Total revenue rose 1.5%, to $2.38 billion, at McGraw-Hill Education in 2002, while operating profits increased 26%, to $331.8 million (if a one-time charge of $62 million taken in 2001 is included, profits rose only 1.8% in 2002).
The gains in the year were helped by a better than expected fourth quarter, in which sales rose 11.9%, to $502.9 million. McGraw-Hill Cos. chairman Terry McGraw said some late spending by states helped to boost sales in the final period, with testing sales particularly strong. The testing segment had a very good 2002, and with new state standards being implemented in elementary schools, McGraw said he sees the entire testing market doubling in the next five years.
Testing was one of the strongest areas in the school education group last year, where total sales fell 2.3%, to $1.3 billion, due to a decline in adoption opportunities compared to 2001. In addition to testing, MHE did well in science, social studies and language arts. There was also some improvement at the Wright Group. McGraw said testing and supplementary materials accounted for slightly less than 40% of school group revenue last year, but that he expects that figure to move closer to 40% in 2003.
In the higher education, professional and international group, total revenue rose 7%, to $1.0 billion. Sales gains were led by the higher education unit, which had double-digit growth, and a solid performance in the international group. Weak spending for information technology resulted in another soft year for computer book sales.
Looking ahead to 2003, McGraw said he expects that MHE's higher education and school education groups will outperform the projected growth rates of 6% to 7% for the higher education market and 2% to 4% for the school education market. McGraw said that despite some state financial pressures, many states are keeping education funding a top priority in 2003. The market should also be helped as more dollars from the No Child Left Behind Act begin to flow into schools.
In the investment area, MHC chief financial officer Bob Bahash said the company's capital expenditures in 2003 will be $175 million. A significant portion of that spending is going to upgrading several back-office systems at MHE. The system implementation, originally expected to be finished in fall 2003 at a cost of $100 million, is now set to be finished in spring 2004 for $140 million.