Results of Operations - Comparing Three Months Ended March 31, 2009 and 2008
Consolidated Review
The Segment Review that follows is incorporated herein by reference.
Revenue and Operating Profit

                                       First                        First
                                      Quarter          %           Quarter
                                       2009         Decrease        2008

              Revenue              $ 1,148,207        (5.7 )%   $ 1,217,871
              Operating profit*    $   157,769       (14.7 )%   $   184,916

              % Operating margin          13.7 %                       15.2 %

* Operating profit is income before taxes on income, interest expense and corporate expense.

• First quarter revenue declined for all three operating segments while the decrease in operating profit was primarily due to Financial Services and Information & Media. The quarter reflects the seasonal nature of the Company's educational publishing operations, with the first quarter being the least significant and the third quarter being the most significant.

o Financial Services revenue and operating profit declined 5.3% and 12.3%, respectively, largely due to continued weakness in Credit Market Services. Partially offsetting the revenue decline was a slight increase in sales at Investment Services led by growth at Capital IQ and increased index license fees and increased customer demand for index data.

o McGraw-Hill Education revenue declined 5.3% primarily due to softness at School Education Group while operating loss improved 15.7% due to decreased selling and general expenses from ongoing cost saving initiatives and lower operating expenses offset by decreased sales due to a change in sales mix.

o Information & Media revenue and operating profit declined 7.4% and 76.4%, respectively, driven by both Business-to-Business Group and Broadcasting where current economic weakness continues to drive declines in advertising.

o Foreign exchange rates unfavorably affected revenue by $37.4 million but had a favorable affect on operating profit of $12.1 million.

• Product revenue and expenses consist of the McGraw-Hill Education and the Information & Media segments, and represents educational and information products, primarily books, magazine circulations and syndicated study programs.

o Product revenue decreased 8.9% or $28.2 million, primarily due to McGraw-Hill Education, driven by the unfavorable impact of foreign exchange and softness in School Education Group.

o Product operating expenses decreased 4.3% or $7.8 million, primarily due to McGraw-Hill Education decreased sales and a change in sales mix. Amortization of prepublication costs decreased $0.9 million or 3.2% driven by timing of the adoption cycle.

o Product selling and general expenses decreased 7.8% or $15.4 million, primarily due to McGraw-Hill Education ongoing cost saving initiatives and a $4.8 million favorable impact of foreign exchange.

o Product margin decreased 370 basis points to (23.1)% for the first quarter of 2009 primarily due to the decline in Information & Media revenues driven by decreased sales of syndicated studies.

† McGraw-Hill Education revenue declines were offset by reduced expenses due to lower sales, a change in sales mix and cost saving initiatives.

• Service revenue and expenses consist of the Financial Services segment, the service assessment contracts of the McGraw-Hill Education segment and the remainder of the Information & Media segment, primarily related to information-related services and advertising.

o Service revenue decreased 4.6% or $41.4 million, primarily due to Financial Services and the unfavorable impact of foreign exchange.

† Financial Services service revenue decreased primarily due to Credit Market Services, where continuing declines in structured finance were partially mitigated by increases in credit ratings-related information products such as RatingsXpress and RatingsDirect.

† Information & Media service revenue declined as current economic weakness continues to drive a decline in advertising spending. This was partially offset by growth in Platts services as the increased volatility in crude oil and other commodity prices drove the continued need for market information.

† Growth in McGraw-Hill Education assessment contracts partially offset these declines.

o Service operating expenses decreased 3.6% or $11.6 million, primarily due to cost reduction initiatives across the Company.

o Service selling and general expenses decreased 3.2% or $10.1 million, primarily due to the benefit of cost reduction initiatives across the Company.

o Service margin decreased 90 basis points to 27.3% for the first quarter of 2009 primarily due to a decrease at Financial Services.

• Total expenses in the first quarter of 2009 decreased $42.9 million or 4.0% driven primarily by decreased sales and a change in sales mix at McGraw-Hill Education and reduced selling & general expenses due to cost saving initiatives.

• Net interest expense increased 15.5% to $20.6 million primarily due to a decrease in foreign interest income due to the decline in interest rates.

• For the quarters ended March 31, 2009 and 2008, the effective tax rate was 36.4% and 36.5%, respectively. The Company expects the effective tax rate to be at 36.4% for the remainder of the year absent the impact of events such as intervening audit settlements, changes in federal, state or foreign law and changes in the geographical mix of the Company's pre-tax income. The effective tax rates include the impact of the adoption of Statement of Financial Accounting Standard ("SFAS") No. 160 "Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51," ("SFAS No. 160"). This resulted in a change to the calculated effective tax rate for both the current and prior periods.

• Net income attributable to the Company for the quarter decreased $18.1 million or 22.3%. Diluted earnings per common share decreased 20.0% to $0.20 from $0.25 in 2008.

• Effective January 1, 2009, the Company adopted SFAS No. 160. SFAS No. 160 amends Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to establish accounting and reporting standards for any noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary should be reported as a component of equity in the consolidated financial statements and requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interests. Certain prior year amounts have been reclassified for comparability purposes in accordance with the requirements of SFAS No. 160.

Risks and Uncertainties
The world financial markets have been experiencing extreme volatility. These difficult conditions have impacted the businesses and results of operations of the Company and we do not expect these conditions to improve in the near term.
• In the McGraw-Hill Education segment, the weakening global economy has resulted in declines in discretionary spending which have impacted our results of operations.

• In the Financial Services segment, difficulties in the credit markets and shrinking investor confidence in the capital markets have resulted in a significant decline in global debt issuance which has impacted our results of operations in Credit Market Services.

• In the Information & Media segment, the general weakening of the economy has resulted in declines in advertising and consumer and business spending.

Segment Review
McGraw-Hill Education

                                                             First                %                First
                                                            Quarter          (Decrease)/          Quarter
                                                             2009             Increase             2008

Revenue
School Education Group                                    $ 122,647              (11.6 )%       $ 138,741
Higher Education, Professional and International            189,981               (0.7 )%         191,415

Total revenue                                             $ 312,628               (5.3 )%       $ 330,156

Operating loss                                            $ (76,596 )             15.7 %        $ (90,862 )

% Operating margin                                            (24.5 )%                              (27.5 )%

Revenue and Operating Loss
• Revenue and operating loss for the McGraw-Hill Education ("MHE") segment reflects the seasonal nature of the Company's educational publishing operations, with the first quarter being the least significant and the third quarter being the most significant.

• School Education Group ("SEG") revenue declined for the quarter, as increases in testing and assessment revenue were offset by lower state adoption sales. Typically in the first quarter, the majority of purchases in the elementary-high school market consist of residual and supplemental sales. These categories have been impacted by reduced spending since mid-2008 as schools, many of which are operating on tighter budgets, decreased discretionary spending as state and local tax revenues declined.

o K-5 basal sales declined in both open territory and adoption states owing to the continuing decline in residual sales as well as a weak performance in the North Carolina K-5 math adoption. North Carolina was the only adoption state to place significant orders for front-list basal materials in the first quarter of the year.

o In the 6-12 basal market, sales declined in both adoption states and open territory. In North Carolina, secondary adoption opportunities in health, career education and technical education could not match MHE's prior-year success in the 6-12 social studies adoption. North Carolina was originally scheduled to purchase math for all grades K-12 in 2009 but cancelled the 6-12 portion of the adoption during 2008.

o K-12 supplementary sales also declined, with growth in intervention products being offset by lower demand for backlist products.

o Non-custom or "shelf" testing revenue declined overall, despite a sales gain for the LAS Links product line, but this decrease was more than offset by an increase in formative assessment revenue driven largely by additional services provided to the school districts using SEG's successful Acuity program.

o Custom testing revenue increased as a result of additional contract work in Qatar and the timing of work in Florida.

• Higher Education revenue increased for both print and digital product driven by strong new publication lists in all four imprints, improved sales coverage in key regions, higher enrollments in the current academic year and a market trend toward later second-semester ordering that shifted more sales from December to January and February.

o Key titles contributing to the first quarter performance included Sanderson, Computers in the Medical Office, 6/e, Booth, Medical Assisting, 3/e, Lucas, The Art of Public Speaking, 10/e, McConnell, Economics, 18/e, and Block, Foundations of Financial Management, 13/e.

o Digital revenue growth was driven by the continued success of the Homework Management product line, which included new releases on the improved and enhanced Connectplatform.

• Revenue in the professional market declined versus the prior year as book sales decreased due to continuing weakness in the retail environment and strong 2008 sales of the new edition of Harrison's Principles of Internal Medicine, which provided a challenging comparison. Digital subscriptions and digital licensing had a favorable impact on the results for the quarter.

• International revenue decreased for the quarter, with growth in the Latin America, Europe/Middle East/Africa, India and Asia regions being largely offset by the unfavorable impact of foreign exchange as well as the impact of sales of the new edition of Harrison's Principles of Internal Medicine in the prior year.

• Operating margin improved primarily due to decreased selling and general expenses driven by the benefit of ongoing cost saving initiatives and lower operating expenses due to decreased sales and a change in sales mix.

• Foreign exchange rates negatively impacted revenue by $13.3 million and favorably impacted the improvement in operating loss by $4.8 million.

Industry Highlights and Outlook
• The total available state new adoption market in 2009 is estimated at between $550 million and $600 million, depending on state funding availability. This compares with approximately $980 million in 2008. The 2009 estimate reflects lower anticipated purchasing rates in Florida and California due to state budget constraints as well as the impact of other announced adoption postponements. This estimate is dependent on still to be determined fiscal year 2010 education budgets in key states, as well as the impact of the federal stimulus funding on instructional materials purchasing.

• Total U.S. PreK-12 enrollment for 2008-2009 is estimated at 56 million students, up 0.3% from 2007-2008, according to the National Center for Education Statistics.

• The year's key adoption opportunities are K-8 reading and K-8 math in California, K-12 reading in Georgia, K-12 science in Tennessee, K-12 social studies in Indiana, K-5 math in North Carolina, and 6-12 reading/literature in Florida. The Florida adoption was originally expected to offer one of the year's largest markets, but it now appears that industry sales there will fall well short of original projections owing to widespread purchasing postponements by districts across the state. Postponements of district-level adoptions will likely also limit market potential in other states, notably California.

o The Company expects to perform well with reading in California and Georgia; math in California, South Carolina, and Kentucky; science in Tennessee; and social studies in Indiana.

o The U.S. Department of Education has begun releasing the first round of federal stimulus funding. Depending on state timetables, eligible school districts should receive their initial distributions for special education programs and Title 1 programs for disadvantaged students in the second or third quarter. These funds may be used for instructional materials, among other purposes. The states will also receive first-round distributions from the State Fiscal Stabilization Fund ("SFSF") following approval of their educational spending plans. While each state's use of its SFSF funding is still to be determined, the Company may also benefit from increased purchasing of instructional materials from this source.

• According to statistics compiled by the Association of American Publishers ("AAP"), total net basal and supplementary sales of elementary and secondary instructional materials were down by 15.9% through February 2009 compared to the same two-month period in 2008. Basal sales in adoption states and open territory for the industry decreased 14.3% compared to prior year. In the supplemental market, industry sales were down 18.0% versus prior year. The supplementary market has been declining in recent years, in large part because basal programs are increasingly comprehensive, offering integrated ancillary materials that reduce the need for separate supplemental products.

• Refer to the Risks and Uncertainties included in the "Consolidated Review" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.

Financial Services

                                         First            %            First
                                        Quarter      (Decrease)/      Quarter
                                         2009         Increase         2008

             Revenue
             Credit Market Services   $ 391,350           (8.4 )%   $ 427,314
             Investment Services        218,804            0.8 %      216,987

             Total Revenue            $ 610,154           (5.3 )%   $ 644,301

             Operating profit         $ 231,593          (12.3 )%   $ 264,052

             % Operating margin            38.0 %                        41.0 %

Revenue and Operating Profit
• Credit Market Services revenue decreased as the result of continuing declines in structured finance and the impact of foreign exchange rates. These declines were partially mitigated by increases in credit ratings-related information products such as RatingsXpress and RatingsDirect.

o Continued decreases in issuance volumes in both the United States and Europe of residential mortgage-backed securities ("RMBS"), commercial mortgage-backed securities ("CMBS"), collateralized debt obligations ("CDO") and asset-backed securities ("ABS") contributed to the decrease in revenue. These declines more than offset the revenue benefit resulting from very strong investment grade corporate issuance, primarily in the industrial sector.

o Growth in information products was driven by increased customer demand for value-added solutions.

o Revenue derived from non-transaction related sources includes surveillance fees, annual contracts, subscription, and rating fees earned relating to cancelled transactions ("breakage fees"). For the first quarter of 2009, non-transaction related revenue decreased moderately compared to the first quarter of 2008 primarily as the result of lower breakage fees. Non-transaction related revenue represented 71.5% of total Credit Market Services revenue for the first quarter of 2009 compared to 68.0% for the first quarter of 2008. The increase of non-transaction related revenue as a proportion of total Credit Market Services revenue is attributable to the decline in transaction related revenue during the first quarter of 2009.

• Investment Services revenue increased slightly driven by the following factors:

o The number of Capital IQ clients at March 31, 2009 increased 14.9% from the prior year and 1.5% from December 31, 2008.

o Growth in revenue from Index Services driven by increased index license fees relating to over-the-counter derivatives, and mutual funds, in addition to increased customer demand for index data.

• Foreign exchange negatively impacted revenue by $23.8 million and favorably impacted operating profit by $3.7 million.

Issuance Volumes
The Company monitors issuance volumes as an indicator of trends in transaction
revenue streams within Credit Market Services. The following table depicts
changes in issuance levels as compared to prior year, based on Harrison Scott
Publications and Standard & Poor's internal estimates (Harrison Scott
Publications/S&P). Revenue was adversely impacted by the declines in issuance
volumes of structured finance products in both the U.S. and Europe.

                                                            First Quarter
                                                        Compared to Prior Year
      Structured Finance                                  U.S.           Europe
      Residential Mortgage-Backed Securities               -24.5 %        -98.8 %
      Commercial Mortgage-Backed Securities               -100.0 %       -100.0 %
      Collateralized Debt Obligations                      -61.3 %        -95.7 %
      Asset-Backed Securities                              -83.5 %        -58.9 %
      Total New Issue Dollars (Structured Finance)         -76.3 %        -90.5 %

• All structured finance asset classes continue to experience lack of investor demand and relatively illiquid secondary trading markets.

• No CMBS issuance occurred in the U.S. and in Europe due to the market dislocation attributed to weak commercial origination levels and wide credit spreads making securitization an uneconomical funding mechanism.

                                                        First Quarter
                                                   Compared to Prior Year
          Corporate Issuance                        U.S.            Europe
          High Yield Issuance                         54.8 %           89.1 %
          Investment Grade                            12.8 %           74.1 %
          Total New Issue Dollars (Corporate)         13.9 %           74.1 %

• Corporate debt issuance increased as a result of issuers seeking to increase their liquidity positions and to refinance maturing debt.

• Refer to the Risks and Uncertainties included in the "Consolidated Review" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.

Outlook
Investment grade corporate issuance, primarily in the industrial sector, for the first quarter of 2009 was very strong. However, many sectors of the global credit markets, especially the structured finance market, continue to experience liquidity issues. The current conditions in the global financial markets have resulted from challenged credit markets, financial difficulties experienced by several financial institutions and shrinking investor confidence in the capital markets. Because of the current credit market conditions, issuance levels have deteriorated significantly across all structured finance asset classes. It is possible that these market conditions and global issuance levels in structured finance could persist through 2009. In addition, it is uncertain whether the rebound in investment grade corporate issuance experienced during the first quarter will continue throughout 2009. Also, the outlook for RMBS, CMBS and CDO asset classes as well as other asset classes is dependent upon many factors, including the general condition of the economy, interest rates, credit quality and spreads, and the level of liquidity in the financial markets. Although several governments and central banks around the globe have implemented measures in an attempt to provide additional liquidity to the global credit markets, it is still too early to determine the effectiveness of these measures. Regulatory Environment
The following amends the disclosure in the Legal and Regulatory Environment disclosure for the Financial Services segment in the Company's Annual Report on Form 10-K for the year ended December 31, 2008.
The financial services industry is subject to the potential for increased regulation in the United States and abroad. The businesses conducted by the Financial Services segment are in certain cases regulated under the Credit Rating Agency Reform Act of 2006, U.S. Investment Advisers Act of 1940, the U.S. Securities Exchange Act of 1934 and/or the laws of the states or other jurisdictions in which they conduct business.
In April 2009, the new SEC rules described in the Company's 2008 Annual Report on Form 10-K went into effect. The new rules address a broad range of issues, including disclosure and management of conflicts related to the issuer-pays model, prohibitions against analysts accepting gifts or making "recommendations" when rating a security, and limitations on analyst participation in fee discussions. Under the new rules, additional records of all rating actions must be created, retained and made public, including a sampling of rating histories for issuer-paid ratings (this rule is expected to become effective in August 2009), and records must be kept of material deviations in ratings assigned from model outputs as well as complaints about analysts' performance. The new rules require more disclosure of performance statistics and methodologies and a new annual report by NRSROs of their rating actions to be provided confidentially to the SEC.
New legislation, regulations or judicial determinations applicable to credit rating agencies in the United States and abroad could affect the competitive position and the business model of Standard & Poor's Ratings Services; however, the Company does

not believe that any new or currently proposed legislation, regulations or judicial determinations would have a materially adverse effect on its financial condition or results of operations.
The market for credit ratings as well as the markets for research and investment advisory services are very competitive. The Financial Services segment competes domestically and internationally on the basis of a number of factors, including the quality of its ratings, research and investment advisory businesses, client service, reputation, price, geographic scope, range of products and technological innovation. In addition, in some of the countries in which Standard & Poor's competes, governments may provide financial or other support to locally-based rating agencies and may from time to time establish official credit rating agencies, credit ratings criteria or procedures for evaluating local issuers.
Legal Proceedings
See Footnote 12 - Commitments and Contingencies to the Company's Consolidated Financial Statements for legal proceedings disclosure that amends the disclosure in the Company's Annual Report for the year ended December 31, 2008. Information & Media