e10vq

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-1023

THE MCGRAW-HILL COMPANIES, INC.

(Exact name of registrant as specified in its charter)


New York		13-1026995

(State of other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


1221 Avenue of the Americas, New York, N.Y.		10020

(Address of Principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (212) 512-2000

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES þ NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o
(Do not check if a smaller reporting company)

Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o NO þ

On July 17, 2009 there were approximately 314.8 million shares of common stock (par value $1.00 per share) outstanding.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
of The McGraw-Hill Companies, Inc.

We have reviewed the consolidated balance sheet of The McGraw-Hill Companies, Inc., as of June 30, 2009, and the related consolidated statements of income for the three-month and six-month periods ended June 30, 2009 and 2008, and the consolidated statements of cash flows for the six-month periods ended June 30, 2009 and 2008. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of The McGraw-Hill Companies, Inc. as of December 31, 2008, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended, not presented herein, and in our report dated February 24, 2009, we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph for the adoption of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109”, effective January 1, 2007. As described in Note 1, on January 1, 2009, The McGraw-Hill Companies, Inc. adopted Statement of Financial Accounting Standards (“SFAS”) No. 160 “Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51,” (“SFAS No. 160”) on a retrospective basis resulting in revision of the December 31, 2008, consolidated balance sheet. We have not audited and reported on the revised balance sheet reflecting the adoption of SFAS No. 160.

/s/ ERNST & YOUNG LLP

July 29, 2009

Part I
Financial Information

Item 1. Financial Statements

The McGraw-Hill Companies, Inc.
Consolidated Statement of Income
(Unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in thousands, except per share data)	2009			2008			2009			2008

Revenue
Product	$	525,813		$	634,112		$	815,211		$	951,755
Service		939,367			1,039,113			1,798,176			1,939,341

Total revenue		1,465,180			1,673,225			2,613,387			2,891,096
Expenses
Operating-related
Product		268,235			278,220			442,508			460,266
Service		314,270			368,934			628,936			695,199

Operating-related expenses		582,505			647,154			1,071,444			1,155,465
Selling and general
Product		237,805			276,376			419,799			473,746
Service		308,321			341,459			617,638			660,862

Selling and general expenses		546,126			617,835			1,037,437			1,134,608
Depreciation		28,782			30,411			58,194			57,938
Amortization of intangibles		11,440			13,144			25,644			27,344

Total expenses		1,168,853			1,308,544			2,192,719			2,375,355

Income from operations		296,327			364,681			420,668			515,741
Other loss		13,849			—			13,849			—
Interest expense — net		18,499			20,354			39,090			38,184

Income before taxes on income		263,979			344,327			367,729			477,557
Provision for taxes on income		96,088			127,377			133,853			176,044

Net income		167,891			216,950			233,876			301,513
Less: net income attributable to noncontrolling interests		(3,798	)		(4,656	)		(6,779	)		(8,109	)

Net income attributable to The McGraw-Hill Companies, Inc.	$	164,093		$	212,294		$	227,097		$	293,404


Earnings per common share:
Basic	$	0.53		$	0.67		$	0.73		$	0.92
Diluted	$	0.52		$	0.66		$	0.73		$	0.91

Average number of common shares outstanding:
Basic		312,226			317,746			311,862			318,875
Diluted		313,033			321,087			312,525			322,273

Dividend declared per common share	$	0.225		$	0.22		$	0.45		$	0.44

See accompanying notes.

The McGraw-Hill Companies, Inc.
Consolidated Balance Sheet
(Unaudited)


	June 30,			December 31,			June 30,
(in thousands)	2009			2008			2008
ASSETS
Current assets:
Cash and equivalents	$	556,131		$	471,671		$	355,304
Accounts receivable (net of allowance for doubtful accounts and sales returns)		1,049,447			1,060,858			1,266,221
Inventories		389,885			369,679			496,594
Deferred income taxes		283,635			285,364			285,583
Prepaid and other current assets		118,124			115,151			137,180

Total current assets		2,397,222			2,302,723			2,540,882

Prepublication costs (net of accumulated amortization)		540,276			552,534			613,965
Investments and other assets:
Assets for pension benefits		57,417			52,994			263,535
Deferred income taxes		53,484			79,559			14,490
Other		171,218			176,900			179,212

Total investments and other assets		282,119			309,453			457,237

Property and equipment — at cost		1,568,055			1,573,951			1,626,790
Less: accumulated depreciation		(984,012	)		(952,889	)		(978,637	)

Net property and equipment		584,043			621,062			648,153

Goodwill and other intangible assets:
Goodwill — net		1,688,748			1,703,240			1,724,192
Copyrights — net		154,292			162,307			170,835
Other intangible assets — net		411,316			428,823			449,331

Net goodwill and intangible assets		2,254,356			2,294,370			2,344,358

Total assets	$	6,058,016		$	6,080,142		$	6,604,595

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Notes payable	$	89,622		$	70,022		$	526,222
Accounts payable		285,509			337,459			361,467
Accrued royalties		49,435			111,471			57,301
Accrued compensation and contributions to retirement plans		326,822			420,515			368,008
Income taxes currently payable		75,552			17,209			101,781
Unearned revenue		1,098,505			1,099,167			1,102,692
Deferred gain on sale leaseback		10,978			10,726			10,480
Other current liabilities		481,170			464,134			472,332

Total current liabilities		2,417,593			2,530,703			3,000,283
Other liabilities:
Long-term debt		1,197,701			1,197,611			1,197,519
Deferred income taxes		3,154			3,406			126,559
Liability for pension and other postretirement benefits		599,081			606,331			284,900
Deferred gain on sale leaseback		153,542			159,115			164,561
Other non-current liabilities		220,927			230,105			246,279

Total other liabilities		2,174,405			2,196,568			2,019,818

Total liabilities		4,591,998			4,727,271			5,020,101

Commitments and contingencies (Note 12)
Shareholders’ equity :
Common stock		411,709			411,709			411,709
Additional paid-in capital		15,994			55,150			102,574
Retained income		6,156,140			6,070,793			5,703,049
Accumulated other comprehensive loss		(410,289	)		(444,022	)		(23,589	)
Less: common stock in treasury — at cost		(4,780,114	)		(4,811,294	)		(4,683,569	)

Total shareholders’ equity — controlling interests		1,393,440			1,282,336			1,510,174
Total shareholders’ equity — noncontrolling interests		72,578			70,535			74,320

Total shareholders’ equity		1,466,018			1,352,871			1,584,494

Total liabilities and shareholders’ equity	$	6,058,016		$	6,080,142		$	6,604,595

See accompanying notes.

The McGraw-Hill Companies, Inc.
Consolidated Statement of Cash Flows
(Unaudited)


	Six Months Ended
	June 30,
(in thousands)	2009			2008

Cash flows from operating activities
Net income	$	233,876		$	301,513
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation		58,194			57,938
Amortization of intangibles		25,644			27,344
Amortization of prepublication costs		98,429			94,229
Provision for losses on accounts receivable		15,880			9,215
Net change in deferred income taxes		(4,465	)		(21,632	)
Stock-based compensation		17,233			43,000
Loss on disposition of business		13,849			—
Other		(2,208	)		(1,976	)
Changes in operating assets and liabilities, net of effect of acquisitions and dispositions:
Accounts receivable		(1,397	)		(77,385	)
Inventories		(20,907	)		(143,096	)
Prepaid and other current assets		(14,221	)		(9,257	)
Accounts payable and accrued expenses		(207,234	)		(324,595	)
Unearned revenue		(6,575	)		8,111
Other current liabilities		22,389			(9,222	)
Net change in prepaid/accrued income taxes		67,926			90,828
Net change in other assets and liabilities		(7,361	)		(7,603	)

Cash provided by operating activities		289,052			37,412

Cash flows from investing activities
Investment in prepublication costs		(85,053	)		(131,900	)
Purchase of property and equipment		(16,898	)		(48,756	)
Acquisition of businesses		—			(34,666	)
Disposition of business and property and equipment		9,791			165
Additions to technology projects		(7,671	)		(10,141	)

Cash used for investing activities		(99,831	)		(225,298	)

Cash flows from financing activities
Additions to short-term debt, net		19,600			526,200
Dividends paid to shareholders		(141,750	)		(142,112	)
Repurchase of treasury shares		—			(275,549	)
Exercise of stock options		7,108			30,732
Excess tax benefits from share-based payments		10			1,320

Cash (used for)/provided by financing activities		(115,032	)		140,591

Effect of exchange rate changes on cash		10,271			6,503

Net change in cash and equivalents		84,460			(40,792	)
Cash and equivalents at beginning of period		471,671			396,096

Cash and equivalents at end of period	$	556,131		$	355,304

See accompanying notes.

The McGraw-Hill Companies, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts or as noted)

Basis of Presentation

		The financial information in this report has not been audited, but in the opinion of management all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly such information have been included. The operating results for the three and six months ended June 30, 2009 and 2008 are not necessarily indicative of results to be expected for the full year due to the seasonal nature of some of the Company’s businesses. The financial statements included herein should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (the “Annual Report”).

		The Company’s critical accounting policies are disclosed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the Company’s Annual Report for the year ended December 31, 2008. On an ongoing basis, the Company evaluates its 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 the Company’s critical accounting policies.

		Effective January 1, 2009, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 160 “Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51,” (“SFAS No. 160”). SFAS No. 160 amends Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to establish accounting and reporting standards for any noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary should be reported as a component of equity in the consolidated financial statements and requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interests.

		Accordingly, $72,578, $70,535 and $74,320 as of June 30, 2009, December 31, 2008 and June 30, 2008, respectively, have been reclassified from other non-current liabilities to shareholders’ equity.

		In the second quarter of 2009, the Company adopted SFAS No. 165, “Subsequent Events” (“SFAS No. 165”). SFAS No. 165 sets forth general standards of accounting for and the disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The Company has evaluated subsequent events through July 29, 2009, which represents the date the financial statements are issued. The initial adoption did not have an impact on its consolidated financial statements.

		Certain prior year amounts have been reclassified for comparability purposes.

Comprehensive Income

The following table is a reconciliation of the Company’s net income to comprehensive income for the periods ended June 30:


	Three Months						Six Months
	2009			2008			2009			2008
Net income	$	167,891		$	216,950		$	233,876		$	301,513
Other comprehensive income:
Foreign currency translation adjustment		36,313			(5,884	)		19,566			(2,301	)
Pension and other postretirement benefit plans, net of tax		12,102			(8,047	)		12,739			(7,830	)
Unrealized gain/(loss) on investment, net of tax		1,889			(1,815	)		1,743			(3,542	)

Comprehensive income		218,195			201,204			267,924			287,840
Less: comprehensive income attributable to noncontrolling interests		(6,747	)		(2,859	)		(7,094	)		(5,402	)

Comprehensive income attributable to The McGraw-Hill Companies, Inc.	$	211,448		$	198,345		$	260,830		$	282,438

Segment and Related Information

		The Company has 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 (“el-hi”), college and university, professional, international and adult education markets. During the second quarter of 2009, the segment incurred a net pre-tax restructuring charge that reduced operating profit by $11.6 million. During the second quarter of 2008, the segment incurred a pre-tax restructuring charge that reduced operating profit by $8.5 million.

		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 segment and the markets it serves are impacted by interest rates, the state of global economies, credit quality and investor confidence. During the second quarter of 2009, the segment incurred a net pre-tax restructuring benefit that increased operating profit by $0.4 million. In addition, during the second quarter of 2009 the segment incurred a pre-tax loss resulting from the sale of Vista Research, Inc. in May 2009 that reduced operating profit by $13.8 million. During the second quarter of 2008, the segment incurred a pre-tax restructuring charge that reduced operating profit by $15.2 million.

		The Information & Media segment includes business, professional and broadcast media, offering information, insight and analysis. During the second quarter of 2009, the segment incurred a net pre-tax restructuring charge that reduced operating profit by $4.0 million.

		Operating profit by segment is the primary basis for the chief operating decision maker of the Company, 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:


	2009					2008
			Operating					Operating
Three months	Revenue		Profit			Revenue		Profit
McGraw-Hill Education	$	555,189	$	21,008		$	670,846	$	70,276
Financial Services		673,788		276,354			735,477		303,142
Information & Media		236,203		14,422			266,902		24,799

Total operating segments		1,465,180		311,784			1,673,225		398,217
General corporate expense		—		(29,306	)		—		(33,536	)
Interest expense — net		—		(18,499	)		—		(20,354	)

Total Company	$	1,465,180	$	263,979	*	$	1,673,225	$	344,327	*

* Income before taxes on income

	2009					2008
			Operating					Operating
Six months	Revenue		Profit/(Loss)			Revenue		Profit/(Loss)
McGraw-Hill Education	$	867,817	$	(55,588	)	$	1,001,002	$	(20,586	)
Financial Services		1,283,942		507,947			1,379,778		567,194
Information & Media		461,628		17,194			510,316		36,525

Total operating segments		2,613,387		469,553			2,891,096		583,133
General corporate expense		—		(62,734	)		—		(67,392	)
Interest expense — net		—		(39,090	)		—		(38,184	)

Total Company	$	2,613,387	$	367,729	*	$	2,891,096	$	477,557	*


*		Income before taxes on income

Acquisitions and Dispositions

		In May 2009, the Company sold its Vista Research, Inc. business which was part of the Financial Services segment. This business was selected for divestiture, as it no longer fit within the Company’s strategic plans. This divestiture will enable 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, the Company recognized a pre-tax loss of $13.8 million ($8.8 million after-tax or $0.03 per diluted share), recorded as other loss.

		For the three and six months ended June 30, 2009 and 2008, all dispositions including the sale of Vista Research are immaterial to the Company individually and in the aggregate.

		For the three and six months ended June 30, 2009 and 2008, there were no material acquisitions individually and in the aggregate by the Company.

Stock-Based Compensation

Stock-based compensation for the periods ended June 30 is as follows:


	Three Months				Six Months
	2009		2008		2009		2008
Stock option expense	$	4,783	$	7,009	$	11,171	$	13,441
Restricted stock awards expense		4,620		14,947		6,062		29,559

Total stock-based compensation expense	$	9,403	$	21,956	$	17,233	$	43,000

The number of common shares issued upon exercise of stock options and the vesting of restricted stock awards are as follows:


	June 30,		December 31,		June 30,
(in thousands)	2009		2008		2008
Stock options exercised		270		1,433		1,088
Restricted stock vested		1,421		678		670

Total shares issued		1,691		2,111		1,758

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,
	2009		2008		2008
Allowance for doubtful accounts	$	70,176	$	76,341	$	68,038

Allowance for sales returns	$	119,610	$	192,344	$	127,561

Inventories:
Finished goods	$	377,320	$	349,203	$	471,815
Work-in-process		3,454		4,359		7,138
Paper and other materials		9,111		16,117		17,641

Total inventories	$	389,885	$	369,679	$	496,594

Accumulated amortization of prepublication costs	$	838,384	$	943,022	$	787,619

Debt

A summary of short-term and long-term debt outstanding follows:


	June 30,		December 31,		June 30,
	2009		2008		2008
5.375% Senior notes, due 2012 (a)	$	399,763	$	399,727	$	399,692
5.900% Senior notes, due 2017 (b)		399,200		399,152		399,104


	June 30,		December 31,		June 30,
	2009		2008		2008
6.550% Senior notes, due 2037 (c)		398,507		398,482		398,455
Commercial paper		89,600		70,000		526,200
Note payable		253		272		290

Total debt		1,287,323		1,267,633		1,723,741
Less: short-term debt including current maturities		89,622		70,022		526,222

Long-term debt	$	1,197,701	$	1,197,611	$	1,197,519

Senior Notes

		(a) As of June 30, 2009, the Company had outstanding $399.8 million of 2012 senior notes consisting 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 required to be made semiannually on February 15 and August 15.

		(b) As of June 30, 2009, the Company had outstanding $399.2 million of 2017 senior notes consisting of $400 million principal and an unamortized debt discount of $0.8 million. The 2017 senior notes, when issued in November 2007, were priced at 99.76% with a yield of 5.933%. Interest payments are required to be made semiannually on April 15 and October 15.

		(c) As of June 30, 2009, the Company had outstanding $398.5 million of 2037 senior notes consisting of $400 million principal and an unamortized debt discount of $1.5 million. The 2037 senior notes, when issued in November 2007, were priced at 99.605% with a yield of 6.580%. Interest payments are required to be made semiannually on May 15 and November 15.

Available Financing

		The size of the Company’s total commercial paper program remains $1.2 billion and is supported by the revolving credit agreement described below. Commercial paper borrowings outstanding at June 30, 2009 and 2008 totaled $89.6 million and $526.2 million, respectively, with an average interest rate and average term of 0.2% and 13 days, and 2.2% and 27 days, respectively. These total borrowings are classified as current notes payable in the consolidated balance sheet. Commercial paper borrowings outstanding at December 31, 2008 totaled $70.0 million, with an average interest rate and average term of 1.4% and 29 days.

		On September 12, 2008 the Company closed on two new revolving credit facility agreements totaling $1.15 billion collectively (the “new credit facility”) to replace the existing $1.2 billion five-year credit facility that was to expire on July 20, 2009. The new credit facility is with a syndicate of fourteen banks led by JP Morgan Chase and Bank of America. The existing credit facility was cancelled after the new facility became effective.

		The new credit facility consists of two separate tranches, a $383.3 million 364-day facility that will terminate on September 11, 2009 and a $766.7 million 3-year facility that will terminate on September 12, 2011. The Company pays a commitment fee of 8-17.5 basis points for the 364-day facility and a commitment fee of 10-20 basis points for the 3-year facility, depending upon the credit rating of the Company, whether or not amounts have been borrowed. At the Company’s current credit rating, the commitment fee is 8 basis points for the 364-day facility and 10 basis points for the 3-year facility. The interest rate on borrowings under the credit facility is, at the Company’s option, based on (i) a spread over the prevailing London Inter-Bank Offer Rate (“LIBOR”) that is calculated by multiplying the current 30 business day average of the CDX 5-year investment grade index by a percentage, ranging from 50-100% that is based on the Company’s credit rating (“LIBOR loans”), which at the Company’s current credit rating, the borrowing rate would be 50% of this index, with a minimum spread of 0.5%, or (ii) on the higher of prime, which is the rate of interest publicly announced by the administrative agent, or 0.5% plus the Federal funds rate (“ABR loans”).

		The Company has 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 0.35%.

		The new credit facility contains certain covenants. The only financial covenant requires that the Company not exceed indebtedness to cash flow ratio, as defined in the new credit facility, of 4 to 1. This covenant is similar to the previous credit agreements and has never been exceeded. There were no borrowings under either of the facilities as of June 30, 2009, December 31, 2008 and June 30, 2008.

		The Company has the capacity to issue Extendible Commercial Notes (“ECNs”) of up to $240 million, provided that sufficient investor demand for ECNs exists. ECNs replicate commercial paper, except that the Company has 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 the Company’s 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. There were no ECN borrowings outstanding as of June 30, 2009, December 31, 2008 and June 30, 2008. In the current credit environment, the ECN market is not available and the Company has no plans to utilize this market.

		On April 19, 2007, the Company signed a promissory note with one of its providers of banking services to enable the Company to borrow additional funds, on an uncommitted basis, from time to time to supplement its 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. There were no promissory note borrowings outstanding as of June 30, 2009, December 31, 2008 and June 30, 2008. In the current credit environment, the market for these instruments is currently not available and the Company has no plans to utilize them in the short-term.

		On January 1, 2009, the Company transferred most of Standard & Poor’s U.S. properties and assets from a division to a newly-formed, wholly-owned subsidiary. This reorganization was initiated to address future operational and financial conditions, and will not affect the ongoing conduct of Standard & Poor’s businesses, including the credit ratings business.

		In conjunction with this reorganization, a series of supplemental agreements were executed. They include a supplemental indenture for the Company’s $1.2 billion senior notes (three tranches of $400 million due in 2012, 2017 and 2037), amendments to the company’s current $1.15 billion Credit Agreement (including both the 364-day and the 3-year agreements), amendments to the commercial paper issuing and paying agency agreement (with JP Morgan Chase) and amended and restated commercial paper dealer agreements (with JP Morgan Chase, Morgan Stanley and Merrill Lynch). All of these agreements and amendments provide that the new S&P subsidiary will guarantee the senior notes issued pursuant to the indenture, amounts borrowed under the credit agreement and the commercial paper.

		Long-term debt was $1,197.7 million, $1,197.6 million and $1,197.5 million as of June 30, 2009, December 31, 2008 and June 30, 2008, respectively. The carrying amount of the Company’s borrowings approximates fair value at June 30, 2009. The Company paid interest on its debt totaling $25.0 million and $26.9 million during the three months ended June 30, 2009 and 2008, respectively, and $35.8 million and $34.2 million during the six months ended June 30, 2009 and 2008, respectively.

		In the second quarter of 2008, cash was utilized to repurchase approximately 3.3 million shares for $141.5 million on a settlement date basis. An additional 0.7 million shares were repurchased in the second quarter of 2008, which settled in July 2008. Accordingly, the Company recorded a liability of $29.2 million, classified in other current liabilities at June 30, 2008.

Common Shares Outstanding

A reconciliation of the 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)	2009		2008		2009		2008
Average number of common shares outstanding		312,226		317,746		311,862		318,875
Effect of stock options and other dilutive securities		807		3,341		663		3,398

Average number of common shares outstanding including the effect of dilutive securities		313,033		321,087		312,525		322,273

Restricted performance shares outstanding of 3.7 million and 3.3 million at June 30, 2009 and 2008, respectively, were not included in the computation of diluted earnings per common share because the necessary vesting conditions have not yet been met.

The weighted-average diluted shares outstanding for the three and six months ended June 30, 2009, excludes the effect of approximately 26.3 million and 29.4 million, respectively, of outstanding stock options because the effects were not dilutive. The weighted-average diluted shares outstanding for the three and six months ended June 30, 2008, excludes the effect of approximately 16.1 million for both periods, of outstanding stock options because the effects were not dilutive.

9. Retirement Plans and Postretirement Healthcare and Other Benefits

A summary of net periodic benefit cost for the Company’s defined benefit plans and postretirement healthcare and other benefits plan for the periods ended June 30 is as follows:


	Three Months						Six Months
Pension Benefits	2009			2008			2009			2008
Service cost	$	14,373		$	14,211		$	28,795		$	29,480
Interest cost		21,295			21,744			42,881			43,333
Expected return on plan assets		(26,196	)		(27,736	)		(52,169	)		(55,444	)
Amortization of prior service credit		(68	)		(111	)		(129	)		(222	)
Amortization of loss		1,059			884			2,714			1,608

Net periodic benefit cost	$	10,463		$	8,992		$	22,092		$	18,755


	Three Months						Six Months
Postretirement Healthcare and Other Benefits	2009			2008			2009			2008
Service cost	$	562		$	517		$	1,260		$	1,187
Interest cost		2,046			2,181			4,208			4,226
Amortization of prior service credit		(297	)		(296	)		(593	)		(593	)

Net periodic benefit cost	$	2,311		$	2,402		$	4,875		$	4,820

		The amortization of prior service credit and amortization of loss for the three and six months ended June 30, 2009 and 2008, included in the above table, have been recognized in the net periodic benefit cost and included in other comprehensive income, net of tax.

		In 2009, 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. The Company changed certain assumptions on its pension and postretirement healthcare and other benefit plans which became effective on January 1, 2009:

	•		The Company changed its discount rate assumption on its U.S. retirement plans to 6.10% from 6.25% in 2008.

	•		The Company changed its discount rate assumption on its United Kingdom (“U.K.”) retirement plan to 5.8% from 5.4% in 2008 and its assumed compensation increase factor for its U.K. retirement plan to 5.50% from 5.95%.

	•		The Company changed its discount rate and healthcare cost trend rate assumptions on its postretirement healthcare benefit plan. In 2009, the discount rate assumption changed to 5.95% from 6.0% in 2008, and the healthcare cost trend rate changed to 8.0% from 8.5% in 2008.

The effect of the assumption changes on pension and other postretirement healthcare expense for the three and six months ended June 30, 2009 did not have a material effect on earnings per share.

In 2009, the Company expects to contribute approximately $44 million to its retirement plans.

10.

Sale-Leaseback Transaction

		In December 2003, the Company sold its 45% equity investment in Rock-McGraw, Inc., which owns the Company’s headquarters building in New York City. The transaction was valued at $450.0 million, including assumed debt. Proceeds from the disposition were $382.1 million. The sale resulted in a pre-tax gain of $131.3 million and an after-tax benefit of $58.4 million, or $0.15 per diluted share in 2003.

		The Company remains an anchor tenant of what continues to be known as The McGraw-Hill Companies building and will continue to lease space from Rock-McGraw, Inc., under an existing lease through 2020. As of December 31, 2008, the Company leased approximately 17% of the building space. This lease is being accounted for as an operating lease. Pursuant to sale-leaseback accounting rules, as a result of the Company’s continued involvement, a pre-tax gain of approximately $212.3 million ($126.3 million after-tax) was deferred

and will be amortized over the remaining lease term as a reduction in rent expense. Information relating to the sale-leaseback transaction for the periods ended June 30 is as follows:


	Three Months						Six Months
	2009			2008			2009			2008
Reduction in rent expense	$	(4,591	)	$	(4,591	)	$	(9,183	)	$	(9,183	)
Interest expense	$	1,915		$	2,037		$	3,862		$	4,103

11.		Income Taxes

		The Company calculates its interim income tax provision in accordance with Accounting Principles Board Opinion No. 28, “Interim Financial Reporting” and Financial Accounting Standards Board (“FASB”) Interpretation No. 18, “Accounting for Income Taxes in Interim Periods”. At the end of each interim period, the Company estimates the annual effective tax rate and applies that rate to its 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.

		For the three and six months ended June 30, 2009, the effective tax rate was 36.4%. For the three and six months ended June 30, 2008, the effective tax rate was 37.0% and 36.9%, respectively. The decrease in the effective tax rate for the three and six months ended June 30, 2009 as compared to the same periods last year is primarily attributable to a decrease in state and local income taxes.

		Effective January 1, 2009, the Company adopted SFAS No. 160. This resulted in a change to the calculated effective tax rate for both the current and prior periods.

12.		Commitments and Contingencies

		The following amends the disclosure in Footnote 15 — Commitments and Contingencies to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

		In the normal course of business both in the United States and abroad, the Company and its subsidiaries are named as defendants in numerous legal proceedings and are involved, from time to time, in governmental and self-regulatory agency proceedings, which may result in adverse judgments, damages, fines or penalties. Also, various governmental and self-regulatory agencies regularly make inquiries and conduct investigations concerning compliance with applicable laws and regulations.

		Following developments in the subprime residential mortgage market, and the credit and financial markets more generally, the Company, together with other credit rating agencies, continues to be named in numerous lawsuits relating to the ratings activity of Standard & Poor’s Ratings Services by alleged purchasers of rated securities, many of which include novel claims that the Company is an “underwriter” or a “seller” under the Securities Act of 1933. There are currently pending numerous lawsuits in U.S. state and federal courts, as well as in foreign jurisdictions, asserting claims under a variety of state and federal laws, including the federal securities laws, relating to ratings activity in Financial Services, Public Finance and Structured Finance areas, as well as a lawsuit relating to the rating of Parmalat Finanziaria S.p.A. and Parmalat S.p.A. that was filed in 2005. The Company has also received numerous subpoenas and other government inquiries concerning its ratings activity in these areas and continues to respond to all such requests. Additional actions, investigations or proceedings may be initiated from time to time in the future.

		In addition, as further described in Footnote 15 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, the Company and certain of its officers and directors have been named in a

		putative class action brought under the federal securities laws by the Company’s shareholders, two putative class actions by participants in the Company’s ERISA plans, and a putative derivative action on behalf of the Company, all relating to alleged misrepresentations and omissions concerning the Company’s ratings business.

		In connection with the proceedings by the prosecutor’s office in Parma, Italy described in Footnote 15 to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, the Parma prosecutor’s office served a new Note of Completion on June 9, 2009. The Company believes that there is no basis in fact or law to support the allegations against the rating analysts, and they will be vigorously defended by the subsidiaries involved.

		In view of the inherent difficulty of predicting the outcome of legal matters, particularly where the claimants seek very large or indeterminate damages, or where the cases present novel legal theories, involve a large number of parties or are in early stages of discovery, the Company cannot state with confidence what the eventual outcome of these pending matters will be, what the timing of the ultimate resolution of these matters will be or what the eventual loss, fines, penalties or impact related to each pending matter may be. The Company believes, based upon its current knowledge, the outcome of the legal actions, proceedings and investigations currently pending against it should not have a material, adverse effect on the consolidated financial condition of the Company.

13.		Restructuring

		2009 Restructuring

		During the second quarter of 2009, the Company initiated a restructuring plan that included a realignment of select business operations within the McGraw-Hill Education segment to further strengthen their position in the market by creating a market focused organization that enhances its ability to address the changing needs of their customers. Additionally, the Company continued to implement restructuring plans related to a limited number of business operations across the Company to contain costs and mitigate the impact of the current and expected future economic conditions. The Company 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 of 2009, the Company revised its estimate for previously recorded restructuring charges and reversed approximately $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. Net restructuring expenses for McGraw-Hill Education were $11.6 million classified as selling and general product expenses, within the statement of income. Net restructuring benefit for Financial Services was $0.4 million classified as selling and general service expenses within the statement of income. Net restructuring expenses for Information & Media were $2.3 million classified as selling and general service expenses, and $1.7 million classified as selling and general product expenses, within the statement of income.

		The 2009 restructuring reserve at June 30, 2009 is approximately $24.3 million and is included in other current liabilities.

		2008 Restructuring

		During 2008, the Company continued to implement restructuring plans related to a limited number of business operations across the Company to contain costs and mitigate the impact of the current and expected future economic conditions. The Company 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. Restructuring expenses for McGraw-Hill Education were $20.8 million classified as selling and general product expenses, and $4.5 million classified as selling and general service expenses, within the statement of income. Restructuring expenses for Financial Services were classified as selling and general service expenses within the statement of income. Restructuring expenses for Information & Media were $18.9 million classified as selling and general service expenses, and $0.3 million classified as selling and general product expenses, within the statement of income. Restructuring charges for Corporate were classified as selling and general service expenses within the statement of income.

		For the three and six months ended June 30, 2009, the Company has paid approximately $15.0 million and $30.5 million, respectively, and reversed approximately $2.9 million related to the 2008 restructuring, consisting primarily of employee severance costs. The remaining reserve at June 30, 2009 is approximately $17.4 million and is included in other current liabilities.

		2007 Restructuring

		During 2007, the Company began implementing a restructuring plan related to a limited number of business operations across the Company to gain efficiencies, reflect current business conditions and to fortify its long-term growth prospects. As a result, the Company recorded a pre-tax restructuring charge of $43.7 million, consisting primarily of employee severance costs related to a workforce reduction of approximately 600 positions across the Company. This charge comprised $16.3 million for McGraw-Hill Education, $18.8 million for Financial Services, $6.7 million for Information & Media and $1.9 million for Corporate. The after-tax charge recorded was $27.3 million, or $0.08 per diluted share. Restructuring expenses for Financial Services and Corporate are classified as selling and general service expenses within the statement of income. Restructuring expenses for McGraw-Hill Education are classified as selling and general product expenses, $15.0 million, and selling and general service expense, $1.3 million, within the statement of income. Restructuring expenses for Information and Media are classified as selling and general product expenses, $0.4 million, and selling and general service expense, $6.3 million, within the statement of income.

		For the three and six months ended June 30, 2009, the Company has paid approximately $0.9 million and $2.2 million, respectively, and reversed approximately $6.2 million related to the 2007 restructuring, consisting primarily of employee severance costs. The remaining reserve at June 30, 2009 is approximately $0.7 million and is included in other current liabilities.

		2006 Restructuring

		During 2006, the Company 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 across the Company. This charge comprised $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. Restructuring expenses for Information & Media and Corporate are classified as selling and general service expenses within the statement of income. Restructuring expenses for McGraw-Hill Education are classified as selling and general product expenses, $9.3 million, and selling and general service expense, $6.7 million, within the statement of income.

		For the three and six months ended June 30, 2009, the Company has paid approximately $0.4 million and $0.7 million, respectively, related to the 2006 restructuring consisting of facility costs. At June 30, 2009, the remaining reserve, which consists of facilities costs, is approximately $7.3 million payable through 2014.

14.		Recently Issued Accounting Standards

		In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 168”). SFAS No. 168 replaces SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” and establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with Generally Accepted Accounting Principles. SFAS No. 168 is effective for interim and annual periods ending after September 15, 2009 and will not have a material impact on the Company’s consolidated financial statements.

		In December 2008, the FASB issued FASB Staff Position (“FSP”) FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (“FSP FAS 132(R)-1”). FSP FAS 132(R)-1 amends SFAS No. 132(R), “Employers’ Disclosures about Pension and Other Postretirement Benefits” and provides guidance on an employer’s disclosure about plan assets of a defined benefit pension or other postretirement plan. FSP FAS 132(R)-1 is effective for fiscal years ending after December 15, 2009. The Company is currently evaluating the impact FSP FAS 132(R)-1 will have on its consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Dollars in thousands, except per share amounts or as noted)

Results of Operations — Comparing Three Months Ended June 30, 2009 and 2008

Consolidated Review

The Segment Review that follows is incorporated herein by reference.

Revenue and Operating Profit


	Second						Second
	Quarter			%			Quarter
	2009			Decrease			2008

Revenue	$	1,465,180			(12.4	)%	$	1,673,225
Operating profit*	$	311,784			(21.7	)%	$	398,217

% Operating margin		21.3	%					23.8	%


*		Operating profit is income before taxes on income, interest expense and corporate expense.

•

Second quarter revenue and operating profit declined for all three operating segments.

	•		Financial Services revenue and operating profit declined 8.4% and 8.8%, respectively, largely due to continued weakness in Credit Market Services. A modest decrease in Investment Services was driven by declines in investment research products, index services and the impact of foreign exchange rates, partially mitigated by growth at Capital IQ.

	•		McGraw-Hill Education revenue and operating profit declined 17.2% and 70.1%, respectively, primarily due to softness at School Education Group partially offset by an increase in revenue at Higher Education.

	•		Information & Media revenue and operating profit declined 11.5% and 41.8%, respectively, driven by both Business-to-Business Group and Broadcasting where current economic weakness continues to drive declines in advertising. These decreases were partially offset by growth in Platts.

	•		Foreign exchange rates had an unfavorable impact on revenue and operating profit of $37.2 million and $4.8 million, respectively.

•

Product revenue and expenses consist of the McGraw-Hill Education and the Information & Media segments, and represents educational and information products, primarily books, magazine circulations and syndicated study programs.

	•		Product revenue decreased 17.1% or $108.3 million, primarily due to McGraw-Hill Education, driven by softness at School Education Group and the unfavorable impact of foreign exchange.

	•		Product operating expenses decreased 3.6% or $10.0 million, primarily due to McGraw-Hill Education decreased sales and a change in sales mix. Amortization of prepublication costs increased $5.1 million or 7.7% driven by timing of the adoption cycle.

	•		Product selling and general expenses decreased 14.0% or $38.6 million, primarily due to McGraw-Hill Education’s ongoing cost saving initiatives.

	•		Product margin decreased 880 basis points to 3.8% for the second quarter of 2009 primarily due to the decline in McGraw-Hill Education revenues driven by softness at School Education Group.

•

McGraw-Hill Education revenue declines were partially offset by reduced expenses due to lower sales, a change in sales mix and cost saving initiatives.

•

Service revenue and expenses consist of the Financial Services segment, the service assessment contracts of the McGraw-Hill Education segment and the remainder of the Information & Media segment, primarily related to information-related services and advertising.

•

Service revenue decreased 9.6% or $99.7 million, primarily due to Financial Services and the unfavorable impact of foreign exchange.

	•		Financial Services service revenue decreased primarily due to Credit Market Services, where continuing declines in structured finance were partially mitigated by increases in credit ratings-related information products such as RatingsXpress and RatingsDirect.

	•		Information & Media service revenue declined as current economic weakness continues to drive a decline in advertising spending. This was partially offset by growth in Platts services as the increased volatility in crude oil and other commodity prices drove the continued need for market information.

	•		Cancellation of McGraw-Hill Education assessment contracts contributed to this decline.

	•		Service operating expenses decreased 14.8% or $54.7 million, primarily due to cost reduction initiatives across the Company.

	•		Service selling and general expenses decreased 9.7% or $33.1 million, primarily due to the benefit of cost reduction initiatives across the Company.

	•		Service margin increased 210 basis points to 33.7% for the second quarter of 2009 primarily due to cost saving initiatives at all three segments.

•		Total expenses in the second quarter of 2009 decreased 10.7% or $139.7 million driven primarily by decreased sales and a change in sales mix at McGraw-Hill Education and reduced selling & general expenses due to cost saving initiatives.

•		During the second quarter of 2009, the Company initiated a restructuring plan that included a realignment of select business operations within the McGraw-Hill Education segment to further strengthen their position in the market by creating a market focused organization that enhances its ability to address the changing needs of their customers. Additionally, the Company continued to implement restructuring plans related to a limited number of business operations across the Company to contain costs and mitigate the impact of the current and expected future economic conditions. The Company 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. In addition, during the second quarter of 2009, the Company revised its estimate for previously recorded restructuring charges and reversed approximately $9.1 million. The net pre-tax charge recorded was $15.2 million ($9.7 million after-tax, or $0.03 per diluted share).

•		During the second quarter of 2008, the Company restructured a limited number of business operations in its Financial Services and McGraw-Hill Education segments to more efficiently serve its markets and strengthen its long-term growth prospects. The Company incurred a pre-tax restructuring charge of $23.7 million ($14.8 million after-tax, or $0.05 per diluted share), which consisted primarily of severance costs related to a workforce reduction of 395 positions.

•		In May 2009, the Company sold its Vista Research, Inc. business which was part of the Financial Services segment. During the second quarter of 2009, the Company recognized a pre-tax loss of $13.8 million ($8.8 million after-tax, or $0.03 per diluted share), recorded as other loss. This business was selected for divestiture, as it no longer fit within the Company’s strategic plans. This divestiture will enable the Financial Services segment to focus on its core business of providing independent research, ratings, data indices and portfolio services. The impact of this divestiture on comparability of results is immaterial.

•		Net interest expense decreased 9.1% to $18.5 million primarily due to a decrease in interest expense on commercial paper borrowings.

•		For the quarters ended June 30, 2009 and 2008, the effective tax rate was 36.4% and 37.0%, respectively. The Company expects the effective tax rate to be at 36.4% for the remainder of the year absent the impact of events such as intervening audit settlements, changes in federal, state or foreign law and changes in the geographical mix of the Company’s pre-tax income. The effective tax rates include the impact of the adoption of Statement of Financial Accounting Standard (“SFAS”) No. 160 “Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51,” (“SFAS No. 160”). This resulted in a change to the calculated effective tax rate for both the current and prior periods.

•		Net income attributable to the Company for the quarter decreased 22.7% or $48.2 million. Diluted earnings per common share decreased 21.2% to $0.52 from $0.66 in 2008.

•		Effective January 1, 2009, the Company adopted SFAS No. 160. SFAS No. 160 amends Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to establish accounting and reporting standards for any noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary should be reported as a component of equity in the consolidated financial statements and requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interests. Certain prior year amounts have been reclassified for comparability purposes in accordance with the requirements of SFAS No. 160.

Risks and Uncertainties

The world financial markets have been experiencing extreme volatility. These difficult conditions have impacted the businesses and results of operations of the Company and we do not expect these conditions to improve in the near term.

•		In the McGraw-Hill Education segment, the weakening global economy has resulted in declines in educational spending which have impacted our results of operations.

•		In the Financial Services segment, difficulties in the credit markets and shrinking investor confidence in the capital markets have resulted in a significant decline in global debt issuance which has impacted our results of operations in Credit Market Services.

•		In the Information & Media segment, the general weakening of the economy has resulted in declines in advertising and consumer and business spending.

Segment Review

McGraw-Hill Education


	Second						Second
	Quarter			%			Quarter
	2009			Decrease			2008

Revenue
School Education Group	$	338,568			(22.7	)%	$	438,194
Higher Education, Professional and International		216,621			(6.9	)%		232,652

Total revenue	$	555,189			(17.2	)%	$	670,846

Operating profit	$	21,008			(70.1	)%	$	70,276

% Operating margin		3.8	%					10.5	%

Revenue and Operating Profit

•		In the second quarter of 2009, revenue for the McGraw-Hill Education segment decreased 17.2% or $115.7 million from the prior year while operating profit decreased 70.1% or $49.3 million.

•		School Education Group (“SEG”) revenue declined for the quarter, a decrease driven primarily by lower state adoption sales. Reduced potential in the state new adoption market was coupled with reduced spending in the open territory and in the supplemental market as schools tightened their budgets in response to the continuing decline of state and local tax revenues in most regions.

	•		K-12 basal sales declined significantly in the adoption states. In the second quarter of 2008, SEG realized strong sales of K-5 reading in Florida, K-8 math and science in California, K-5 math in Texas, and various subjects in smaller states such as Alabama. The 2009 state new adoption market was expected to be smaller because Texas was not scheduled to buy new materials and because other states, including Alabama, planned to adopt in categories offering less revenue potential for the industry. The biggest opportunities were expected to be offered by 6-12 literature in Florida and K-8 reading and math in California, but economic problems have sharply limited 2009 purchasing in both states.

	•		K-12 sales in the open territory declined to a lesser extent, as reduced opportunities in many parts of the country were partially offset by quarter-over-quarter gains in areas such as Illinois, where SEG’s secondary products captured a strong share of the state’s annual textbook purchasing program.

	•		K-12 supplementary sales also declined, with growth in intervention products being offset by lower demand for backlist products.

	•		Non-custom or “shelf” testing revenue declined, despite a sales gain for the LAS Links product line.

	•		Formative assessment revenue increased driven by new adoptions, renewals, and expanded implementations of SEG’s successful Acuity program.

	•		Custom testing revenue declined due to a California contract that is ending and declines in the scope of work on other contracts in comparison to the prior-year quarter.

•

Higher Education revenue increased for both print and digital product driven by strong new publication lists at all four imprints, new digital offerings to support print sales, improved sales coverage in key regions and higher enrollments in the current academic year.

	•		Key titles contributing to the second quarter performance included Sanderson, Computers in the Medical Office, 6/e, Lucas, The Art of Public Speaking, 10/e, Shier, Hole’s Human Anatomy and Physiology, 12/e, Saladin, Anatomy and Physiology, 5/e, and Mader, Biology, 10/e.

	•		Digital revenue growth was driven by the continued success of the Homework Management product line, which included new releases on the improved and enhanced Connect platform.

•		Revenue in the professional market declined versus the prior-year quarter as book sales reflected the continuing weakness in the retail environment. Digital subscriptions had a favorable impact on the results for the quarter while digital licensing declined slightly.

•		International revenue decreased for the quarter, with strong demand for higher education products across most markets offset by lower school sales in some regions as well as softness in professional sales and the unfavorable impact of foreign exchange.

•		Operating margin declined primarily due to decreased revenues partially offset by a decline in selling and general expenses. Operations benefited from ongoing cost saving initiatives, lower operating expenses related to decreased sales, and a change in sales mix.

•		During the second quarter of 2009, the McGraw-Hill Education segment initiated a restructuring plan that included a realignment of select business operations within the segment to further strengthen their position in the market by creating a market focused organization that enhances its ability to address the changing needs of their customers. The restructuring charge consisted primarily of employee severance costs related to the reduction of approximately 340 positions. In addition, during the second quarter of 2009, the McGraw-Hill Education segment reversed accruals for previously recorded restructuring charges due to revised estimates. The net pre-tax restructuring charge recorded was $11.6 million. During the second quarter of 2008, the McGraw-Hill Education segment incurred a pre-tax restructuring charge of $8.5 million consisting of employee severance costs related to the reduction of approximately 150 positions.

•		Foreign exchange rates had a $10.1 million unfavorable impact on revenue but had an immaterial impact on operating profit for the quarter.

Industry Highlights and Outlook

•		The total available state new adoption market in 2009 is estimated at between $500 million and $550 million, depending on state funding availability. This compares with approximately $980 million in 2008. The 2009 estimate reflects lower anticipated purchasing rates in Florida and California due to state budget constraints as well as the impact of other announced adoption postponements. This estimate is dependent on several still to be determined fiscal year 2010 education budgets in key states, including California, as well as the impact of the federal stimulus funding on instructional materials purchasing.

•		Total U.S. PreK-12 enrollment for 2008-2009 is estimated at 56 million students, up 0.3% from 2007-2008, according to the National Center for Education Statistics.

•		The year’s key adoption opportunities are K-8 reading and math in California, K-12 reading in Georgia, K-12 science in Tennessee, K-12 social studies in Indiana, K-5 math in North Carolina, and 6-12 reading/literature in Florida. The Florida adoption was originally expected to offer one of the year’s largest markets, but the state has relaxed regulations that would have required districts to buy new literature programs, giving them flexibility to spend their instructional materials funds for other purposes. As a result, it appears that industry sales there will fall far short of projections. Postponements of district-level adoptions will likely also limit market potential in other states, notably California, where the state has withheld more than $4 billion in scheduled allocations to school districts year to date pending enactment of a budget, now overdue, for the fiscal year that began on July 1, 2009.

•		The Company expects to perform well with reading in California and Louisiana; math in California and South Carolina; science in Tennessee; and social studies in Indiana.

•		The U.S. Department of Education has begun releasing the first round of federal stimulus funding. The distribution of funding earmarked for IDEA and Title 1 programs has varied by state with some funding being held up at the state level. Eligible school districts should receive the bulk of their distributions for special education programs and Title 1 programs for disadvantaged students in the second half of the year. These funds may be used for instructional materials, among other purposes. The states are receiving first-round distributions from the State Fiscal Stabilization Fund (“SFSF”) on varying schedules depending on the submission and approval dates of their educational spending plans. While each state’s use of its SFSF funding will be somewhat different, the Company may benefit from increased spending on instructional materials or testing programs from this source.

•		According to statistics compiled by the Association of American Publishers (“AAP”), total net basal and supplementary sales of elementary and secondary instructional materials were down by 18% through May 2009 compared to the same period in 2008. Basal sales in adoption states and open territory for the industry decreased 21.9% compared to prior year. In the supplemental market, industry sales were down 8.9% versus prior year. The supplementary market has been declining in recent years, in large part because basal programs are increasingly comprehensive, offering integrated ancillary materials that reduce the need for separate supplemental products.

•		Refer to the Risks and Uncertainties included in the “Consolidated Review” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Financial Services


	Second						Second
	Quarter			%			Quarter
	2009			Decrease			2008

Revenue
Credit Market Services	$	457,404			(9.9	)%	$	507,896
Investment Services		216,384			(4.9	)%		227,581

Total Revenue	$	673,788			(8.4	)%	$	735,477

Operating profit	$	276,354			(8.8	)%	$	303,142

% Operating margin		41.0	%					41.2	%

Revenue and Operating Profit

•

Credit Market Services revenue decreased as the result of continuing declines in structured finance and the impact of foreign exchange rates. These declines were partially mitigated by increases in corporate industrial credit ratings, credit ratings-related information products such as RatingsXpress and RatingsDirect and other credit risk solutions products.

	•		Continued decreases in issuance volumes in Europe of residential mortgage-backed securities (“RMBS”), and in the U.S. of commercial mortgage-backed securities (“CMBS”), and in both the U.S. and Europe of collateralized debt obligations (“CDO”) and asset-backed securities (“ABS”) continued to contribute to the decrease in revenue. These declines more than offset the revenue benefit resulting from strong U.S. high yield corporate issuance.

	•		Growth in information products was driven by continued increased customer demand for value-added solutions.

	•		Revenue derived from non-transaction related sources includes surveillance fees, annual contracts, subscription, and rating fees earned relating to cancelled transactions (“breakage fees”). For the second quarter of 2009, non-transaction related revenue decreased slightly compared to the second quarter of 2008 primarily as the result of lower breakage fees. Non-transaction related revenue represented 67.9% of total Credit Market Services revenue for the second quarter of 2009 compared to 63.1% for the second quarter of 2008. The increase of non-transaction related revenue as a proportion of total Credit Market Services revenue is attributable to the decline in transaction related revenue during the second quarter of 2009.

•

Investment Services revenue decreased as a result of the declines in investment research products, index services and the impact of foreign exchange rates. These declines were partially mitigated by growth in Capital IQ.

	•		Decreases in revenue related to investment research products was driven by lower demand for equity research products and funds management ratings in Europe.

	•		In May 2009, the Company sold its Vista Research Inc. business which was part of the Financial Services segment. For the quarter ended June 30, 2009, the Company recognized a pre-tax loss of $13.8 million ($8.8 million after-tax or $0.03 per diluted share), recorded as other loss. This business was selected for divestiture, as it no longer fit within the Company’s strategic plans. This divestiture will enable the Financial Services segment to focus on its core business of providing independent research, ratings, data indices and portfolio services. The impact of this divestiture on comparability of results is immaterial.

	•		Decreases in revenue from index services driven by reductions in index license fees relating to over-the-counter derivatives and lower assets under management for exchange-traded funds products, partially offset by increased customer demand for index data.

	•		The number of Capital IQ clients at June 30, 2009 increased 14.2% from the prior year and 5.2% from December 31, 2008.

•		During the second quarter of 2009, the Financial Services segment incurred a restructuring charge consisting of employee severance costs related to the reduction of approximately 85 positions which, net of reversal of accruals for previously recorded restructuring charges due to revised estimates, resulted in a pre-tax benefit of $0.4 million. During the second quarter of 2008, the Financial Services segment incurred a pre-tax restructuring charge of $15.2 million consisting primarily of employee severance costs related to the reduction of approximately 250 positions.

•		Foreign exchange rates had an unfavorable impact on revenue and operating profit of $26.0 million and $8.0 million, respectively.

Issuance Volumes

The Company monitors issuance volumes as an indicator of trends in transaction revenue streams within Credit Market Services. The following table depicts changes in issuance levels as compared to prior year, based on Harrison Scott Publications and Standard & Poor’s internal estimates (Harrison Scott Publications/S&P). Revenue was adversely impacted by the declines in issuance volumes of structured finance products in both the U.S. and Europe.


	Second Quarter
	Compared to Prior Year
Structured Finance	U.S.			Europe
Residential Mortgage-Backed Securities		169.3	%		-85.0	%
Commercial Mortgage-Backed Securities		-87.6	%		214.7	%
Collateralized Debt Obligations		-84.1	%		-99.8	%
Asset-Backed Securities		-25.8	%		-84.7	%
Total New Issue Dollars (Structured Finance)		-23.9	%		-87.9	%

•		Although CMBS issuance in Europe reflects a large percentage gain compared to the prior year’s quarter, this gain resulted entirely from the consummation of only one transaction during the second quarter of 2009. Both CDO and CMBS asset classes continue to experience lack of investor demand and relatively illiquid secondary trading markets in both the U.S. and Europe.

•		Although ABS issuance in the U.S. declined in the second quarter compared to the same period of the prior year, issuance increased significantly from the first quarter of 2009 as the U.S. ABS market benefited from the Term Asset-Backed Liquidity Facility (“TALF”) created by the U.S. Federal Reserve Bank. In contrast, ABS issuance in Europe was at low levels.

•		Strong issuance of U.S. RMBS resulted from increased repackaging of existing mortgage-backed securities (re-REMIC issuance). Europe did not experience similar re-REMIC activity.


	Second Quarter
	Compared to Prior Year
Corporate Issuance	U.S.			Europe
High Yield Issuance		82.6	%		-66.5	%
Investment Grade		-35.0	%		-10.8	%
Total New Issue Dollars (Corporate)		-26.0	%		-11.8	%

•		Debt issuance in the industrial sector was higher in both the U.S. and Europe resulting from issuers seeking to increase their liquidity positions and to refinance maturing debt.

•		U.S. high yield issuance experienced large gains from the same period of the prior year both in terms of dollar par value issuance volume and the number of transactions.

•		Refer to the Risks and Uncertainties included in the “Consolidated Review” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Outlook

During the second quarter of 2009, the corporate bond market continued to build upon the momentum started in the first quarter of 2009 and maintained strong issuance levels. Global investment grade corporate issuance remained strong in the second quarter. The second quarter recovery in the U.S. resulted in a greater number of high yield issuers accessing the market and issuing larger dollar amounts of debt. However, many sectors of the global credit markets, especially the structured finance market, continue to experience liquidity issues. In both Europe and the U.S., the CDO and CMBS markets continue to be illiquid with very little new issuance and secondary market trading volume. The U.S. RMBS market has benefited in the short-term from increased re-REMIC issuance, but the longer term outlook for this market and the European RMBS market remains uncertain as it is dependent upon a recovery in the housing market. In addition, the U.S. ABS market has benefited in the short-term from the TALF program implemented by the U.S. Federal Reserve Bank. The current conditions in the global financial markets have resulted from challenged credit markets, financial difficulties experienced by several financial institutions and shrinking investor confidence in the capital markets. It is possible that these market conditions and global issuance levels in structured finance, particularly CMBS and CDO, could persist through 2009. In addition, it is uncertain whether the recovery in the corporate bond market experienced during the first half of the year will continue throughout 2009. Although several governments and central banks around the globe have implemented measures in an attempt to provide additional liquidity to the global credit markets, it is still too early to determine the effectiveness of these measures.

Regulatory Environment

The following amends the disclosure in the Legal and Regulatory Environment disclosure for the Financial Services segment in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

The financial services industry is subject to the potential for increased regulation in the United States and abroad. The businesses conducted by the Financial Services segment are in certain cases regulated under the Credit Rating Agency Reform Act of 2006, U.S. Investment Advisers Act of 1940, the U.S. Securities Exchange Act of 1934 and/or the laws of the states or other jurisdictions in which they conduct business.

In April 2009, the new SEC rules described in the Company’s 2008 Annual Report on Form 10-K went into effect. The new rules address a broad range of issues, including disclosure and management of conflicts related to the issuer-pays model, prohibitions against analysts accepting gifts or making “recommendations” when rating a security, and limitations on analyst participation in fee discussions. Under the new rules, additional records of all rating actions must be created, retained and made public, including a sampling of rating histories for issuer-paid ratings (this rule is expected to become effective in August 2009), and records must be kept of material deviations in ratings assigned from model outputs as well as complaints about analysts’ performance. The new rules require more disclosure of performance statistics and methodologies and a new annual report by NRSROs of their rating actions to be provided confidentially to the SEC. On April 23, 2009, the European Parliament and Council approved legislation entitled Regulation of Credit Rating Agencies. Formal adoption and publication of the legislation is expected in the Fall of 2009. The effective date for rating agencies to be in compliance is expected to be mid-2010.

Although the new laws, regulations and rules could affect the performance of Standard & Poor’s Ratings Services, the Company does not believe that they will have a materially adverse effect on the Company’s financial condition or results of operations. Other laws, regulations and rules relating to credit rating agencies are being considered by local, national, foreign and multinational bodies and are likely to continue to be considered in the future. The impact on the Company of the adoption of any such laws, regulations or rules is uncertain.

The market for credit ratings as well as the markets for research and investment advisory services are very competitive. The Financial Services segment competes domestically and internationally on the basis of a number of factors, including the quality of its ratings, research and investment advisory businesses, client service, reputation, price, geographic scope, range of products and technological innovation. In addition, in some of the countries in which Standard & Poor’s competes, governments may provide financial or other support to locally-based rating agencies and may from time to time establish official credit rating agencies, credit ratings criteria or procedures for evaluating local issuers.

Legal Proceedings

See Footnote 12 — Commitments and Contingencies to the Company’s Consolidated Financial Statements for legal proceedings disclosure that amends the disclosure in the Company’s Annual Report for the year ended December 31, 2008.

Information & Media


	Second						Second
	Quarter			%			Quarter
	2009			Decrease			2008

Revenue
Business-to-Business	$	215,800			(10.2	)%	$	240,374
Broadcasting		20,403			(23.1	)%		26,528

Total revenue	$	236,203			(11.5	)%	$	266,902

Operating profit	$	14,422			(41.8	)%	$	24,799

% Operating margin		6.1	%					9.3	%

Revenue and Operating Profit

•

Business-to-Business Group revenue decline was primarily driven by decreases at J.D. Power and Associates, BusinessWeek and advertising products in the construction industry partially offset by an increase in Platts, a leading provider of energy and other commodities information.

	•		Current economic weakness continues to drive declines in the automotive industry, softness in advertising and decreases in the construction market.

	•		Global commodities products related to oil, natural gas and power experienced growth as the continued volatility in crude oil and other commodity prices drove the continued need for market information.

	•		During the first quarter of 2009, J.D. Power and Associates began transitioning a number of syndicated studies to an online service platform. This resulted in $3.4 million of revenue and $2.9 million of operating profit that would have been recognized in the second quarter to be deferred and will be recognized over the service period.

•		According to the Publishers Information Bureau (“PIB”), BusinessWeek’s advertising pages in the global edition for the second quarter were down 34.3% with a comparable number of issues year to year for PIB purposes and for revenue recognition purposes.

•		Broadcasting revenue for the quarter decreased due to reductions in both base and political advertising, primarily due to economic weakness in key markets and to 2009 being a non-political election year.

•		During the second quarter of 2009, the Information & Media segment incurred a restructuring charge consisting primarily of employee severance costs related to the reduction of approximately 125 positions, which net of reversal of accruals for previously recorded restructuring charges due to revised estimates, resulted in a pre-tax restructuring charge of $4.0 million.

•		In July 2009, the Company announced that it is exploring strategic options for BusinessWeek.

•

Foreign exchange rates had an immaterial impact on revenue and a $2.5 million favorable impact on operating profit.

Industry Highlights and Outlook

•		In the second quarter of 2009, the dollar value of total U.S. construction starts was down 33% against the same period of the prior year. Most of the decline was due to a 41% decrease in residential building activity, and a 38% decrease in non-residential construction from lower commercial and manufacturing building activities, while non-building construction was down 17%.

•		According to the PIB, advertising pages for all consumer magazine publications were down 29.4% in the second quarter of 2009 compared to 2008.

•		In the second quarter of 2009, the dollar value of total U.S. light vehicle sales was down 30% on a 32% decline in total sales volume against the same period of the prior year. Sharply increased industry incentive spending helped offset some sales decline, although not enough to offset core economic factors.

•		Refer to the Risks and Uncertainties included in the “Consolidated Review” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Results of Operations — Comparing Six Months Ended June 30, 2009 and 2008

Consolidated Review

Revenue and Operating Profit


	Six						Six
	Months			%			Months
	2009			Decrease			2008

Revenue	$	2,613,387			(9.6	)%	$	2,891,096
Operating profit*	$	469,553			(19.5	)%	$	583,133

% Operating margin		18.0	%					20.2	%


*		Operating profit is income before taxes on income, interest expense and corporate expense.

•

In the first six months of 2009, revenue and operating profit declined for all three operating segments.

	•		Financial Services revenue and operating profit declined 6.9% and 10.4%, respectively, largely due to continued weakness in Credit Market Services. A modest decrease in Investment Services was driven by declines in investment research products and the impact of foreign exchange rates, partially mitigated by growth at Capital IQ.

	•		McGraw-Hill Education revenue and operating profit declined 13.3% and 170.0%, respectively, primarily due to softness at School Education Group.

	•		Information & Media revenue and operating profit declined 9.5% and 52.9%, respectively, driven by both Business-to-Business Group and Broadcasting where current economic weakness continues to drive declines in advertising. These declines were partially offset by growth in Platts.

	•		Foreign exchange rates had a $74.6 million unfavorable impact on revenue but had a $7.3 million favorable impact on operating profit.

•

	•		Product revenue decreased 14.3% or $136.5 million, primarily due to McGraw-Hill Education, driven by softness in School Education Group and the unfavorable impact of foreign exchange.

	•		Product operating expenses decreased 3.9% or $17.8 million, primarily due to McGraw-Hill Education decreased sales and a change in sales mix. Amortization of prepublication costs increased $4.2 million or 4.5% driven by timing of the adoption cycle.

	•		Product selling and general expenses decreased 11.4% or $53.9 million, primarily due to McGraw-Hill Education’s ongoing cost saving initiatives.

	•		Product margin decreased 760 basis points to (5.8)% for the first six months of 2009 primarily due to the decline in McGraw-Hill Education revenues driven by softness at School Education Group.

•

McGraw-Hill Education revenue declines were partially offset by reduced expenses due to lower sales, a change in sales mix and cost saving initiatives.

•

Service revenue decreased 7.3% or $141.2 million, primarily due to Financial Services and the unfavorable impact of foreign exchange.

	•		Financial Services service revenue decreased primarily due to Credit Market Services, where continuing declines in structured finance were partially mitigated by increases in credit ratings-related information products such as RatingsXpress and RatingsDirect.

	•		Information & Media service revenue declined as current economic weakness continues to drive a decline in advertising spending. This was partially offset by growth in Platts services as the increased volatility in crude oil and other commodity prices drove the continued need for market information.

	•		Service operating expenses decreased 9.5% or $66.3 million, primarily due to cost reduction initiatives across the Company.

	•		Service selling and general expenses decreased 6.5% or $43.2 million, primarily due to the benefit of cost reduction initiatives across the Company.

	•		Service margin increased 60 basis points to 30.7% for the first six months of 2009, primarily due to cost saving initiatives at all three segments.

•		Total expenses in the first six months of 2009 decreased 7.7% or $182.6 million driven primarily by decreased sales and a change in sales mix at McGraw-Hill Education and reduced selling & general expenses due to cost saving initiatives.

•		In May 2009, the Company sold its Vista Research, Inc. business which was part of the Financial Services segment. During the six months ended June 30, 2009, the Company recognized a pre-tax loss of $13.8 million ($8.8 million after-tax or $0.03 per diluted share), recorded as other loss. This business was selected for divestiture, as it no longer fit within the Company’s strategic plans. This divestiture will enable the Financial Services segment to focus on its core business of providing independent research, ratings, data indices and portfolio services. The impact of this divestiture on comparability of results is immaterial.

•		During the second quarter of 2009, the Company initiated a restructuring plan that included a realignment of select business operations within the McGraw-Hill Education segment to further strengthen their position in the market by creating a market focused organization that enhances its ability to address the changing needs of their customers. Additionally, the Company continued to implement restructuring plans related to a number of limited business operations across the Company to contain costs and mitigate the impact of the current and expected future economic conditions. The Company 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. In addition, during the second quarter of 2009, the Company revised its estimate for previously recorded restructuring charges and reversed approximately $9.1 million. The net pre-tax charge recorded was $15.2 million ($9.7 million after-tax, or $0.03 per diluted share).

•		During the second quarter of 2008, the Company restructured a limited number of business operations in its Financial Services and McGraw-Hill Education segments to more efficiently serve its markets and strengthen its long-term growth prospects. The Company incurred a pre-tax restructuring charge of $23.7 million ($14.8 million after-tax, or $0.05 per diluted share), which consisted primarily of severance costs related to a workforce reduction of 395 positions.

•		Net interest expense increased 2.4% to $39.1 million primarily due to a decrease in foreign interest income due to the decline in interest rates.

•		For the six months ended June 30, 2009 and 2008, the effective tax rate was 36.4% and 36.9%, respectively. The Company expects the effective tax rate to be at 36.4% for the remainder of the year absent the impact of events such as intervening audit settlements, changes in federal, state or foreign law and changes in the geographical mix of the Company’s pre-tax income. The effective tax rates include the impact of the adoption of SFAS No. 160. This resulted in a change to the calculated effective tax rate for both the current and prior periods.

•		Net income attributable to the Company for the first six months of 2009 decreased 22.6% or $66.3 million. Diluted earnings per common share decreased 19.8% to $0.73 from $0.91 in 2008.

•		Effective January 1, 2009, the Company adopted SFAS No. 160. SFAS No. 160 amends Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to establish accounting and reporting standards for any noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary should be reported as a component of equity in the consolidated financial statements and requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interests. Certain prior year amounts have been reclassified for comparability purposes in accordance with the requirements of SFAS No. 160.

Risks and Uncertainties

•		In the McGraw-Hill Education segment, the weakening global economy has resulted in declines in discretionary spending which have impacted our results of operations.

•		In the Financial Services segment, difficulties in the credit markets and shrinking investor confidence in the capital markets have resulted in a significant decline in global debt issuance which has impacted our results of operations in Credit Market Services.

•		In the Information & Media segment, the general weakening of the economy has resulted in declines in advertising and consumer and business spending.

Segment Review

McGraw-Hill Education


	Six						Six
	Months			%			Months
	2009			Decrease			2008

Revenue
School Education Group	$	461,215			(20.1	)%	$	576,935
Higher Education, Professional and International		406,602			(4.1	)%		424,067

Total revenue	$	867,817			(13.3	)%	$	1,001,002

Operating loss	$	(55,588	)		(170.0	)%	$	(20,586	)

% Operating margin		(6.4	)%					(2.1	)%

Revenue and Operating Loss

•		In the first six months of 2009, revenue for the McGraw-Hill Education segment decreased 13.3% or $133.2 million from the prior year while operating loss grew 170.0% or $35.0 million.

•		SEG revenue declined for the first six months, a decrease driven primarily by lower state adoption sales. Reduced potential in the state new adoption market was coupled with reduced spending in the open territory and in the supplemental market as schools tightened their budgets in response to the continuing decline of state and local tax revenues in most regions.

•

K-12 basal sales declined significantly in the adoption states. In the second quarter of 2008, SEG realized strong sales of K-5 reading in Florida, K-8 math and science in California, K-5 math in Texas, and various subjects in smaller states such as Alabama. The 2009 state new adoption market was expected to be smaller because Texas was not scheduled to buy new materials and because other states, including Alabama, planned to adopt in categories offering less revenue potential for the industry. The biggest opportunities were expected to be offered by 6-12 literature in Florida and K-8 reading and math in California, but economic problems have sharply limited 2009 purchasing in both states. SEG also

			faced a difficult comparison in the first quarter of 2009, when weak K-5 math sales could not match a stronger 2008 performance with 6-12 social studies in North Carolina, the only adoption state to place large orders early in the year.

	•		K-12 sales in the open territory declined to a lesser extent, as reduced opportunities in many parts of the country were partially offset by second-quarter gains over the prior year in areas such as Illinois, where SEG’s secondary products captured a strong share of the state’s annual textbook purchasing program.

	•		K-12 supplementary sales also declined, with growth in intervention products being offset by lower demand for backlist products.

	•		Non-custom or “shelf” testing revenue declined, despite a sales gain for the LAS Links product line.

	•		Formative assessment revenue increased driven largely by additional services provided to the school districts using SEG’s successful Acuity program.

	•		Custom testing revenue declined due to a California contract that is ending and declines in the scope of work on other contracts in comparison to the prior year.

•

	•		Key titles contributing to the six-month performance included Sanderson, Computers in the Medical Office, 6/e, Lucas, The Art of Public Speaking, 10/e, McConnell, Economics, 18/e, Booth, Medical Assisting, 3/e, Shier, Hole’s Human Anatomy and Physiology, 12/e and Knorre, Puntos de partida, 8/e.

	•		Digital revenue growth was driven by the continued success of the Homework Management product line, which included new releases on the improved and enhanced Connect platform.

•		Revenue in the professional market declined versus the prior year as book sales decreased due to continuing weakness in the retail environment and strong 2008 sales of the new edition of Harrison’s Principles of Internal Medicine, which provided a challenging comparison for the first quarter. Digital subscriptions and digital licensing had a favorable impact on the six month results.

•		International revenue decreased for the six months, with strong demand for higher education products across most markets offset by lower school sales in some regions, by softness in professional sales related to economic conditions, and by the unfavorable impact of foreign exchange.

•		Operating margin declined primarily due to decreased revenues partially offset by a decline in selling and general expenses. Operations benefited from ongoing cost-saving initiatives and lower operating expenses related to decreased sales and a change in sales mix.

•		During the second quarter of 2009, the McGraw-Hill Education segment initiated a restructuring plan that included a realignment of select business operations within the segment to further strengthen their position in the market by creating a market focused organization that enhances its ability to address the changing needs of their customers. The restructuring charge consisted primarily of employee severance costs related to the reduction of approximately 340 positions. In addition, during the second quarter of 2009, the McGraw-Hill Education segment reversed accruals for previously recorded restructuring charges due to revised estimates. The net pre-tax restructuring charge recorded was $11.6 million. During the second quarter of 2008, the McGraw-Hill Education segment incurred a pre-tax restructuring charge of $8.5 million consisting of employee severance costs related to the reduction of approximately 150 positions.

•		Foreign exchange rates had a $23.4 million unfavorable impact on revenue and a $5.5 million favorable impact on operating loss for the six months ended June 30, 2009.

Industry Highlights and Outlook

•

The total available state new adoption market in 2009 is estimated at between $500 million and $550 million, depending on state funding availability. This compares with approximately $980 million in 2008. The 2009 estimate reflects lower anticipated purchasing rates in Florida and California due to state budget constraints as well as the impact of other announced adoption postponements. This estimate is dependent on several still to be determined fiscal year 2010 education budgets in key states, including California, as well as the impact of the federal stimulus funding on instructional materials purchasing.

•		Total U.S. PreK-12 enrollment for 2008-2009 is estimated at 56 million students, up 0.3% from 2007-2008, according to the National Center for Education Statistics.

•		The year’s key adoption opportunities are K-8 reading and math in California, K-12 reading in Georgia, K-12 science in Tennessee, K-12 social studies in Indiana, K-5 math in North Carolina, and 6-12 reading/literature in Florida. The Florida adoption was originally expected to offer one of the year’s largest markets, but the state has relaxed regulations that would have required districts to buy new literature programs, giving them flexibility to spend their instructional materials funds for other purposes. As a result, it appears that industry sales there will fall far short of projections. Postponements of district-level adoptions will likely also limit market potential in other states, notably California, where the state has withheld more than $4 billion in scheduled allocations to school districts year to date pending enactment of a budget, now overdue, for the fiscal year that began on July 1, 2009.

•		The Company expects to perform well with reading in California and Louisiana; math in California and South Carolina; science in Tennessee; and social studies in Indiana.

•		The U.S. Department of Education has begun releasing the first round of federal stimulus funding. The distribution of funding earmarked for IDEA and Title 1 programs has varied by state with some funding being held up at the state level. Eligible school districts should receive the bulk of their distributions for special education programs and Title 1 programs for disadvantaged students in the second half of the year. These funds may be used for instructional materials, among other purposes. The states are receiving first-round distributions from the State Fiscal Stabilization Fund (“SFSF”) on varying schedules depending on the submission and approval dates of their educational spending plans. While each state’s use of its SFSF funding will be somewhat different, the Company may also benefit from increased spending on instructional materials or testing programs from this source.

•		According to statistics compiled by the Association of American Publishers (“AAP”), total net basal and supplementary sales of elementary and secondary instructional materials were down by 18% through May 2009 compared to the same period in 2008. Basal sales in adoption states and open territory for the industry decreased 21.9% compared to prior year. In the supplemental market, industry sales were down 8.9% versus prior year. The supplementary market has been declining in recent years, in large part because basal programs are increasingly comprehensive, offering integrated ancillary materials that reduce the need for separate supplemental products.

•		Refer to the Risks and Uncertainties included in the “Consolidated Review” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Financial Services


	Six						Six
	Months			%			Months
	2009			Decrease			2008

Revenue
Credit Market Services	$	848,754			(9.2	)%	$	935,210
Investment Services		435,188			(2.1	)%		444,568

Total Revenue	$	1,283,942			(6.9	)%	$	1,379,778

Operating profit	$	507,947			(10.4	)%	$	567,194

% Operating margin		39.6	%					41.1	%

Revenue and Operating Profit

•

Credit Market Services revenue decreased as the result of continuing declines in structured finance and the impact of foreign exchange rates. These declines were partially mitigated by increases in corporate industrial credit ratings and credit ratings-related information products such as RatingsXpress and RatingsDirect.

•

Continued decreases in issuance volumes in Europe of residential mortgage-backed securities (“RMBS”), and in both the U.S. and Europe of commercial mortgage-backed securities (“CMBS”), collateralized debt obligations (“CDO”) and asset-backed securities (“ABS”) continued to contribute to the decrease in revenue. These declines more than offset the revenue benefit resulting from strong European investment grade and U.S. high yield corporate issuance.

	•		Growth in information products was driven by continued increased customer demand for value-added solutions.

	•		Revenue derived from non-transaction related sources includes surveillance fees, annual contracts, subscription, and rating fees earned relating to cancelled transactions (“breakage fees”). For the first six months of 2009, non-transaction related revenue decreased slightly compared to the first six months of 2008 primarily as the result of lower breakage fees. Non-transaction related revenue represented 69.6% of total Credit Market Services revenue for the first six months of 2009 compared to 65.4% for the first six months of 2008. The increase of non-transaction related revenue as a proportion of total Credit Market Services revenue is attributable to the decline in transaction related revenue during the first six months of 2009.

•

Investment Services revenue decreased as a result of the declines in investment research products, and the impact of foreign exchange rates. These declines were partially mitigated by growth in Capital IQ.

	•		Decreases in revenue related to investment research products was driven by lower demand for equity research products and funds management ratings in Europe.

	•		In May 2009, the Company sold its Vista Research Inc. business which was part of the Financial Services segment. For the six months ended June 30, 2009, the Company recognized a pre-tax loss of $13.8 million ($8.8 million after-tax or $0.03 per diluted share), recorded as other loss. This business was selected for divestiture, as it no longer fit within the Company’s strategic plans. This divestiture will enable the Financial Services segment to focus on its core business of providing independent research, ratings, data indices and portfolio services. The impact of this divestiture on comparability of results is immaterial.

	•		The number of Capital IQ clients at June 30, 2009 increased 14.2% from the prior year and 5.2% from December 31, 2008.

•		During the second quarter of 2009, the Financial Services segment incurred a restructuring charge consisting of employee severance costs related to the reduction of approximately 85 positions which, net of reversal of accruals for previously recorded restructuring charges due to revised estimates, resulted in a pre-tax benefit of $0.4 million. During the second quarter of 2008, the Financial Services segment incurred a pre-tax restructuring charge of $15.2 million consisting primarily of employee severance costs related to the reduction of approximately 250 positions.

•		Foreign exchange rates had a $49.8 million unfavorable impact on revenue and an immaterial impact on operating profit.

Issuance Volumes


	Year-to-Date
	Compared to Prior Year
Structured Finance	U.S.			Europe
Residential Mortgage-Backed Securities		54.6	%		-90.5	%
Commercial Mortgage-Backed Securities		-92.0	%		-41.7	%
Collateralized Debt Obligations		-75.4	%		-98.1	%
Asset-Backed Securities		-58.2	%		-73.0	%
Total New Issue Dollars (Structured Finance)		-51.5	%		-88.9	%

•		Both CDO and CMBS asset classes continue to experience lack of investor demand and relatively illiquid secondary trading markets in both the U.S. and Europe.

•		Strong issuance of U.S. RMBS resulted from increased repackaging of existing mortgage-backed securities (re-REMIC issuance). Europe did not experience similar re-REMIC activity.


	Year-to-Date
	Compared to Prior Year
Corporate Issuance	U.S.			Europe
High Yield Issuance		75.5	%		-57.0	%
Investment Grade		-11.9	%		19.4	%
Total New Issue Dollars (Corporate)		-7.2	%		18.5	%

•		Europe corporate debt issuance increased as a result of issuers seeking to increase their liquidity positions and to refinance maturing debt. Investment grade issuance in the industrial sector was higher in the U.S. and Europe.

•		U.S. high yield issuance experienced large gains from the same year-to-date period of the prior year both in terms of dollar par issuance volume and the number of transactions.

•		Refer to the Risks and Uncertainties included in the “Consolidated Review” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Outlook

Regulatory Environment

Legal Proceedings

Information & Media


	Six						Six
	Months			%			Months
	2009			Decrease			2008

Revenue
Business-to-Business	$	422,943			(8.1	)%	$	460,061
Broadcasting		38,685			(23.0	)%		50,255

Total revenue	$	461,628			(9.5	)%	$	510,316

Operating profit	$	17,194			(52.9	)%	$	36,525

% Operating margin		3.7	%					7.2	%

Revenue and Operating Profit

•

	•		Current economic weakness continues to drive declines in the automotive industry, softness in advertising and decreases in the construction market.

	•		Global commodities products related to oil, natural gas and power experienced growth as the continued volatility in crude oil and other commodity prices drove the continued need for market information.

	•		During the first quarter of 2009, J.D. Power and Associates began transitioning a number of syndicated studies to an online service platform. This resulted in $8.1 million of revenue and $5.2 million of operating profit that would have been recognized in the first six months of 2009 to be deferred and will be recognized over the service period.

•		According to the PIB, BusinessWeek’s advertising pages in the global edition for the first six months of 2009 were down 36.8%, with two fewer issues year to year for PIB purposes and for revenue recognition purposes.

•		Broadcasting revenue for the first six months of 2009 decreased due to reductions in both base and political advertising, primarily due to economic weakness in key markets and to 2009 being a non-political election year.

•		During the second quarter of 2009, the Information & Media segment incurred a restructuring charge consisting primarily of employee severance costs related to the reduction of approximately 125 positions, which net of reversal of accruals for previously recorded restructuring charges due to revised estimates, resulted in a pre-tax restructuring charge of $4.0 million.

•		In July 2009, the Company announced that it is exploring strategic options for BusinessWeek.

•

Foreign exchange rates had an immaterial impact on revenue and a $6.0 million favorable impact on operating profit.

Industry Highlights and Outlook

•		In the first six months of 2009, the dollar value of total U.S. construction starts was down 36% against the same period of the prior year. Most of the decline was due to a 46% decrease in residential building activity, and a 41% decrease in non-residential construction from lower commercial and manufacturing building activities, while non-building construction was down 16%.

•		According to the PIB, advertising pages for all consumer magazine publications were down 28% in the first six months of 2009 compared to the first half of 2008.

•		In the first six months of 2009, the dollar value of total U.S. light vehicle sales was down 36% on a 35% decline in total sales volume against the same period of the prior year. Sharply increased industry incentive spending helped offset some sales decline, although not enough to offset core economic factors.

•		Refer to the Risks and Uncertainties included in the “Consolidated Review” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Liquidity and Capital Resources

The Company continues to maintain a strong financial position. The Company’s primary source of funds for operations is cash generated by operating activities. The Company’s core businesses have been strong cash generators. Income and, consequently, cash provided from operations during the year are significantly impacted by the seasonality of businesses, particularly educational publishing. This seasonality also impacts cash flow and related borrowing patterns as investments are typically made in the first half of the year to support the strong selling period that occurs in the third quarter. As a result, the Company’s cash flow is typically lower in the first half of the year and higher during the third and fourth quarters. Debt financing is used as necessary for seasonal fluctuations in working capital, for acquisitions and share repurchases. Cash and cash equivalents were $556.1 million at June 30, 2009, an increase of $84.5 million from December 31, 2008 and consist primarily of cash held abroad. Typically, cash held outside the United States is anticipated to be utilized to fund international operations or to be reinvested outside of the United States, as a significant portion of the Company’s opportunities for growth in the coming years are expected to be abroad.

Cash Flow

Operating Activities: Cash provided by operations was $289.1 million for the first six months of 2009, as compared to $37.4 million during the same period in 2008. The increase in cash from operating activities from the prior year is primarily the result of decreases in inventory purchases and decreases in accounts payable and accrued expenses.

As of June 30, 2009, accounts receivable (before reserves) increased $1.4 million from the prior year-end, primarily due to the seasonality of the Educational and Information & Media businesses offset by strong cash collections during the first six months of 2009. This compares to a $77.4 million increase in the first six months of 2008. The number of days sales outstanding for operations have decreased by 4 days year over year, primarily due to strong cash collections across all of the Company’s segments. Inventories increased by $20.9 million from the end of 2008 as the Company’s education business prepares for its selling season. This compares to a $143.1 million increase during the first six months of 2008. The decrease in inventory purchases over the prior year is primarily the result of the stronger adoption opportunities in 2008 compared with 2009.

Accounts payable and accrued expenses decreased by $207.2 million over the prior year-end primarily due to the decrease in performance based compensation payments in the first six months of 2009 versus prior year. This decrease compares to a $324.6 million decrease in 2008.

Investing Activities: Cash used for investing activities was $99.8 million and $225.3 million in the first six months of 2009 and 2008, respectively. The decrease over the prior year is primarily due to decreased investment in prepublication costs in the first half of 2009 as compared to 2008 due to the adoption cycle, decreased capital spending in the first half of 2009, the impact of acquisitions in the first half of 2008 and the impact of the disposition of Vista Research, Inc. in 2009.

Purchases of property and equipment totaled $16.9 million in the first six months of 2009 compared with $48.8 million in 2008. For 2009, capital expenditures are expected to be approximately $75 million to $80 million and primarily relate to increased investment in the Company’s information technology data centers and other technology initiatives.

Net prepublication costs decreased $12.3 million from December 31, 2008 to $540.3 million, as amortization outpaced spending. Prepublication investment in the current year totaled $85.1 million as of June 30, 2009, $46.8 million less than the same period in 2008. Prepublication investment for 2009 is expected to be approximately $200 million, reflecting new product development in light of the significant adoption opportunities in key states in 2010 and beyond.

Financing Activities: Cash used for financing activities was $115.0 million through June 30, 2009 compared to cash generated from financing activities of $140.6 million in 2008. The difference is primarily attributable to a reduction of $506.6 million in borrowings of commercial paper and reduced stock option exercises in the first six months of 2009, partially offset by a $275.5 million reduction in share repurchases in 2009. In the first six months of 2009, the Company has not repurchased any shares. In the first six months of 2008, cash was utilized to repurchase approximately 6.7 million shares for $275.5 million on a settlement date basis. An additional 0.7 million shares were repurchased in the second quarter of 2008 for $29.2 million, which settled in July 2008. Shares repurchased under the repurchase program were used for general corporate purposes, including the issuance of shares for stock compensation plans and to offset the dilutive effect of the exercise of employee stock options.

There were $89.6 million and $526.2 million in commercial paper borrowings outstanding as of June 30, 2009 and 2008, respectively, with an average interest rate and average term of 0.2% and 13 days, and 2.2% and 27 days, respectively. The size of the Company’s total commercial paper program remains $1.2 billion and is supported by the revolving credit agreement described below.

On September 12, 2008 the Company closed on two new revolving credit facility agreements totaling $1.15 billion collectively (the “new credit facility”) to replace the existing $1.2 billion five-year credit facility that was to expire on July 20, 2009. The new credit facility is with a syndicate of fourteen banks led by JP Morgan Chase and Bank of America. The existing credit facility was cancelled after the new facility became effective.

The new credit facility consists of two separate tranches, a $383.3 million 364-day facility that will terminate on September 11, 2009 and a $766.7 million 3-year facility that will terminate on September 12, 2011. The Company pays a commitment fee of 8-17.5 basis points for the 364-day facility and a commitment fee of 10-20 basis points for the 3-year facility, depending upon the credit rating of the Company, whether or not amounts have been borrowed. At the Company’s current credit rating, the commitment fee is 8 basis points for the 364-day facility and 10 basis points for the 3-year facility. The interest rate on borrowings under the credit facility is, at the Company’s option, based on (i) a spread over the prevailing London Inter-Bank Offer Rate (“LIBOR”) that is calculated by multiplying the current 30 business day average of the CDX 5-year investment grade index by a percentage, ranging from 50-100% that is based on the Company’s credit rating (“LIBOR loans”), which at the Company’s current credit rating, the borrowing rate would be 50% of this index, with a minimum spread of 0.5%, or (ii) on the higher of prime, which is the rate of interest publicly announced by the administrative agent, or 0.5% plus the Federal funds rate (“ABR loans”).

The Company has 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 0.35%.

The new credit facility contains certain covenants. The only financial covenant requires that the Company not exceed indebtedness to cash flow ratio, as defined in the new credit facility, of 4 to 1. This covenant is similar to the previous credit agreements and has never been exceeded. There were no borrowings under either of the facilities as of June 30, 2009 and June 30, 2008.

The Company has the capacity to issue Extendible Commercial Notes (“ECNs”) of up to $240 million, provided that sufficient investor demand for ECNs exists. ECNs replicate commercial paper, except that the Company has 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 the Company’s 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. There were no ECN borrowings outstanding as of June 30, 2009 and June 30, 2008. In the current credit environment, the ECN market is not available and the Company has no plans to utilize this market.

On April 19, 2007, the Company signed a promissory note with one of its providers of banking services to enable the Company to borrow additional funds, on an uncommitted basis, from time to time to supplement its 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. There were no promissory note borrowings outstanding as of June 30, 2009 and June 30, 2008. In the current credit environment, the market for these instruments is currently not available and the Company has no plans to utilize them in the short-term.

On January 1, 2009, the Company transferred most of Standard & Poor’s U.S. properties and assets from a division to a newly-formed, wholly-owned subsidiary. This reorganization was initiated to address future operational and financial conditions, and will not affect the ongoing conduct of Standard & Poor’s businesses, including the credit ratings business.

In conjunction with this reorganization, a series of supplemental agreements were executed. They include a supplemental indenture for the Company’s $1.2 billion senior notes (three tranches of $400 million due in 2012, 2017 and 2037), amendments to the company’s current $1.15 billion Credit Agreement (including both the 364-day and the 3-year agreements), amendments to the commercial paper issuing and paying agency agreement (with JP Morgan Chase) and amended and restated commercial paper dealer agreements (with JP Morgan Chase, Morgan Stanley and Merrill Lynch). All of these agreements and amendments provide that the new S&P subsidiary will guarantee the senior notes issued pursuant to the indenture, amounts borrowed under the credit agreement and the commercial paper.

On January 31, 2007, the Board of Directors approved an additional stock repurchase program (the “2007 program”) authorizing the repurchase of up to 45.0 million shares, which was approximately 12.7% of the total shares of the Company’s outstanding common stock at that time. The repurchased shares are used for general corporate purposes, including the issuance of shares for stock compensation plans and to offset the dilutive effect of the exercise of employee stock options. Purchases under this program were made from time to time on the open market and in private transactions depending on market conditions. The Company did not repurchase any shares during the first six months of 2009. At June 30, 2009, authorization for the repurchase of 17.1 million shares remained under the 2007 program.

On January 28, 2009, the Board of Directors approved an increase in the quarterly common stock dividend from $0.22 to $0.225 per share.

Quantitative and Qualitative Disclosure about Market Risk

The Company is exposed to market risk from changes in foreign exchange rates. The Company has operations in various foreign countries. For most international operations, the functional currency is the local currency. For international operations that are determined to be extensions of the Parent Company, the U.S. dollar is the functional currency. For hyper-inflationary economies, the functional currency is the U.S. dollar. In the normal course of business, these operations are exposed to fluctuations in currency values. The Company does not generally enter into derivative financial instruments in the normal course of business, nor are such instruments used for speculative purposes. The Company has no such instruments outstanding at this time.

The Company typically has naturally hedged positions in most countries from a local currency perspective with offsetting assets and liabilities. The gross amount of the Company’s foreign exchange balance sheet exposure from operations is $183.3 million as of June 30, 2009. Management has estimated using an undiversified average value-at-risk analysis with a 95% confidence level that the foreign exchange gains and losses should not exceed $27.7 million over the next year based on the historical volatilities of the portfolio.

A portion of the Company’s net interest expense is sensitive to changes in the general level of U.S. and foreign interest rates. Based on average debt and investments outstanding over the past three months, the following is the projected annual impact on interest expense on current operations:


Percent change in interest rates	Projected annual pre-tax impact on
(+/-)	operations (millions)
1%	$	2.9

Recently Issued Accounting Standards

See Footnote 14.

Since the date of the Annual Report, there have been no other material changes to the Company’s critical accounting policies.

“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995

This section, as well as other portions of this document, includes certain forward-looking statements about the Company’s businesses and our prospects, new products, sales, expenses, tax rates, cash flows, prepublication investments and operating and capital requirements. Such forward-looking statements include, but are not limited to: the strength and sustainability of the U.S. and global economy; the duration and depth of the current recession; Educational Publishing’s level of success in 2009 adoptions and in open territories and enrollment and demographic trends; the level of educational funding; the strength of School Education including the testing market, Higher Education, Professional and International publishing markets and the impact of technology on them; the level of interest rates and the strength of the economy, profit levels and the capital markets in the U.S. and abroad; the level of success of new product development and global expansion and strength of domestic and international markets; the demand and market for debt ratings, including collateralized debt obligations (“CDO”), residential and commercial mortgage and asset-backed securities and related asset classes; the continued difficulties in the credit markets and their impact on Standard & Poor’s and the economy in general; the regulatory environment affecting Standard & Poor’s; the level of merger and acquisition activity in the U.S. and abroad; the strength of the domestic and international advertising markets; the strength and the performance of the domestic and international automotive markets; the volatility of the energy marketplace; the contract value of public works, manufacturing and single-family unit construction; the level of political advertising; and the level of future cash flow, debt levels, manufacturing expenses, distribution expenses, prepublication, amortization and depreciation expense, income tax rates, capital, technology, restructuring charges and other expenditures and prepublication cost investment.

Actual results may differ materially from those in any forward-looking statements because any such statements involve risks and uncertainties and are subject to change based upon various important factors, including, but not limited to, worldwide economic, financial, political and regulatory conditions; currency and foreign exchange volatility; the health of debt and equity markets, including interest rates, credit quality and spreads, the level of liquidity, future debt issuances including residential and commercial mortgage-backed securities and CDOs backed by residential mortgages and related asset classes; the implementation of an expanded regulatory scheme affecting Standard & Poor’s ratings and services; the level of funding in the education market (both domestically and internationally); the pace of recovery in advertising; continued investment by the construction, automotive, computer and aviation industries; the successful marketing of new products, and the effect of competitive products and pricing.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company has no material changes to the disclosure made on this matter in the Company’s report on Form 10-K for the year ended December 31, 2008. Please see Item 2 of this Form 10-Q for additional market risk disclosures.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed with the Securities and Exchange Commission (“SEC”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

As of June 30, 2009, an evaluation was performed under the supervision and with the participation of the Company’s management, including the CEO and CFO, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) under the U.S. Securities Exchange

Act of 1934). Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2009.

Other Matters

There have been no changes in the Company’s internal controls over financial reporting during the most recent quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II

Other Information

Item 1. Legal Proceedings

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On January 31, 2007 the Board of Directors approved a new stock repurchase program authorizing the purchase of up to 45.0 million shares, which was approximately 12.7% of the total shares of the Company’s outstanding common stock at that time. During the second quarter of 2009, the Company did not repurchase any shares under the 2007 repurchase program. As of June 30, 2009, 17.1 million shares remained available under the 2007 repurchase program. The repurchase program has no expiration date. The repurchased shares may be used for general corporate purposes, including the issuance of shares for stock compensation plans and to offset the dilutive effect of the exercise of employee stock options. Purchases under this program may be made from time to time on the open market and in private transactions, depending on market conditions.

The following table provides information on purchases made by the Company of its outstanding common stock during the second quarter of 2009 pursuant to the stock repurchase program authorized by the Board of Directors on January 31, 2007 (column c). In addition to purchases under the 2007 stock repurchase program, the number of shares in column (a) include: 1) shares of common stock that are tendered to the Registrant to satisfy the employees’ tax withholding obligations in connection with the vesting of awards of restricted performance shares (such shares are repurchased by the Registrant based on their fair market value on the vesting date), and 2) shares of the Registrant deemed surrendered to the Registrant to pay the exercise price and to satisfy the employees’ tax withholding obligations in connection with the exercise of employee stock options. There were no other share repurchases during the quarter outside the stock repurchases noted below:

(c)Total Number of Shares

(d) Maximum Number of Shares

(a)Total Number

Purchased as Part of

that may yet

of Shares

(b)Average

Publicly Announced

be Purchased

Purchased

Price Paid per

Programs

Under the Programs

Period

(in millions)

(Apr. 1 — Apr. 30, 2009)

—

17.1

(May 1 — May 31, 2009)

—

17.1

(Jun. 1 — Jun. 30, 2009)

—

17.1

Total — Qtr

—

17.1

Item 4. Submission of Matters to a Vote of Security Holders

(a)		The 2009 Annual Meeting of Shareholders of the Registrant was held on April 29, 2009.

(b)		The following nominees, having received the FOR votes set forth opposite their respective names, constituting a plurality of the votes cast at the Annual Meeting for the election of Directors, were duly elected Directors of the Registrant:


Director	For		Withhold Authority
Sir Michael Rake		245,490,658		27,762,750
Kurt L. Schmoke		224,901,708		48,351,700
Sidney Taurel		222,423,928		50,829,480

		The terms of office of the following Directors continued after the meeting:

		Sir Winfried F. W. Bischoff, Douglas N. Daft, Linda Koch Lorimer, Harold McGraw III, Pedro Aspe, Robert P. McGraw, Hilda Ochoa-Brillembourg and Edward B. Rust, Jr..

(c)		Shareholders reapproved the performance goals under the Company’s 2002 Stock Incentive Plan. The vote was 253,914,979 shares FOR and 17,659,840 shares AGAINST, with 1,678,589 shares abstaining.

(d)		Shareholders ratified the appointment of Ernst & Young LLP as independent Registered Public Accounting Firm for the Registrant and its subsidiaries for 2009. The vote was 266,714,496 shares FOR and 5,595,794 shares AGAINST, with 943,118 shares abstaining.

(e)		The shareholder proposal requesting a shareholder vote on the annual election of each Director received the following number of votes: 189,928,496 shares FOR and 57,615,684 shares AGAINST, with 1,855,262 shares abstaining.

(f)		The shareholder proposal requesting adoption of a simple majority vote received the following number of votes: 192,903,673 shares FOR and 54,879,950 shares AGAINST, with 1,615,819 shares abstaining.

(g)		The shareholder proposal requesting public disclosure of corporate policies and procedures regarding political contributions and the amount of such contributions received the following number of votes: 83,724,827 shares FOR and 142,100,994 shares AGAINST, with 23,573,621 shares abstaining.

(h)		The shareholder proposal requesting the election of directors by majority vote received the following number of votes: 138,725,350 shares FOR and 108,951,559 shares AGAINST, with 1,722,533 shares abstaining.

(i)		The shareholder proposal to adopt a policy requiring that the Board’s Chairman be an Independent Director who has not previously served as an Executive Officer of the Company received the following number of votes: 115,932,363 shares FOR and 131,412,434 shares AGAINST, with 2,054,645 shares abstaining.

		There were 23,853,966 broker non-votes with respect to items (e), (f), (g), (h), and (i).

Item 6. Exhibits

	(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

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		Page Number
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Report of Independent Registered Public Accounting Firm		3

Consolidated Statements of Income for the three and six months ended June 30, 2009 and 2008		4

Consolidated Balance Sheets at June 30, 2009, December 31, 2008 and June 30, 2008		5

Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008		6

Notes to Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16

Item 3. Quantitative and Qualitative Disclosures About Market Risk		35

Item 4. Controls and Procedures		35

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		36

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		36

Item 4. Submission of Matters to a Vote of Security Holders		37

Item 6. Exhibits		37
EX-15
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT



Date: July 29, 2009	By	/s/ Robert J. Bahash
		Robert J. Bahash
		Executive Vice President and Chief Financial Officer


Date: July 29, 2009	By	/s/ Kenneth M. Vittor
		Kenneth M. Vittor
		Executive Vice President and General Counsel


Date: July 29, 2009	By	/s/ Emmanuel N. Korakis
		Emmanuel N. Korakis
		Senior Vice President and Corporate Controller