This summary is based on the third quarter fiscal 2007 earnings call conducted by McGraw-Hill Companies Inc. (MHP: chart) on October 18, 2007.

Management:
Senior Vice President of Investor Relations: Donald Rubin
Chairman, President and CEO: Terry McGraw
Chief Finance Officer: Robert Bahash

Key Investors Issues

- Income rose 18.2% to $452 million from $382 million in 2006.
- Revenues increased from $2 billion in 2006 to $2.2 billion.
- The firm bought back 10.5 million shares for $616 million.

Year-to-date Highlights

- Net income was $872.9 million, up 29% from $677 million.
- Revenue grew by 11.6% to $5.2 billion from $4.7 billion in 2006.
- EPS increased by 36% to $2.50.

Third Quarter Highlights

Income rose 18.2% from $382 million in 2006 to $452 million driven by increased share in the elementary-high school market and solid performances in Financial Services even as the structured finance market deteriorated.

- Earnings per share were up 26.4% to $1.34 from $1.06 last year as the 2006 figures included a 3 cents charge for restructuring.
- Revenue increased 9.8% to $2.2 billion from $2 billion in 2006 and was positively impacted by foreign exchange rate translations of $21.3 million.
- Interest expense was $15.4 million, up from $7.5 million in the prior year due to the increased debt obligations.

Corporate expenses decreased $9.5 million or 20.1%, as compared to a year ago driven by lower incentive compensation and a one-time gain from the sale of an equity investment.

- The firm bought back 10.5 million shares for $616 million, and has spent $1.9 billion to date for 30 million shares, leaving 35 million shares outstanding in the 2007 authorised repurchase program.
- Consequently, borrowings increased to $879 million as a result of additional borrowings to fund additional share repurchases.
Capital expenditures, notably purchases of property and equipment were $63 million, up from $25 million in 2006 due to the construction of a new data center along with technology investments to digitalize products and services.

Segment Review:

- In Education revenue increased 9.9% to $1.2 billion, driving a 16.1% rise in operating profit to $411 million.
- The results included a pre-tax gain of $4.1 million on the divestiture of product line for the parochial schools.
- Revenue for the McGraw-Hill School Education group grew at 11.2% to $671 million, and revenue for the McGraw-Hill Higher Education Professional and International group increased by 8.1% to $505 million.
- To improve competitive position, the firm reorganized the base of operations a year ago in order to strengthen sales, marketing and product development initiatives.

The firm also stepped up new product introductions, to take advantage of the new opportunities in an expanding market.

- The reorganized School Education Group competed in the entire state new adoption market, which is growing 14% to 20% and will be worth $780 million to $820 million this year and earlier forecast called for 10% to 15% growth and $750 million to $800 million range.
- The company is taking an industry-leading 32% market share of this expanded market, up from 20% in the prior year.
- The group led all competitors in California and South Carolina for K-8 science and Grade 6 through 8 math in Texas and was placed first in all six states adopting music for the Elementary Grade.
- Treasures, the K through 5 balanced basal reading program, led the market in Indiana and competed very well in Oregon and Tennessee.

The firm realized more than 30% capture rates in both the K-5 and Grade 6 through 12 state new adoption markets, further confirming the success of the reorganization.

- Additional share was also taken with Everyday Mathematics, a reform based program, as this program took the leading share in New Mexico’s K through 5 math adoption and sold very well in the open territory, winning business in both urban and suburban markets.
- The firm also captured significant business in small, but profitable markets, such as health, business education, technical and vocational education, as well as family and consumer science.
- Despite the greater strength noted during the year in the state new adoption market, there has been a slower than expected growth in open territory.
- The supplemental market has been soft all year as there is less demand for traditional stand-alone supplemental products, especially those not correlated with state standards.

There is also a steady growing demand for well-designed supplemental intervention programs for students that are performing below Grade level.

- The firm has notched successes with the Kaleidoscope Literacy and Numbers World math programs, and this will enable the company to gain more traction in the supplemental market.
- Because of the softness in the open territory, the total high market will grow in the 3% to 5% range this year, down from the 5% to 7% originally forecasted.
- In Indiana, the firm won a one-year extension of the current Summit and a two-year contract beginning in 2008 and a renewable for another two years.
- A five year renewal contract was also won in West Virginia and the firm is seeing some promising gains in the formative, or the low stakes end of the market, for the new acuity product which won a five year contract worth $80 million from New York City.