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þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
New York | 13-1026995 | |
(State of other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
1221 Avenue of the Americas, New York, N.Y. | 10020 | |
(Address of Principal executive offices) | (Zip Code) |
þ Large accelerated filer | o Accelerated filer | o Non-accelerated filer | o Smaller reporting company | |||
(Do not check if a smaller reporting company).
|
2
3
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(in thousands, except per share data) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Revenue
|
||||||||||||||||
Product
|
$ | 545,025 | $ | 525,813 | $ | 855,847 | $ | 815,211 | ||||||||
Service
|
929,031 | 939,367 | 1,808,599 | 1,798,176 | ||||||||||||
|
||||||||||||||||
Total revenue
|
1,474,056 | 1,465,180 | 2,664,446 | 2,613,387 | ||||||||||||
Expenses
|
||||||||||||||||
Operating-related
|
||||||||||||||||
Product
|
259,075 | 268,235 | 432,058 | 442,508 | ||||||||||||
Service
|
301,820 | 314,270 | 605,063 | 628,936 | ||||||||||||
|
||||||||||||||||
Operating-related expenses
|
560,895 | 582,505 | 1,037,121 | 1,071,444 | ||||||||||||
Selling and general expenses
|
547,719 | 546,126 | 1,035,690 | 1,037,437 | ||||||||||||
Depreciation
|
26,177 | 28,782 | 52,125 | 58,194 | ||||||||||||
Amortization of intangibles
|
13,007 | 11,440 | 22,988 | 25,644 | ||||||||||||
|
||||||||||||||||
Total expenses
|
1,147,798 | 1,168,853 | 2,147,924 | 2,192,719 | ||||||||||||
|
||||||||||||||||
Income from operations
|
326,258 | 296,327 | 516,522 | 420,668 | ||||||||||||
Other loss
|
— | 13,849 | — | 13,849 | ||||||||||||
Interest expense — net
|
20,840 | 18,499 | 42,879 | 39,090 | ||||||||||||
|
||||||||||||||||
Income before taxes on income
|
305,418 | 263,979 | 473,643 | 367,729 | ||||||||||||
Provision for taxes on income
|
111,172 | 96,088 | 172,406 | 133,853 | ||||||||||||
|
||||||||||||||||
Net income
|
194,246 | 167,891 | 301,237 | 233,876 | ||||||||||||
Less: net income attributable to noncontrolling interests
|
(3,162 | ) | (3,798 | ) | (6,867 | ) | (6,779 | ) | ||||||||
|
||||||||||||||||
Net income attributable to The McGraw-Hill Companies, Inc.
|
$ | 191,084 | $ | 164,093 | $ | 294,370 | $ | 227,097 | ||||||||
|
||||||||||||||||
|
||||||||||||||||
Earnings per common share
|
||||||||||||||||
Basic
|
$ | 0.61 | $ | 0.53 | $ | 0.94 | $ | 0.73 | ||||||||
Diluted
|
$ | 0.61 | $ | 0.52 | $ | 0.94 | $ | 0.73 | ||||||||
|
||||||||||||||||
Average number of common shares outstanding:
|
||||||||||||||||
Basic
|
311,167 | 312,226 | 312,263 | 311,862 | ||||||||||||
Diluted
|
313,167 | 313,033 | 314,709 | 312,525 | ||||||||||||
|
||||||||||||||||
Dividend declared per common share
|
$ | 0.235 | $ | 0.225 | $ | 0.47 | $ | 0.45 |
4
June 30, | December 31, | June 30, | ||||||||||
(in thousands) | 2010 | 2009 | 2009 | |||||||||
(Unaudited ) | (Unaudited ) | |||||||||||
ASSETS
|
||||||||||||
Current assets:
|
||||||||||||
Cash and equivalents
|
$ | 1,117,827 | $ | 1,209,927 | $ | 556,131 | ||||||
Short-term investments
|
26,796 | 24,602 | — | |||||||||
Accounts receivable (net of allowance for doubtful accounts and sales returns)
|
994,039 | 969,662 | 1,049,447 | |||||||||
Inventories
|
339,654 | 301,229 | 389,885 | |||||||||
Deferred income taxes
|
289,544 | 278,414 | 283,635 | |||||||||
Prepaid and other current assets
|
140,093 | 152,562 | 118,124 | |||||||||
|
||||||||||||
Total current assets
|
2,907,953 | 2,936,396 | 2,397,222 | |||||||||
|
||||||||||||
Prepublication costs (net of accumulated amortization)
|
425,428 | 460,843 | 540,276 | |||||||||
Investments and other assets:
|
||||||||||||
Assets for pension benefits
|
76,962 | 78,522 | 57,417 | |||||||||
Deferred income taxes
|
21,782 | 24,072 | 53,484 | |||||||||
Other
|
176,719 | 166,379 | 171,218 | |||||||||
|
||||||||||||
Total investments and other assets
|
275,463 | 268,973 | 282,119 | |||||||||
|
||||||||||||
Property and equipment – at cost
|
1,569,249 | 1,570,450 | 1,568,055 | |||||||||
Less: accumulated depreciation
|
(1,023,449 | ) | (990,654 | ) | (984,012 | ) | ||||||
|
||||||||||||
Net property and equipment
|
545,800 | 579,796 | 584,043 | |||||||||
|
||||||||||||
Goodwill and other intangible assets:
|
||||||||||||
Goodwill – net
|
1,688,646 | 1,690,507 | 1,688,748 | |||||||||
Indefinite-lived intangible assets
|
202,065 | 202,065 | 202,065 | |||||||||
Copyrights – net
|
138,041 | 146,239 | 154,292 | |||||||||
Other intangible assets – net
|
180,630 | 190,431 | 209,251 | |||||||||
|
||||||||||||
Net goodwill and other intangible assets
|
2,209,382 | 2,229,242 | 2,254,356 | |||||||||
|
||||||||||||
Total assets
|
$ | 6,364,026 | $ | 6,475,250 | $ | 6,058,016 | ||||||
|
||||||||||||
LIABILITIES AND EQUITY
|
||||||||||||
Current liabilities:
|
||||||||||||
Notes payable
|
$ | 22 | $ | 22 | $ | 89,622 | ||||||
Accounts payable
|
325,029 | 301,828 | 285,509 | |||||||||
Accrued royalties
|
48,672 | 114,157 | 49,435 | |||||||||
Accrued compensation and contributions to retirement plans
|
342,302 | 450,673 | 326,822 | |||||||||
Income taxes currently payable
|
55,073 | 17,086 | 75,552 | |||||||||
Unearned revenue
|
1,144,262 | 1,115,357 | 1,098,505 | |||||||||
Deferred gain on sale-leaseback
|
11,499 | 11,236 | 10,978 | |||||||||
Other current liabilities
|
432,918 | 441,595 | 481,170 | |||||||||
|
||||||||||||
Total current liabilities
|
2,359,777 | 2,451,954 | 2,417,593 | |||||||||
|
||||||||||||
Other liabilities:
|
||||||||||||
Long-term debt
|
1,197,879 | 1,197,791 | 1,197,701 | |||||||||
Deferred income taxes
|
8,971 | 9,965 | 3,154 | |||||||||
Liability for pension and other postretirement benefits
|
501,360 | 511,683 | 599,081 | |||||||||
Deferred gain on sale-leaseback
|
142,001 | 147,838 | 153,542 | |||||||||
Other non-current liabilities
|
234,112 | 226,842 | 220,927 | |||||||||
|
||||||||||||
Total other liabilities
|
2,084,323 | 2,094,119 | 2,174,405 | |||||||||
|
||||||||||||
Total liabilities
|
4,444,100 | 4,546,073 | 4,591,998 | |||||||||
|
||||||||||||
Commitments and contingencies (Note 12)
|
||||||||||||
Equity :
|
||||||||||||
Common stock
|
411,709 | 411,709 | 411,709 | |||||||||
Additional paid-in capital
|
45,297 | 5,125 | 15,994 | |||||||||
Retained income
|
6,668,804 | 6,522,613 | 6,156,140 | |||||||||
Accumulated other comprehensive loss
|
(356,790 | ) | (343,017 | ) | (410,289 | ) | ||||||
Less: common stock in treasury – at cost
|
(4,926,074 | ) | (4,749,143 | ) | (4,780,114 | ) | ||||||
|
||||||||||||
Total equity – controlling interests
|
1,842,946 | 1,847,287 | 1,393,440 | |||||||||
|
||||||||||||
Total equity – noncontrolling interests
|
76,980 | 81,890 | 72,578 | |||||||||
|
||||||||||||
Total equity
|
1,919,926 | 1,929,177 | 1,466,018 | |||||||||
|
||||||||||||
Total liabilities and equity
|
$ | 6,364,026 | $ | 6,475,250 | $ | 6,058,016 | ||||||
|
5
Six Months Ended | ||||||||
June 30, | ||||||||
(in thousands) | 2010 | 2009 | ||||||
(Unaudited) | ||||||||
Operating Activities:
|
||||||||
Net income
|
$ | 301,237 | $ | 233,876 | ||||
Adjustments to reconcile net income to cash provided by operating activities:
|
||||||||
Depreciation
|
52,125 | 58,194 | ||||||
Amortization of intangibles
|
22,988 | 25,644 | ||||||
Amortization of prepublication costs
|
95,226 | 98,429 | ||||||
Provision for losses on accounts receivable
|
6,132 | 15,880 | ||||||
Deferred income taxes
|
(16,757 | ) | (4,465 | ) | ||||
Stock-based compensation
|
22,990 | 17,233 | ||||||
Loss on disposition of business
|
— | 13,849 | ||||||
Other
|
2,360 | 2,866 | ||||||
Changes in operating assets and liabilities, net of effect of acquisitions and dispositions:
|
||||||||
Accounts receivable
|
(42,371 | ) | (1,397 | ) | ||||
Inventories
|
(38,597 | ) | (20,907 | ) | ||||
Prepaid and other current assets
|
(13,025 | ) | (14,221 | ) | ||||
Accounts payable and accrued expenses
|
(141,908 | ) | (207,234 | ) | ||||
Unearned revenue
|
42,776 | (6,575 | ) | |||||
Other current liabilities
|
(6,781 | ) | 22,389 | |||||
Net change in prepaid/accrued income taxes
|
61,493 | 67,926 | ||||||
Net change in other assets and liabilities
|
11,646 | (7,361 | ) | |||||
|
||||||||
Cash provided by operating activities
|
359,534 | 294,126 | ||||||
|
||||||||
Investing Activities:
|
||||||||
Investment in prepublication costs
|
(59,991 | ) | (85,053 | ) | ||||
Purchase of property and equipment
|
(22,085 | ) | (16,898 | ) | ||||
Acquisition related contingent payment
|
(5,000 | ) | — | |||||
Proceeds from sale of business
|
— | 9,731 | ||||||
Disposition of property and equipment
|
5,271 | 60 | ||||||
Additions to technology projects
|
(16,906 | ) | (7,671 | ) | ||||
Changes in short-term investments
|
(2,194 | ) | — | |||||
|
||||||||
Cash used for investing activities
|
(100,905 | ) | (99,831 | ) | ||||
|
||||||||
Financing Activities:
|
||||||||
Additions to short-term debt, net
|
— | 19,600 | ||||||
Dividends paid to shareholders
|
(148,178 | ) | (141,750 | ) | ||||
Dividends paid to noncontrolling interests
|
(14,152 | ) | (5,074 | ) | ||||
Repurchase of treasury shares
|
(186,854 | ) | — | |||||
Exercise of stock options
|
26,472 | 7,108 | ||||||
Excess tax benefits from share-based payments
|
1,254 | 10 | ||||||
|
||||||||
Cash used for financing activities
|
(321,458 | ) | (120,106 | ) | ||||
|
||||||||
Effect of exchange rate changes on cash
|
(29,271 | ) | 10,271 | |||||
|
||||||||
Net change in cash and equivalents
|
(92,100 | ) | 84,460 | |||||
Cash and equivalents at beginning of period
|
1,209,927 | 471,671 | ||||||
|
||||||||
Cash and equivalents at end of period
|
$ | 1,117,827 | $ | 556,131 | ||||
|
6
(Dollars in thousands, except per share amounts or as noted) |
1. | Basis of Presentation |
The accompanying unaudited financial statements of The McGraw-Hill Companies, Inc. (together with its consolidated subsidiaries, the “Company,” “we,” “us” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Rule 10-01 of Regulation S-X. The financial statements included herein should be read in conjunction with the financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2009 (the “Annual Report”). | ||
In the opinion of management all normal recurring adjustments considered necessary for a fair statement of the results of the interim periods have been included. The operating results for the three and six months ended June 30, 2010 are not necessarily indicative of results to be expected for the full year due to the seasonal nature of some of our businesses. As a result, we have included the Consolidated Balance Sheet as of June 30, 2009 for comparative purposes. Certain prior-year amounts have been reclassified to conform with current years’ presentation. | ||
Our critical accounting policies are disclosed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, allowance for doubtful accounts and sales returns, prepublication costs, valuation of inventories, valuation of long-lived assets, goodwill and other intangible assets, pension plans, income taxes, incentive compensation and stock-based compensation. Since the date of the Annual Report, there have been no material changes to our critical accounting policies. |
2. | Comprehensive Income |
The following table is a reconciliation of net income to comprehensive income for the periods ended June 30: |
Three Months | Six Months | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income
|
$ | 194,246 | $ | 167,891 | $ | 301,237 | $ | 233,876 | ||||||||
Other comprehensive income:
|
||||||||||||||||
Foreign currency translation adjustment
|
(11,830 | ) | 36,313 | (20,024 | ) | 19,566 | ||||||||||
Pension and other postretirement benefit plans, net of tax
|
6,601 | 12,102 | 8,757 | 12,739 | ||||||||||||
Unrealized (loss) gain on investment, net of tax
|
(633 | ) | 1,889 | (168 | ) | 1,743 | ||||||||||
|
||||||||||||||||
Comprehensive income
|
188,384 | 218,195 | 289,802 | 267,924 | ||||||||||||
Less: comprehensive income attributable to noncontrolling interests
|
(3,436 | ) | (6,747 | ) | (9,205 | ) | (7,094 | ) | ||||||||
|
||||||||||||||||
Comprehensive income attributable to The McGraw-Hill Companies, Inc.
|
$ | 184,948 | $ | 211,448 | $ | 280,597 | $ | 260,830 | ||||||||
|
3. | Segment and Related Information |
We have three reportable segments: McGraw-Hill Education, Financial Services and Information & Media. |
• | The McGraw-Hill Education segment is one of the premier global educational publishers serving the elementary and high school, college and university, professional, international and adult education markets. | ||
• | The Financial Services segment operates under the Standard & Poor’s brand. This segment provides services to investors, corporations, governments, financial institutions, investment managers and advisors globally. | ||
• | The Information & Media segment includes broadcast media, products and services that offer business information, insight and analysis. |
7
Operating profit/(loss) by segment is the primary basis for our chief operating decision maker, the Executive Committee, to evaluate the performance of each segment. A summary of operating results by segment for the periods ended June 30 is as follows: |
2010 | 2009 | |||||||||||||||
Operating | Operating | |||||||||||||||
Three Months | Revenue | Profit | Revenue | Profit | ||||||||||||
McGraw-Hill Education
|
$ | 564,980 | $ | 51,581 | $ | 555,189 | $ | 21,008 | ||||||||
Financial Services
|
684,848 | 264,742 | 673,788 | 276,354 | ||||||||||||
Information & Media
|
224,228 | 47,504 | 236,203 | 14,422 | ||||||||||||
|
||||||||||||||||
Total operating segments
|
1,474,056 | 363,827 | 1,465,180 | 311,784 | ||||||||||||
|
||||||||||||||||
General corporate expense
|
— | (37,569 | ) | — | (29,306 | ) | ||||||||||
Interest expense — net
|
— | (20,840 | ) | — | (18,499 | ) | ||||||||||
|
||||||||||||||||
Total Company
|
$ | 1,474,056 | $ | 305,418 | * | $ | 1,465,180 | $ | 263,979 | * | ||||||
|
* | Income before taxes on income |
2010 | 2009 | |||||||||||||||
Operating | Operating | |||||||||||||||
Six Months | Revenue | Profit/(Loss) | Revenue | Profit/(Loss) | ||||||||||||
McGraw-Hill Education
|
$ | 882,227 | $ | (10,211 | ) | $ | 867,817 | $ | (55,588 | ) | ||||||
Financial Services
|
1,351,831 | 524,758 | 1,283,942 | 507,947 | ||||||||||||
Information & Media
|
430,388 | 75,333 | 461,628 | 17,194 | ||||||||||||
|
||||||||||||||||
Total operating segments
|
2,664,446 | 589,880 | 2,613,387 | 469,553 | ||||||||||||
|
||||||||||||||||
General corporate expense
|
— | (73,358 | ) | — | (62,734 | ) | ||||||||||
Interest expense — net
|
— | (42,879 | ) | — | (39,090 | ) | ||||||||||
|
||||||||||||||||
Total Company
|
$ | 2,664,446 | $ | 473,643 | * | $ | 2,613,387 | $ | 367,729 | * | ||||||
|
* | Income before taxes on income |
See Note 4 – Acquisitions and Dispositions , and Note 13 – Restructuring , for actions that impacted the operating results for the segments for the three and six months ended June 30, 2009. |
4. | Acquisitions and Dispositions |
There were no acquisitions or dispositions by the Company for the three and six months ended June 30, 2010. We did make a $5.0 million contingent payment during the three months ended June 30, 2010 related to an acquisition in 2008. There were no acquisitions by the Company for the three and six months ended June 30, 2009. | ||
In May 2009, we sold our Vista Research, Inc. business which was part of our Financial Services segment. This business was selected for divestiture as it no longer fit within our strategic plans and it has enabled the Financial Services segment to focus on its core business of providing independent research, ratings, data indices and portfolio services. During the quarter ended June 30, 2009, we recognized a pre-tax loss of $13.8 million ($8.8 million after-tax or $0.03 per diluted share), recorded as other loss within the Consolidated Statement of Income. |
5. | Stock-Based Compensation |
We issue stock-based incentive awards to our eligible employees and Directors under a Director Deferred Stock Ownership Plan and three employee stock ownership plans: the 1987, 1993 and 2002 Employee Stock Incentive Plans. These plans permit the granting of nonqualified stock options, stock appreciation rights, restricted stock awards, performance stock awards, deferred stock and other stock-based awards. | ||
Stock-based compensation for the periods ended June 30 is as follows: |
Three Months | Six Months | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Stock option expense
|
$ | 6,008 | $ | 4,783 | $ | 10,326 | $ | 11,171 | ||||||||
Restricted stock and unit awards expense
|
8,645 | 4,620 | 12,664 | 6,062 | ||||||||||||
|
||||||||||||||||
Total stock-based compensation expense
|
$ | 14,653 | $ | 9,403 | $ | 22,990 | $ | 17,233 | ||||||||
|
8
The number of common shares issued upon exercise of stock options and the vesting of restricted stock and unit awards are as follows: |
June 30, | December 31, | June 30, | ||||||||||
(in thousands) | 2010 | 2009 | 2009 | |||||||||
|
||||||||||||
Stock options exercised
|
1,048 | 943 | 270 | |||||||||
Restricted stock and units vested
|
8 | 1,430 | 1,421 | |||||||||
|
||||||||||||
Total shares issued
|
1,056 | 2,373 | 1,691 | |||||||||
|
6. | Allowances, Inventories and Accumulated Amortization of Prepublication Costs |
The allowances for doubtful accounts and sales returns, the components of inventory and the accumulated amortization of prepublication costs are as follows: |
June 30, | December 31, | June 30, | ||||||||||
2010 | 2009 | 2009 | ||||||||||
Allowance for doubtful accounts
|
$ | 70,244 | $ | 74,193 | $ | 70,176 | ||||||
|
||||||||||||
Allowance for sales returns
|
$ | 137,967 | $ | 201,917 | $ | 119,610 | ||||||
|
||||||||||||
Inventories:
|
||||||||||||
Finished goods
|
329,076 | 290,415 | 377,320 | |||||||||
Work-in-process
|
2,568 | 3,858 | 3,454 | |||||||||
Paper and other materials
|
8,010 | 6,956 | 9,111 | |||||||||
|
||||||||||||
Total inventories
|
$ | 339,654 | $ | 301,229 | $ | 389,885 | ||||||
|
||||||||||||
Accumulated amortization of prepublication costs
|
$ | 948,449 | $ | 1,005,114 | $ | 838,384 | ||||||
|
7. | Debt |
A summary of short-term and long-term debt outstanding is as follows: |
June 30, | December 31, | June 30, | ||||||||||
2010 | 2009 | 2009 | ||||||||||
5.375% Senior notes, due 2012 (a)
|
$ | 399,834 | $ | 399,798 | $ | 399,763 | ||||||
5.900% Senior notes, due 2017 (b)
|
399,296 | 399,248 | 399,200 | |||||||||
6.550% Senior notes, due 2037 (c)
|
398,560 | 398,534 | 398,507 | |||||||||
Commercial paper
|
— | — | 89,600 | |||||||||
Note payable
|
211 | 233 | 253 | |||||||||
|
||||||||||||
Total debt
|
1,197,901 | 1,197,813 | 1,287,323 | |||||||||
|
||||||||||||
Less: short-term debt including current maturities
|
22 | 22 | 89,622 | |||||||||
|
||||||||||||
Long-term debt
|
$ | 1,197,879 | $ | 1,197,791 | $ | 1,197,701 | ||||||
|
Senior Notes |
(a) | As of June 30, 2010, our 2012 senior notes consisted of $400 million principal and an unamortized debt discount of $0.2 million. The 2012 senior notes, when issued in November 2007, were priced at 99.911% with a yield of 5.399%. Interest payments are due semiannually on February 15 and August 15. | ||
(b) | As of June 30, 2010, our 2017 senior notes consisted of $400 million principal and an unamortized debt discount of $0.7 million. The 2017 senior notes, when issued in November 2007, were priced at 99.76% with a yield of 5.933%. Interest payments are due semiannually on April 15 and October 15. | ||
(c) | As of June 30, 2010, our 2037 senior notes consisted of $400 million principal and an unamortized debt discount of $1.4 million. The 2037 senior notes, when issued in November 2007, were priced at 99.605% with a yield of 6.580%. Interest payments are due semiannually on May 15 and November 15. |
The fair value of the Company’s long-term borrowings was approximately $1.3 billion at June 30, 2010 and was estimated based on quoted market prices. We paid interest on our debt totaling $24.9 million and $25.0 million for the three months ended June 30, 2010 and 2009, respectively, and $35.7 million and $35.8 million during the six months ended June 30, 2010 and 2009, respectively. |
9
Additional Financing | ||
Currently, we have the ability to borrow additional funds through our commercial paper program, which is supported by our credit facility. Historically, we have also had the ability to borrow additional funds through Extendible Commercial Notes (“ECNs”) and a promissory note. However, in the current credit environment the market for ECNs and financing through our promissory note are not available and, as such, we have no short-term plans to utilize these sources for additional funds. As of June 30, 2010 and December 31, 2009, we have not utilized any of these sources for additional funds. As of June 30, 2009, we have only borrowed under the commercial paper program. | ||
Commercial Paper Program | ||
The size of our total commercial paper program is $1.2 billion and is supported by the revolving credit agreements described below. Commercial paper borrowings outstanding at June 30, 2009 totaled $89.6 million, with an average interest rate and average term of 0.2% and 13 days, respectively. These borrowings are classified as current notes payable in the consolidated balance sheet as of June 30, 2009. | ||
Credit Facility | ||
Our credit facility serves as a backup facility for short-term financing requirements that normally would be satisfied through the commercial paper program. Our combined credit facility totals $1.2 billion and consists of two separate tranches, a $433.3 million 364-day facility that will terminate on August 13, 2010 and a $766.7 million 3-year facility that will terminate on September 12, 2011. Based on our credit rating, we currently pay a commitment fee of 12.5 basis points for the 364-day facility and a commitment fee of 10 basis points for the 3-year facility, whether or not amounts have been borrowed. The interest rate on borrowings under the credit facility is, at our option, based on (i) a spread over the prevailing London Inter-Bank Offer Rate (“LIBOR”) that is based on our credit rating (“LIBOR loans”) or (ii) on the higher of (a) the prime rate, which is the rate of interest publicly announced by the administrative agent (b) 0.5% plus the Federal funds rate, or (c) LIBOR plus 1% (“ABR loans”). | ||
We have the option at the termination of the 364-day facility to convert any revolving loans outstanding into term loans for an additional year. Term loans can be LIBOR loans or ABR loans and would carry an additional spread of 1.0%. | ||
The credit facility contains certain covenants. The only financial covenant requires that we not exceed indebtedness to cash flow ratio, as defined in the credit facility, of 4 to 1, and this covenant has never been exceeded. | ||
Extendible Commercial Notes (“ECNs”) | ||
We have the capacity to issue ECNs of up to $240 million, provided that sufficient investor demand for the ECNs exists. ECNs replicate commercial paper, except that we have an option to extend the note beyond its initial redemption date to a maximum final maturity of 390 days. However, if exercised, such an extension is at a higher reset rate, which is at a predetermined spread over LIBOR and is related to our commercial paper rating at the time of extension. As a result of the extension option, no backup facilities for these borrowings are required. As is the case with commercial paper, ECNs have no financial covenants. As of June 30, 2010, we have no borrowings outstanding and have no short-term plans to utilize ECNs for additional funds. | ||
Promissory Note | ||
On April 19, 2007, we signed a promissory note with one of our providers of banking services to enable us to borrow additional funds, on an uncommitted basis, from time to time to supplement our commercial paper and ECN borrowings. The specific terms (principal, interest rate and maturity date) of each borrowing governed by this promissory note are determined on the borrowing date of each loan. These borrowings have no financial covenants. As of June 30, 2010, we have no borrowings outstanding and have no short-term plans to utilize our promissory note for additional funds. | ||
Share Repurchases | ||
In the second quarter of 2010, cash was utilized to repurchase approximately 6.5 million shares for $186.9 million. |
8. | Common Shares Outstanding |
The weighted average number of shares used for calculating basic and diluted earnings per common share for the periods ended June 30 is as follows: |
Three Months | Six Months | |||||||||||||||
(in thousands) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
|
||||||||||||||||
Average number of common shares outstanding — basic
|
311,167 | 312,226 | 312,263 | 311,862 | ||||||||||||
Effect of stock options and other dilutive securities
|
2,000 | 807 | 2,446 | 663 | ||||||||||||
|
||||||||||||||||
Average number of common shares outstanding — dilutive
|
313,167 | 313,033 | 314,709 | 312,525 | ||||||||||||
|
10
The computation of diluted earnings per share excludes certain restricted performance shares outstanding and certain stock options outstanding. | ||
Restricted performance shares outstanding of 3.4 million and 3.7 million at June 30, 2010 and 2009, respectively, were not included in the computation of diluted earnings per common share because the necessary vesting conditions have not yet been met. | ||
The effect of the potential exercise of stock options is excluded from the computation of diluted earnings per share when the average market price of the common stock is lower than the exercise price of the related option during the period because the effect would have been antidilutive. For the three months ended June 30, 2010 and 2009, the number of stock options excluded from the computation was 24.4 million and 26.3 million, respectively, and 23.8 million and 29.4 million for the six months ended June 30, 2010 and 2009, respectively. |
9. | Retirement Plans and Postretirement Healthcare and Other Benefits |
We have a number of defined benefit pension plans and defined contribution plans covering substantially all employees. Our primary pension plan is a noncontributory plan under which benefits are based on employee career employment compensation. We also have unfunded non-U.S. and supplemental benefit plans. The supplemental benefit plans provide senior management with supplemental retirement, disability and death benefits. In addition, we sponsor voluntary 401(k) plans under which we may match employee contributions up to certain levels of compensation as well as profit-sharing plans under which we contribute a percentage of eligible employees’ compensation to the employees’ accounts. We also provide certain medical, dental and life insurance benefits for retired employees and eligible dependents. The medical and dental plans are contributory while the life insurance plan is non-contributory. | ||
A summary of net periodic benefit cost for our defined benefit plans and postretirement healthcare and other benefits plan for the periods ended June 30 is as follows: |
Three Months | Six Months | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
|
||||||||||||||||
Pension Benefits
|
||||||||||||||||
Service cost
|
$ | 14,363 | $ | 14,373 | $ | 30,550 | $ | 28,795 | ||||||||
Interest cost
|
23,179 | 21,295 | 46,915 | 42,881 | ||||||||||||
Expected return on plan assets
|
(27,760 | ) | (26,196 | ) | (55,685 | ) | (52,169 | ) | ||||||||
Amortization of prior service credit
|
4 | (68 | ) | (78 | ) | (129 | ) | |||||||||
Amortization of actuarial loss
|
3,632 | 1,059 | 7,392 | 2,714 | ||||||||||||
|
||||||||||||||||
Net periodic benefit cost
|
$ | 13,418 | $ | 10,463 | $ | 29,094 | $ | 22,092 | ||||||||
|
||||||||||||||||
|
||||||||||||||||
Postretirement Healthcare and Other Benefits
|
||||||||||||||||
Service cost
|
$ | 596 | $ | 562 | $ | 1,237 | $ | 1,260 | ||||||||
Interest cost
|
1,654 | 2,046 | 3,670 | 4,208 | ||||||||||||
Amortization of prior service credit
|
(297 | ) | (297 | ) | (593 | ) | (593 | ) | ||||||||
Amortization of actuarial gain
|
(143 | ) | — | — | — | |||||||||||
|
||||||||||||||||
Net periodic benefit cost
|
$ | 1,810 | $ | 2,311 | $ | 4,314 | $ | 4,875 | ||||||||
|
The amortization of prior service credit and amortization of loss for the periods ended June 30, 2010 and 2009, included in the above table, have been included in other comprehensive income, net of tax. | ||
In 2010, the expected rate of return on plan assets is 8.0% based on a market-related value of assets, which recognizes changes in market value over five years. We changed certain assumptions on our pension and postretirement healthcare and other benefit plans which became effective on January 1, 2010: |
• | We changed our discount rate assumption on our U.S. retirement plans to 5.95% from 6.10% in 2009. | ||
• | We changed our discount rate assumption on our United Kingdom (“U.K.”) retirement plan to 5.90% from 5.80% and our assumed compensation increase factor for our U.K. retirement plan to 6.25% from 5.50%. | ||
• | We changed our discount rate on our postretirement healthcare benefit plan to 5.30% from 5.95% in 2009. |
The effect of the assumption changes on pension and other postretirement healthcare expense for the three and six months ended June 30, 2010 and 2009 did not have a material effect on earnings per share. | ||
In 2010, we contributed $14.1 million to our retirement plans, primarily related to our U.K. retirement plan. Additionally, for the rest of 2010 we expect to contribute approximately $13.9 million to our retirement plans. |
11
10. | Sale-Leaseback |
In December 2003, we sold our 45% equity investment in Rock-McGraw, Inc., which owns our headquarters building in New York City, and remained an anchor tenant of what continues to be known as The McGraw-Hill Companies building by concurrently leasing back space through 2020. As of June 30, 2010, we leased approximately 17% of the building space. Proceeds from the disposition were $382.1 million and the sale resulted in a pre-tax gain, net of transaction costs, of $131.3 million ($58.4 million after-tax) upon disposition. Due to our continued involvement in the building it was determined that we did not qualify for sale-leaseback accounting and, as a result, a pre-tax gain of $212.3 million ($126.3 million after-tax) was deferred upon the disposition in 2003. This gain is being amortized over the remaining lease term as a reduction in rent expense. For the three and six months ended June 30, 2010, $4.6 million and $9.2 million was amortized, respectively, reducing the deferred gain to $153.5 million. Interest expense associated with our operating lease for the three and six months ended June 30, 2010 is $1.8 million and $3.6 million, respectively. |
11. | Income Taxes |
For the three and six months ended June 30, 2010 and 2009, the effective tax rate was 36.4%. | ||
At the end of each interim period, we estimate the annual effective tax rate and apply that rate to our ordinary quarterly earnings. The tax expense or benefit related to significant, unusual or extraordinary items that will be separately reported or reported net of their related tax effect, and are individually computed, are recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws or rates or tax status is recognized in the interim period in which the change occurs. | ||
The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in various jurisdictions, permanent and temporary differences, and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is acquired, additional information is obtained or as the tax environment changes. |
12. | Commitments and Contingencies |
The following amends the disclosure in Note 15 — Commitments and Contingencies to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2009. | ||
In connection with the Reese class action, the Court granted a motion by plaintiffs permitting the plaintiffs to amend the complaint on June 29, 2010 and the Second Amended Complaint was filed on July 1, 2010. | ||
In connection with the Patrick Gearren, et al and the Sullivan class actions both plaintiffs have filed appeals from the dismissals of their actions. | ||
In connection with the Teamsters Allied Benefit Funds v. Harold McGraw III, et al derivative action on March 11, 2010 the Court granted the Company’s motion to dismiss the complaint, and on March 23, 2010, after the plaintiffs’ time to file an amended complaint expired, the Court directed the clerk to close the case. |
13. | Restructuring |
2009 Restructuring | ||
During the second quarter 2009, we initiated a restructuring plan that included a realignment of select business operations within the McGraw-Hill Education segment to further strengthen our position in the market by creating a market focused organization that enhances our ability to address the changing needs of our customers. Additionally, we continued to implement restructuring plans related to a limited number of our business operations to contain costs and mitigate the impact of the current and expected future economic conditions. We recorded a pre-tax restructuring charge of $24.3 million, consisting primarily of employee severance costs related to a workforce reduction of approximately 550 positions. This charge consisted of $14.0 million for McGraw-Hill Education, $4.5 million for Financial Services and $5.8 million for Information & Media. In addition, during the second quarter 2009, we revised our estimate of previously recorded restructuring charges and reversed $9.1 million, consisting of $2.4 million for McGraw-Hill Education, $4.9 million for Financial Services and $1.8 million for Information & Media. The net after-tax charge recorded was $9.7 million, or $0.03 per diluted share and was classified as selling and general expenses within the consolidated statement of income. |
12
For the three and six months ended June 30, 2010, we have paid $3.1 million and $8.4 million, respectively, related to the 2009 restructuring, consisting of employee severance costs. The remaining reserve at June 30, 2010 is $4.6 million and is included in other current liabilities. | ||
2008 Restructuring | ||
During 2008, we continued to implement restructuring plans related to a limited number of business operations to contain costs and mitigate the impact of the current and expected future economic conditions. We recorded a pre-tax restructuring charge of $73.4 million, consisting primarily of employee severance costs related to a workforce reduction of approximately 1,045 positions. This charge consisted of $25.3 million for McGraw-Hill Education, $25.9 million for Financial Services, $19.2 million for Information & Media and $3.0 million for Corporate. The after-tax charge recorded was $45.9 million, or $0.14 per diluted share and was classified as selling and general expenses within the consolidated statement of income. | ||
For the three and six months ended June 30, 2010, we have paid $1.0 million and $3.5 million, respectively, related to the 2008 restructuring, consisting primarily of employee severance costs. The remaining reserve at June 30, 2010 is $5.6 million and is included in other current liabilities. | ||
2006 Restructuring | ||
During 2006, we recorded a pre-tax restructuring charge of $31.5 million, consisting primarily of vacant facilities and employee severance costs related to the elimination of 700 positions. This charge consisted of $16.0 million for McGraw-Hill Education, $8.7 million for Information & Media and $6.8 million for Corporate. The after-tax charge recorded was $19.8 million, or $0.06 per diluted share and was classified as selling and general expenses within the consolidated statement of income. | ||
For the three and six months ended June 30, 2010, we have paid $0.4 million and $0.8 million, respectively, related to the 2006 restructuring, consisting of facility costs. The remaining reserve at June 30, 2010, which consists of facilities costs, is $5.8 million and is payable through 2014. |
14. | Recently Issued or Adopted Accounting Standards |
In October 2009, the Financial Accounting Standards Board (“FASB”) issued an update to authoritative guidance for revenue recognition, specifically amending the existing multiple-element arrangement guidance. This new guidance eliminates the requirement that all undelivered elements have objective and reliable evidence of fair value before a company can recognize the portion of the overall arrangement fee that is attributable to the items that have already been delivered. Further, companies will be required to allocate revenue in arrangements involving multiple deliverables based on estimated selling price of each deliverable, even though such deliverables are not sold separately by either the company itself or other vendors. This new guidance also significantly expands the disclosures required for multiple-element revenue arrangements. The revised guidance will be effective for the fiscal year ending December 31, 2011. We are currently evaluating the impact this update will have on our Consolidated Financial Statements. |
In June 2009, the FASB issued amended guidance related to the accounting for variable interest entities (“VIEs”), which we adopted beginning January 1, 2010. This guidance requires a qualitative rather than a quantitative analysis to determine the primary beneficiary of a VIE; requires ongoing reassessments of whether an enterprise is a primary beneficiary of a VIE; enhances disclosures about an enterprise’s involvement with a VIE; and amends certain guidance for determining whether an entity is a VIE. We have evaluated our VIEs in accordance with this amended guidance and have determined that it does not have an impact on our Consolidated Financial Statements. |
13
• | Overview | ||
• | Results of Operations – Comparing Three and Six Months Ended June 30, 2010 and 2009 | ||
• | Liquidity and Capital Resources | ||
• | Critical Accounting Estimates | ||
• | Recently Issued or Adopted Accounting Standards | ||
• | “Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995 |
Three Months | Six Months | |||||||||||||||||||||||
2010 | 2009 | % Favorable | 2010 | 2009 | % Favorable | |||||||||||||||||||
Revenue
|
$ | 1,474,056 | $ | 1,465,180 | 0.6 | % | $ | 2,664,446 | $ | 2,613,387 | 2.0 | % | ||||||||||||
Operating profit *
|
$ | 363,827 | $ | 311,784 | 16.7 | % | $ | 589,880 | $ | 469,553 | 25.6 | % | ||||||||||||
% Operating margin
|
24.7 | % | 21.3 | % | 22.1 | % | 18.0 | % |
* | Operating profit is income before taxes on income, interest expense and corporate expense. |
• | MHE revenue improved 1.8% and operating profit improved significantly, primarily due to increases at Higher Education for both print and digital product, and increases at School Education Group in the adoption states. These increases were partially offset by declines in School Education Group related to open territory sales and custom testing revenue due to the discontinuation of several contracts. | ||
• | Financial Services revenue increased 1.6% and operating profit decreased 4.2%, primarily driven by increases in our index services, ratings services and growth at Capital IQ. These increases were partially offset by declines in structured finance and investment research products. | ||
• | I&M revenue declined 5.1% and operating profit improved significantly compared to the prior year, primarily driven by the divesture of BusinessWeek in December 2009. Offsetting this revenue decline was continued growth in our global commodities products related to oil and natural gas. Also offsetting the decline was an increase in non-auto sectors due to growth in syndicated research studies. |
• | MHE revenue and operating loss improved 1.7% and 81.6%, respectively, primarily due to increases at Higher Education for both print and digital product, increases at School Education Group in the adoption states and increases in formative assessment programs. The increases were partially offset by declines in School Education Group related to open territory sales and custom testing revenue due to the discontinuation of several contracts. | ||
• | Financial Services revenue and operating profit increased 5.3% and 3.3%, respectively. Revenue increases were largely due to growth in transaction revenues driven by high-yield corporate bond issuance. Credit ratings-related information products |
14
such as RatingsXpress and RatingsDirect also contributed strong growth as compared to the prior year. Additional growth occurred at Capital IQ. These increases were partially offset by declines in structured finance and in investment research products. | |||
• | I&M revenue declined 6.8% and operating profit improved significantly compared to the prior year, primarily driven by the divesture of BusinessWeek and decreases in our construction businesses. Offsetting this revenue decline was continued growth in our global commodities products related to oil and natural gas. |
Three Months | Six Months | |||||||||||||||||||||||
% Favorable | % Favorable | |||||||||||||||||||||||
2010 | 2009 | (Unfavorable) | 2010 | 2009 | (Unfavorable) | |||||||||||||||||||
Revenue
|
||||||||||||||||||||||||
Product
|
$ | 545,025 | $ | 525,813 | 3.7 | % | $ | 855,847 | $ | 815,211 | 5.0 | % | ||||||||||||
Service
|
$ | 929,031 | $ | 939,367 | (1.1 | %) | $ | 1,808,599 | $ | 1,798,176 | 0.6 | % | ||||||||||||
Operating-related expenses
|
||||||||||||||||||||||||
Product
|
$ | 259,075 | $ | 268,235 | 3.4 | % | $ | 432,058 | $ | 442,508 | 2.4 | % | ||||||||||||
Service
|
$ | 301,820 | $ | 314,270 | 4.0 | % | $ | 605,063 | $ | 628,936 | 3.8 | % | ||||||||||||
Selling and general expenses
|
$ | 547,719 | $ | 546,126 | (0.3 | %) | $ | 1,035,690 | $ | 1,037,437 | 0.2 | % | ||||||||||||
Total expenses
|
$ | 1,147,798 | $ | 1,168,853 | 1.8 | % | $ | 2,147,924 | $ | 2,192,719 | 2.0 | % | ||||||||||||
Interest expense — net
|
$ | 20,840 | $ | 18,499 | (12.7 | %) | $ | 42,879 | $ | 39,090 | (9.7 | %) | ||||||||||||
Net income attributable to The
McGraw-Hill Companies, Inc.
|
$ | 191,084 | $ | 164,093 | 16.4 | % | $ | 294,370 | $ | 227,097 | 29.6 | % | ||||||||||||
Diluted EPS
|
$ | 0.61 | $ | 0.52 | 17.3 | % | $ | 0.94 | $ | 0.73 | 28.8 | % |
15
Three Months | Six Months | |||||||||||||||||||||||
% Favorable | % Favorable | |||||||||||||||||||||||
2010 | 2009 | (Unfavorable) | 2010 | 2009 | (Unfavorable) | |||||||||||||||||||
Revenue
|
||||||||||||||||||||||||
School Education Group
|
$ | 324,912 | $ | 338,568 | (4.0 | %) | $ | 436,498 | $ | 461,215 | (5.4 | %) | ||||||||||||
Higher Education, Professional
and International
|
240,068 | 216,621 | 10.8 | % | 445,729 | 406,602 | 9.6 | % | ||||||||||||||||
|
||||||||||||||||||||||||
Total revenue
|
$ | 564,980 | $ | 555,189 | 1.8 | % | $ | 882,227 | $ | 867,817 | 1.7 | % | ||||||||||||
|
||||||||||||||||||||||||
Operating profit (loss)
|
$ | 51,581 | $ | 21,008 | N/M | $ | (10,211 | ) | $ | (55,588 | ) | 81.6 | % | |||||||||||
% Operating margin
|
9.1 | % | 3.8 | % | (1.2 | %) | (6.4 | %) |
* | N/M indicates not meaningful. |
16
• | SEG’s overall sales in the adoption states increased from the prior-year quarter, primarily due to increased K-12 sales for reading and literature in Texas, which did not adopt new materials in the prior year. Also contributing to the increase were higher sales in Florida, which is purchasing K-12 math in 2010 after a lighter adoption year in 2009. Offsetting this growth were reductions in new and residual sales in California; lower adoption sales in Indiana, where many districts have postponed purchasing; and in South Carolina, where scheduled high-school math adoption was not funded. | ||
• | SEG’s sales in the open territory decreased from the comparable prior-year quarter due to lower sales in Illinois, which suspended its textbook loan program, and declines in Ohio and Kansas. |
• | In the K-12 market, new basal programs are implemented at the beginning of the fall term, and therefore the majority of the purchasing is done in the second and third quarters. However, budget pressures exist in many states that could prevent districts from buying materials. | ||
• | SEG’s overall sales in the adoption states increased and sales in the open territory decreased from the comparable prior-year period due to the factors noted above for the quarter. |
• | Key titles contributing to the performance in the quarter included Shier, Hole’s Essentials of Human Anatomy and Physiology, 12/e; Sanderson, Computers in the Medical Office, 6/e; Nickels, Understanding Businesses, 9/e; Knorre, Puntos de Partida, 8/e; and Lucas, The Art of Public Speaking, 10/e . | ||
• | Digital growth was driven by the continued success of the Homework Management product line, which also includes assessment and tutoring products. E-book revenue also increased over the comparable prior-year period as we expanded both the number of titles available and the number of channels through which we sell our E-books. |
17
Three Months | Six Months | |||||||||||||||||||||||
% Favorable | ||||||||||||||||||||||||
2010 | 2009 | (Unfavorable) | 2010 | 2009 | % Favorable | |||||||||||||||||||
Revenue
|
||||||||||||||||||||||||
Credit Market Services
|
$ | 457,875 | $ | 457,404 | 0.1 | % | $ | 909,330 | $ | 848,754 | 7.1 | % | ||||||||||||
Investment Services
|
226,973 | 216,384 | 4.9 | % | 442,501 | 435,188 | 1.7 | % | ||||||||||||||||
|
||||||||||||||||||||||||
Total revenue
|
$ | 684,848 | $ | 673,788 | 1.6 | % | $ | 1,351,831 | $ | 1,283,942 | 5.3 | % | ||||||||||||
|
||||||||||||||||||||||||
Operating profit
|
$ | 264,742 | $ | 276,354 | (4.2 | %) | $ | 524,758 | $ | 507,947 | 3.3 | % | ||||||||||||
% Operating margin
|
38.7 | % | 41.0 | % | 38.8 | % | 39.6 | % |
18
Second Quarter | Year-to-Date | |||||||||||||||
Compared to Prior Year | Compared to Prior Year | |||||||||||||||
Structured Finance | U.S. | Europe | U.S. | Europe | ||||||||||||
Residential Mortgage-Backed Securities (“RMBS”)
|
(66.7 | %) | 353.6 | % | (46.6 | %) | 897.2 | % | ||||||||
Commercial Mortgage-Backed Securities (“CMBS”)
|
276.4 | % | (32.6 | %) | 578.2 | % | 232.6 | % | ||||||||
Collaterized Debt Obligations (“CDO”)
|
46.2 | % | * | 60.4 | % | 568.9 | % | |||||||||
Asset-Backed Securities (“ABS”)
|
(44.3 | %) | 93.3 | % | 6.2 | % | 52.8 | % | ||||||||
Total New Issue Dollars — Structured Finance
|
(43.0 | %) | 273.0 | % | (0.3 | %) | 487.7 | % |
* | The percentage change cannot be calculated as the result of no material issuance during the second quarter of 2009 for Europe CDO ($0.7 billion in 2010 vs. no material issuance in 2009). |
• | RMBS volume is down in the U.S. in the quarter and year-to-date due to lower re-REMIC activity. Additionally, the average transaction size has decreased significantly from the prior year. |
19
• | European RMBS issuance was up substantially from the very depressed levels in the prior year, but consisted primarily of covered bond issuance from financial institutions. | |
• | CMBS issuance is up in Europe for the six months and in the U.S. for the three and six months compared to no material issuance in the prior year. | |
• | CDO asset classes experienced greater demand in the quarter and year as a result of increased activity in leveraged funds from refinancing activity and the close of several structured credit transactions. However, the current year’s percentage increase is calculated from a low base in the comparable prior-year period. | |
• | ABS issuance in the U.S. is down for the second quarter of 2010 when compared to the prior year, primarily driven by reductions in credit card volumes due to concerns regarding recent changes in accounting and potential pending regulatory changes, which could increase the economic cost of securitization. | |
• | European ABS growth was primarily a result of a lower base in the comparable prior-year period. |
Second Quarter | Year-to-Date | |||||||||||||||
Compared to Prior Year | Compared to Prior Year | |||||||||||||||
Corporate Issuance | U.S. | Europe | U.S. | Europe | ||||||||||||
High-Yield Issuance
|
(7.1 | %) | 364.0 | % | 82.0 | % | 594.9 | % | ||||||||
Investment Grade
|
(62.6 | %) | (64.0 | %) | (56.1 | %) | (38.8 | %) | ||||||||
Total New Issue Dollars — Corporate Issuance
|
(52.9 | %) | (61.1 | %) | (42.3 | %) | (36.0 | %) |
• | Corporate issuance decreased in the second quarter in both the U.S. and Europe compared to the comparable prior-year period as fears and disruptions generated by the European sovereign debt crisis unsettled global markets. However, corporate high-yield debt issuance increased in both the U.S. and Europe for the current six-month period as the result of very strong issuance for the first four months of the current year due to increased activity in refinancing and a modest rebound in debt-financed mergers and acquisitions. |
20
Three Months | Six Months | |||||||||||||||||||||||
% Favorable | % Favorable | |||||||||||||||||||||||
2010 | 2009 | (Unfavorable) | 2010 | 2009 | (Unfavorable) | |||||||||||||||||||
Revenue
|
||||||||||||||||||||||||
Business-to-Business
|
$ | 198,927 | $ | 215,800 | (7.8 | %) | $ | 386,411 | $ | 422,943 | (8.6 | %) | ||||||||||||
Broadcasting
|
25,301 | 20,403 | 24.0 | % | 43,977 | 38,685 | 13.7 | % | ||||||||||||||||
|
||||||||||||||||||||||||
Total revenue
|
$ | 224,228 | $ | 236,203 | (5.1 | %) | $ | 430,388 | $ | 461,628 | (6.8 | %) | ||||||||||||
|
||||||||||||||||||||||||
Operating profit
|
$ | 47,504 | $ | 14,422 | N/M | $ | 75,333 | $ | 17,194 | N/M | ||||||||||||||
% Operating margin
|
21.2 | % | 6.1 | % | 17.5 | % | 3.7 | % |
* | N/M indicates not meaningful. |
21
• | Volatility in the oil and natural gas markets helps drive demand for commodities products. The U.S. Energy Information Administration projects that world oil consumption will grow by 1.5 million barrels per day in 2010, similar to previous forecasts. This growth is the result of an expected recovery in the global economy. Oil prices rose from a low this year of $64.24 per barrel to $75.63 on June 30, 2010, generally due to robust economic and energy demand growth. The recovering global oil demand is outpacing the growth in supply, which will exert upward pressure on energy prices, which will affect price volatility. | |
• | Demand for our construction offerings is somewhat dependent on the volatility in the construction industry. In the first six months of 2010, the dollar value of total U.S. construction starts was down 4% against the same period of the prior year. Residential building in the first six months of 2010 climbed 23%, given the comparison to an extremely weak first half of 2009 when the housing market hit bottom. Non-residential building decreased 15% while non-building construction slipped 10%. The overall level of construction starts is forecasted to advance 3% in 2010. | |
• | Demand for our automotive studies is driven by the performance of the automotive industry. In the first six months of 2010, the dollar value of total U.S. light vehicle sales was up 26% on a 17% increase in total sales volume against the same period of the prior year. This reflects a marked improvement in both volume and pricing, while overall incentives remain lower than they were a year ago. |
Six Months | ||||||||||||
2010 | 2009 | % Increase | ||||||||||
Net cash provided by (used for):
|
||||||||||||
Operating activities
|
$ | 359,534 | $ | 294,126 | 22.2 | % | ||||||
Investing activities
|
(100,905 | ) | (99,831 | ) | 1.1 | % | ||||||
Financing activities
|
(321,458 | ) | (120,106 | ) | N/M |
* | N/M indicates not meaningful. |
22
23
24
25
(c)Total Number of Shares | (d) Maximum Number of Shares | |||||||||||||||
(a)Total Number of | Purchased as Part of | that may yet | ||||||||||||||
Shares | (b)Average | Publicly Announced | be Purchased | |||||||||||||
Purchased | Price Paid per | Programs | Under the Programs | |||||||||||||
Period | (in millions) | Share | (in millions) | (in millions) | ||||||||||||
(Apr. 1 – Apr. 30, 2010)
|
— | — | — | 17.1 | ||||||||||||
(May 1 – May 31, 2010)
|
4.7 | 29.07 | 4.7 | 12.4 | ||||||||||||
(Jun. 1 – Jun. 30, 2010)
|
1.8 | 27.95 | 1.8 | 10.6 | ||||||||||||
Total – Qtr
|
6.5 | 28.76 | 6.5 | 10.6 |
(3)
|
Restated Certificate of Incorporation of the Company, incorporated by reference from the Company’s Form 8-K dated May 24, 2010 | |
|
||
(15)
|
Letter on Unaudited Interim Financials | |
|
||
(31.1)
|
Quarterly Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
|
||
(31.2)
|
Quarterly Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
|
||
(32)
|
Quarterly Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
|
||
(101.INS)*
|
XBRL Instance Document | |
|
||
(101.SCH)*
|
XBRL Taxonomy Extension Schema | |
|
||
(101.CAL)*
|
XBRL Taxonomy Extension Calculation Linkbase | |
|
||
(101.LAB)*
|
XBRL Taxonomy Extension Label Linkbase | |
|
||
(101.PRE)*
|
XBRL Taxonomy Extension Presentation Linkbase | |
|
||
(101.DEF)*
|
XBRL Taxonomy Extension Definition Linkbase |
* | Furnished, not filed |
26
THE MCGRAW-HILL COMPANIES, INC.
|
||||
Date: July 23, 2010 | By | /s/ Robert J. Bahash | ||
Robert J. Bahash | ||||
Executive Vice President and
Chief Financial Officer |
||||
Date: July 23, 2010 | By | /s/ Kenneth M. Vittor | ||
Kenneth M. Vittor | ||||
Executive Vice President and
General Counsel |
||||
Date: July 23, 2010 | By | /s/ Emmanuel N. Korakis | ||
Emmanuel N. Korakis | ||||
Senior Vice President and
Corporate Controller |
||||
27
No information found
* THE VALUE IS THE MARKET VALUE AS OF THE LAST DAY OF THE QUARTER FOR WHICH THE 13F WAS FILED.
FUND | NUMBER OF SHARES | VALUE ($) | PUT OR CALL |
---|
DIRECTORS | AGE | BIO | OTHER DIRECTOR MEMBERSHIPS |
---|
No information found
No Customers Found
Suppliers
Supplier name | Ticker |
---|---|
Cisco Systems, Inc. | CSCO |
Motorola Solutions, Inc. | MSI |
Veritiv Corporation | VRTV |
R. R. Donnelley & Sons Company | RRD |
Price
Yield
Owner | Position | Direct Shares | Indirect Shares |
---|