1	3Q 2008 Earnings Call October 28, 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 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; 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 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.
4	Harold McGraw III Chairman, President and CEO The McGraw-Hill Companies
5	MHP 3Q 2008 results EPS 3Q 2008: $1.23 Includes pre-tax restructuring charge of $23.4 million, or $0.05 per diluted share, for a workforce reduction of approximately 270 positions Revenue 3Q 2008: Declined 6.4% to $2.0 billion
6	Measuring restructuring actions since end of 2007 2Q and 3Q restructuring charges $47.1 million pre-tax $29.4 million after-tax Reduced approximately 670 positions Including actions announced in 4Q 2007, approximately 1,275 positions have been eliminated through 3Q 2008
7	New efforts to restore confidence in credit markets More support by U.S. government for financial sector and to restore confidence in credit markets U.S. Treasury Secretary Paulson provided details on bank recapitalization measures Fed Chairman Bernanke is supporting another stimulus package More rate cuts now likely Another Fed rate cut could come this week
8	Continued weakness in U.S. housing market Housing prices won’t hit bottom until end of 2009, according to David Wyss, S&P’s chief economist Housing recession and credit crunch in financial markets continue to impact our results
9	Updating guidance for 2008 Now forecasting 2008 EPS of $2.63 to $2.65 Excludes restructuring charges, but includes the associated benefits Forecast assumes 4Q EPS of $0.40 to $0.42
10	McGraw-Hill Education Financial Services Information & Media
11	3Q results at McGraw-Hill Education Revenue Segment declined 3.8% to $1.1 billion School Education Group declined 9.1% to $623.5 million Higher Education, Professional and International Group increased 3.7% to $507.8 million Operating Profit Decreased 14.5% to $351.5 million Includes $5.4 million restructuring charge Operating Margin 31.1%
12	Results through nine months at McGraw-Hill Education Revenue Segment declined 1.0% to $2.1 billion Operating Profit Decreased 17.5% to $330.7 million Operating Margin 15.5%
13	The changing outlook for the el-hi market Industry sales up 3.9% through July, according to AAP Market started slipping in August 16.6% decline in August 17.6% decline in September Industry sales down 3.3% though September We expect el-hi market to decline about 3% to 4% in 2008 We expect to gain share in 2008
14	Unprecedented slowdown in residual sales Historically, residual sales are heaviest in third quarter Sales of previously adopted textbooks and materials for new enrollments or to replace lost, damaged books Sales of workbooks, lab manuals and other consumable softbound materials
15	Decline in new textbook sales Decrease was most pronounced in open territory states More dependent on local property tax revenues These states are mainly in northern and central regions which face higher fuel costs for bus transportation and heating
16	Pressures on state education budgets School districts face increased costs for personnel that are frequently indexed to rate of inflation Salaries, health care, pensions New budgets not sufficient to cover inflationary increases Expenses considered discretionary became low-priority items Situation aggravated by cutback in Reading First Dropped from more than $1 billion last year to only $383 million this year
17	How school districts are reducing costs Buying newly-adopted programs for a few grades Will add more grades in the future Buying classroom set and having classes reuse books versus one book per student More photocopying of workbooks
18	Why short-term cost saving measures are not sustainable Growing enrollments Schools will face shortages of standards-aligned materials Need materials to prepare students for NCLB’s accountability requirements Ordering new workbooks more cost effective than copying old ones
19	Delivering on the forecast for state new adoption sales Captured approximately 31% of total available dollars in state new adoption market Florida K–5 reading: Expect to capture more than 70% K–12 reading/literature: Expect to take about 40% Texas K–5 math: Project a 31% capture rate California: Did very well in first year of math adoption Led first-year science adoption; 2^nd year sales following positive trend Music, fine arts, health, business and vocational lines performed well
20	3Q testing: A seasonally-slow period Custom contract revenue declined Reductions in volume of work performed for Indiana and Missouri Expiration of contracts in Mississippi and Tennessee Continue to make progress with: Acuity, our new formative testing program LAS Links, assessment for English-language learners TABE, diagnostic assessments and instructional resources for adult students
21	In U.S. college market: Shift in ordering pattern Peak ordering normally occurs in July and August In 2008, surge in September as bookstores waited to gauge student demand Still expect total market to grow 4% to 6% this year Our higher education group will underperform industry
22	How 3Q shaped up for U.S. Higher Education Good growth in 3Q with our main academic imprints Business & Economics Science, Engineering & Mathematics Humanities, Social Sciences & World Languages Off-cycle year for revisions of traditional best-sellers will dampen 2008 performance Strong gain in Career Education product line Strengthened position in allied health market and computer information technology market Programs combine software and print
23	How 3Q shaped up for U.S. Higher Education Digital products grew rapidly Study guide products like Homework Manager led the way Students embracing generation of products that provide course-critical content that helps them study and prepare for exams more efficiently
24	Making headway with eBooks 618 McGraw-Hill titles now on CourseSmart.com, industry’s eBook website Cost-effective way to provide samples to instructors and increase awareness among students Partnerships with 50 campuses
25	Digital products growing in professional markets Digital subscriptions and licensing had favorable impact Could not offset softness at retail as bookstores cut back on orders and reduced inventory in face of economic conditions
26	3Q success in international markets Professional Recently released English and Spanish editions of Harrison’s Principles of Internal Medicine continued to perform well Higher Education Products sold well in Europe, the Middle East and India School Benefited from back-to-school sales in Spain and Mexico
27	3Q results for McGraw-Hill Education Summary Growth in higher education markets here and abroad in 3Q Digital revenue continued to grow rapidly in higher education and professional markets Strong performance in state new adoption market with 31% capture rate
28	Outlook for McGraw-Hill Education Summary Slowdown in el-hi market in August and September signals a 3% to 4% decline in industry sales this year Growth in college market of 4% to 6% this year Expect to increase share in el-hi market and to underperform U.S. college and university market Now expect revenue to decrease 1% to 2% in 2008 with operating margin decline of 300 to 350 basis points
29	McGraw-Hill Education Financial Services Information & Media
30	3Q results at Financial Services Revenue Segment declined 14.2% to $651.5 million S&P Credit Market Services declined 24.2% to $423.2 million S&P Investment Services increased 13.5% to $228.2 million Operating Profit Decreased 18.8% to $281.6 million Includes $4.1 million restructuring charge Operating Margin 43.2%
31	Results through nine months at Financial Services Revenue Segment declined 12.0% to $2.0 billion Operating Profit Decreased 23.3% to $840.9 million Operating Margin 41.4%
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34	Revenue vs. new issuance in 3Q 2008
35	Building a diverse, resilient revenue stream for Financial Services Europe: Substantial drop in structured finance issuance resulting from widening spreads and decline in fundamentals Asia-Pacific: Some issuance softness; CRISIL, in India, continues to post solid gains Actively exploring opportunities to expand S&P’s international footprint
36	Building a diverse, resilient revenue stream for Financial Services Non-transaction revenue: Another measure of our diversification strategy 3Q 2008: Up 2.3% First nine months of 2008: Up 8.9% Non-transaction revenue includes surveillance fees, annual contracts, and subscriptions All three categories grew in 3Q 2008
37	Growth of deferred revenue in 3Q Up 7.2% to just over $805 million at end of 3Q A sequential decline compared vs. 2Q Slower growth reflects seasonality of revenue and decline in ratings activity
38	The benefits of a diversified and resilient portfolio S&P Investment Services Another quarter of double-digit growth Capital IQ and index services: Key contributors to 13.5% revenue increase in 3Q
39	Data and information benefiting Investment Services Capital IQ is adding customers here and abroad Now serves more than 2,500 clients Client base: Up 22.2% in past 12 months Capital IQ continues to expand product offering and functionality Recently acquired copy of Reuters Estimates and Reuters Research-on-Demand databases Adds to global analytical solutions offering
40	Continuing to expand index products and services Index services benefited from: Higher volume for exchange-traded derivatives Increase in assets under management in ETFs based on S&P indices Growth in data and custom indices $223.5 billion in assets under management in ETFs based on S&P indices at end of 3Q 2008 6.7% increase vs. 3Q 2007 Growth due, in part, to use of ETFs for hedging; asset class mix also acts as natural hedge
41	Continuing to expand index products and services 27% year-over-year increase in average daily volume for exchange-traded derivatives based on S&P indices Daily volume averaged 3.7 million contracts in 3Q
42	Continuing to expand index products and services New in 2008: 45 ETFs launched in first nine months of 2008 vs. 46 for all of 2007 189 ETFs based on S&P indices now available worldwide
43	Continuing to expand index products and services Additions to family of fixed income indices October: S&P/LSTA U.S. Leveraged Loan 100 index October: S&P U.S. Commercial Paper Index Signed agreement with Korean Exchange to develop new set of indices in September S&P has partnerships with primary exchanges in Australia, Tokyo, Milan, Toronto, Moscow, Hong Kong and India More in the pipeline this year from Index Services
44	S&P faces easier comparisons in Q4 Improvement hinges on some market recovery in fourth quarter Visibility of extent and speed of recovery remains low Growing concern about economy Markets are assessing new rescue programs from federal government and how to respond to various fiscal stimulus packages Infusion of capital into banks should help return confidence and credit to the market Decline in Libor is a sign credit markets may be on the mend
45	Outlook for structured finance When investors return, it will be back to basics Less leverage Less risk More plain vanilla securities Outlook for year assumed a low level of activity in structured finance Guidance: Segment revenue will decrease 11% to 12% 425 to 475 basis point decline in operating margin Previously expected 500 to 600 basis point decline
46	The regulatory scene: Clarifying the issues S&P’s president, Deven Sharma, testified before U.S. House of Representatives Committee on Oversight and Government Reform last week Basic charges against rating agencies: Structured finance ratings were not objective S&P’s only concern was profits Business model is prone to conflict It is difficult to be heard in a rush to judgment. A must read: Sharma’s complete testimony at www.standardandpoors.com
47	Regulatory issues: S&P’s standards Policies and procedures for S&P’s ratings business: Has strong policies against analysts structuring transactions S&P rates Does not provide consulting services to issuers Does not give higher ratings based on how it is paid Does make its ratings, criteria and methodologies available and open to market comment
48	Regulatory issues: S&P’s standards No business model is without potential conflicts A responsible organization like S&P has policies and procedures in place to manage them Our professionals have never been compensated upon the amount of revenue they generate Credit analysts do not negotiate fees Rating decisions are always made by a committee and not by individuals We have a team of quality officers to promote analytical rigor and safeguard the ratings process
49	What the SEC found A thorough examination by the SEC found “there is no evidence found that decisions about ratings methodology or models were based on attracting or losing market share”
50	What an S&P rating represents Under the issuer-pays model, S&P makes all its ratings public, free of charge, in real-time Credit ratings are not investment advice or recommendations to buy, sell or hold a security Credit ratings primarily address the likelihood that an obligation will be repaid on time with interest Ratings are not static
51	Regulatory issues: S&P’s commitment S&P recognizes the seriousness of the current dislocation in capital markets and that not all the forecasts used in its ratings analysis have been borne out S&P is committed to: Constant improvement Greater transparency Independence S&P announced 27 actions to enhance ratings process and promote confidence. Update available at www.standardandpoors.com
52	Gaining perspective on AAA defaults S&P’s record in rating AAA U.S. structured finance securities Default rate is only 0.28% for those rated between January 1978 and October 13, 2008
53	The outlook for regulation S&P expects to learn more about regulatory initiatives next month SEC could issue new rules for rating agencies next month November 12: European Commission expected to issue its proposals on rating agencies We believe global consistency should be based on IOSCO’s recently revised code for the rating agencies
54	The outlook on the legal situation Not a lot has changed since we reviewed legal risk at an investor conference on September 18 New lawsuit filed at end of September against Federal National Mortgage Association and number of defendants, including The McGraw-Hill Companies We believe the litigation is without merit
55	Assessing the legal and regulatory outlook We continue to believe any pending legal, governmental, or self-regulatory proceedings or investigation will not result in a material adverse effect on our financial condition or results of operations
56	Outlook for Financial Services Summary Revenue will decline 11% to 12% in 2008 Operating margin will decline 425 to 475 basis points this year Low visibility in credit markets Double-digit revenue growth for S&P Investment Services in 2008
57	McGraw-Hill Education Financial Services Information & Media
58	3Q results at Information & Media Revenue Segment increased 5.3% to $265.7 million Business-to-Business Group grew 5.4% to $240.7 million Broadcasting up 4.4% to $25.0 million Operating Profit Increased 22.6% to $22.8 million Includes $13.9 million restructuring charge Operating Margin 8.6% Restructuring charge reduced operating margin by 523 basis points
59	Results through nine months at Information & Media Revenue Segment up 5.1% to $776 million Operating Profit Increased 37.3% to $59.4 million Operating Margin 7.7%
60	Growth at Business-to-Business Group Platts—a key revenue driver Leading provider of global energy information to customers in more than 160 countries Customers depend on our news and pricing information to help with decision making in uncertain times Our information is embedded in the customers’ workflow
61	Growth at Business-to-Business Group Aviation Week benefited from Farnborough Air Show Held every other year in third quarter
62	Growth at Business-to-Business Group BusinessWeek’s advertising pages were down 13.9% in 3Q Continues to attract new subscribers and improve its renewal rate Launched Business Exchange Enables users to create topics around business issues and connect with BusinessWeek’s community Social media will create opportunity to leverage context and content for users and advertisers
63	Broadcasting: Benefiting from political advertising Solid increase in political advertising on TV offset softness in local and national advertising in 3Q Our Denver station benefited from: Colorado status as swing state in presidential election Advertising by candidates for U.S. Senate and House Significant spending on issues Our Indianapolis station benefited from: Governor’s race Presidential campaign
64	Outlook for Information & Media Summary More progress this year with Business-to-Business Group Solid growth in political advertising for Broadcasting Revenue growth of 4% to 6% Improvement in operating margin
65	Outlook for The McGraw-Hill Companies 2008: Now forecasting EPS of $2.63 to $2.65 Projection excludes restructuring charges, but includes the associated benefits Forecast assumes 4Q EPS of $0.40 to $0.42
66	Outlook for The McGraw-Hill Companies Outlook for 2009 Budgeting process is underway We’re not in a position to make a forecast until process is complete We know state new adoption market will not match this year’s total Texas not scheduled in 2009 2010 state new adoption market improves sharply College and university market is counter-cyclical Enrollments increase in times of economic difficulty Visibility in financial markets is low Will be important to see when various stimulus packages begin to have an impact Focused on managing costs and maintaining liquidity
67	Robert J. Bahash Executive Vice President and Chief Financial Officer The McGraw-Hill Companies
68	Taking a hard look at costs and expenses 4Q 2007: Revenue for S&P Credit Market Services dropped by 14.1% and segment was off by 7.2% 4Q 2008: Easier comparisons, but segment faces challenges Outlook for 4Q 2008 revenue Credit Market Services: Don’t expect a pick up S&P Investment Services: Growth will probably slow again in 4Q, but will increase by double-digits in 2008
69	Taking a hard look at costs and expenses McGraw-Hill Education 4Q is seasonally slow El-hi market: We may realize some sales from postponements, but too hard to call U.S. college and university: Introducing new titles in 4Q but timing of pick up is difficult to gauge
70	Taking a hard look at costs and expenses For MHP: $23.4 million restructuring charge in 3Q Primarily for severance costs related to workforce reduction of approximately 270 positions Contain costs and mitigate impact of current and future economic conditions
71	Taking a hard look at costs and expenses For MHP: $117 million year-over-year decline in incentive compensation $71 million reduction in long-term, stock-based compensation Lowered accruals for long-term awards due to reduced operating results Resulted in negative $39 million for stock-based compensation in 3Q Balance of year-over-year reduction was in short-term incentive compensation Cash savings in 2008 will not be realized until awards are paid out in March 2009
72	Taking a hard look at costs and expenses Measuring the impact of reduced incentive compensation across the company: McGraw-Hill Education: $15.9 million Financial Services: $60.0 million Information & Media: $12.4 million Corporate: $29.1 million
73	Managing expenses at Financial Services
74	Managing expenses at Financial Services (cont’d) Sequential 3Q expenses decreased $66 million, or 15.2% vs. 2Q as reported Contributors: $46 million decrease in incentive compensation Reduction in 3Q vs. 2Q restructuring charges of $11 million Savings from restructuring actions
75	Managing expenses at McGraw-Hill Education
76	Migration to new data center is nearly complete Migration costs: 3Q 2008: $8 million First nine months of 2008: $21 million 2008: Expect $30-35 million $5-10 million lower than original forecast McGraw-Hill Education represents about half of the total cost
77	Outlook for lower corporate expenses 3Q 2008: Decreased $28 million, or 74.3%, to $9.7 million, compared to a year ago Primarily driven by lower incentive compensation accruals for the quarter Excluding the reduction in incentive compensation accruals, expenses were approximately flat with prior year 2008: Now expect about $50 million decrease Approximate $10 million decline in 4Q Previously forecast mid single-digit decrease
78	MHP’s strong financial position 3Q 2008 net debt: $1.0 billion As of September 30, decrease of approximately $349 million versus end of 2Q 2008 as a result of free cash flow generated in 3Q 3Q 2008 gross debt: $1.5 billion As of September 30, comprised of $1.2 billion of unsecured senior notes and $307 million in commercial paper outstanding Offset by $485 million in cash, primarily foreign holdings
79	MHP’s strong financial position Outstanding commercial paper is supported by new $1.15 billion credit facility Commercial paper rating is F-1/P-1 Given current liquidity issues in market, important to be a Tier 1 issuer for pricing and availability Plan to reduce commercial paper outstanding through balance of year with seasonal cash inflows Objective: Maintaining 2008 net debt at year-end 2007 level
80	Evaluating repatriating cash from overseas Overseas cash is primarily invested in money market instruments Repatriation does not impact net debt but causes swings between where cash is held and commercial paper outstanding
81	Outlook for net interest expense 3Q 2008: $22 million net interest expense Compared to $15.4 million in 3Q 2007 2008: Expect approximately $80 million for year Expect 4Q to be roughly comparable with 3Q
82	2008 outlook for free cash flow 3Q 2008: Approximately $500 million, roughly flat with 2007 2008: Expect approximately $500 million versus previous $600 million forecast New forecast due to reduction in 3Q revenue and impact on cash collections in 4Q Carefully managing costs and capital investments to help offset lower operating cash flow Will continue to monitor our investment priorities given uncertain economic environment
83	Investing in fast-growing businesses First nine months 2008: Approximately $40 million spent on acquisitions October: Enhanced Capital IQ’s data offering Acquired copy of Reuters Estimates and Reuters Research-on-Demand databases
84	Update on share repurchases 3Q 2008: 3.5 million shares repurchased for $142.4 million; average price of $40.70 First nine months of 2008: 10.9 million shares repurchased for $447.2 million; average price of $41.03 Capacity: 17.1 million shares remaining in 2007 buyback program
85	Currently evaluating extent of share repurchases in 4Q Remain committed to returning cash to shareholders through dividend payments and share repurchases Must balance commitment while maintaining appropriate liquidity during difficult credit environment
86	Reduced diluted weighted average shares outstanding (WASO) 3Q 2008: 317.2 million shares 20.5 million share decrease compared to 3Q 2007 3.9 million share decrease compared to 2Q 2008 Fully-diluted shares at end of 3Q approximately 315 million shares
87	Outlook for unearned revenue 3Q 2008: $1.1 billion Increased 6.4% year-over-year Financial Services: Grew 7.2% in 3Q Year-over-year decline at S&P’s Credit Market Services accounts for slower growth Segment represents approximately three quarters of McGraw-Hill’s unearned revenue 2008: Expect minimal growth for Corporation given forecast for slower revenue growth at Financial Services
88	Outlook for tax rate: No change 3Q 2008: 37.5% 2008: Expect to be approximately same for full-year
89	Maintaining estimates for 2008 prepublication investments 3Q 2008: $65.4 million, compared to $76.9 million in same period last year 2008: Continue to expect $270 million
90	Lowering capital expenditures for property and equipment 3Q 2008: $17.7 million vs. $63.0 million in 3Q 2007 Higher last year while building data center 2008: Now expect $115 million versus previous $160 million forecast Delaying a number of capital projects due to slower operating free cash flow and uncertain economic environment
91	Outlook for non-cash items Amortization of pre-publication costs 3Q 2008: $124.6 million, compared to $110.5 million for 3Q 2007 2008: Continue to expect $275 million
92	Outlook for non-cash items Depreciation 3Q 2008: $30.0 million, compared to $26.2 million in 3Q 2007 2008: Continue to expect approximately $125 million Completion of data center Purchases of new technology equipment for data center
93	Outlook for non-cash items Amortization of intangibles 3Q 2008: $13.6 million, compared to $11.7 million in 3Q 2007 2008: Continue to expect approximately $52 million
94	Outlook for The McGraw-Hill Companies Taking a hard line on company expenses while prudently managing investments to support areas of high growth potential Protecting our strong financial position Priorities are clear: Reduce expenses Ensure we have resources to fund growth Maintain liquidity
95	3Q 2008 Earnings Call October 28, 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
96	3Q 2008 Earnings Call October 28, 2008 Replay Options Internet replay available for one year Go to www.mcgraw-hill.com/investor_relations Click on the Earnings Announcement link under Investor Presentation Webcasts Telephone replay available through November 27) Domestic: 888-433-2210 International: +1-203-369-3151 No password required