Including the one-time items, diluted earnings per share for the second quarter were 61 cents. Revenue for the second quarter increased 13.1% to $1.1 billion.
Strong performances in education and financial services were key to our second quarter, said Harold McGraw III, chairman, president and chief executive officer of The McGraw-Hill Companies. The results offset a decline in our advertising-based businesses, demonstrating again the resilience of our portfolio.
In keeping with our strategic focus on equities and mutual funds at Standard & Poor’s Information Services, we pruned the portfolio in the second quarter. In addition to divesting DRI, an economic research and consulting company, we announced the August shutdown of the Blue List, a municipal bond service for the secondary market, contributed Rational Investor to mPower.com, Inc. in exchange for an equity position in the online investment advisory service for the retirement planning market and wrote down selected assets.
Net income for the second quarter before the one-time items grew to $115.6 million. Including one-time events, net income for the second quarter was $120.0 million.
For the first half of 2001, earnings per share before one-time events were 67 cents versus 72 cents last year. Including a one-time gain on the sale of real estate, the divestiture of DRI and other one-time events in 2001, earnings per share for the first half were 71 cents versus 42 cents last year after a cumulative adjustment and a gain on the sale of Tower Group International in 2000. The cumulative adjustment of $68.1 million, or 35 cents per diluted share, in compliance with SEC-mandated accounting charges for SAB 101 and a $16.6 million pre-tax gain, or 5 cents per diluted share, on the gain on the sale of Tower Group International, were taken in the first quarter of 2000.
Education: Revenue for this segment in the second quarter increased 26.4% to $566.2 million and operating profits grew by 33.0% to $68.0 million.
The School Education Group gained share in the elementary-high school market with strong performances in reading, language arts, literature, math and testing, said Mr. McGraw. We are finishing first or second in every major reading or literature adoption this year.
In the key Texas adoption, we took first place, winning more than 30% of the K-12 market dollars. Macmillan/McGraw-Hill and SRA/McGraw-Hill combined to lead the elementary reading market while Glencoe again took share in literature, winning more than 27% of the market with a program that was first introduced last year. Recently acquired NTC/Tribune high school titles also contributed to Glencoe’s success in Texas.
In Florida, we are the market leader in art and language arts at both the elementary and secondary levels.
A good year is also taking shape in California. Our research-based Open Court reading program from SRA/McGraw-Hill continues to win new customers, who are purchasing it with state supplementary funds. We’re also enjoying success in the second year of the science adoption, the third year of the social studies adoption, and with secondary math in the first year of this adoption. Only the elementary school math program is not matching expectations in California, although it is producing good results in other adoption states and the open territories.
The Tribune Education acquisition also augmented sales in some important markets, including research-based math for SRA/McGraw-Hill, literacy and math supplements for Wright/McGraw-Hill and secondary remedial reading and elective course materials for Glencoe.
CTB/McGraw-Hill, our full service testing company, produced another solid gain in the second quarter, benefiting from sales of custom contracts and TerraNova, its ground-breaking standardized achievement test.
Our Higher Education business is showing strength across the board, gaining market share with solid results from both the front and back lists, which we expect to carry through in the key summer selling season. In building our market position, we continue to benefit from the delivery of digital solutions for both course management and classroom materials. There are now more than 60,000 college and university instructors registered to use our PageOut service to develop their own course-specific Web sites in the United States.
Strong gains in Canada, and the Asia-Pacific markets helped produce a revenue gain for International Publishing, but shortfalls in Latin America and the Ibero Group resulted in a decline in operating profits.
The Professional Book operations improved despite difficult economic conditions. Brand Warfare, a new title from Professional Book, hit the BusinessWeek and Wall Street Journal’s best-seller lists.
Financial Services: Revenue for this segment in the second quarter increased 15.8% to $365.8 million and operating profits, excluding one-time items, grew by 29.0% to $124.1 million. Including one-time items, operating profits grew by 14.4%.
Surging bond market activity in the U.S. and Europe and solid growth in non-traditional services such as bank loan ratings resulted in double-digit top and bottom line gains for Standard & Poor’s Credit Market Services in the second quarter. New issue dollar volume in the U.S. market grew by 62.6% in this period, according to Securities Data. In Europe, the dollar volume of bond issuance increased 31.5%, according to Bondware.
Spurred by recent interest rate cuts by the Federal Reserve Board, refinancing in the municipal bond market continues to grow. High yield issuance soared by 209% in the second quarter. Standard & Poor’s also benefited from a robust global securitization market.
