standards.  

Revenue in testing was up slightly in the fourth quarter of 2010, benefiting from gains by the award-winning Acuity program, the leading product in the formative assessment market. New contracts for Acuity were signed by New York City and Indiana during the fourth quarter.  A new state-level program in New Mexico also contributed to the gain.

The bright spot in the 2010 elementary-high school business for McGraw-Hill School Education was the state new adoption market; with strong performances in Texas K–5 reading and Florida 6–12 math, the McGraw-Hill School Education Group captured approximately 30% of the estimated $850 million to $875 million state new adoption market in 2010.  Sales declined in the open territory and in testing in 2010.  The decrease in testing occurred primarily because of the planned discontinuation in 2010 of custom contracts in Arizona, California, and Florida.

The McGraw-Hill Higher Education, Professional and International Group benefited in 2010 from growing enrollments in the U.S. college market and robust sales of digital products and services.  Fourth quarter results were affected by a December sales decline in the U.S. college market and softness in international markets.

For 2010, all four of McGraw-Hill Higher Education's major product lines (Humanities, Social Sciences and Languages; Science, Engineering and Math; Business and Economics; and Career Education) produced gains.

McGraw-Hill Connect, the industry's most advanced online homework management system, and other interactive study, assessment and tutoring products for the college market produced double-digit growth in 2010.  Through December, registration for these products and services has grown to 2.4 million, a 20% year-over-year increase.

In the fourth quarter of 2010, McGraw-Hill Higher Education's best-sellers were:

• Ober, Keyboarding, 11th Edition
• Nickels, Understanding Business, 9th Edition
• Sanderson, Computers in the Medical Office, 7th Edition
• Shier, Hole's Human Anatomy and Physiology, 12th Edition
• Lucas, The Art of Public Speaking, 10th Edition

In professional publishing, the product mix continued to shift from print to digital.  Sales of digital products to retail and professional markets in science, medicine, and technology grew at a double-digit rate in the fourth quarter and for the year.

By the end of 2010, approximately 6,000 e-book titles were available.  The best-selling e-books from professional publishing in 2010 were:

• Crucial Conversations: Tools for Talking When the Stakes Are High, by Kerry Patterson, et al.
• Security Analysis, 6th Edition by Benjamin Graham and David Dodd
• Presentation Secrets of Steve Jobs, by Carmine Gallo
• Current Medical Diagnosis and Treatment 2010, 49th Edition
• How to Talk to Anyone, 2nd Edition by Leil Lowndes

In international markets, revenue declined in the fourth quarter, but was up slightly for the year.  Both Asia and India benefited from growth in English-language training sales.

Information & Media:  Revenue for this segment in the fourth quarter decreased by 1.6% to $249.3 million compared to the same period last year, but grew by 7.6% excluding the divestiture of BusinessWeek on December 1, 2009.  Fourth quarter operating profit, including a restructuring charge of $10.6 million, declined by 14.6% to $39.2 million compared to $45.9 million in 2009, which included a $10.5 million pre-tax gain from the sale of BusinessWeek.  Adjusted operating profit grew by 40.8% to $49.8 million compared to $35.4 million in 2009.

For the full year 2010, revenue declined 4.9% to $907.5 million compared to 2009, but grew 6.2% excluding the divestiture of BusinessWeek.  Operating profit in 2010 increased 73.1% to $160.4 million compared to $92.7 million in 2009.  Adjusted operating profit for 2010 increased 98.6% to $171.0 million compared to $86.1 million in 2009.

The Business-to-Business Group's revenue in the fourth quarter decreased by 4.0% to $220.9 million compared to $230.0 million in 2009, which includes revenue of $21.6 million from BusinessWeek for two months.  For the full year 2010, the Business-to-Business Group's revenue declined by 7.0% to $811.5 million, but grew 4.9% excluding BusinessWeek.  The Business-to-Business Group brands include Aviation Week, J.D. Power and Associates, McGraw-Hill Construction, and Platts.

A strong performance by Platts in global energy markets and J.D. Power and Associates' solid growth in the domestic auto business in the fourth quarter offset softness at McGraw-Hill Construction.

Platts produced solid growth in 2010 in both U.S. and international markets.  To expand its services in energy markets, Platts acquired BENTEK Energy on January 3, 2011, and announced the acquisition of Oil Price Information Service (OPIS), which is subject to regulatory approval and customary closing conditions.  BENTEK Energy is a leading provider of fundamental data and analysis for the natural gas market in North America.  OPIS is a leader in news and price information for the wholesale and retail petroleum markets in North America.

The Broadcasting Group's revenue grew by 21.7% in the fourth quarter to $28.4 million compared to the same period last year.  For the full year 2010, the Broadcasting Group's revenue grew by 18.3% to $96.0 million.  Strong political advertising and improvement in national and local-time sales were key factors in the Broadcasting Group's fourth quarter and full-year performance.

Corporate expense in the fourth quarter of 2010 increased by $25.9 million to $62.3 million and by $53.0 million to $180.0 million for the full year.  Adjusted corporate expense, which excludes a one-time charge of $15.6 million related to subleasing excess space in the Company's New York facilities, increased by $10.3 million to $46.7 million in the fourth quarter and by $37.4 million to $164.4 million for the full year.  The increases were primarily driven by growth in incentive compensation compared to reduced levels in 2009 and additional vacant space because of divestitures.

Free cash flow after dividends (see Exhibits 3 and 11), driven by strong operating results, grew to $880.7 million in 2010, an increase of $110.8 million.  The Company took advantage of the strong free cash flow to make a $125 million payment to its U.S. pension plan in the fourth quarter.  The Company ended 2010 with a net cash position of $349.5 million compared to $36.7 million on December 31, 2009.  At year-end 2010, cash and equivalents and short-term investments were $1.5 billion.  Debt was $1.2 billion.

The Outlook:  "We expect to continue building on the recovery of earnings in 2010 and look forward to another year of growth in 2011," said Mr. McGraw.  "Our guidance for 2011 diluted earnings per share is $2.79 to $2.89."

Comparison of Adjusted Information to U.S. GAAP Information: Adjusted earnings per share, adjusted net income, adjusted operating profit and adjusted corporate expense are non-GAAP financial measures contained in this earnings release that are derived from the Company's continuing operations. This information is provided in order to allow investors to make meaningful comparisons of the Company's operating performance between periods and to view the Company's business from the same perspective as Company management. These non-GAAP measures may be different than similar measures used by other companies. Reconciliations for the differences between non-GAAP measures used in this earnings release and comparable financial measures calculated in accordance with U.S. GAAP for the three- and twelve-month periods ended December 31, 2010, and 2009 are attached as Exhibits 5, 8 and 11.

Conference Call/Webcast Details:  The Corporation's senior management will review the fourth quarter earnings results on a conference call scheduled for this morning, February 1, 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 Corporation's Investor Relations Website at http://www.mcgraw-hill.com/investor_relations.

The Webcast will be available live and in replay at http://investor.mcgraw-hill.com/phoenix.zhtml?p=irol-eventDetails&c=96562&eventID=3646443. (Please copy and paste URL into Web browser.)

Telephone access is available. Domestic participants may call (888) 323-5423; international participants may call +1 (415) 228-5016 (long distance charges will apply). The passcode is McGraw-Hill and the conference leader is Harold McGraw III. A recorded telephone replay will be available approximately two hours after the meeting concludes and will remain available until March 1, 2011. Domestic participants may call (866) 414-6066; international participants may call +1 (203) 369-0675 (long distance charges will apply). No passcode is required.

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, liquidity, political and regulatory conditions; the health of debt (including U.S. residential mortgage-backed securities and collateralized debt obligations) and equity markets, including possible future interest rate changes; the health of the economy and in advertising; the level of expenditures and state new adoptions and open territory sales 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 financial information and education company that helps professionals and students succeed in the Knowledge Economy.  Leading brands include Standard & Poor's, McGraw-Hill Education, Platts energy information services and J.D. Power and Associates.  The Corporation has approximately 21,000 employees with more than 280 offices in 40 countries.  Sales in 2010 were $6.2 billion.  Additional information is available at http://www.mcgraw-hill.com.

Investor Relations: http://www.mcgraw-hill.com/investor_relations

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Release issued: February 1, 2011