The McGraw-Hill Companies Reports 18.6% EPS Gain for Second Quarter; EPS Beats Consensus Forecast by 3 Cents.Business Editors NEW YORK--(BUSINESS WIRE)--July 25, 2002 The McGraw-Hill Companies (NYSE: MHP) today reported diluted earnings per share for the second quarter of 70 cents, an 18.6% increase over the 59 cents for the same quarter last year. Including one-time items in the second quarter of 2001, diluted earnings per share were 61 cents. Net income for the second quarter was $136.5 million versus $115.6 million, excluding one-time items, and $120.0 million, including one-time items, last year. Revenue for the second quarter grew 3.6% to $1.19 billion. "Increases in key educational publishing businesses, stellar results in Financial Services and tight expense controls were important factors in our second quarter," said Harold McGraw III, chairman, president and chief executive officer of The McGraw-Hill Companies. "As a result, we were able to improve our operating margin in this quarter to 18.3%. "Second quarter results in 2002 reflect a four cent per share benefit from the discontinuation of goodwill amortization in accordance with the Statement of Financial Accounting Standards (SFAS) No. 142. The benefit in the first half this year was nine cents. It will be 18 cents for 2002. "The First Call consensus forecast for the second quarter of 2002 of 67 cents reflects the benefit from adoption of SFAS 142. "For the first half, diluted earnings per share increased 26.9% to 85 cents versus 67 cents excluding one-time items. Including one-time items, earnings per share in the first half of 2001 were 71 cents, reflecting a one-time gain of 13 cents from the divestiture of DRI and a loss of 11 cents on the writedown of selected assets, the shutdown of Blue List and the contribution of Rational Investors to mPower.com in the second quarter. The first quarter of 2001 also includes a one-time gain of two cents on the sale of real estate. "Net income for the first half was $165.7 million as compared to $131.8 million in 2001 excluding one-time items. Including one-time items, net income for the first half of 2001 was $140.4 million. "Revenue for the first half grew 2.1% to $2.04 billion. McGraw-Hill Education: "Revenue in this segment increased 1.9% in the second quarter to $577.0 million while operating profits declined by 5.8% to $64.0 million. "Solid results in the McGraw-Hill Higher Education, Professional and International Group (HPI) helped offset a slow start in the elementary-high school market. The HPI group revenue increased 10.9% to $170.5 million. The McGraw-Hill School Education Group (SEG) produced strong gains in testing, science, supplementary reading and math, but could not overcome reduced sales opportunities in adoption states. As a result, revenue at SEG declined 1.4% to $406.5 million in the second quarter. "The McGraw-Hill School Education Group is on course to capture about 30% of the adoption market this year. It won a 40% share of the middle school science adoption in Texas and will lead all competitors in K-12 science adoptions this year. "Although our basal reading program is not meeting expectations in the Oklahoma and Florida adoptions, our research-based reading programs are performing well in Florida, California and the open territories. Everyday Math, which was part of Tribune Education, is also producing good results. "In the testing market, new statewide contracts were won in Indiana, Missouri and Tennessee. We're also benefiting from increased attention to educational reform created by the No Child Left Behind Act, which was passed by Congress in January. As a result, we're winning significant adoptions for our early literacy testing program, Fox in a Box, in Florida and Montana. "Helped by the acquisition of Frank Schaffer Publications in May 2001, we continue to improve our market position in children's publishing. "In the higher education market, a growing array of e-learning solutions for instructors and students and a strong, new frontlist helped produce double-digit gains as the summer sales season got underway. Best-sellers included McConnell, Economics, 15th edition; Larson, Fundamental Accounting Principles, 16th edition; Garrison, Managerial Accounting, 10th edition; and Schiller, Economy Today, 9th edition. "In the professional market, sales of a new edition of the Encyclopedia of Science and Technology in the second quarter helped offset continuing softness in computer books. "Strong secondary school sales in Mexico contributed to a turnaround in International operations in the second quarter. Financial Services: "Revenue for this segment in the second quarter increased by 13.9% to $416.7 million and operating profits grew by 40.3% to $154.4 million. Corporate Value Consulting, which was acquired at the end of August, accounted for $20.9 million of revenue in the second quarter. "Spurred by a strong structured finance market in the U.S. and abroad, solid growth in public finance and a robust non-traditional business, revenue and profitability for ratings grew at a double-digit rate in the second quarter. "Key drivers in the global structured finance market were residential mortgage-backed securities and asset-backed deals, primarily from credit card receivables, and car and home equity loans. The public finance market in the U.S. continues to benefit from low interest rates, which are fueling refinancing, and declining state tax revenue, which is leading to an increased level of borrowing for infrastructure projects. Among the non-traditional services, bank loan ratings, corporate credit ratings, rating evaluation services and global infrastructure services produced excellent results. "New issue dollar volume in the U.S. market was off 5.7% in the second quarter because of a 32.1% decline in investment grade and high yield corporate issuance, according to Securities Data Corp. New issue dollar volume for the second quarter in the U.S. market grew 22.0% for public finance, 27.4% for asset-backed mortgages and 13.3% for mortgage-backed securities. "In Europe, new issue dollar volume was down 11.1% while unit volume declined 12.6%, according to Bondware. "Our diversification strategy - global expansion and the creation of ratings and services that are not tied to new issuance - continues to produce double-digit growth both here and abroad. In the second quarter, more than 31% of ratings revenue came from foreign sources. "In investment services, softness in retail brokerage, Internet redistribution and foreign exchange led to a decline in revenue. But growth in higher margin operations, including index services, and tight cost controls helped produce a substantial gain in profitability. Information and Media Services: "Revenue for this segment in the second quarter declined 9.1% to $197.7 million while operating profits decreased 19.7% to $26.6 million. Financial Times Energy, which was acquired last September, accounted for $10.8 million of the segment's second quarter revenue. "Continued softness in advertising resulted in revenue decreases at BusinessWeek and our other business and professional publications. Revenue at the Business-to-Business Group, which includes BusinessWeek and our vertical operations in construction, energy, aviation and healthcare, fell by 9.6% in the second quarter. "Revenue at the Broadcasting Group dropped 5.6%. Increases in political advertising and national time sales could not offset the weakness in local advertising. "BusinessWeek's advertising pages declined 20.4% in the second quarter following a 33.4% drop in the first quarter, according to the Publishers Information Bureau. Still, BusinessWeek ended the first half with improved market share. The Outlook: "We still expect to produce a double-digit earnings gain for the third quarter and the year, despite softness in the elementary-high school market. The performance of other businesses, effective cost controls and favorable interest expense comparisons will keep us on target in 2002." Conference call scheduled: The Corporation's senior management will review the second quarter 2002 earnings results on a conference call scheduled for this morning, July 25th, at 9:00 AM Eastern Time. This call is open to all interested parties. Discussions may include forward-looking information. To participate by telephone, please dial-in by 8:45 AM Eastern Time to register for the call. Domestic participants may call (888) 664-9855; international participants may call (712) 257-0403 (long distance charges will apply). The passcode is McGraw-Hill and the conference leader is Harold McGraw III. To listen via the Internet go to: www.mcgraw-hill.com/investor_relations and click on the (WEBCAST-LIVE) button. At the next screen, select the Webcast link under Listening Options. Register through the Guest Book and then proceed. You will need Windows Media Player. To view the presenters' slides online, go to http://www.mymeetings.com/nc/join. The Net Conference meeting number is P11818082, the passcode is MCGRAWHILL (case sensitive), and the event type is "Conference." Click on the Proceed button. You will need Windows Media Player. 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 and political conditions, the health of capital and equity markets, including future interest rate changes, the pace of recovery in advertising, the level of expenditures in the education market, the successful marketing of products and the effect of competitive products and pricing. 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 350 offices in 33 countries. Sales in 2001 were $4.6 billion. Additional information is available at http://www.mcgraw-hill.com.
The McGraw-Hill Companies
Statements of Income
Periods ended June 30, 2002 and 2001
(in thousands, except per share data)
(unaudited) Three Months
------------
2002 2001 %Change
---- ---- -------
Operating revenue $1,191,401 $1,149,470 3.6
Expenses - net 965,898 959,420 0.7
---------- ---------- ----
Income from operations 225,503 190,050 18.7
Interest expense 7,151 16,021 (55.4)
---------- ---------- ----
Income before taxes on income 218,352 174,029 25.5
Provision for taxes on income 81,882 54,032 51.5
---------- ---------- ----
Net Income $ 136,470 $ 119,997 13.7
========== ========== ====
Earnings per common share:
Basic
-----
Net income $ 0.71 $ 0.62 14.5
========== ========== ====
Diluted
-------
Net income $ 0.70 $ 0.61 14.8
========== ========== ====
Dividend per common share $ 0.255 $ 0.245 4.1
========== ========== ====
Average number of common
shares outstanding:
Basic 193,267 194,571
Diluted 195,050 196,962
The McGraw-Hill Companies
Statements of Income
Periods ended June 30, 2002 and 2001
(in thousands, except per share data)
(unaudited) Six Months
-------------
2002 2001 %Change
---- ---- -------
Operating revenue $2,038,053 $1,995,867 2.1
Expenses - net 1,759,405 1,755,781 0.2
---------- ---------- -----
Income from operations 278,648 240,086 16.1
Interest expense 13,573 32,901 (58.7)
---------- ---------- ----
Income before taxes on income 265,075 207,185 27.9
Provision for taxes on income 99,403 66,797 48.8
---------- ---------- ----
Net Income $ 165,672 $ 140,388 18.0
========== ========== ====
Earnings per common share:
Basic
-----
Net income $ 0.86 $ 0.72 19.4
========== ========== ====
Diluted
-------
Net income $ 0.85 $ 0.71 19.7
========== ========== ====
Dividend per common share $ 0.510 $ 0.490 4.1
========== ========== ====
Average number of common
shares outstanding:
Basic 193,026 194,433
Diluted 194,956 196,632
The McGraw-Hill Companies
Operating Results by Segment
Periods ended June 30, 2002 and 2001
(unaudited) (dollars in thousands)
Revenue
-----------------------------------
Three Months 2002 2001 %Change
------------ ---- ---- -------
McGraw-Hill Education $ 576,963 $ 566,150 1.9
Financial Services (1) 416,715 365,781 13.9
Information and Media Services 197,723 217,539 (9.1)
---------- ---------- ----
Total operating segments 1,191,401 1,149,470 3.6
General corporate expense - - -
Interest expense - - -
---------- ---------- ----
Total company $1,191,401 $1,149,470 3.6
========== ========== ====
The McGraw-Hill Companies
Operating Results by Segment
Periods ended June 30, 2002 and 2001
(unaudited) (dollars in thousands)
Operating Profit
-----------------------------------
Three Months 2002 2001 %Change
------------- ---- ---- -------
McGraw-Hill Education $ 64,042 $ 67,990 (5.8)
Financial Services (1) 154,445 110,051 40.3
Information and Media Services 26,556 33,073 (19.7)
---------- ---------- ----
Total operating segments 245,043 211,114 16.1
General corporate expense (19,540) (21,064) (7.2)
Interest expense (7,151) (16,021) (55.4)
---------- ---------- ----
Total company $ 218,352* $ 174,029* 25.5
========== ========== ====
The McGraw-Hill Companies
Operating Results by Segment
Periods ended June 30, 2002 and 2001
(unaudited) (dollars in thousands)
Revenue
-----------------------------------
Six Months 2002 2001 %Change
---------- ---- ---- -------
McGraw-Hill Education $ 858,584 $ 873,908 (1.8)
Financial Services (1) 797,593 710,962 12.2
Information and Media Services 381,876 410,997 (7.1)
---------- ---------- ----
Total operating segments 2,038,053 1,995,867 2.1
General corporate expense (2) - - -
Interest expense - - -
---------- ---------- ----
Total company $2,038,053 $1,995,867 2.1
========== ========== ====
The McGraw-Hill Companies
Operating Results by Segment
Periods ended June 30, 2002 and 2001
(unaudited) (dollars in thousands)
Operating Profit
-----------------------------------
Six Months 2002 2001 %Change
---------- ---- ---- -------
McGraw-Hill Education $ (7,768) $ 10,160 N/M
Financial Services (1) 287,699 216,659 32.8
Information and Media Services 38,518 46,744 (17.6)
---------- ---------- ----
Total operating segments 318,449 273,563 16.4
General corporate expense (2) (39,801) (33,477) 18.9
Interest expense (13,573) (32,901) (58.7)
---------- ---------- ----
Total company $ 265,075* $ 207,185* 27.9
========== ========== ====
* Income before taxes on income
Footnotes
---------
(1) Three month and year-to-date results for 2001 for Financial
Services include an $8.8 million pre-tax gain (13 cents per
diluted share) on the sale of DRI and $22.8 million pre-tax charge
(11 cents per diluted share) for restructuring initiatives.
(2) Year-to-date corporate expense in 2001 includes a $6.9 million
pre-tax gain (2 cents per diluted share) on the sale of real
estate.
N/M - Not meaningful
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