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The McGraw-Hill Companies (MHP)

Q4 2010 Earnings Call

February 01, 2011 8:30 am ET

Executives

Harold McGraw - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Jack Callahan - Chief Financial Officer and Executive Vice President

Donald Rubin - Senior Vice President of Investor Relations

Analysts

Douglas Arthur - Evercore Partners Inc.

Michael Meltz - JP Morgan Chase & Co

Sloan Bohlen - Goldman Sachs Group Inc.

Craig Huber -

Peter Appert - Piper Jaffray Companies

William Bird - Lazard Capital Markets LLC

Presentation

Operator

Good morning, and welcome to The McGraw-Hill Companies Fourth Quarter 2010 Earnings Call. [Operator Instructions] I'd now like to introduce Donald Rubin, Senior Vice President of Investor Relations for The McGraw-Hill Companies. Sir, you may begin.

Donald Rubin

Thank you, and good morning to our global audience and thank you, everyone, for joining us for The McGraw-Hill Companies Fourth Quarter 2010 Earnings Call. I'm Donald Rubin, Senior Vice President, Investor Relations at The McGraw-Hill Companies. With me today are Harold McGraw III, Chairman, President and CEO; and Jack Callahan, Executive Vice President and Chief Financial Officer. This morning, we issued a news release with our fourth quarter results. We trust you've all had a chance to review the release. If you need a copy of the release and the financial schedules, they can be downloaded at www.mcgraw-hill.com.

In today's earnings release and during the conference call, we are providing adjusted earnings per share, operating profit and corporate expense information. This information is provided to enable investors to make meaningful comparison of the company's operating performance between periods and to view the company's business from the same perspective as management's. The earnings release contains exhibits that reconcile the differences between the non-GAAP measures and comparable financial measures calculated in accordance with U.S. GAAP.

Before we begin, I also need to provide certain cautionary remarks about forward-looking statements. Except for historical information, the matters discussed in the teleconference may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including projections, estimates and descriptions of future events. Any such statements are based on current expectations and current economic conditions, and are subject to risks and uncertainties that may cause actual results to differ materially from results anticipated in these forward-looking statements. In this regard, we direct listeners to the cautionary statements contained in our Form 10-Ks, 10-Qs, and other periodic reports filed with the U.S. Securities and Exchange Commission.

We are aware that we do have some media representatives with us on the call. However, this call is for investors, and we would ask that questions from the media be directed to Jason Feuchtwanger in our New York office at area code (212) 512-3151 subsequent to this call. Today's update will last approximately an hour. After the presentations, we will open the meeting to questions and answers.

It's now my pleasure to introduce the Chairman, President and CEO of The McGraw-Hill Companies, Terry McGraw.

Harold McGraw

Okay. Thank you very much, Don, and good morning, everybody, and again, welcome to our conference call. With me today is Jack Callahan, our new financial officer. He joined the company in early December, and we're obviously so pleased to have him onboard.

This morning, we will be reviewing the fourth quarter 2010 earnings and prospects for The McGraw-Hill Companies in 2011. Following my presentation, Jack will review our financials. And after our presentation, we will obviously be pleased to answer any questions, to take any comments that you have about The McGraw-Hill Companies.

Earlier this morning, we were pleased to announce fourth quarter 2010 results and provide guidance on another year of growth, earnings growth in 2011. 2010 was a very good year. Briefly, recapping our 2010 results, we reported fourth quarter diluted earnings per share of $0.50 and $2.65 for the year. On an adjusted basis, fourth quarter earnings grew by 7.8% to $0.55 compared to $0.51 last year and by 13.5% to $2.69 for the full year. There was dilution from acquisitions of $0.01 in the fourth quarter and $0.02 for the full year. Excluding the impact of acquisitions and divestitures, revenue in 2010 increased by 5.3%. And that took it up to $6.2 billion.

To speed the flow of information and increase transparency for the investment community, we added several new exhibits to the fourth quarter earnings release including a consolidated balance sheet and cash flow statements. To reflect the previously announced realignment of financial services, we also provided quarterly 2009 and 2010 recasted revenue and operating profit for our new segments, McGraw-Hill Financial and Standard & Poor's.

Starting with our 2010 Form 10-K, we will begin reporting our results in four segments. That would be Standard & Poor's, for the credit rating side; McGraw-Hill Financial; McGraw-Hill Education; and McGraw-Hill Information & Media. This chart illustrates the recasted revenue and operating profit contributions of each of the four segments in 2010. By forming McGraw-Hill Financial as a four-segment, we have created a billion-dollar-plus business that recasted, produced 19% of our 2010 revenue and 20% of our adjusted segment operating profit. The establishment of McGraw-Hill Financial, under the leadership of Lou Eccleston, is the realization of a strategic concept that we began testing in 2008 with the creation of firms, the fixed income and risk management group within the S&P Investment Services. We wanted to leverage our intellectual property and create new opportunities for growth by deploying a horizontal management structure across vertical businesses to integrate core capabilities.

By creating the new segment, we have brought together a powerful portfolio of assets that were previously managed vertically, but strong and successful business lines. Now by acting with a coordinated, collaborative and the integrated model, these assets are the foundation of a business that can be greater than the sum of the parts. We will drive organic growth through the development of new, integrated solutions from our proprietary assets and build new, innovative and differentiated solutions for clients to manage investments as well as trading strategies.

With the new ability to deliver a broad and deep suite of products for investors across asset classes, McGraw-Hill Financial is positioned to capitalize on growth trends in global markets for financial information, data and analytics. Capabilities are key to the new segment. With core capabilities, McGraw-Hill Financial will leverage content, data sets, analytics and technology in a coordinated framework from launching new products and services.

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