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, 2010

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

For the transition period from                      to                     

THE MCGRAW-HILL COMPANIES, INC.

(Exact name of registrant as specified in its charter)

New York		13-1026995
(State of other jurisdiction of		(I.R.S. Employer
incorporation or organization)		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):

þ Large accelerated filer		o Accelerated filer		o Non-accelerated filer		o Smaller reporting company
		(Do not check if a smaller reporting company).

     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 16, 2010 there were approximately 309.1 million shares of common stock (par value $1.00 per share) outstanding.

 

 

The McGraw-Hill Companies, Inc.

TABLE OF CONTENTS

		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, 2010 and 2009			4
Consolidated Balance Sheets as of June 30, 2010, December 31, 2009 and June 30, 2009			5
Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009			6
Notes to Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
Item 3. Quantitative and Qualitative Disclosures About Market Risk			25
Item 4. Controls and Procedures			25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			26
Item 1a. Risk Factors			26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			26
Item 6. Exhibits			26
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

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, 2010, and the related consolidated statements of income for the three-month and six-month periods ended June 30, 2010 and 2009, and the consolidated statements of cash flows for the six-month periods ended June 30, 2010 and 2009. 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, 2009, and the related consolidated statements of income, equity, and cash flows for the year then ended, not presented herein, and in our report dated February 24, 2010, we expressed an unqualified opinion on those consolidated financial statements.

/s/ ERNST & YOUNG LLP

July 23, 2010

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

The McGraw-Hill Companies, Inc.
Consolidated Statements of Income

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(in thousands, except per share data)		2010				2009				2010				2009
		(Unaudited)								(Unaudited)
Revenue
Product		$	545,025			$	525,813			$	855,847			$	815,211
Service			929,031				939,367				1,808,599				1,798,176
Total revenue			1,474,056				1,465,180				2,664,446				2,613,387
Expenses
Operating-related
Product			259,075				268,235				432,058				442,508
Service			301,820				314,270				605,063				628,936
Operating-related expenses			560,895				582,505				1,037,121				1,071,444
Selling and general expenses			547,719				546,126				1,035,690				1,037,437
Depreciation			26,177				28,782				52,125				58,194
Amortization of intangibles			13,007				11,440				22,988				25,644
Total expenses			1,147,798				1,168,853				2,147,924				2,192,719
Income from operations			326,258				296,327				516,522				420,668
Other loss			—				13,849				—				13,849
Interest expense — net			20,840				18,499				42,879				39,090
Income before taxes on income			305,418				263,979				473,643				367,729
Provision for taxes on income			111,172				96,088				172,406				133,853
Net income			194,246				167,891				301,237				233,876
Less: net income attributable to noncontrolling interests			(3,162	)			(3,798	)			(6,867	)			(6,779	)
Net income attributable to The McGraw-Hill Companies, Inc.		$	191,084			$	164,093			$	294,370			$	227,097
Earnings per common share
Basic		$	0.61			$	0.53			$	0.94			$	0.73
Diluted		$	0.61			$	0.52			$	0.94			$	0.73
Average number of common shares outstanding:
Basic			311,167				312,226				312,263				311,862
Diluted			313,167				313,033				314,709				312,525
Dividend declared per common share		$	0.235			$	0.225			$	0.47			$	0.45

See accompanying notes to the Consolidated Financial Statements.

The McGraw-Hill Companies, Inc.
Consolidated Balance Sheets

		June 30,				December 31,				June 30,
(in thousands)		2010				2009				2009
		(Unaudited)								(Unaudited)
ASSETS
Current assets:
Cash and equivalents		$	1,117,827			$	1,209,927			$	556,131
Short-term investments			26,796				24,602				—
Accounts receivable (net of allowance for doubtful accounts and sales returns)			994,039				969,662				1,049,447
Inventories			339,654				301,229				389,885
Deferred income taxes			289,544				278,414				283,635
Prepaid and other current assets			140,093				152,562				118,124
Total current assets			2,907,953				2,936,396				2,397,222
Prepublication costs (net of accumulated amortization)			425,428				460,843				540,276
Investments and other assets:
Assets for pension benefits			76,962				78,522				57,417
Deferred income taxes			21,782				24,072				53,484
Other			176,719				166,379				171,218
Total investments and other assets			275,463				268,973				282,119
Property and equipment – at cost			1,569,249				1,570,450				1,568,055
Less: accumulated depreciation			(1,023,449	)			(990,654	)			(984,012	)
Net property and equipment			545,800				579,796				584,043
Goodwill and other intangible assets:
Goodwill – net			1,688,646				1,690,507				1,688,748
Indefinite-lived intangible assets			202,065				202,065				202,065
Copyrights – net			138,041				146,239				154,292
Other intangible assets – net			180,630				190,431				209,251
Net goodwill and other intangible assets			2,209,382				2,229,242				2,254,356
Total assets		$	6,364,026			$	6,475,250			$	6,058,016
LIABILITIES AND EQUITY
Current liabilities:
Notes payable		$	22			$	22			$	89,622
Accounts payable			325,029				301,828				285,509
Accrued royalties			48,672				114,157				49,435
Accrued compensation and contributions to retirement plans			342,302				450,673				326,822
Income taxes currently payable			55,073				17,086				75,552
Unearned revenue			1,144,262				1,115,357				1,098,505
Deferred gain on sale-leaseback			11,499				11,236				10,978
Other current liabilities			432,918				441,595				481,170
Total current liabilities			2,359,777				2,451,954				2,417,593
Other liabilities:
Long-term debt			1,197,879				1,197,791				1,197,701
Deferred income taxes			8,971				9,965				3,154
Liability for pension and other postretirement benefits			501,360				511,683				599,081
Deferred gain on sale-leaseback			142,001				147,838				153,542
Other non-current liabilities			234,112				226,842				220,927
Total other liabilities			2,084,323				2,094,119				2,174,405
Total liabilities			4,444,100				4,546,073				4,591,998
Commitments and contingencies (Note 12)
Equity :
Common stock			411,709				411,709				411,709
Additional paid-in capital			45,297				5,125				15,994
Retained income			6,668,804				6,522,613				6,156,140
Accumulated other comprehensive loss			(356,790	)			(343,017	)			(410,289	)
Less: common stock in treasury – at cost			(4,926,074	)			(4,749,143	)			(4,780,114	)
Total equity – controlling interests			1,842,946				1,847,287				1,393,440
Total equity – noncontrolling interests			76,980				81,890				72,578
Total equity			1,919,926				1,929,177				1,466,018
Total liabilities and equity		$	6,364,026			$	6,475,250			$	6,058,016

See accompanying notes to the Consolidated Financial Statements.

The McGraw-Hill Companies, Inc.
Consolidated Statements of Cash Flows

		Six Months Ended
		June 30,
(in thousands)		2010				2009
		(Unaudited)
Operating Activities:
Net income		$	301,237			$	233,876
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation			52,125				58,194
Amortization of intangibles			22,988				25,644
Amortization of prepublication costs			95,226				98,429
Provision for losses on accounts receivable			6,132				15,880
Deferred income taxes			(16,757	)			(4,465	)
Stock-based compensation			22,990				17,233
Loss on disposition of business			—				13,849
Other			2,360				2,866
Changes in operating assets and liabilities, net of effect of acquisitions and dispositions:
Accounts receivable			(42,371	)			(1,397	)
Inventories			(38,597	)			(20,907	)
Prepaid and other current assets			(13,025	)			(14,221	)
Accounts payable and accrued expenses			(141,908	)			(207,234	)
Unearned revenue			42,776				(6,575	)
Other current liabilities			(6,781	)			22,389
Net change in prepaid/accrued income taxes			61,493				67,926
Net change in other assets and liabilities			11,646				(7,361	)
Cash provided by operating activities			359,534				294,126
Investing Activities:
Investment in prepublication costs			(59,991	)			(85,053	)
Purchase of property and equipment			(22,085	)			(16,898	)
Acquisition related contingent payment			(5,000	)			—
Proceeds from sale of business			—				9,731
Disposition of property and equipment			5,271				60
Additions to technology projects			(16,906	)			(7,671	)
Changes in short-term investments			(2,194	)			—
Cash used for investing activities			(100,905	)			(99,831	)
Financing Activities:
Additions to short-term debt, net			—				19,600
Dividends paid to shareholders			(148,178	)			(141,750	)
Dividends paid to noncontrolling interests			(14,152	)			(5,074	)
Repurchase of treasury shares			(186,854	)			—
Exercise of stock options			26,472				7,108
Excess tax benefits from share-based payments			1,254				10
Cash used for financing activities			(321,458	)			(120,106	)
Effect of exchange rate changes on cash			(29,271	)			10,271
Net change in cash and equivalents			(92,100	)			84,460
Cash and equivalents at beginning of period			1,209,927				471,671
Cash and equivalents at end of period		$	1,117,827			$	556,131

See accompanying notes to the Consolidated Financial Statements.

The McGraw-Hill Companies, Inc.
Notes to Consolidated Financial Statements

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

1.

Basis of Presentation

		The accompanying unaudited financial statements of The McGraw-Hill Companies, Inc. (together with its consolidated subsidiaries, the “Company,” “we,” “us” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Rule 10-01 of Regulation S-X. The financial statements included herein should be read in conjunction with the financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2009 (the “Annual Report”).
		In the opinion of management all normal recurring adjustments considered necessary for a fair statement of the results of the interim periods have been included. The operating results for the three and six months ended June 30, 2010 are not necessarily indicative of results to be expected for the full year due to the seasonal nature of some of our businesses. As a result, we have included the Consolidated Balance Sheet as of June 30, 2009 for comparative purposes. Certain prior-year amounts have been reclassified to conform with current years’ presentation.
		Our critical accounting policies are disclosed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report. On an ongoing basis, we evaluate our 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 our critical accounting policies.

2.

Comprehensive Income

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

		Three Months								Six Months
		2010				2009				2010				2009
Net income		$	194,246			$	167,891			$	301,237			$	233,876
Other comprehensive income:
Foreign currency translation adjustment			(11,830	)			36,313				(20,024	)			19,566
Pension and other postretirement benefit plans, net of tax			6,601				12,102				8,757				12,739
Unrealized (loss) gain on investment, net of tax			(633	)			1,889				(168	)			1,743
Comprehensive income			188,384				218,195				289,802				267,924
Less: comprehensive income attributable to noncontrolling interests			(3,436	)			(6,747	)			(9,205	)			(7,094	)
Comprehensive income attributable to The McGraw-Hill Companies, Inc.		$	184,948			$	211,448			$	280,597			$	260,830

3.

Segment and Related Information

We have 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, college and university, professional, international and adult education markets.
	•		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 Information & Media segment includes broadcast media, products and services that offer business information, insight and analysis.

Operating profit/(loss) by segment is the primary basis for our chief operating decision maker, 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:

		2010								2009
						Operating								Operating
Three Months		Revenue				Profit				Revenue				Profit
McGraw-Hill Education		$	564,980			$	51,581			$	555,189			$	21,008
Financial Services			684,848				264,742				673,788				276,354
Information & Media			224,228				47,504				236,203				14,422
Total operating segments			1,474,056				363,827				1,465,180				311,784
General corporate expense			—				(37,569	)			—				(29,306	)
Interest expense — net			—				(20,840	)			—				(18,499	)
Total Company		$	1,474,056			$	305,418	*		$	1,465,180			$	263,979	*

		2010								2009
						Operating								Operating
Six Months		Revenue				Profit/(Loss)				Revenue				Profit/(Loss)
McGraw-Hill Education		$	882,227			$	(10,211	)		$	867,817			$	(55,588	)
Financial Services			1,351,831				524,758				1,283,942				507,947
Information & Media			430,388				75,333				461,628				17,194
Total operating segments			2,664,446				589,880				2,613,387				469,553
General corporate expense			—				(73,358	)			—				(62,734	)
Interest expense — net			—				(42,879	)			—				(39,090	)
Total Company		$	2,664,446			$	473,643	*		$	2,613,387			$	367,729	*

See Note 4 – Acquisitions and Dispositions, and Note 13 – Restructuring, for actions that impacted the operating results for the segments for the three and six months ended June 30, 2009.

4.

Acquisitions and Dispositions

		There were no acquisitions or dispositions by the Company for the three and six months ended June 30, 2010. We did make a $5.0 million contingent payment during the three months ended June 30, 2010 related to an acquisition in 2008. There were no acquisitions by the Company for the three and six months ended June 30, 2009.
		In May 2009, we sold our Vista Research, Inc. business which was part of our Financial Services segment. This business was selected for divestiture as it no longer fit within our strategic plans and it has enabled 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, we recognized a pre-tax loss of $13.8 million ($8.8 million after-tax or $0.03 per diluted share), recorded as other loss within the Consolidated Statement of Income.

5.

Stock-Based Compensation

		We issue stock-based incentive awards to our eligible employees and Directors under a Director Deferred Stock Ownership Plan and three employee stock ownership plans: the 1987, 1993 and 2002 Employee Stock Incentive Plans. These plans permit the granting of nonqualified stock options, stock appreciation rights, restricted stock awards, performance stock awards, deferred stock and other stock-based awards.
		Stock-based compensation for the periods ended June 30 is as follows:

		Three Months								Six Months
		2010				2009				2010				2009
Stock option expense		$	6,008			$	4,783			$	10,326			$	11,171
Restricted stock and unit awards expense			8,645				4,620				12,664				6,062
Total stock-based compensation expense		$	14,653			$	9,403			$	22,990			$	17,233

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

		June 30,				December 31,				June 30,
(in thousands)		2010				2009				2009
Stock options exercised			1,048				943				270
Restricted stock and units vested			8				1,430				1,421
Total shares issued			1,056				2,373				1,691

6.

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,
		2010				2009				2009
Allowance for doubtful accounts		$	70,244			$	74,193			$	70,176
Allowance for sales returns		$	137,967			$	201,917			$	119,610
Inventories:
Finished goods			329,076				290,415				377,320
Work-in-process			2,568				3,858				3,454
Paper and other materials			8,010				6,956				9,111
Total inventories		$	339,654			$	301,229			$	389,885
Accumulated amortization of prepublication costs		$	948,449			$	1,005,114			$	838,384

7.

Debt

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

		June 30,				December 31,				June 30,
		2010				2009				2009
5.375% Senior notes, due 2012 (a)		$	399,834			$	399,798			$	399,763
5.900% Senior notes, due 2017 (b)			399,296				399,248				399,200
6.550% Senior notes, due 2037 (c)			398,560				398,534				398,507
Commercial paper			—				—				89,600
Note payable			211				233				253
Total debt			1,197,901				1,197,813				1,287,323
Less: short-term debt including current maturities			22				22				89,622
Long-term debt		$	1,197,879			$	1,197,791			$	1,197,701

Senior Notes

	(a)		As of June 30, 2010, our 2012 senior notes consisted 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 due semiannually on February 15 and August 15.
	(b)		As of June 30, 2010, our 2017 senior notes consisted of $400 million principal and an unamortized debt discount of $0.7 million. The 2017 senior notes, when issued in November 2007, were priced at 99.76% with a yield of 5.933%. Interest payments are due semiannually on April 15 and October 15.
	(c)		As of June 30, 2010, our 2037 senior notes consisted of $400 million principal and an unamortized debt discount of $1.4 million. The 2037 senior notes, when issued in November 2007, were priced at 99.605% with a yield of 6.580%. Interest payments are due semiannually on May 15 and November 15.

The fair value of the Company’s long-term borrowings was approximately $1.3 billion at June 30, 2010 and was estimated based on quoted market prices. We paid interest on our debt totaling $24.9 million and $25.0 million for the three months ended June 30, 2010 and 2009, respectively, and $35.7 million and $35.8 million during the six months ended June 30, 2010 and 2009, respectively.

		Additional Financing
		Currently, we have the ability to borrow additional funds through our commercial paper program, which is supported by our credit facility. Historically, we have also had the ability to borrow additional funds through Extendible Commercial Notes (“ECNs”) and a promissory note. However, in the current credit environment the market for ECNs and financing through our promissory note are not available and, as such, we have no short-term plans to utilize these sources for additional funds. As of June 30, 2010 and December 31, 2009, we have not utilized any of these sources for additional funds. As of June 30, 2009, we have only borrowed under the commercial paper program.
		Commercial Paper Program
		The size of our total commercial paper program is $1.2 billion and is supported by the revolving credit agreements described below. Commercial paper borrowings outstanding at June 30, 2009 totaled $89.6 million, with an average interest rate and average term of 0.2% and 13 days, respectively. These borrowings are classified as current notes payable in the consolidated balance sheet as of June 30, 2009.
		Credit Facility
		Our credit facility serves as a backup facility for short-term financing requirements that normally would be satisfied through the commercial paper program. Our combined credit facility totals $1.2 billion and consists of two separate tranches, a $433.3 million 364-day facility that will terminate on August 13, 2010 and a $766.7 million 3-year facility that will terminate on September 12, 2011. Based on our credit rating, we currently pay a commitment fee of 12.5 basis points for the 364-day facility and a commitment fee of 10 basis points for the 3-year facility, whether or not amounts have been borrowed. The interest rate on borrowings under the credit facility is, at our option, based on (i) a spread over the prevailing London Inter-Bank Offer Rate (“LIBOR”) that is based on our credit rating (“LIBOR loans”) or (ii) on the higher of (a) the prime rate, which is the rate of interest publicly announced by the administrative agent (b) 0.5% plus the Federal funds rate, or (c) LIBOR plus 1% (“ABR loans”).
		We have 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 1.0%.
		The credit facility contains certain covenants. The only financial covenant requires that we not exceed indebtedness to cash flow ratio, as defined in the credit facility, of 4 to 1, and this covenant has never been exceeded.
		Extendible Commercial Notes (“ECNs”)
		We have the capacity to issue ECNs of up to $240 million, provided that sufficient investor demand for the ECNs exists. ECNs replicate commercial paper, except that we have 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 our 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. As of June 30, 2010, we have no borrowings outstanding and have no short-term plans to utilize ECNs for additional funds.
		Promissory Note
		On April 19, 2007, we signed a promissory note with one of our providers of banking services to enable us to borrow additional funds, on an uncommitted basis, from time to time to supplement our 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. As of June 30, 2010, we have no borrowings outstanding and have no short-term plans to utilize our promissory note for additional funds.
		Share Repurchases
		In the second quarter of 2010, cash was utilized to repurchase approximately 6.5 million shares for $186.9 million.

8.

Common Shares Outstanding

The weighted average 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)		2010				2009				2010				2009
Average number of common shares outstanding — basic			311,167				312,226				312,263				311,862
Effect of stock options and other dilutive securities			2,000				807				2,446				663
Average number of common shares outstanding — dilutive			313,167				313,033				314,709				312,525

		The computation of diluted earnings per share excludes certain restricted performance shares outstanding and certain stock options outstanding.
		Restricted performance shares outstanding of 3.4 million and 3.7 million at June 30, 2010 and 2009, respectively, were not included in the computation of diluted earnings per common share because the necessary vesting conditions have not yet been met.
		The effect of the potential exercise of stock options is excluded from the computation of diluted earnings per share when the average market price of the common stock is lower than the exercise price of the related option during the period because the effect would have been antidilutive. For the three months ended June 30, 2010 and 2009, the number of stock options excluded from the computation was 24.4 million and 26.3 million, respectively, and 23.8 million and 29.4 million for the six months ended June 30, 2010 and 2009, respectively.

9.

Retirement Plans and Postretirement Healthcare and Other Benefits

		We have a number of defined benefit pension plans and defined contribution plans covering substantially all employees. Our primary pension plan is a noncontributory plan under which benefits are based on employee career employment compensation. We also have unfunded non-U.S. and supplemental benefit plans. The supplemental benefit plans provide senior management with supplemental retirement, disability and death benefits. In addition, we sponsor voluntary 401(k) plans under which we may match employee contributions up to certain levels of compensation as well as profit-sharing plans under which we contribute a percentage of eligible employees’ compensation to the employees’ accounts. We also provide certain medical, dental and life insurance benefits for retired employees and eligible dependents. The medical and dental plans are contributory while the life insurance plan is non-contributory.
		A summary of net periodic benefit cost for our defined benefit plans and postretirement healthcare and other benefits plan for the periods ended June 30 is as follows:

		Three Months								Six Months
		2010				2009				2010				2009
Pension Benefits
Service cost		$	14,363			$	14,373			$	30,550			$	28,795
Interest cost			23,179				21,295				46,915				42,881
Expected return on plan assets			(27,760	)			(26,196	)			(55,685	)			(52,169	)
Amortization of prior service credit			4				(68	)			(78	)			(129	)
Amortization of actuarial loss			3,632				1,059				7,392				2,714
Net periodic benefit cost		$	13,418			$	10,463			$	29,094			$	22,092
Postretirement Healthcare and Other Benefits
Service cost		$	596			$	562			$	1,237			$	1,260
Interest cost			1,654				2,046				3,670				4,208
Amortization of prior service credit			(297	)			(297	)			(593	)			(593	)
Amortization of actuarial gain			(143	)			—				—				—
Net periodic benefit cost		$	1,810			$	2,311			$	4,314			$	4,875

		The amortization of prior service credit and amortization of loss for the periods ended June 30, 2010 and 2009, included in the above table, have been included in other comprehensive income, net of tax.
		In 2010, 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. We changed certain assumptions on our pension and postretirement healthcare and other benefit plans which became effective on January 1, 2010:

	•		We changed our discount rate assumption on our U.S. retirement plans to 5.95% from 6.10% in 2009.
	•		We changed our discount rate assumption on our United Kingdom (“U.K.”) retirement plan to 5.90% from 5.80% and our assumed compensation increase factor for our U.K. retirement plan to 6.25% from 5.50%.
	•		We changed our discount rate on our postretirement healthcare benefit plan to 5.30% from 5.95% in 2009.

		The effect of the assumption changes on pension and other postretirement healthcare expense for the three and six months ended June 30, 2010 and 2009 did not have a material effect on earnings per share.
		In 2010, we contributed $14.1 million to our retirement plans, primarily related to our U.K. retirement plan. Additionally, for the rest of 2010 we expect to contribute approximately $13.9 million to our retirement plans.

10.

Sale-Leaseback

In December 2003, we sold our 45% equity investment in Rock-McGraw, Inc., which owns our headquarters building in New York City, and remained an anchor tenant of what continues to be known as The McGraw-Hill Companies building by concurrently leasing back space through 2020. As of June 30, 2010, we leased approximately 17% of the building space. Proceeds from the disposition were $382.1 million and the sale resulted in a pre-tax gain, net of transaction costs, of $131.3 million ($58.4 million after-tax) upon disposition. Due to our continued involvement in the building it was determined that we did not qualify for sale-leaseback accounting and, as a result, a pre-tax gain of $212.3 million ($126.3 million after-tax) was deferred upon the disposition in 2003. This gain is being amortized over the remaining lease term as a reduction in rent expense. For the three and six months ended June 30, 2010, $4.6 million and $9.2 million was amortized, respectively, reducing the deferred gain to $153.5 million. Interest expense associated with our operating lease for the three and six months ended June 30, 2010 is $1.8 million and $3.6 million, respectively.

11.

Income Taxes

		For the three and six months ended June 30, 2010 and 2009, the effective tax rate was 36.4%.
		At the end of each interim period, we estimate the annual effective tax rate and apply that rate to our 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.

12.

Commitments and Contingencies

		The following amends the disclosure in Note 15 — Commitments and Contingencies to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2009.
		In connection with the Reese class action, the Court granted a motion by plaintiffs permitting the plaintiffs to amend the complaint on June 29, 2010 and the Second Amended Complaint was filed on July 1, 2010.
		In connection with the Patrick Gearren, et al and the Sullivan class actions both plaintiffs have filed appeals from the dismissals of their actions.
		In connection with the Teamsters Allied Benefit Funds v. Harold McGraw III, et al derivative action on March 11, 2010 the Court granted the Company’s motion to dismiss the complaint, and on March 23, 2010, after the plaintiffs’ time to file an amended complaint expired, the Court directed the clerk to close the case.

13.

Restructuring

		2009 Restructuring
		During the second quarter 2009, we initiated a restructuring plan that included a realignment of select business operations within the McGraw-Hill Education segment to further strengthen our position in the market by creating a market focused organization that enhances our ability to address the changing needs of our customers. Additionally, we continued to implement restructuring plans related to a limited number of our business operations to contain costs and mitigate the impact of the current and expected future economic conditions. We 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 2009, we revised our estimate of previously recorded restructuring charges and reversed $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 and was classified as selling and general expenses within the consolidated statement of income.

		For the three and six months ended June 30, 2010, we have paid $3.1 million and $8.4 million, respectively, related to the 2009 restructuring, consisting of employee severance costs. The remaining reserve at June 30, 2010 is $4.6 million and is included in other current liabilities.
		2008 Restructuring
		During 2008, we continued to implement restructuring plans related to a limited number of business operations to contain costs and mitigate the impact of the current and expected future economic conditions. We 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 and was classified as selling and general expenses within the consolidated statement of income.
		For the three and six months ended June 30, 2010, we have paid $1.0 million and $3.5 million, respectively, related to the 2008 restructuring, consisting primarily of employee severance costs. The remaining reserve at June 30, 2010 is $5.6 million and is included in other current liabilities.
		2006 Restructuring
		During 2006, we 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. This charge consisted of $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 and was classified as selling and general expenses within the consolidated statement of income.
		For the three and six months ended June 30, 2010, we have paid $0.4 million and $0.8 million, respectively, related to the 2006 restructuring, consisting of facility costs. The remaining reserve at June 30, 2010, which consists of facilities costs, is $5.8 million and is payable through 2014.

14.

Recently Issued or Adopted Accounting Standards

In October 2009, the Financial Accounting Standards Board (“FASB”) issued an update to authoritative guidance for revenue recognition, specifically amending the existing multiple-element arrangement guidance. This new guidance eliminates the requirement that all undelivered elements have objective and reliable evidence of fair value before a company can recognize the portion of the overall arrangement fee that is attributable to the items that have already been delivered. Further, companies will be required to allocate revenue in arrangements involving multiple deliverables based on estimated selling price of each deliverable, even though such deliverables are not sold separately by either the company itself or other vendors. This new guidance also significantly expands the disclosures required for multiple-element revenue arrangements. The revised guidance will be effective for the fiscal year ending December 31, 2011. We are currently evaluating the impact this update will have on our Consolidated Financial Statements.

		In June 2009, the FASB issued amended guidance related to the accounting for variable interest entities (“VIEs”), which we adopted beginning January 1, 2010. This guidance requires a qualitative rather than a quantitative analysis to determine the primary beneficiary of a VIE; requires ongoing reassessments of whether an enterprise is a primary beneficiary of a VIE; enhances disclosures about an enterprise’s involvement with a VIE; and amends certain guidance for determining whether an entity is a VIE. We have evaluated our VIEs in accordance with this amended guidance and have determined that it does not have an impact on our 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)

The following Management Discussion and Analysis (“MD&A”) provides a narrative of the results of operations and financial condition of The McGraw-Hill Companies, Inc. (together with its consolidated subsidiaries, the “Company,” “we,” “us” or “our”) for the three and six months ended June 30, 2010. The MD&A should be read in conjunction with the Consolidated Financial Statements, accompanying notes and MD&A included in our Annual Report on Form 10-K for the year ended December 31, 2009. The MD&A includes the following sections:

	•		Overview
	•		Results of Operations – Comparing Three and Six Months Ended June 30, 2010 and 2009
	•		Liquidity and Capital Resources
	•		Critical Accounting Estimates
	•		Recently Issued or Adopted Accounting Standards
	•		“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995

Overview

We are a leading global information services provider serving the education, financial services and business information markets with information products and services. Other markets include energy; automotive; construction; aerospace and defense; broadcasting; and marketing information services. The operations consist of three business segments: McGraw-Hill Education (“MHE”), Financial Services and Information & Media (“I&M”). As the customers of our businesses vary, we manage and assess the performance of our business based on the performance of our segments. Based on this approach and the nature of our operations, the discussion of results generally focuses around our three segments versus distinguishing between products and services.

		Three Months												Six Months
		2010				2009				% Favorable				2010				2009				% Favorable
Revenue		$	1,474,056			$	1,465,180				0.6	%		$	2,664,446			$	2,613,387				2.0	%
Operating profit *		$	363,827			$	311,784				16.7	%		$	589,880			$	469,553				25.6	%
% Operating margin			24.7	%			21.3	%							22.1	%			18.0	%

Three Months

Revenue increased at our MHE and Financial Services segments and declined at our I&M segment. Operating profit improved at our MHE and I&M segments and declined at our Financial Services segment.

	•		MHE revenue improved 1.8% and operating profit improved significantly, primarily due to increases at Higher Education for both print and digital product, and increases at School Education Group in the adoption states. These increases were partially offset by declines in School Education Group related to open territory sales and custom testing revenue due to the discontinuation of several contracts.
	•		Financial Services revenue increased 1.6% and operating profit decreased 4.2%, primarily driven by increases in our index services, ratings services and growth at Capital IQ. These increases were partially offset by declines in structured finance and investment research products.
	•		I&M revenue declined 5.1% and operating profit improved significantly compared to the prior year, primarily driven by the divesture of BusinessWeek in December 2009. Offsetting this revenue decline was continued growth in our global commodities products related to oil and natural gas. Also offsetting the decline was an increase in non-auto sectors due to growth in syndicated research studies.

Foreign exchange rates had favorable impacts of $3.4 million on revenue and $6.8 million on operating profit.

Six Months

Revenue increased at our MHE and Financial Services segments and declined at our I&M segment. Operating profit/(loss) improved at all three of our segments.

	•		MHE revenue and operating loss improved 1.7% and 81.6%, respectively, primarily due to increases at Higher Education for both print and digital product, increases at School Education Group in the adoption states and increases in formative assessment programs. The increases were partially offset by declines in School Education Group related to open territory sales and custom testing revenue due to the discontinuation of several contracts.
	•		Financial Services revenue and operating profit increased 5.3% and 3.3%, respectively. Revenue increases were largely due to growth in transaction revenues driven by high-yield corporate bond issuance. Credit ratings-related information products

			such as RatingsXpress and RatingsDirect also contributed strong growth as compared to the prior year. Additional growth occurred at Capital IQ. These increases were partially offset by declines in structured finance and in investment research products.
	•		I&M revenue declined 6.8% and operating profit improved significantly compared to the prior year, primarily driven by the divesture of BusinessWeek and decreases in our construction businesses. Offsetting this revenue decline was continued growth in our global commodities products related to oil and natural gas.

Foreign exchange rates had favorable impacts of $21.3 million on revenue and $3.3 million on operating results.

Results of Operations – Comparing Three and Six Months Ended June 30, 2010 and 2009

Consolidated Review

		Three Months												Six Months
										% Favorable												% Favorable
		2010				2009				(Unfavorable)				2010				2009				(Unfavorable)
Revenue
Product		$	545,025			$	525,813				3.7	%		$	855,847			$	815,211				5.0	%
Service		$	929,031			$	939,367				(1.1	%)		$	1,808,599			$	1,798,176				0.6	%
Operating-related expenses
Product		$	259,075			$	268,235				3.4	%		$	432,058			$	442,508				2.4	%
Service		$	301,820			$	314,270				4.0	%		$	605,063			$	628,936				3.8	%
Selling and general expenses		$	547,719			$	546,126				(0.3	%)		$	1,035,690			$	1,037,437				0.2	%
Total expenses		$	1,147,798			$	1,168,853				1.8	%		$	2,147,924			$	2,192,719				2.0	%
Interest expense — net		$	20,840			$	18,499				(12.7	%)		$	42,879			$	39,090				(9.7	%)
Net income attributable to The McGraw-Hill Companies, Inc.		$	191,084			$	164,093				16.4	%		$	294,370			$	227,097				29.6	%
Diluted EPS		$	0.61			$	0.52				17.3	%		$	0.94			$	0.73				28.8	%

Product revenue and expenses consist of educational and information products, primarily books, magazine circulations and syndicated study programs in our MHE and I&M segments. Service revenue and expenses consist of our Financial Services segment, service assessment contracts in our MHE segment and information-related services and advertising in our I&M segment.

Revenue

Three Months

Product revenue increased primarily due to increases at MHE for both print and digital product in Higher Education and increases in the adoption states. Service revenue decreased slightly, primarily due to a decline in custom testing revenue at MHE due to the discontinuation of contracts. This was partially offset by increases in our index services, ratings services and growth at Capital IQ. The divestiture of BusinessWeek at I&M impacted both product and service revenue.

Six Months

Product revenue increased primarily due to increases at MHE for both print and digital product in Higher Education and increases in the adoption states. Service revenue increased slightly, primarily due to growth in transaction revenues driven by high-yield corporate bond issuance, index services, credit-ratings related information products such as RatingsXpress and RatingsDirect, and Capital IQ. Increases for both product and service revenue were offset primarily by the divestiture of BusinessWeek at I&M.

Expenses

Three Months

Product and service operating expenses decreased primarily due to productivity improvements and cost-saving initiatives. Service operating expenses were also impacted by the divestiture of BusinessWeek at I&M.

Selling and general expenses increased slightly due to increased marketing costs at MHE, as well as higher stock-based compensation as compared to the prior year. This increase was partially offset by the benefits of cost-saving initiatives and the divestiture of BusinessWeek at I&M.

During the second quarter of 2009, we initiated a restructuring plan that included a realignment of select business operations within the MHE 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, we continued to implement restructuring plans related to a limited number of our business operations to contain costs and mitigate the impact of the current and expected future economic conditions.

We 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, we revised our 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) and was classified as selling and general expenses within the Consolidated Statement of Income.

Net interest expense increased primarily due to a reversal of interest expense on uncertain tax positions in Germany that occurred in the three months ended June 30, 2009.

Six Months

Product and service operating expenses decreased due to the factors noted above for the quarter.

Selling and general expenses decreased slightly as compared to the prior year as the benefits of cost-saving initiatives and the divestiture of BusinessWeek were partially offset by higher cost associated with increased sales as well as the restructuring costs as noted above for the quarter.

Net interest expense increased primarily due to the reversal of interest expense as noted above for the quarter, as well as lower international interest income from our investments.

Other Items

In May 2009, we sold our Vista Research, Inc. business which was part of our Financial Services segment. During the second quarter of 2009, we recognized a pre-tax loss of $13.8 million ($8.8 million after-tax, or $0.03 per diluted share), recorded as other loss within the Consolidated Statement of Income. This business was selected for divestiture, as it no longer fit within our strategic plans. This divestiture enabled our 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.

For the three and six months ended June 30, 2010 and 2009, the effective tax rate was 36.4%. We incurred transfer taxes of $35.4 million in the first quarter of 2010 resulting from a legal entity reorganization in our European operations to comply with recent regulation that will be offset in subsequent reporting periods and will not impact the effective tax rate. Therefore, we expect the effective tax rate to be at 36.4% for the remainder of the year absent the potential impact of numerous factors including intervening audit settlements, changes in federal, state or foreign law and changes in the geographical mix of our income.

Segment Review

McGraw-Hill Education

		Three Months												Six Months
										% Favorable												% Favorable
		2010				2009				(Unfavorable)				2010				2009				(Unfavorable)
Revenue
School Education Group		$	324,912			$	338,568				(4.0	%)		$	436,498			$	461,215				(5.4	%)
Higher Education, Professional and International			240,068				216,621				10.8	%			445,729				406,602				9.6	%
Total revenue		$	564,980			$	555,189				1.8	%		$	882,227			$	867,817				1.7	%
Operating profit (loss)		$	51,581			$	21,008				N/M			$	(10,211	)		$	(55,588	)			81.6	%
% Operating margin			9.1	%			3.8	%							(1.2	%)			(6.4	%)

Revenue and operating income for our MHE segment reflect the seasonal nature of some of our educational publishing businesses, with the first quarter being the least significant and the third quarter being the most significant.

Foreign exchange rates had favorable impacts of $3.3 million on revenue and $2.3 million on operating profit for the quarter, and a favorable impact of $9.1 million on revenue and an immaterial impact on operating loss for the six months.

Also impacting results was the restructuring plan initiated during the second quarter of 2009 that resulted in a net pre-tax restructuring charge recorded for the three and six months ended June 30, 2009 of $11.6 million.

Revenue

School Education Group (“SEG”)

Three Months

Revenue decreased compared to the prior year, primarily as the result of a decline in open territory sales and a decline in custom testing revenue due to the discontinuation of contracts for work in Arizona and Florida. Revenue in the current quarter was also impacted by revenue deferrals for Texas K-12 orders that will be shipped during the third quarter of 2010. Offsetting these decreases was an increase in revenue in the adoption states.

	•		SEG’s overall sales in the adoption states increased from the prior-year quarter, primarily due to increased K-12 sales for reading and literature in Texas, which did not adopt new materials in the prior year. Also contributing to the increase were higher sales in Florida, which is purchasing K-12 math in 2010 after a lighter adoption year in 2009. Offsetting this growth were reductions in new and residual sales in California; lower adoption sales in Indiana, where many districts have postponed purchasing; and in South Carolina, where scheduled high-school math adoption was not funded.
	•		SEG’s sales in the open territory decreased from the comparable prior-year quarter due to lower sales in Illinois, which suspended its textbook loan program, and declines in Ohio and Kansas.

Six Months

Revenue decreased compared to the prior year as declines in open territory sales and custom testing revenue which did not repeat due to the discontinuation of contracts in Florida, California and Arizona, were partially offset by increases in adoption state sales, as well as growth in revenue for the Acuity formative assessment program. Also contributing to the decrease were revenue deferrals as noted above for the quarter.

	•		In the K-12 market, new basal programs are implemented at the beginning of the fall term, and therefore the majority of the purchasing is done in the second and third quarters. However, budget pressures exist in many states that could prevent districts from buying materials.
	•		SEG’s overall sales in the adoption states increased and sales in the open territory decreased from the comparable prior-year period due to the factors noted above for the quarter.

Higher Education, Professional and International

Three Months

Higher Education increased for both print and digital products, driven by higher enrollments in the current academic year and by double-digit growth at three of our four subject-area imprints (Science, Engineering and Mathematics; Business and Economics; and Humanities, Social Science and Languages), while Career Education grew modestly.

	•		Key titles contributing to the performance in the quarter included Shier, Hole’s Essentials of Human Anatomy and Physiology, 12/e; Sanderson, Computers in the Medical Office, 6/e; Nickels, Understanding Businesses, 9/e; Knorre, Puntos de Partida, 8/e; and Lucas, The Art of Public Speaking, 10/e .
	•		Digital growth was driven by the continued success of the Homework Management product line, which also includes assessment and tutoring products. E-book revenue also increased over the comparable prior-year period as we expanded both the number of titles available and the number of channels through which we sell our E-books.

Professional increased slightly over the comparable prior-year period due to increases in net book publishing sales as actual returns were significantly lower than the comparable prior-year quarter. Growth in digital revenue, primarily from digital subscription products, also contributed to the increase.

International increased slightly over the comparable prior-year period, driven by the favorable impact of foreign exchange rates. Also contributing to the increase were higher sales in Asia as a result of Higher Education sales in Southeast Asia and Korea, and in Latin America as a result of growth in Mexico.

Six Months

Higher Education increased for both print and digital products, driven by higher enrollments in the current academic year and by strong publication lists and attractive new digital offerings at all four subject-area imprints. Digital growth was driven by the continued success of the Homework Management product line, which included new releases on the improved and enhanced Connect platform. E-book revenue also increased over the comparable prior-year period.

Professional increased slightly over the comparable prior-year period due to the factors noted above for the quarter.

International increased over the comparable prior-year period, driven by the favorable impact of foreign exchange rates. The increase was also a result of gains in the Middle East and Africa from large orders placed by international non-profit organizations, and in Asia as noted above for the quarter. These gains were offset by declines in other international markets.

Operating Profit/(Loss)

In the second quarter of 2010, operating profit for MHE improved, primarily due to the strong growth in Higher Education sales combined with lower expenses at SEG due to productivity improvements, cost-saving initiatives and reduced plant amortization. The realignment of several business operations within the segment that occurred during the second quarter of 2009 also contributed to the increase.

In the first six months of 2010, operating loss for MHE improved, primarily due to the increase in Higher Education sales combined with lower expenses at SEG due to productivity improvements, cost-saving initiatives and the realignment of several business operations within the segment as noted above.

Industry Highlights and Outlook

According to statistics compiled by the Association of American Publishers, total net sales of elementary and secondary instructional materials increased by 5.3% through May 2010 compared to the same period in 2009. Sales in adoption states for the industry increased by 8.7% compared to the prior year, while sales in open territory states increased by 2.6%. Beginning in 2010, basal and supplemental sales are no longer being reported separately due to the increasing overlap between these types of products and their markets.

The environment for 2010 is positive as the total available state new adoption market in 2010 is currently estimated at between $825 million and $875 million, depending on state funding levels, compared to approximately $500 million in 2009. In addition, total U.S. PreK-12 enrollment for 2009-2010 is estimated at nearly 56 million students, up slightly from 2008-2009, according to the National Center for Education Statistics.

The key adoption opportunities in 2010 are K-12 reading and literature in Texas and K-12 math in Florida. Although spending levels remain uncertain given the state’s budget issues, second-year purchasing of K-8 reading and literature and third-year purchasing of K-8 math in California are also anticipated.

Financial Services

		Three Months												Six Months
										% Favorable
		2010				2009				(Unfavorable)				2010				2009				% Favorable
Revenue
Credit Market Services		$	457,875			$	457,404				0.1	%		$	909,330			$	848,754				7.1	%
Investment Services			226,973				216,384				4.9	%			442,501				435,188				1.7	%
Total revenue		$	684,848			$	673,788				1.6	%		$	1,351,831			$	1,283,942				5.3	%
Operating profit		$	264,742			$	276,354				(4.2	%)		$	524,758			$	507,947				3.3	%
% Operating margin			38.7	%			41.0	%							38.8	%			39.6	%

Foreign exchange rates had an immaterial impact on revenue and a favorable impact of $5.2 million on operating profit for the quarter, and favorable impacts of $11.6 million on revenue and $5.0 million on operating profit for the six months.

Revenue

Credit Market Services

Three Months

Credit Market Services revenue was relatively flat compared to the prior year as increases in corporate industrial ratings and credit ratings-related information products were partially offset by declines in structured finance. Corporate industrial ratings increased primarily due to growth in transaction revenue driven by increased bank loan ratings and robust high-yield corporate bond issuance in the beginning of the quarter. The decrease in financial institution ratings resulted primarily from reduced debt issuance. Structured finance decreased in both the U.S. and Europe as both issuers and investors contemplate the market impact of pending changes in the regulatory environment. In addition, there were a reduced number of restructurings of existing mortgage-backed securities (re-REMIC transactions) and lower issuance in the U.S. of asset-backed securities. Also, the European sovereign debt crisis impacted market liquidity and there was a decline in central bank sponsored repurchase agreement activity.

Revenue derived from non-transaction related sources decreased slightly compared to the second quarter of 2009. Offsetting the decrease were increases in credit ratings-related information products such as RatingsXpress and RatingsDirect, which continue to have strong growth in the quarter as compared to the prior year. Non-transaction related revenue represented 67.1% of total Credit Market Services revenue for the second quarter of 2010, down slightly from 67.9% for the second quarter of 2009.

Six Months

Credit Market Services revenue increased compared to the prior year, primarily due to growth in transaction revenues driven by robust high-yield corporate bond issuance and increases in credit ratings-related products, partially offset by decreases in structured finance.

Revenue derived from non-transaction related sources increased compared to the first six months of 2009, primarily as a result of growth in annual fees and subscription revenue. Credit ratings-related information products such as RatingsXpress and RatingsDirect, had strong growth in their subscription base in the first half of 2010 as compared to prior year. Non-transaction related revenue represented 67.0% of total Credit Market Services revenue for the first six months of 2010 down from 69.6% for the first half of 2009 due to transaction revenue growing at a higher rate than non-transaction revenue in the first half of 2010.

Investment Services

Three Months

Investment Services revenue increased compared to the prior year, primarily driven by increases in our index services and growth at Capital IQ, partially offset by declines in investment research products. Specifically, index services increased mainly due to growth in exchange traded derivatives resulting from higher trading volumes and growth in exchange-traded fund (“ETF”) products as 32 new ETF’s were launched in the quarter. Capital IQ continues to grow the number of new clients and their cancellations have decreased. The number of Capital IQ clients at June 30, 2010 increased 13.9% from the comparable prior-year period. Offsetting these increases were decreases in investment research products, primarily resulting from the expiration of the Independent Equity Research settlement at the end of July 2009.

Six Months

Investment Services revenue increased slightly compared to the prior year due to the factors noted above for the quarter. Revenue was also impacted by the divestiture of Vista Research in May 2009.

Operating Profit

Operating profit decreased for the second quarter of 2010, primarily due to declines in structured finance as noted above.

Operating profit increased for the first six months of 2010, primarily due the growth in transaction revenue and increases in our index services, partially offset by declines in structured finance and investment research products as noted above.

Issuance Volumes

We monitor issuance volumes as an indicator of trends in transaction revenue streams within Credit Market Services. The following tables depict changes in issuance levels as compared to the prior year, based on Thomson Financial, Harrison Scott Publications and Standard & Poor’s internal estimates.

		Second Quarter								Year-to-Date
		Compared to Prior Year								Compared to Prior Year
Structured Finance		U.S.				Europe				U.S.				Europe
Residential Mortgage-Backed Securities (“RMBS”)			(66.7	%)			353.6	%			(46.6	%)			897.2	%
Commercial Mortgage-Backed Securities (“CMBS”)			276.4	%			(32.6	%)			578.2	%			232.6	%
Collaterized Debt Obligations (“CDO”)			46.2	%			*				60.4	%			568.9	%
Asset-Backed Securities (“ABS”)			(44.3	%)			93.3	%			6.2	%			52.8	%
Total New Issue Dollars — Structured Finance			(43.0	%)			273.0	%			(0.3	%)			487.7	%

•

RMBS volume is down in the U.S. in the quarter and year-to-date due to lower re-REMIC activity. Additionally, the average transaction size has decreased significantly from the prior year.

•		European RMBS issuance was up substantially from the very depressed levels in the prior year, but consisted primarily of covered bond issuance from financial institutions.
•		CMBS issuance is up in Europe for the six months and in the U.S. for the three and six months compared to no material issuance in the prior year.
•		CDO asset classes experienced greater demand in the quarter and year as a result of increased activity in leveraged funds from refinancing activity and the close of several structured credit transactions. However, the current year’s percentage increase is calculated from a low base in the comparable prior-year period.
•		ABS issuance in the U.S. is down for the second quarter of 2010 when compared to the prior year, primarily driven by reductions in credit card volumes due to concerns regarding recent changes in accounting and potential pending regulatory changes, which could increase the economic cost of securitization.
•		European ABS growth was primarily a result of a lower base in the comparable prior-year period.

		Second Quarter								Year-to-Date
		Compared to Prior Year								Compared to Prior Year
Corporate Issuance		U.S.				Europe				U.S.				Europe
High-Yield Issuance			(7.1	%)			364.0	%			82.0	%			594.9	%
Investment Grade			(62.6	%)			(64.0	%)			(56.1	%)			(38.8	%)
Total New Issue Dollars — Corporate Issuance			(52.9	%)			(61.1	%)			(42.3	%)			(36.0	%)

•

Corporate issuance decreased in the second quarter in both the U.S. and Europe compared to the comparable prior-year period as fears and disruptions generated by the European sovereign debt crisis unsettled global markets. However, corporate high-yield debt issuance increased in both the U.S. and Europe for the current six-month period as the result of very strong issuance for the first four months of the current year due to increased activity in refinancing and a modest rebound in debt-financed mergers and acquisitions.

Industry Highlights and Outlook

Activity in the first half of 2010 has been driven by refinancing as companies are exhibiting prudent capital management and are taking advantage of low underlying interest rates and increased investor demand for new issues. Corporate issuance levels in the second half of 2010 will depend on re-establishing stability in the wake of the European sovereign debt crisis, which has reduced the number of opportunistic financings experienced earlier this year. However, a significant amount of debt maturities in 2010 remain to be refinanced by companies in the second half of the year. In addition, mergers and acquisition activity is projected to recover somewhat and the overall cost of financing should remain at attractive levels for most of the year.

Global new issue credit spreads increased during the second quarter as the result of the market conditions in Europe. As the market conditions stabilize and spreads tighten, it will be more attractive for issuers to access the capital markets. The Federal Reserve noted in June of 2010 that it will continue to keep interest rates exceptionally low for an extended period, which should keep the current liquidity conditions intact in the corporate credit market.

Although the ABS market continued to strengthen during the first half of 2010, this trend may slow as the year progresses as the market adjusts to new and proposed rules and regulations from the Federal Deposit Insurance Corporation (“FDIC”), Financial Accounting Standards Board (“FASB”) and Securities and Exchange Commission (“SEC”), which may increase the cost of securitization for issuers going forward.

In addition, we anticipate slow and gradual improvement among the RMBS and CMBS asset classes as we progress throughout 2010, as long as the economic recovery remains on track and the capital markets remain stable.

Regulatory Environment

The following amends the Legal and Regulatory Environment disclosure for our Financial Services segment in our Annual Report on Form 10-K for the year ended December 31, 2009.

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) which, among other things, will impose new requirements and standards on credit rating agencies, including NRSROs, which may result in an increase in the Company’s costs for regulatory compliance. The Act also amends the law that establishes pleading standards in securities fraud suits brought against credit rating agencies under the Securities Exchange Act of 1934. The change in the pleading standards may result in increased litigation costs for the Company; however, the law does not amend the liability standard in such lawsuits which continues to be the same standard applicable to all defendants.

We have reviewed the new laws, regulations and rules which have been adopted and have implemented, or are planning to implement, changes as required. Although it is difficult to predict the full impact of the Act, we do not currently believe that the Act or other adopted laws, regulations or rules 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 us of the adoption of any such laws, regulations or rules remains uncertain.

Legal Proceedings

See Note 12 — Commitments and Contingencies to our unaudited Consolidated Financial Statements for legal proceedings disclosure that amends the disclosure in our Annual Report on Form 10-K for the year ended December 31, 2009.

Information & Media

		Three Months												Six Months
										% Favorable												% Favorable
		2010				2009				(Unfavorable)				2010				2009				(Unfavorable)
Revenue
Business-to-Business		$	198,927			$	215,800				(7.8	%)		$	386,411			$	422,943				(8.6	%)
Broadcasting			25,301				20,403				24.0	%			43,977				38,685				13.7	%
Total revenue		$	224,228			$	236,203				(5.1	%)		$	430,388			$	461,628				(6.8	%)
Operating profit		$	47,504			$	14,422				N/M			$	75,333			$	17,194				N/M
% Operating margin			21.2	%			6.1	%							17.5	%			3.7	%

Foreign exchange rates had an immaterial impact on revenue and an unfavorable impact of $0.7 million on operating profit for the quarter, and a favorable impact of $0.6 million on revenue and an unfavorable impact of $1.6 million on operating profit for the six months.

Also impacting results was the restructuring plan initiated during the second quarter of 2009 that resulted in a net pre-tax restructuring charge recorded for the three and six months ended June 30, 2009 of $4.0 million.

Revenue

Business-to-Business

Three Months

In the second quarter of 2010, Business-to-Business revenue decline was driven primarily by the divesture of BusinessWeek in December 2009. Offsetting this decline was continued revenue growth in our global commodities products, primarily related to oil and natural gas, as continued volatility in crude oil and other commodity prices drove the need for market information. Also offsetting the decline was an increase in non-auto sectors due to growth in syndicated research studies.

Six Months

In the first six months of 2010, Business-to-Business revenue decline was driven primarily by the divesture of BusinessWeek in December 2009 and decreases in our construction business as market declines have slowed revenue growth. Offsetting these declines was continued revenue growth in our global commodities products as described above for the quarter.

Broadcasting

Broadcasting revenue for the second quarter and first six months of 2010 increased primarily due to increases in both political and base advertising, as automotive and other categories have shown growth as compared to the comparable prior-year period.

Operating Profit

The Business-to-Business group was the key driver for operating profit in the segment for the second quarter and first six months of 2010, which was positively impacted by the divesture of BusinessWeek and growth in our global commodities products.

Industry Highlights and Outlook

I&M expects to invest in digital capabilities and further expand our presence in selected markets in order to drive growth in 2010.

•		Volatility in the oil and natural gas markets helps drive demand for commodities products. The U.S. Energy Information Administration projects that world oil consumption will grow by 1.5 million barrels per day in 2010, similar to previous forecasts. This growth is the result of an expected recovery in the global economy. Oil prices rose from a low this year of $64.24 per barrel to $75.63 on June 30, 2010, generally due to robust economic and energy demand growth. The recovering global oil demand is outpacing the growth in supply, which will exert upward pressure on energy prices, which will affect price volatility.
•		Demand for our construction offerings is somewhat dependent on the volatility in the construction industry. In the first six months of 2010, the dollar value of total U.S. construction starts was down 4% against the same period of the prior year. Residential building in the first six months of 2010 climbed 23%, given the comparison to an extremely weak first half of 2009 when the housing market hit bottom. Non-residential building decreased 15% while non-building construction slipped 10%. The overall level of construction starts is forecasted to advance 3% in 2010.
•		Demand for our automotive studies is driven by the performance of the automotive industry. In the first six months of 2010, the dollar value of total U.S. light vehicle sales was up 26% on a 17% increase in total sales volume against the same period of the prior year. This reflects a marked improvement in both volume and pricing, while overall incentives remain lower than they were a year ago.