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The McGraw-Hill Companies (MHP)

Q3 2012 Earnings Call

November 02, 2012 8:30 am ET


Robert S. Merritt - Vice President of Investor Relations

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

John F. Callahan - Chief Financial Officer and Executive Vice President


William G. Bird - Lazard Capital Markets LLC, Research Division

Manav Patnaik - Barclays Capital, Research Division

George K. Tong - Piper Jaffray Companies, Research Division

Craig Huber

David Reynolds - Jefferies & Company, Inc., Research Division

William A. Warmington - Raymond James & Associates, Inc., Research Division



Good morning, and welcome to The McGraw-Hill Companies' Conference Call. I'd like to inform you that this call is being recorded for broadcast. [Operator Instructions] To access the webcast and slides, go to and click on the link for the third quarter earnings webcast. [Operator Instructions]

I'd now like to introduce Mr. Chip Merritt, Vice President of Investor Relations for The McGraw-Hill Companies. Sir, you may begin.

Robert S. Merritt

Good morning, and thank you for joining us for McGraw-Hill's Third Quarter 2012 Earnings Call. This morning, we issued a news release with our results. We trust you've all had a chance to review it. If you need a copy of the release and financial schedules, they can be downloaded at Once again, that's

In today's earnings release and during the conference call, we are providing adjusted financial information. This information is provided to enable investors to make meaningful comparisons of the corporation's operating performance between periods and to view the corporation's business from the same perspective as management's. The earnings release contains exhibits that reconcile the differences between the non-GAAP measures and the comparable financial measures calculated in accordance with U.S. GAAP. The results for the prior year quarter also reflect the reclassification of the Broadcasting Group as a discontinued operation.

Before we begin, I 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 intended for investors, and we would ask that questions from the media be directed to Patti Rockenwagner in our New York office at (212) 512-3533.

Now I would like to turn the call over to Harold McGraw III, Chairman, President and CEO of The McGraw-Hill Companies. Terry?

Harold Whittlesey McGraw

Okay. Thank you very much, Chip. And good morning, everyone, and welcome to today's conference call. Joining me on today's conference call is Jack Callahan, our Chief Financial Officer. This morning, Jack and I will review our corporate results. We're going to provide an update on our Growth and Value Plan progress. We'll provide a detailed look at the segment results that make up what will be McGraw-Hill Financial and McGraw-Hill Education and then, provide an outlook for the balance of the year.

Now, like many other New York companies, we delayed our earnings report from Wednesday to today to accommodate employees and shareholders impacted by Hurricane Sandy. And thankfully, all of our employees are safe, and our business continuity plans are operating effectively. Our employees have really stepped up to work through the many challenges, and I'm grateful to them and to the state and city workers who have done so much to help us over this past week. And I hope those of you on the phone affected by the storm are safe and starting the process to return to some state of normality as well.

All right. Let me begin by saying that we are pleased by the success of our Growth and Value Plan and the strong results of the McGraw-Hill Financial businesses. Now while the Education company is facing some very tough current challenges in the U.S. education sector, we feel very excited by the promise of digital learning and by our new digital products and services, which are improving learning outcomes for students everywhere. And this digital transformation is gaining momentum, and we'll talk about that in just a little bit.

During the third quarter, the company delivered a 2% increase in revenue. McGraw-Hill Financial, which realized a boost from the robust global issuance, delivered a 15% increase in revenue. Separately, McGraw-Hill Education delivered an 11% decrease in revenue as it managed the impact of the weakest level of state funding for K-12 textbooks in the past decade. Adjusted operating profit increased 3%, and due to our aggressive share repurchase program, we delivered 10% growth in adjusted diluted earnings per share, and Jack will provide a little additional financial detail on that in just a moment.

A little over a year ago, we made a set of commitments in this Growth and Value Plan, and I'm proud of the substantial progress that our employees have made on each of these commitments. And let me take a moment and just walk through these different commitments and give you an update as to where we are.

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