標普全球 (SPGI) 2001 Q1 法說會逐字稿

Good morning and welcome to the McGraw-Hill Companies' First Quarter 2001 Conference Call. At this time, I'd like to inform you that the call is being recorded for broadcast, and that all participants are in listen-only mode. At the request of the company, we will open the conference to questions and answers after the presentation, and instructions will follow at that time. If during that time you need assistance, press * and 0. If at any time you need to have your volume adjusted higher or lower press * and 0, and I will assist you. I will now turn the conference over to Mr. Donald Rubin, Senior Vice President, Investor Relations of the McGraw-Hill Companies. Please go ahead, Sir.

Thank-you and good morning, and thank-you everyone for joining us for the McGraw-Hill Companies' first quarter 2001 conference call. I'm Don Rubin, Senior VP for investor relations for McGraw-Hill Companies, and with me today are Terry McGraw our Chairman, President, and CEO; and Bob Bahash, Executive Vice President and Chief Financial Officer. We trust by now you've all had a chance to review the first quarter release in financial tables, but if you need the documents, they can be downloaded at the corporation's Investor Relations website or simply go to www.mcgraw-hill.com/investor_relations. Then go to the news from McGraw-Hill Companies located just below the stock chart and click on this morning's release. I'll repeat the URL. It's www.mcgraw-hill.com/investor_relations. To enhance the call for our telephone participants, we've made the presenter slides available on the internet. To see them go to netconf7.wcom.com. You'll be prompted to enter your name. The conference ID is 5266111. The password is MCGRAW HILL. This call is being simultaneously webcast in McGraw-Hill's Investor Relations website and will be available for replay about two hours after this meeting ends, both by phone and on the web. Before we begin, I need to provide certain cautionary remarks about forward-looking statements. Except for historical information, the matters discussed in the teleconference may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including projections, estimates, and descriptions of future events. Any such statements are based on current expectations and current economic conditions, and are subject to risks and uncertainties that may cause actual results to differ materially from results anticipated in these forward-looking statements. In this regard, we direct listeners to the cautionary statements contained in our Form 10-Ks, 10-Qs, and other periodics, reports filed with the Securities & Exchange Commission. We are aware that we do have some media representatives with us on the call. However, this call is for investors, and we would ask that questions from the media be directed to Steve Weiss in our New York office at area code (212) 512-2247 subsequent to this call. Today's update will last approximately an hour. After our presentation, we will open the meeting to questions and answers, and it's now my pleasure to introduce the Chairman, President, and CEO of the McGraw-Hill Companies, Terry McGraw.

Okay, thank-you Don and good morning everyone and welcome to the conference call. If you're joining us by webcast, we welcome you as well. Earlier, this morning, we released our first quarter results, and I appreciate the opportunity to review them with you. Our year is off to a good start. We hit our forecast, and we did 1 cent better than the first call consensus forecast [for a] one time gain than [cumulative] adjustment. We reported earnings per share of 8 cents, the high-end of our 5 to 8 cents guidance forecast, and I might add that after 9 cents dilution from two strategic acquisitions that we made in education, the Tribune Education business last September and the Mayfield Publishing operations in January for our higher education unit, we fully expect these businesses to be accretive this year. Net income, excluding one-time gains and the cumulative effect adjustment, was 16.1 million compared to 33.2 million last year. Revenue for the first quarter grew by 7.9% to 846.4 million. That includes, by the way, 54 million from the Tribune Education acquisition. And as you know, the first quarter is our smallest each year, and it reflects, obviously, the seasonality and the impact of our education business, but nonetheless, we're still very pleased to be getting off to a very good start. From here on, we start to build. Lower interest rates will continue to stimulate new issuance activity in the bond market, and Standard and Poor's credit market services producing very solid growth overseas as well. We're off to a terrific start here. A very solid year is taking shape in the education market from K through 16, and we expect a more stable economy in the second half, and we believe because of that it will result in an upturn in advertising, and again advertising represents about 13% of our total revenue. For all these reasons, our confidence continues to grow in our ability to produce another year top and bottom line double-digit growth. As for the second quarter, please recognize that there are some important timing issues, especially in the ordering cycle within the education market, but we're reasonably comfortable with the Street's current estimate for the second quarter. Okay, with that said, let me shift now, and let me shift to our operating segments, and let me tell you a little bit why we're optimistic about our prospects for the full year. We start with the financial services segment. For the first quarter, revenue increased 13.3%, operating profits were up 21.2, and the operating margin improved to 30.9. In recent months, we said that our ratings business was off to a better than expected start; the results clearly demonstrate it. Standard and Poor's credit market services turned in solid double digit top and bottom line gains in the first quarter in both domestic and importantly in our international operations as well. New issuance helped pave that way. In the US bond market, new issue dollar volume according to the securities data figures surged 19.2%, and all categories were up in the first quarter. Corporates were up 3%, municipals up 47.2, asset-backed up 41.9, and mortgage-backed securities up 100.6. Unit volume was [off] by 6% principally because of the corporate market. In unit volume, corporates were down 32%, municipals were up 17.9, asset-backed was down 4.0, and mortgage-backed securities were up 61.3; and that very important relationship between new issuance dollar volume versus unit volume, and we're starting to see that unit volume picking up, which is very much in keeping with this turn that we think it's going to be so strong for us on the financial services side. Eurobond, our European bond issuance was also strong in the first quarter. According to Bondware reports, European dollar volume was up 19.3%, and unit volume declined by 14%. So you get a somewhat different picture if you look at issues denominated in euros, which represent 64% of the dollar and 48% of the units. Issues denominated in euros were up 30%, and units were down less than 1%, a very encouraging picture there. In Europe, we've seen big increases in the corporate and the financial sectors, and more issues with lower ratings, a sign that high-yield issuers were entering the market after sitting on the sidelines in the closing months of last year. Large-scale issuance by agencies, banks, and corporations explain part of the surge in dollar volume, but some of the increase can be attributed to sovereign issuers launching large benchmark issues early in the year. In the US new issue market, we again witness a familiar phenomenon, the surge of structured financing in the third month of the quarter, and for this quarter, it was no exception as well. 45% of the asset-backed dollar issuance and 60% of the mortgage-backed dollar issuance were done March. The strength of the public finance market is also very encouraging, and as we all know after two straight years of declining activity in the public finance market, the municipal market is showing signs of recovery. Now, there are some significant reasons for all these changes. First, there is an increase in refinancing. Last year, refinancing was virtually nonexistent. We estimate that refinancing accounted for more than 20% of the new issue activity in the first quarter this year. This is likely to continue particularly if there are more rate reductions ahead. Secondly, the recent rate cuts have made financing obviously more attractive. You will recall that rates were much more attractive in 1998. As rates rose in 1999 and 2000, [public officials] resisted going to the market. Third, as issuance dropped in 1999 and 2000, some projects went unfunded, creating a backlog. The new issue activity this year has been focused on education, transportation, utility, electric power, and general obligation. The strongest recovery is in education, the spending in elementary, secondary, and in higher education. Another example would be the economic slowdown has led state and local governments to turn to bond funding instead of relying on operating reserves. Well, for all of these reasons, we anticipate continuing recovery in the municipal market for this year. We also saw a stirring in the high yield market in the US in the first quarter. These deals tended to be larger than usual this year, and we believe the high yield market was up about 18% year over year in the first quarter and represented about 15% of the corporate new issuance market. But I would also like to underscore the fact that these metrics don't capture our whole story. There is a question about the relative importance of dollar volume and versus unit volume as we mentioned before. Both are very important. Over time, we will benefit from a pickup in unit volume, for many reasons as you can't simply correlate these market statistics with our results in any single month or in any single quarter. There are timing obviously and reporting issues. For example, we get paid for work on a shelf registration that may not find its way into the new issue market for some time, or we have successfully diversified our business to reduce dependence on new issue volume, and that is working. We have expanded our annual [fees] surveillance arrangement and subscription services both here and abroad. Now, that means that transactions volume affects about 40% of our revenue streams. Our diversified business product mix is another important factor. In the first quarter, for example, nontraditional products like bank loan ratings, rating evaluation services, and credit derivatives, which are part of our structured finance business, all showed solid growth. These actions don't show up in the new issue volume statistics, but they are an important reason why our business continues to grow, even when market conditions don't appear to be all that favorable. We started the year confident in our prospects even though the environment did not look as promising as it certainly does now. Today of course, we are looking at very good conditions that have improved markedly since December. Prior to yesterday, we have already had rate cuts of 150 basis points. With yesterday's rate cut, the picture gets even brighter, and with the expectation still of additional cuts ahead. So the picture continues to improve and so too does our optimism. We are also making progress at Standard and Poor's information services. Our index and portfolio management services continue to grow. Assets in Spiders, the S&P depository receipts, topped the 30 billion mark at the end of the first quarter. That's nearly a 40% increase since March 2000, and earlier this month the New York Stock Exchange added a second exchange traded fund based on the S&P indices. The New York Stock Exchange which started with the Global 100 is adding an exchange tradable fund based on the S&P 500. We have also seen substantial growth in the Ishare funds based on the S&P indices where assets under management has gone from 2.8 billion in March of 2000 to 9.3 billion in March of 2001. Currently, the biggest Ishare fund is based on a new index S&P created as part of its alliance with the Toronto Stock Exchange. The TSE 60 fund now has more than 4.8 billion under management. We are also continuing to grow our portfolio advisor service. With the addition of a new unit investment [trust for] the [city sector] funds in March, we now have created 22 portfolios for which we receive part of that management fee. At the start of April, it was about 8.5 billion in assets in these portfolios, and we will continue to build on these businesses. An important resource in this effort is the record S&P has created in building model portfolios. Our analysts started a stock appreciation ranking system in 1986. We call it "Stars." Since its inception, our top-rated selection by Star stocks have outperformed the S&P 500 in 10 of the last 14 years. Through March 31st, S&P's selections have shown an annualized return without dividend since 1986 of 19.2% versus a 11.6% gain for the S&P 500. We believe the investment portfolios are based on our analytical perspective, and our index services businesses continues to represent an important growth opportunity for us, and so we recently put these businesses together in a newly created unit under the direction of Paul Aaronson who joined us as managing director for portfolio management services. Paul incidentally has been a principal at the Morgan Stanley Dean Witter Institutional Equity Division where he was responsible for developing and managing their global equity products. He brings experience in the development and marketing of exchange traded funds and other structured investment products. [Incidentally] again, before joining S&P, Paul was a cofounder and managing director of Windrush Asset Management, a hedge fund. Paul has a bachelors degree from Middlebury and a law degree from Yale. Comstock which distributes real-time quotes, analytics, and news from exchanges around the world, continues to grow. Comstock added 12 new customers in the first quarter, the significant growth has come from larger re-distributors who support multiple end users. We continue to invest in web capabilities and facilities as part of our effort to move legacy products to the web, and while these investments impacted our profitability in the first quarter at S&P Information Services, we believe this transformation is vital to the future of this business and to our growth. As part of the investment, we also are developing advanced web capabilities that allow S&P customers to draw upon all our content to create a custom solution. We are making good progress here, and revenue from what we call web solutions is starting to grow rapidly. So, summing up for the financial services, a solid performance in the first quarter, an improving environment, double digit top and bottom line of growth per ratings, continued strength in overseas market, and a steadily improving environment going forward. Let's turn to the education-operating segment. Revenue here increased 30.2%, operating profits declined 50.6%, operating margins declined about 255 basis points. The impact of our acquisitions, Tribune Education last September and Mayfield Publishing in January, are clearly evident in these results. Their presence in our education lineup is only going to make a good year even better. We are encouraged by the outlook for our school education group for several reasons. First, there are [early] signs of a rebound in the open territories, something that we haven't seen. After 2 months, the industries' open territory sales were up 12%, a better performance than we have seen. Secondly, although the industry figures don't reflect it yet, the sales outlook in the adoption state is showing signs of strength, at least that's the way it seems to be shaping for us. In the early days in the marketplace, and we are starting to make headway in reading, social studies, science, language, arts, literature, and math. We are seeing some spending in California on social studies and science. It is a little too early to make a call on math in that state, which did not approve programs for sale until January, but we should have some results fairly shortly that we will be able to share with you. Glencoe's literature program which was successfully introduced last year is going to take market share again this year, and we now expect to do very well in North Carolina, and we like our prospects in other adoption states as well. We expect to do well in reading in North Carolina and Texas, as both MacMillan/McGraw-Hill, our elementary school publisher, and SRA McGraw-Hill, which publishes our phonics-based open court program, are winning adoptions. Texas is also adopting grammar and composition and Glencoe series [writer's] choice is showing strength in the middle and the high school market, and MacMillan/McGraw-Hill is competing successfully at the elementary level. In the supplementary market, the new Wright/McGraw-Hill group is starting to pick up momentum after a slower start, and the new breakthrough product line is performing better than expected. Another reason here would be our full service testing business. CTB/McGraw-Hill is off to a very strong start in the first quarter. Late in March, there was more good news. CTB was awarded the New York State testing contract which extends its work with the State Department of Education for 6 more years, and then, Alaska announced that it plans to award CTB the State Norm-Referenced Test contract, extending the program CTB has had since 1998, and incidentally, that extension runs through 6 years as well. Another reason is the attention education is receiving from the new administration, and that will not only keep education at the top of the nation's agenda, it will also pump additional funds into the market place. The proposed Department of Education budget calls for higher spending for reading and math instruction, increased teacher training, and mandatory annual testing for grades III through VIII. Improving reading is a centerpiece of this plan. As a result, the federal government could triple spending on reading over the next 5 years, adding $5 billion in this area alone. Another reason in my final point here is that we are also encouraged about how the state government is continuing to respond to education needs. There has been some concern in recent months that state commitment to education may begin to wane in the face of a slowing economy. No, that's not the situation as we see it and let me explain. In examining proposed state budgets as part of a credit review, Standard & Poor's public finance group found that large states were consistently budgeting for education above inflation rates for fiscal 2001-2002, and there were no signs of retrenchment. Let me quickly recap what Standard & Poor's has learnt. In doing so, I must point out that percentage increases I'm about to cite are not always uniform. Some states compare increases to what they spent last year, other states compare increases to the previous year's budget, but in all instances, we are looking at increase. Let me give you some of the detail. New Jersey 6.7% growth in primary and secondary education proposed for 2002. New Jersey will also issue 8 billion for school facilities over the next 10 years. In Ohio, state funding for K-12 education is proposed to increase 5.2% in fiscal 2002 and 6.1% in fiscal 2003. In California, state general funds spending for K-12 education would increase 7.4% in 2001 to 32.5 billion. Total K-12 general fund spending including non-discretionary funding per pupil would rise from 6695 per pupil in 2001 to 7174 in 2002, a 7.2% increase. In Florida, education spending on K-12 is proposed to increase by 4.5%. This is also a function of rapid enrollment growth. In New York, education spending is proposed to grow by 4.4% fiscal 2002. This compares to actual spending growth at 8.9% in fiscal 2001, and the legislature always seems to substantially increase spending for education during this session. In North Carolina, the proposed budget recommends spending increases of 4.5% in 2001, 5.8% in 2003. In Arizona, K-12 basic aid to education including inflation adjustments is proposed to increase by 2% in fiscal 2002 and 4.3% in fiscal 2003, and in Delaware, public education spending is proposed to increase by 6.1% in fiscal 2002. In Texas, education spending for K-12 in Texas is proposed to increase by 845 million or 2.9% in fiscal 2002, and that's exclusive of retirement and insurance cost which are forecasted to increase by 764 million or 20.1% for K-12 and higher education employees. Pennsylvania, proposed spending for education in fiscal 2002 is 6.4 billion, a 37 increase. Massachusetts, the governor's budget for the commonwealth includes a proposed 5.5% increase in public education spending, and finally, in Illinois, a 5.5% increase is proposed in spending for education for fiscal 2002 which starts, as you know, in July 1. We will keep you posted on these budgets, but at this stage, I think it is, there is every reason to be very encouraged about the durability of this funding, and the state commitments to increase these fundings as a priority going forward. Now let's spend a moment on prospects in the higher education market. Here to, we're off to a very good start. Our front-list performed well, and our technology initiatives continue to get a positive reaction in the marketplace. The number of instructors using PageOut keeps growing and is now over 53,000 in the US alone. PageOut enables instructors to easily and quickly create their own course website. We think it is the most user-friendly course management tool in the market, and now we are going to integrate it with eBooks. We have formed an alliance with MetaText, that's netLibrary's digital textbook division, to make our digital text available through classroom websites created with PageOut. Through PageOuts, students can view a professor's notes, take tests, and have direct links to our eBooks. We're also expanding a smart software that we call "ALEKS" into the high school math market. ALEKS has already increased our market penetration in the college market. Now Glencoe will take this artificial intelligence system, ALEKS, into the K-12 market, and our professional book group and international operations both benefited in the first quarter and especially from the release of the 15th edition of Harrison's Principles of Internal Medicine. So, summing up for the outlook for education, a good year taking shape in education, funding is picking up at the federal level and remains very strong at the state level. There are signs of strength in the adoption states and encouraging start in higher education. Prospects for our full service testing business continue to improve. Okay, let's turn finally now to our final operating segment, information and media services. Revenue declined here 20.4%, and excluding a one-time gain from the sale of [_______________] group last year, operating profits fell 58. Operating margin was just over 7. The slowdown in the advertising market was obviously the major factor in this segment's first quarter performance. At Business Week, the softness we experienced in the fourth quarter last year was more pronounced in the first quarter as comparisons got a little bit tougher, those are the year-over-year comparisons. As you would expect, most of Business Week's leading ad categories showed a decline, but it also should be noted that high-tech advertising did not fall as much as some of the other categories. Advertising pages for the first quarter at Business Week were down by 30% while high tech declined by 21, and in an area of strength, we're seeing that corporate image advertising in Business Week was up quite handsomely by 33% in the first quarter, an indication corporations have learned to keep marketing their brands even in tough times. I believe it's also a credit to the power of the business we brand, which is one of the last to be affected in the first [backin]. We've also seen some better results in early April, and we gained a little ground here. So, we're having some optimism that we're going to start to see some of this change. Business Week is coming off a record year. So, the page count comparisons don't start to get easier until the third and the fourth quarter, and under the circumstances, we are taking some [stance] also here to reduce some cost so that we have a little bit more leverage when the tide begins to turn later this year. We continue to believe in a stronger second half with the most improvement coming in the September through December time frame. In broadcasting, we were pleased that we were partially able to offset the steep decline in national advertising with a very good local effort, a part that we control. If you back out the effect of last year's Super Bowl which was shown on ABC [and political] advertising, our local time sales were actually up year-over-year. That's the result of actions that we took last year to bolster the marketing and sales force at our stations. That decision is starting to pay off for us this year. The important automotive business was up in the first quarter which is a big part of those local ad sales, and I might add, that is a very good telltale and one you might want to watch in terms of taking a look at how the economy is starting to perform. As a result, we maintained or improved share in all four of our markets, Indianapolis, Denver, San Diego, and Bakersfield. Improving your position in a tough year is a tribute, I believe, to broadcast [teams] and strengthened management team. At broadcasting, we are also taking steps to reduce cost through station automation. We've installed a digital service center in Indianapolis to control our three largest stations. They are connected by a wide area network which is not mileage sensitive. The digital service center is currently handling some of our day-parts and overnight work. By May, the switchover to DSC will be complete. The efficiency achieved here will result in important savings now, as well as in the future as we centralize all of our traffic and graphic arts capabilities. Furthermore, our station automation project is attracting the attention of other broadcasters. We have the capacity to provide this service to other stations, so there are revenue opportunities to go with these cost savings, and looking ahead, it appears that national time sales will remain soft for the next few months. As a result, our second quarter pacing is currently off by about 20%, and that is broadcasting, but we believe many companies have their advertising plans in place and will start to commit them as they see the economy start to stabilize especially as we get into the second half. The second quarter should be very good for Aviation Week. It will be a time once again for the Paris Air Show in June, and we will be there with a major multimedia presence. The Pair Air Show is still the world's biggest event for the aviation and aerospace professionals. We are also continuing to make progress with AviationNow.com with the addition of EchoStar, our Founder's Council sponsorships are now sold out. We are also making progress in our effort to license content by signing a major deal with Boeing. Through AviationNow.com, we will continue to provide Boeing's 188,000 employees online access to our news and information resources. Boeing signed a 3-year contract for the service, which is scheduled to begin next month. Platts, our energy information service continues to make very good progress as the benchmark service for pricing, news, and information. Today Platts is the world's largest independent provider of news and information to the energy market. We cover oil, petrochemical, natural gas, electricity, nuclear power, coal, metal, and bandwidth markets. To enhance our growing service, Platts earlier this month, introduced a forward-curved pricing service for global oil and US electricity market. The assessments are based on our evaluations of actual transactions, bids, and offers in these markets. It is another step in enabling Platts to provide greater transparency to the forward and derivative activities in the energy market. Revenue is off modestly in the first quarter of our construction information group. Softness in advertising at ENR, Engineering News-Record, was a big factor in that shortfall. For Construction.com, we are continuing to improve the interoperability between our website and our new partners. We are also continuing to see an increasing proportion of construction information revenue come from electronic products and services. In the first quarter, it was more than 40% of total revenue. As we move away from selling print and film products, we continue to reduce our fixed cost of these legacy products. In the process, we are closing some [scan] locations, consolidating some film production and outsourcing electronic production to Xerox. We worked very hard in recent years to take this segment up to a new level of sustainable performance. To keep us moving ahead we named a new president of this information and media services segment last week. Scott Marden will be responsible for managing all the operations in this segment. He is well prepared for this new assignment, having held senior positions in the information and technology industries. From 1996 to 1998, Scott was chief operating officer and executive VP of the Marvel Entertainment Group. He was in charge of publishing, licensing, internet, and software activities on a global basis. Previously, he was president of Philips Media, a division of Philips Electronics. He also has had senior posts at CBS Publishing. Most recently, he was a partner at Compass Partners where he was instrumental in originating, as well as executing private equity opportunities for its European leveraged buyout fund. We have known Scott for many years. He began his career as an investment banker and worked closely with McGraw-Hill Companies on several significant transactions. I might also add at this point, he is taking over for Bob Bahash, our executive VP and CFO. Bob stepped in at my request to run this segment on an interim basis until we could the right replacement, and we didn't miss a beat, and I thank Bob for the excellent job that he did. Okay, summing up for the outlook for this segment, tight cost controls to improve leverage, improving prospects for the second half and more progress at our B-to-B operation, and then certainly as we started overall, a very good start to the year. It starts to build in an improving environment, and we are on target to achieve our 9th year of double-digit earnings growth. Okay, those are the 3 operating segments and our guidance for the second and the full year, and at this point I will turn it back to you, Don, and we can go to any questions. No, we are not going to Don right away. We are going to go to Bob Bahash who is going to go through some of the numbers with you very quickly, and then we will go to Don for questions.

Okay. Thank-you Terry. I'd like to start with some observations about the integration of Tribune Education. We have come a long way since September 5th in integrating these properties into our own businesses. Editorial, sales, and marketing integration is essentially complete. The back office always takes a little longer, but we are well along in integrating all our systems. We operate more effectively. We are also expanding our distribution capabilities in Grand Rapids, Michigan, and building a new warehouse in Ashland, Ohio. The Ohio warehouse will be completed this fall. Of all the Tribune properties we acquired, only the Wright Group/McGraw Hill now operates as a separate unit. The remaining products have become part of existing McGraw-Hill education operations like Glencoe, SRA, MacMillan/McGraw-Hill, Children's Publishing, Higher Education, and Professional Book. The efficiencies we are creating are part of a carefully created plan that is critical to our future performance. That also means we now have a more difficult time isolating the performance of each Tribune product because we are making every effort to melt them into our operations for greater efficiency. Our point is simply this, under these circumstances, we don't anticipate providing revenue figures for Tribune Education in subsequent quarters. It is no longer practical, and our successful integration of these products and services is the reason why. Now let us look at some other figures starting with debt. We ended the first quarter with debt at 1 billion 121 million. That's 75 million higher than our debt at the end of the year and 533 million higher than the first quarter of the last year. The higher debt level this year primarily reflects the Tribune Education acquisition. During the first quarter of last year, we benefited from an influx of cash from the sale of Tower Group International. This year we completed the acquisition of [_______________] research and Mayfield Publishing and made the post closing adjustment payment for Tribune Education. Virtually all of our debt now is in commercial paper. We are currently paying about 4.8%, down from 6.5% at the end of last year. At the end of March, our [CP] has a maturity of about 60 days. Interest expense for the first quarter was 16.9 million, up 80.6% from a year ago, and that is due to higher debt levels. Interest expense will be higher all year since we expect our debt level to climb in the second and third quarters before returning to just over 1 billion level at the end of the year. That is our typical seasonal pattern. Corporate expense in the first quarter fell 33.9% to 12.4 million, reflecting a 6.9 million pre-tax gain on the sale of our property in Lexington, Massachusetts. Without the gain, corporate expense would have been up modestly. Going forward, we would expect corporate expense to grow roughly at the rate of inflation. Pre-publication cost, the corporation's single largest investment came in at about 37.2 million in the first quarter, up from 35.8 million a year ago. These costs will ramp up in subsequent quarters as we get ready for another big year in education. Capital expenditures were 19.9 million in the first quarter, up from 16.4 million last year. Now, let's look at some non-cash items. Depreciation in the first quarter was 22.6 million compared to 21.2 million last year. Amortization of goodwill and intangibles was 21.2 million, up from 14 million last year, and amortization of pre-pub cost was 30.5 million compared to 24.1 million last year, and that of course, reflects our increased investment in educational material and the acquisition of Tribune Education and Mayfield Publishing. We have just returned to the market to buy back shares. In the first quarter, we bought back 100,000 shares, and of course, our goal is unchanged. We plan to buy back this year between 3 and 3.5 million shares. In closing, I'd like to reaffirm the outlook for free cash flow for this year. As we define the term free cash is what's left after internal investments and dividends, but before onetime real estate projects. This cash is then available to buy back shares, repay debt, and make acquisitions. In 2000, free cash flow reached 268 million. For 2001, we expect free cash flow to grow at a double-digit rate. Thank-you. It's back to Terry now.

Okay, thanks Bob and now we will go to Don Rubin, and we will go in any direction anybody would like with your questions. Don?

Thank-you Terry. Just a couple of instructions for our guests, whoever is here in the meeting, please use the microphone when asking your questions so that our phone participants can also hear the questions. Be sure to state your name and company. [_______________] of McGraw Hill is assisting us today. Please signal her when you have a question so she can bring the microphone to you. For our phone participants, please press * 1 to indicate that you wish to enter the queue for asking a question. To cancel out of the queue it's * 2. Let's go to the telephone questions right now.

Your first question comes from Peter Appert from DB Alex. Brown.

Good morning guys.

Hi Peter.

Based on the numbers you reported for S&P, I can't tell exactly, but it looks like perhaps your revenue growth in the ratings business isn't quite as robust as the 30% gain that Moody's reported yesterday, and I was wondering if you could talk [about] that issue and maybe the competitive and market share issue broadly.

Yes, you got apples and oranges there, Peter, because Standard & Poor's is obviously in a much broader situation and has a much bigger revenue base. In fact, I think for the first quarter, it's about twice the size of Moody's. They also have comparisons [_______________] and a very strong first quarter for us versus, I think, a less so for them, but I won't get into there. It's just a very strong market, and as you know, Peter, as we came into this year, we were a little bit concerned about the environment. We had a 100 basis point rate cut in the first month alone, and we immediately saw that translate in terms of the corporate environment, a little bit in the public finance, and certainly in the structured finance area, and by the time that we got our third rate cut on that one, it was then straight across the board, and we'll see what yesterday's move does, but I thinks it's a very positive situation. Also, which is very positive, is the effect that we're continuing to see outside the United States. Europe is growing as [_______________] and is at the same level in terms of new issue dollar volume as the US bond market now, and so that is also at a very encouraging situation, one that I think will only continue to improve. If you factor in even additional rate cut potential on that one, I think that, you can make that conclusion as well. So we're very pleased with the strength of the start here, and I think you're going to see it continue, but you know, we look for a very good double-digit growth here.

And you're comfortable that S&P is maintaining its market share relative to Moody's.

Absolutely.

Right, thank-you.

Thanks.

Your next question comes from Lauren Fine from Merrill Lynch.

Hi there, a few questions.

Hi Lauren.

Hi. Few questions. The first is I just want to confirm when you said you're reasonably comfortable with Q2 consensus that you were using a 59 cent number that we're seeing on first call.

I'm sorry, Lauren, we're not hearing you as well.

Can you hear me better now?

Sure.

I wanted to confirm that the Q2 consensus you were comfortable with was 59 cents. I also wanted to understand if you could maybe, when you say double-digit earnings growth for the year, if you could maybe, be a little bit more specific or just comment on whether you're comfortable with consensus for the year, and then I had a question on Tribune Education.

Okay. Well, let's do the first two and then go to Tribune. Yes, the first call consensus estimate is 59, and that is what we're saying comfortable with, and again, we will give more guidance as we go here. You know the issues on timing on education ordering between June and July and all of those kinds of things. So we'll have to see how that starts to unfold, but yes, we are comfortable there. On the full year basis again, it's a little early to get into hard specifics there, but we definitely confident and feel comfortable with the double-digit revenue and profit focus there and the nice year, and so we will see as we said to you before, we're looking for a double-digit top and bottom line in financial services, certainly the same in education, and we're still looking for a modest revenue growth albeit growth which I think is very encouraging in the information and media services segment. So again that's where we are there. How about the one on Tribune?

Yeah, my question there is you indicated that the revenues were 54 million in the quarter, and based on our following the company, they did about 68 million a year ago, I'm wondering what caused the decline at Tribune Education.

Bob, you want to go for that one?

Yeah, Lauren, let me take that. The 54 million relates to the education fees. We also had another roughly $5 million at the higher education side, so we're closer to 60 million for the quarter.

Which is still a decline versus a year ago though.

We had [_______________] one piece with that being the Wright Group, but the Wright Group was off a little bit, nd that's simply due to timing of orders. At this point in time, they're running well ahead of their plan for the second quarter. It simply was a timing issue, but the Wright Group accounted for a portion of the [miss], and they're tracking well ahead now. So it was a timing issue for them.

Okay, and then also in your release, you indicated, sort of, that you were seeing some, I think, orders already from California and a few other states. Is there any sense of that stealing from revenues that you normally would have seen in the second quarter?

No, not at all, not at this point, and from our stand point, you know, the California situation, I think, is an improving one, and we are also encouraged by the science situation there as well.

Great. Thank-you very much.

[_______________] Lauren.

Your next question comes from Kevin Gruneich of Bear Stearns.

Thanks. A few questions. Number one, I was wondering if you could specify the change in television group revenues in Q1. Number two, if you could specify the accretion you're now expecting from Tribune and Mayfield in 2001, and third, although I know it's dangerous in any education sector to try to guess the year this early on, we're seeing on the college side that the numbers are awfully soft at the start of the year here with book [returns] way up, and I was wondering if you were seeing the type of 40 to 50% declines that the college market has seen recently, and also if you could specify the change in college revenues in Q1.

Okay, let me touch the accretive part, the higher education, our return situation, and then Bob if you could address the Q1 changes on television revenue and [_______________]. First of all, in terms of [_______________] we haven't given it a number on that one because we obviously have to see the whole environment and how well we're doing. What we were saying is that from everything that we see at this point, we do believe they'll be accretive [_______________] never know. I think the good news there is that there's going to be earnings positive in all of that, and as we get closer, we can give you a little bit more guidance, but we do expect that dilution that we've incurred in the first quarter to dissipate throughout the course of the year. On the higher education side, as you get into the numbers, you'll see that we've done very well. We're off to a very good start here, not only the front list has held [good,] but we believe that we started a nice carryover from the end of last year where we grew a lot faster than any other higher education group. Now we did see some book return percentages as you know last year that were influencing our numbers, and we're watching that very carefully, that they were influencing the overall industry. We're not seeing that situation anywhere near at the same level, and in fact, it is a much-improved situation from our standpoint, and we expect at this point to have that stay that way. Bob you want to go with the television revenues?

Yeah, broadcasting revenues, Kevin, were off roughly 17.2% for the quarter, and as Terry mentioned, it was much higher on the national side than on the local, especially when we back out the political and the Super Bowl, actually local was up slightly. On higher education side, higher education, of course, we do have Mayfield Publishing in there for the quarter. We were up double-digit. Even without Mayfield Publishing, we would have been up modestly. With regard to the returns, I can just add one point on that. We are seeing higher returns in the Professional Book, which is of course a smaller piece from our side, but in that roughly 40-45% level that you were seeing in another areas. The returns are not as high in the higher education piece.

Great, thank-you.

[_______________] Kevin.

Your next question comes from Doug Arthur from Morgan Stanley.

Yeah, hi. I was wondering if you could just touch on the outlook for the rest of the year the non-rating side of financial services. In other words, the information businesses. How sensitive to the retail environment and sort of mutual fund environment are those businesses as a group? But I know you have a lot of different businesses, or is it a case where you just have huge market penetration opportunities, so that's overwhelming any sensitivity to the [_______________]? Can you just talk about how that plays out?

Well, [_______________] in two areas, Doug. You're talking about in terms of all of the non-rating areas. You are talking a lot of the non-traditional products that have been building over the years, the rate evaluation service, [school] evaluation services, the private placement markets, the bank loan rating market, all of those [_______________]. Those are very strong, and we expect continuing support there throughout the year. Secondly, when we go over to the financial information side, we are going to see continued growth in the development of the index, the exchange tradable funds, and the portfolio management services, and we continue invest fairly aggressively, and that is the reason that the margin is roughly 31% on that part, and so we're feeling better about the environment and the opportunities here and continue to push. You have seen on the revenue growth, and throughout the year, you're going to see that increasingly be able to contribute at a higher level. So we're very pleased with the non-rating side of financial services, as much as we are with the rating side.

Did you see on a pro forma basis or [_______________] acquisition a sort of double digit revenue growth in the non-rating side for the year or high single, what do you say there?

Double digit.

Double digit. Okay, great. Thanks.

[_______________]

Your next question comes from Lee Westerfield from UBS Warburg.

Thank-you. Good morning gentlemen.

Hi Lee.

Two quick questions if I may, Bob. Pre-publication investments, I wonder if you could tell me what the amortization number in the first quarter and also the cash spending levels were and remind us what your budget is on that cash investment this year? And then, secondly, I am not sure if it escaped me during your comments, Terry, but if you could isolate European S&P revenue performance in either local currency or US dollar, that would be terrifically helpful.

Okay, let's go to the pre-pub cost on education, and as you know that they have increased because of the Tribune and the Mayfield, and Bob if you could give us those numbers on the amortization.

Yeah, the pre-pub investment for the quarter, Lee, was 37 million. That's up from the 35, almost 36 million last year, and with regard to the amortization, [those] cost was roughly 30 million compared to 24 million last year. When we look at the full year, we are still looking a little bit north of 300 million from pre-publication investment, and that's when you include in, of course, Tribune Education and Mayfield Publishing into the mix. We are still comfortable with that investment level.

Okay, and the other one was on S&P International?

Specifically, Europe if I can be so specific.

Okay, are giving out the European rate? We are not giving [out the ratings] the European number on that one, Lee. You know the basic relationship on that. It is growing at the same [right] new issue volume as the US bond market, both around little over 19%, and we are seeing some very encouraging structured finance markets in Europe, as well as high yield along with the euro issuance. Right now, for S&P [ratings], about 30% of their revenues come from outside the United State, and a good portion of that is coming from Europe.

Maybe if I could approach it somewhat differently, Terry, and if we are still not comfortable, that would be okay, but did international territories on a US dollar basis grow faster than financial service revenues overall in the first quarter.

Yes.

Thanks.

Your final question comes from Bill Bird from Salomon Smith Barney.

Thanks a lot, just a couple of questions. Just first, it looked like excluding Tribune education, revenue growth was about 1% in the quarter. I am just wandering does this change the level of conviction in reaching a double digit revenue growth goal for the year? And then secondly, you mentioned that refinancings were about 20% of the activity in the fixed income markets. If we see an uptick in refinancing, I am just curious if you could talk about how the economics of refinancing for S&P differs from the economics of a straight new issue.

Okay, I will take the first one. [_______________] on the education side, we feel very comfortable with a double-digit here. Not only is it going to have a very strong adoption schedule, and we are starting to see some very positive results here. The part that we are very encouraged about on the [high] side is the open territory side. The 12% growth there, and as you know, that was a very low single digit number in the last year. So we are starting to see some translation there, and that will also help us I think next year as well. From my standpoint, the kind of help that we are seeing there, the kind of help that we are seeing on the higher education side, and the translation of both the [_______________] property and some of the Tribune outside the United States, you got a very solid base there that is going to be able to perform. One question that I would anticipate on this one, Bill, is also for 2002, as you know it's going to be a little bit weaker adoption schedule. One of the reasons we wanted to be so aggressive in getting through the integration of Tribune this year is that we believe that that's going be a big help to us next year in terms of being able to maintain the kind of growth levels that we want here, so it's a very strong base, but we are looking for double digit there. In terms of the refinancing activity, again it's awfully early, Bill, in terms of kind of strength that we have seen over the last 6 weeks, and I think the part that is very important is that 20% of that activity was in the refinancing area, and the refinancing area is a very profitable area because of the fact that you already have completed a lot of the due diligence and [a lot of] the surveillance capability, and so it's really more of an add-on to a capability that already exits. So those are very [fluid] situations for us and they contribute at a little bit of a higher rate. We'll watch that obviously, and we want to watch the unit volume growth that we were talking about. When we got together, when we announced the year end 2000 net results, we were talking about a little bit of why the unit volume growth was off 30% and new issue in January was up 30%, and as you can see from the numbers now, the unit volume growth is picking up very nicely, and that's the number we want to watch, and when you [get] a higher level and a higher percentage of refinancings, [that's] all for the better.

Terry, just as a follow on, is it fair to say that for refinancing, the revenues are probably lower, but the margin likewise is probably higher.

Correct.

Thank-you.

[Does that do] it? For all of you that are still there and still with us and whoever, we thank you, and we are off to a good start, and we appreciate it. Don, back to you.

We appreciate everyone's time this morning. On the behalf of the McGraw-Hill Companies, we thank you for participating, and we wish you a good day.

This concludes today's teleconference. Have a good day.