1	2Q 2008 Earnings Call July 29, 2008 Presenters: Harold McGraw III Chairman, President and CEO Robert J. Bahash Executive Vice President and CFO Donald S. Rubin Senior Vice President, Investor Relations
2	Donald S. Rubin Senior Vice President, Investor Relations The McGraw-Hill Companies
3	“Safe Harbor” Statement Under The Private Securities Litigation Reform Act of 1995 This presentation includes certain forward-looking statements about the Company’s businesses, 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; Educational Publishing’s level of success in 2008 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 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 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 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, computer and aviation industries; the successful marketing of new products, and the effect of competitive products and pricing.
4	Harold McGraw III Chairman, President and CEO The McGraw-Hill Companies
5	MHP 2Q 2008 results EPS 2Q 2008: $0.66 Includes pre-tax restructuring charge of $23.7 million, or $0.05 per diluted share, primarily for severance costs relating to a workforce reduction of 395 positions Revenue 2Q 2008: Declined 2.6% to $1.7 billion
6	Outlook for U.S. economy Housing recession and credit crunch in financial markets continue to impact MHP’s results Housing market expectations from David Wyss, S&P’s chief economist: Housing prices to bottom out in first half of 2009 Large supply of unsold existing homes continues to weigh on the market Housing sales and starts to bottom out in 3Q 2008 Prices will probably drop by another 10%
7	Outlook for U.S. economy Federal Reserve not expected to change interest rates at August 5^th meeting Next move: Rate hike in 2Q 2009 Wyss’ forecast for U.S. GDP: Growth of 1.7% in 2Q 2008 and 1.8% in 3Q 2008 as consumers spend rebate checks Negative growth in 4Q 2008 and 1Q 2009, followed by 3% growth in 2Q 2009
8	The outlook now for state education budgets Most states’ education budgets are increasing in new fiscal year that started on July 1 Average increase of 3.5% this year vs. 10% last year according to McGraw-Hill Education survey of 38 states Reductions in only three states; two are flat Pressure on state budgets could lead to pick up in new bond issuance A plus for Standard & Poor’s
9	McGraw-Hill Education Financial Services Information & Media
10	2Q results at McGraw-Hill Education 2Q 2008 segment results Revenue + 3.6% increase to $670.8 million Operating profit Reduced by $10.9 million to $69.5 million (includes a pre-tax restructuring charge of $8.5 million) Operating margin 10.4% versus 12.4% last year (restructuring charge reduced operating margin by 126 basis points)
11	2Q results at McGraw-Hill Education School Education Group Revenue: + 6.9% to $438.2 million Higher Education, Professional and International Group Revenue: - 2.1% to $232.6 million
12	Improving prospects in adoption states 2008: Expect to capture about one-third of this year’s state new adoption market 2007: $820 million market opportunity 2008: $900 to $950 million market opportunity We expect to produce solid results in key disciplines and key adoption states Biggest 2008 opportunities: Reading and math Key adoption states: Florida, Texas and California
13	2Q: First signs of successful campaigns in adoption states Florida: Exceptional year taking shape Treasures, our balanced basal program, has been widely adopted Alternative basals, Imagine It! and Reading Mastery Plus, will enhance capture rate Our products will account for more than half of 2008’s Florida K–5 reading market
14	2Q: First signs of successful campaigns in adoption states Texas Did very well with new state-specific balanced basal math program California Science (K-8): Expect to build on 2007’s success in sizeable second-year adoption Math (K-8): Expect good results with new state-specific balanced basal and Everyday Mathematics
15	2Q: First signs of successful campaigns in adoption states Reading/Literature (K–12) Expect solid results in Alabama, Indiana, Louisiana, and Oklahoma Spotlight on Music is leading the elementary market Fine arts, health, business and vocational lines are performing well in states adopting these categories
16	New opportunities in supplemental market Enjoying some success although market remains sluggish Boost last week when Texas Education Agency announced a new $15 million opportunity for reading intervention programs New funding will be spent during 2008-2009 school year on the Texas intensive reading initiative for grades 4-8 Three of our intervention programs have been adopted Represent comprehensive print and digital solutions for students reading below grade level
17	Outlook for el-hi market in 2008 Solid year taking shape in state new adoption market Bulk of open territory orders traditionally come in 3Q Market should grow 1% to 2% Expect to gain share in overall K–12 market Market should grow 4% to 5%
18	Testing: Growth with a spectrum of assessment products Acuity continues to win new customers New formative program Winning new business with our other testing series TABE offers diagnostic assessments and instructor support for adult students LAS Links series for English-language learners Nevada extended contract for three years to serve nearly 80,000 English-language learners System helps ensure compliance with NCLB requirements
19	New NCLB requirements play to our strength in testing States adding a growth component to school accountability programs Growth model looks at an individual student’s academic performance Determines if student is on track to become proficient Requires development of a vertical scale to see how students are progressing from grade to grade We have strong expertise in vertical scaling TerraNova testing series has vertical scales Acuity’s vertical scales show growth through formative assessment
20	2Q results for Higher Education, Professional and International Group HPI markets softened in 2Q as bookstores cut orders and reduced inventory Some college textbook distributors shifted timing of orders for the fall semester from late June into July
21	2Q results for Higher Education, Professional and International Group Expect softness in professional markets for balance of the year Softness is a combination of: Tough comparisons; last year had benefit of new edition of Encyclopedia of Science and Technology Impact of economy on 2008 bookstore sales Expect U.S. college and university business to grow about 4% to 6% this year Sales of our digital, custom and career product lines are showing stronger growth Outlook is mixed in international markets
22	Outlook for McGraw-Hill Education Slower growth in higher education, professional and international markets may reduce rate of increase in revenue for McGraw-Hill Education New estimate: Revenue growth of 4% to 6% in 2008 Original forecast called for growth of 6% to 8% Segment’s estimate for operating margin unchanged Expect 50 to 100 basis point decline for 2008
23	McGraw-Hill Education Financial Services Information & Media
24	Financial Services 2Q 2008 segment results Revenue -10.4% to $735.5 million Operating profit -25.4% to $299.2 million Operating margin 40.7%, vs. 48.9% in 2Q 2007 (restructuring charge reduced operating margin by just over 200 basis points)
25	Financial Services 1H 2008 segment results Operating margin 40.5% including 2Q restructuring charge (restructuring charge reduced operating margin by 110 basis points)
26	The outlook for Financial Services Diversification contributes importantly to S&P’s results Strategy buffers Standard & Poor’s against the decline in new issuance Cost containment will continue to be a priority Guidance for 2008 remains unchanged
27	Outlook for Financial Services If decline experienced in 1H 2008 in structured finance continues for remainder of year, segment revenue would decline 7% to 9% Would also expect a 500 to 600 basis point drop in operating margin
28	Revenue vs. new issuance in 2Q 2008
29	The benefits of a diversified and resilient portfolio Investment Services 2Q 2008: Up 22.8% 1H 2008: Up 20.4% Still expect double-digit revenue growth for non-ratings businesses for balance of year
30	Data and information benefiting Investment Services Capital IQ continues to add customers here and abroad Now serving more than 2,400 clients 23% increase vs. 2Q 2007
31	Continuing to expand index products and services $206.3 billion in assets under management in ETFs based on S&P indices at end of 2Q 2008 15.5% increase compared to 2Q 2007 Sales of custom indices and data also increased
32	Continuing to expand index products and services Robust trading in exchange-traded derivatives based on S&P indices Average daily volume of contracts: 2,820,000 in 2Q, up 25% vs. same period last year Trading of over-the-counter derivatives increased substantially due in part to our products Investment banks license S&P’s products to create structured vehicles linked to their performance
33	Continuing to expand index products and services New S&P indices in 2008: 18 new ETFs launched in 2Q 2008 31 new ETFs launched in 1H 2008 vs. 46 for all of 2007 Now a total of 175 ETFs based on S&P indices More indices planned for 2H 2008
34	Diversifying at S&P Credit Market Services
35	Growth in unearned revenue at Financial Services Unearned revenue increased 12.0% to just over $840 million in 2Q 2008 Expect unearned revenue to continue growing
36	Cost containment important in current environment Closely managing costs while making investments Ensure S&P is prepared for turnaround in credit markets and growth in non-ratings business Measured approach to restructuring: Eliminated approximately 170 positions at end of 2007 Cut another 246 in 2Q 2008 Reduced incentive compensation Hiring remains selective Reduction in discretionary expenses a priority Continue to examine management structure and make process improvements
37	U.S. structured finance market continues to decline in 2Q 2008 New issue dollar volume down: 75.4% in April 81.8% in May 84.0% in June 79.0% for 1H 2008 Only asset-backed securities issuance is up after six months Just 0.2%
38	Turbulence in credit markets has carried into 2Q 2008
39	Turbulence in credit markets has carried into 2Q 2008
40	Signs the market is healing, but not yet healed Investment-grade issuers showed strength in 2Q as better-known issuers attracted receptive investors Nearly all recent deals have been substantially oversubscribed; indication there is plenty of cash available Corporate outlook for 2H promising although speculative-grade issuance will remain weak Expect more growth in public finance State and local government pipeline continues to look strong
41	Signs the market is healing, but not yet healed Expect growth in international markets in 2H 2008 Will benefit from geographic expansion into Gulf and Central and Eastern Europe Refinancing requirements of industrials in Europe should be source of growth Activity remains very slow in structured market
42	Opportunities emerging in structured finance market Focus will be on secondary market trades and repackaging S&P may have opportunities to rate some resecuritizations, or Re-REMICs
43	Growing U.S. interest in covered bonds Some market participants believe covered bonds could stimulate U.S. mortgage market Effort in U.S. to create a legal framework for covered bonds If effort succeeds, large capitalized banks could be important issuers Two levels of protection with covered bonds makes them attractive Covered bonds are senior debt obligations of the issuing institution secured directly on a portfolio of specific assets Issuer is obligated to pay interest and principal on bonds If issuer defaults, assets in covered-asset pool are also available to repay covered bonds
44	Opportunities emerging in structured finance market $25 trillion of securitized assets have been issued in last eight years Majority of assets are still in the market and need to be monitored, revalued and priced for trading in the secondary market S&P created FIRMS, Fixed Income and Risk Management Services to tap this market potential Provides market intelligence and analytic insight for risk-driven investment analysis, including debt, structured finance and derivatives markets
45	How S&P’s FIRMS will drive revenue growth Offer a rebranded and integrated platform for analysis and modeling of structured products Offer IMAKE, a new integrated credit risk modeling platform to help investors develop credit risk criteria for investing and lending Built out S&P’s global data libraries and provide state-of-the-art data management tool kits Integrate S&P’s proprietary modeling into evaluations to offer expertise in valuing complex securities
46	How S&P’s FIRMS will drive revenue growth (cont.) Partner with Super Derivatives to create the largest coverage of assets available from one offering Build out quantitative fixed income market research capabilities to drive a thought leadership position with investors Re-launch RatingsDirect™ completely redesigned to offer capabilities to create a credit workflow and integrated credit portal
47	Update on legal situation MHP won its first court decision related to subprime litigation Court dismissed Blomquist action Suit filed in California last August alleging various state and federal claims against numerous financial institutions, government agencies, McGraw-Hill and individuals New suit was filed in July, for total of five lawsuits Latest suit filed against Barclays Bank and others, including McGraw-Hill Alleges losses in two structured investment vehicles and the confirmation of allegedly “false” ratings by S&P
48	Update on legal situation New Jersey Carpenter Health and Vacation Funds filed three separate lawsuits against issuers, underwriters and others including McGraw-Hill Actions concern losses on mortgage-backed securities and allegedly inappropriate credit ratings Class action suit filed last August is being moved to U.S. District Court for the Southern District of New York Plaintiffs seek damages relating to decline in value of MHP’s stock price because senior management allegedly failed to warn investors about problems in structured market and S&P’s RMBS and CDO ratings We believe all remaining lawsuits are without merit In our view, legal risk from these actions remains low
49	Update on regulatory issues S&P remains actively engaged with regulatory issues and is making progress on its commitment to be part of the solution Working with policymakers and market participants to enable greater transparency
50	Update on regulatory issues
51	Update on regulatory issues SEC held two public meetings in June to discuss proposed new rules and regulations for NRSROs June 11: SEC discussed comprehensive set of rules that have potential to bring more transparency to structured market June 25: SEC met to discuss use of NRSRO ratings in its rules Broker-dealer net capital rule Money market fund investment rule Comments due September 5
52	Update on regulatory issues July 8: SEC issued report after comprehensive 10-month examination of three ratings agencies Some critical conclusions did not receive a lot of attention: No evidence found by SEC staff that decisions about ratings methodology or models were based on attracting or losing market share
53	Update on regulatory issues (cont.) No indication that ratings agencies compensated analysts in a manner contrary to their policies SEC recognized that ratings agencies enhanced their procedures in connection with their registration as NRSROs in 2007 Report noted further improvements to manage conflicts of interest
54	Update on regulatory issues At conclusion of July 8 report, SEC called for more documentation of ratings process and recommended S&P conduct reviews in certain areas S&P will be implementing these recommendations and taking steps to strengthen its ratings processes accordingly
55	Update on regulatory issues S&P responded to SEC’s June 11 request for comments on proposed rules to bring more transparency to structured market S&P basically supports the SEC proposals We believe dialogue with policymakers and regulators is important and so do policymakers Issues are complex and merit discussion S&P responded on two levels: Commentary on proposals Observations on specific legal and related questions raised by SEC staff
56	Update on regulatory issues We believe any new SEC rules must be narrowly tailored as required by law and should not regulate the substance of credit ratings or otherwise impair the value of the rating agencies’ independent opinions
57	Update on regulatory issues S&P agrees with SEC that it should have policies and procedures that prevent it from structuring products it rates; S&P already does S&P is concerned about interference with free flow of information between ratings agencies and issuers Communications should be encouraged, not inhibited S&P believes costs of proposed rules for rating agencies and the market have been underestimated by SEC
58	Update on regulatory issues SEC also seeking comment on rule changes affecting use of ratings to meet capital requirements We can continue to operate successfully if rules are changed; already do so outside U.S. We would be concerned if proposed changes lead to unintended disruption in financial markets
59	Update on regulatory issues Expect to see draft of proposed regulations from European Commission We believe any steps European regulators consider for additional oversight of rating agencies would be best addressed though globally coordinated approach Recognizing benefits of consistency for investors and issuers operating in international business
60	Summing up impact of legal and regulatory outlook on Financial Services We continue to believe any new or currently proposed legislation, regulations or judicial determinations would not have a material adverse effect on our financial condition or results of operations
61	Outlook for Financial Services Summary Legal and regulatory risk remains low Double-digit revenue growth for S&P Investment Services Revenue for segment could be off 7% to 9% for year if first half decline in structured finance continues for remainder of year Expect a 500 to 600 basis point drop in operating margin
62	McGraw-Hill Education Financial Services Information & Media
63	Information & Media 2Q 2008 segment results Revenue + 6.8% to $266.9 million Operating profit +68.2% to $24.8 million Operating margin 9.3%, up from 5.9% in 2Q 2007
64	Growth at Business-to-Business Group Revenue grew 7.8% in 2Q to $240.4 million Business-to-business products key to 2Q results Advertising pages declined 11% at BusinessWeek Strong global growth in Platts’ news and pricing and consulting growth at J.D. Power were key to 2Q performance
65	Platts – a global growth product Proportionately, Platts does more business overseas than any other MHP product Benefiting from demand for petroleum and natural gas products Demand shows no sign of diminishing in today’s volatile energy markets Platts is expanding in new areas now serving steel–the world’s third-largest commodity market Working with market participants to bring price transparency to steel market
66	Delivering more information electronically to construction market Critical part of McGraw-Hill Construction’s transition Electronic information producing increasing share of Construction’s sales
67	The outlook at BusinessWeek Ad pages off 17.3% through July 28 issue, according to Publishers Information Bureau Circulation is growing New syndicated studies indicate that BusinessWeek’s audience is younger and more affluent than in past years
68	Solid outlook for political television advertising in 2H 2008 Broadcasting revenue: $26.5 million, off 1% vs. 2Q 2007 Gains in political advertising offset by declines in the base business, primarily national sales Expect political advertising to be strong in 2H 2008 August: Colorado stations will benefit from state primary California: Expect ballot to include at least 11 propositions, including controversial same-sex marriage proposition All our TV markets will benefit from general election on November 4th
69	Outlook for Information & Media Summary More progress this year Revenue growth of 6% to 8% Improvement in operating margin
70	Outlook for The McGraw-Hill Companies Summary Year-over-year comparisons easier in second half Still expect 2008 EPS in $2.65-$2.75 range Excluding 2Q 2008 restructuring charges and related benefits
71	Robert J. Bahash Executive Vice President and Chief Financial Officer The McGraw-Hill Companies
72	Half way to our 2008 stock buyback target 2Q 2008: 4 million shares repurchased for $170.8 million; average price of $42.69 1H 2008: 7.4 million shares repurchased for $304.8 million; average price of $41.19 2008 buyback target: 15 million shares Capacity: 20.6 million shares remaining in 2007 buyback program
73	Modest increase in net debt Net debt: $1.4 billion As of June 30, increase of approximately $170 million versus end of 1Q 2008 Gross debt: $1.7 billion As of June 30, comprised of $1.2 billion of unsecured senior notes and $526 million in commercial paper outstanding Offset by $355 million in cash, primarily foreign holdings We are focused on maintaining debt levels comparable to year-end 2007
74	2008 outlook for free cash flow Approximately $600 million before acquisitions or share repurchases in 2008 1H 2008: $319 million decline compared to same period last year. Results impacted by: Reduced profits at Financial Services and corresponding impact on working capital Increase in working capital usage as McGraw-Hill Education prepares for strong adoption opportunities Cash outflows for construction costs for new data center that were accrued in 2007 One-time shift in timing of our employee profit-sharing contribution from 2007 to 2008 Payout of 2007 incentive compensation awards in 1Q 2008
75	Outlook for free cash flow (cont.) Free cash flow in 2H 2008 expected to approximate free cash flow for 2H 2007 Will benefit from: Easier comparisons at Financial Services Reduced investments for purchases of property and equipment as second half of 2007 reflected significant investment in our data center building Anticipated lower cash tax payments Normal seasonal working capital improvements
76	Outlook for net interest expense 2Q 2008: $20.4 million net interest expense Compared to $12.1 million in 2Q 2007 2008: Continue to expect $75-$85 million for year
77	Reduced fully-diluted weighted average shares outstanding (WASO) 2Q 2008: 321.1 million shares 29.2 million share decrease compared to 2Q 2007 2.3 million share decrease compared to 1Q 2008
78	Outlook for lower corporate expenses 2Q 2008: Decreased $7.5 million to $33.5 million, compared to a year ago Primarily driven by lower incentive compensation accruals and stringent expense controls 2008: Expect mid single-digit decrease
79	Managing expenses at Financial Services Year-over-year, 2Q expenses essentially flat on adjusted basis: Reported expenses: Increased 4.0%, or $16.6 million Adjusted expenses: Increased 0.4%, or $1.5 million Excludes $15.2 million second quarter restructuring charge Comparison benefits from $30 million reduction in incentive compensation and savings from 4Q 2007 restructuring actions Expense savings partially offset by impact of: Acquisitions in 2007 and 2008 Weakening U.S. dollar on non-U.S. dollar expense Investments in fast-growing areas, such as CRISIL, Capital IQ and Index Services
80	Managing expenses at Financial Services Sequential 2Q expenses increased $52 million versus 1Q: Primary contributors: $15.2 million restructuring charge $20 million increase in incentive compensation provision versus depressed first quarter levels $17 million increase for our strong growth businesses: Capital IQ, Index Services and CRISIL
81	Managing expenses at McGraw-Hill Education Year-over-year, expenses increased in 2Q: Reported expenses: Increased 6.1% Adjusted expenses: Increased 4.6%, or $26 million Increase driven by: $9.2 million in higher prepublication costs Increased marketing costs Investments in technology, including $3.3 million in data center migration costs Mitigated by: Benefits from 4Q 2007 restructuring and reduced stock-based compensation
82	Update on migration to new data center Data center is key to delivering more products and services electronically Migration costs: 2Q 2008: $8.9 million 1H 2008: $13.1 million 2008: Expect $40 million McGraw-Hill Education represents $18 million of 2008 cost
83	Outlook for growth in unearned revenue 2Q 2008: $1.1 billion Increased 7.5% year over year Financial Services: Grew 12% in 2Q Segment represents approximately three quarters of McGraw-Hill’s unearned revenue McGraw-Hill Education: Reduction in 2Q due to accelerated fulfillment of orders for basal texts and related components including increased use of electronic delivery 2008: Expect growth in mid single-digit range compared to 2007 given forecast for slower revenue growth
84	Outlook for tax rate: No change 2008: Expect effective tax rate of 37.5% Approximately same as 2007 on full-year basis
85	Reducing estimates for 2008 prepublication investments 2Q 2008: $65.3 million, compared to $75.2 million in same period last year 2008: Now expect $270 million Down from previous $290 million estimate
86	Lower capital expenditures for property and equipment 2Q 2008: $25.2 million, vs. $60.7 million in 2Q 2007 Higher last year while building data center Returned to more normalized rate this quarter 2008: Still expect $160 million Normal replacement expenditures Additional purchases of software and technology equipment for new data center Continued investments in technology
87	Outlook for non-cash items Amortization of pre-publication costs 2Q 2008: $66.0 million, compared to $56.8 million for 2Q 2007 2008: Lowering guidance to $275 million $35 million increase versus 2007 driven by significant prepublication investments
88	Outlook for non-cash items Depreciation 2Q 2008: $30.4 million, compared to $28.8 million in 2Q 2007 2008: Still expect approximately $125 million Completion of data center Purchases of new technology equipment for data center Other increases in capital expenditures
89	Outlook for non-cash items Amortization of intangibles 2Q 2008: $13.1 million, compared to $11.5 million in 2Q 2007 2008: Expect approximately $52 million
90	2Q 2008 Earnings Call July 29, 2008 Presenters: Harold McGraw III Chairman, President and CEO Robert J. Bahash Executive Vice President and CFO Donald S. Rubin Senior Vice President, Investor Relations
91	2Q 2008 Earnings Call July 29, 2008 Replay Options Internet Go to www.mcgraw-hill.com/investor_relations Click on the Earnings Announcement link under Investor Presentation Webcasts Telephone (Available through August 30) Domestic: 800-297-0781 International: +1-203-369-3239 No password required