Event Brief of Q2 2005 The McGraw Hill Companies Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

CORPORATE PARTICIPANTS

. Donald Rubin, The McGraw-Hill Companies, SVP, IR . Harold McGraw, The McGraw-Hill Companies, Chairman, President & CEO . Robert Bahash, The McGraw-Hill Companies, EVP & CFO

OVERVIEW

MHP reported 2Q05 diluted EPS from continuing operations of $0.51. 2Q05 net income was up 17.7% and revenue grew by 16.9%. MHP is anticipating a dilution of $0.08-0.09 for 2005. Q&A Focus: El-High sales, segment revenues, and acquisitions.

FINANCIAL DATA

A. Key Data From Call 1. 2Q05 diluted EPS from continuing operations = $0.51. 2. 2Q05 share repurchase = 2m shares at a cost of $87.4m.

3. 1H05 share repurchase = 9.2m shares at a cost of $405m. 4. Debt outstanding as of June 30 = $390m. 5. 2Q05 net interest expense = $3.5m. 6. 2Q05 depreciation = $26m. 7. 2005 anticipated dilution = $0.08-0.09.

PRESENTATION SUMMARY

S1. 2Q05 Review (H.M.) 1. Highlights: 1. Diluted EPS from continuing operations increased 18.6% to $0.51. 2. Net income was up 17.7% and revenue grew by 16.9%. 3. Results also reflect $0.035 (3.5 cents) of dilution in 2Q05 for acquisitions in 2004 and 2005, and an adjustment in the pension plan assumptions for this year. 4. Given the strength of 1H05 performance and the outlook for 2H05, MHP is taking this opportunity to increase its earnings

guidance for the year. 1. Expects double-digit growth in EPS from continuing operations. 2. This will include $0.08-0.09 of dilution from acquisitions in 2004 and 2005, changes in the pension plan assumptions for 2005, but it excludes a 2004 non-cash benefit of $0.05 per share from accrued tax liabilities. 2. Economic Conditions:

1. The Co. continues to be encouraged by the economic conditions.

2. Standard and Poor's (S&P) Chief Economist, David Wyss, expects

the gross domestic product to grow by 3.7% in the US this

year. 1. Inflation is under control around 2%. 2. Corporate cash balances are at record highs after posting double-digit increases for 12 consecutive quarters. 3. S&P expects capital spending for equipment to increase by 11% this year. 3. The Federal Reserve continues its measured approach to interest rate increases without slowing down the economy. 1. The Co. expects rate increases at both the Aug. 9 and the Sept. 20 meetings with Fed funds rate reaching 4% by year-end. 2. No change from what MHP anticipated coming into this year. 4. The State revenue picture improved dramatically in the last FY and that situation is expected to continue in the new FY, which starts July 1 for 46 states. 1. This assessment comes from the National Association of State Budget Officers (NASBO).

S2. McGraw-Hill Education (H.M.) 1. Highlights: 1. For 2Q05:

1. Revenue increased 14.8%. 2. Operating profit grew by 25.5%. 3. The operating margin expanded to 11.4%. 2. For 1Q05: 1. Revenue increased by 12.2%. 2. The operating loss was cut by 39.7%. 3. The operating margin also improved. 3. The Co. is off to a very good start at all levels of the education market. 4. Based on a good start to the year, MHP now expects to outperform the elementary-high school market with or without all of the Texas funding. 1. Believes if all of the Texas funding obviously comes through, the market could grow by 10% or more. 2. MHP expects to outperform the US College and University market, which could grow by 3-4% this year. 5. McGraw-Hill School Education Group, the Co.'s elementary-high school business, increased revenue by 17% in 2Q05 and is ahead for 1H05 by 15.8%.

6. McGraw-Hill Higher Education, Professional and International

Group grew its revenue by 10.9% in 2Q05 and is ahead by 7.3%

for 1H05. 7. In the El-High market, the Co. is seeing excellent results in the new state adoption market, the open territories, and in testing. 1. MHP believes that a good year gets even better if Texas comes through, as expected with funding for health, world languages, music, and fine arts. 2. Outlook for Funding School Materials in Texas: 1. The Co. believes that it is closer than ever to a successful resolution of the funding issue and certainly closer than it was on May 30. 2. This is when the Texas legislature completed its regular session without providing funds for the instruction materials the State had already adopted for purchasing for this year. 3. The new books were not a key issue for the Texas legislature. 4. They were caught in a crossfire when the lawmakers in Texas could not agree on how to raise taxes to pay for the state education system, as well as other things, and set the formulas for allocating revenues.

5. The failure to act provoked outrage around the State and so

pressure has been building for the resolution of all educational funding issues. 6. Governor Perry, took the first step by vetoing the $35b state school funding budget and calling the legislature back for a special 30-day session. 7. That session ended last Wednesday without a decision on the key taxation and revenue sharing issues. 8. The Governor immediately called another special session. 9. On 07/26/05, Texas legislators will be starting the sixth day of their second special session and the good news is that there has been a lot of progress being made. 10. Although funding of the new books for the upcoming year is still contingent on passage of the bills on taxes and

allocation formulas, $295m for the instructional materials

called or under Proclamation 2002 was for the first time included in the general school funding bill. 11. Both houses have passed that measure at the end of the first special session.

12. The previous general funding bill had only included funds for

the ongoing contracts, plus the business and vocational books

adopted last year, and that was under Proclamation 2001.

1. Now, all the funds for instructional materials that educators had been seeking were included in one bill that both houses have approved. 2. The Co.'s best intelligence from Texas suggests that the legislature is closer than ever in resolving the school

finance issues. 3. Believes the resolution may come by the end of this week since there is little appetite for spending the rest of Aug. in Austin. 13. What is less certain at the moment is the fate of some of the issues that legislators are evaluating.

1. These include things like proposals to change the adoption

process in Texas and transition to an allotment system for funding instruction materials and technology. 2. But regardless of how the legislature finally decides these issues, Texas will remain a big and viable market, 4.3m students with growing enrollment. 3. Delivery of Books to Texas Schools: 1. These schools start the new semester between Aug. 8 and Aug. 17. 2. In Texas, publishers don't ship books to schools on their own trucks. 3. Instead, the Texas Education Authority (TEA) establishes a schedule for sending trucks to the publisher's warehouse and delivering the materials to their schools. 1. Currently, there is no schedule for shipping the new books without funding the TEA stopped accepting orders from schools. 2. Once the funding has passed, the TEA will open up its ordering system again and then create shipping schedules.

3. Texas schools are using 12-18-year-old books in the disciplines that are about to be funded. 4. Enrollments are growing, so there's every reason to be believe that they're facing a shortage in some of those titles. 5. Under the aforementioned circumstances, the Co. will help the State avoid any delays in getting the new books to the schools on time and that will include expediting deliveries

by shipping materials on the Co.'s own trucks. 4. MHP has been tracking potential new business. 5. The Co. still expects Texas to fund all of the instructional materials that the State has adopted. 6. If and when funding comes through, MHP expects to do very well, making a very good year in the El-High business and even better one, and the Co. doesn't expect to forego any business

in Texas for inventory reasons. 7. In 2Q05, Texas started ordering vocational and technology titles that had been scheduled for sale last year. 1. That's $140m adoption that had been postponed due to the lack of funding. 2. Now, those funds are available and the Co. expects to capture a significant share in the business education, technology education, and the family and consumer science

areas. 8. The solid start to the year, again underscores the Co.'s strategy of providing a broad spectrum of products to a market with diverse needs. 1. The Co.'s performance was strong and was very balanced. 2. MHP is seeing excellent capture rates in social studies, which is the biggest single opportunity on this year's new state adoption calendar. 3. The Co. expects to be the leader in the secondary market in social studies. 4. Also doing very well in science and health. 5. The Co.'s alternative basals (Open Court Reading and Everyday Mathematics) in reading and math are selling extremely well. 4. No Chile Left Behind Act: 1. The Co. realized incremental revenue in 2Q05 from Reading First, one of the key No Child Left Behind legislation

programs. 1. Because of the No Child Left Behind Act and the new emphasis on accountability and adequate yearly progress, there is a greater focus on bringing underachieving students up to

speed. 2. As a result, there is new demand for intervention and remedial products that meet the needs of children who are falling behind. 3. In response, MHP recently introduced Kaleidoscope, a reading intervention product for grades two through six. 1. It's being well received in the marketplace. 2. The Los Angeles Unified School District recently purchased Kaleidoscope to reinforce its own efforts to improve student-reading capabilities. 4. No Child Left Behind is also having an impact on the testing market. 1. The Co. has seen solid growth in its custom contract businesses as states prepare for mandatory testing, reading, and mathematics at the end of 2005/2006 academic year. 5. New Business In Testing:

1. The Co. is also winning new business in testing. 2. In California, MHP recently was awarded a five-year contract for the California English Language Development Test (CELDT). 1. This is a statewide assessment of English language learners in grades K through 12.

3. In Nevada and Connecticut, the Co. is on board for a statewide

use of a new product that it will officially launch early in

Aug. 1. A challenge for educators today is to assess the language needs of a growing population of English language learners.

2. To meet that need, the Co. introduced LAS Links. 3. The Co. believes it: 1. The most comprehensive research-based English language proficiency assessment product on the market. 2. Aligned to state standards. 3. Measures listening, speaking, reading and writing. 4. Helps states meet the new requirements established under the No Child Left Behind act for improving the proficiency of English …