One Company
One Focus

To Our Shareholders:

For The McGraw-Hill Companies, 2007 was filled with significant achievements—and some equally big challenges.

It was a year in which we delivered record results and impressive growth thanks to the outstanding performance of our business portfolio. But it was also a year in which the U.S. housing bubble burst and the market for mortgage-related securities deteriorated, fueling disruption in the capital markets and causing a slowdown in our fourth-quarter results.

It was a year in which phrases like "subprime mortgage" and "credit crunch" made headlines and ratings agencies were thrust into an unfamiliar spotlight—with questions raised about their performance, policies and practices.

As we reflect on the events of the past year and focus on our opportunities for 2008 and beyond, there is one imperative shared by the management team across The McGraw-Hill Companies—to extend our record of growth while generating superior shareholder value.

Our senior leadership team is actively managing through the current environment. We believe that steps we are taking now will strengthen our operations and position us for continued growth. And while it's difficult to make definitive predictions, history tells us that our markets will stabilize and the current turmoil will eventually pass.

The long-term prospects in our markets remain bright. The need for capital, the need for knowledge and the need for transparent business information are strong and enduring global trends that will keep us moving ahead for many years— and we remain intensely focused on anticipating and meeting these needs.

We are truly one company with one focus: providing our customers with the highest-quality data, analytics and information that they can use to help them succeed.

One Focus for Shareholders
The McGraw-Hill Companies' focus on delivering essential information and insight for our customers, as well as our strong management of a portfolio of market-leading brands, has enabled us to produce a long record of consistent and sustainable earnings growth.

In 2007, we achieved another year of outstanding performance, despite challenging conditions:

>> Diluted earnings per share increased 22.5% to $2.94 for the year;

>> Revenue grew by 8.3% to $6.8 billion;

>> Net income rose 14.9% to $1 billion.

Demonstrating management's commitment to increasing shareholder value, we returned $2.5 billion to shareholders in 2007 through a combination of share repurchases and dividend payments.

>> In January 2008, we announced a 7.3% increase in the annual cash dividend to $0.88, extending our record of raising the dividend every year since 1974. Over the past 35 years, we have raised our dividend at a compound annual rate of 10.3%.

>> We repurchased 37 million shares during 2007 and finished the year with 322.4 million shares outstanding, a decrease of 31.6 million shares from year-end 2006.

>> We began 2008 with 28 million shares remaining under the current share repurchase authorization, and have announced our intention to initially repurchase another 20 million shares, subject to market conditions.

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