標普全球 (SPGI) 2002 Q3 法說會逐字稿

Good morning, and welcome to the McGraw Hill Companies third quarter, 2002 earnings call. At this time, I’d like to inform you that the call is being recorded for broadcast, and that all participants will be in “listen-only” mode. At the request of the company, we will open the conference to question and answers after the presentation. Instructions will follow at that time.

To enhance the call today for fellow participants, McGraw Hill has made the presentation slides available on the Internet. To go to that, go to http://www.bymeans.com/nc/join. You would be prompted to enter your name. The net conference meeting number is ph8648870. The password is MCGRAWHILL, all caps, no space between McGraw and Hill, and event type is conference. This call is being simultaneously webcast from McGraw Hill’s investor relations website, and will be available for replay about two hours after this meeting ends, both by phone or on the web for seven days. If you need assistance at any time, including having your volume adjusted higher or lower, press star and zero, and I will assist you momentarily.

I will now turn the conference over the Donald Rubin, Senior Vice President, Investor Relations of McGraw Hill Companies. Sir, you may begin.

Thank you. Good day, and thank you everyone from London to San Francisco for joining us this morning at the McGraw Hill headquarters, as well as those who are on the phone and on the web for this mornings announcement of the McGraw Hill Companies third quarter earnings. I’m Donald Rubin, Senior Vice President for Investor Relations for the McGraw Hill Companies. With me today are Harold McGraw III, Chairman, President and CEO of the corporation, and Robert Bahash, Executive Vice President and Chief Financial Officer.

This morning, we issued a news release with our third quarter 2002 results. We trust you have all had a chance to review the release. If you need a copy of the release and the financial schedules, they can be downloaded at www.McGraw-Hill.com/investor_relations. That’s www.McGraw-Hill.com/investor_relations.

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 Forms 10K, 10Q, and other periodic reports filed with the U.S. Securities and Exchange Commission. We are aware that we 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 Mr. Steve Weiss in our New York office at 212-512-2247, 212-512-2247 subsequent to this call.

Today’s upstate -- today’s update will last approximately an hour. After our presentations, we will open the meeting to questions. It is now my pleasure to introduce the Chairman, President and CEO of the McGraw Hill Companies, Terry McGraw.

Thank you very much Don, and good morning, everyone; and if you’re joining us by webcast or telephone, good morning to you as well. I’m delighted that you all could make it for a review of our third quarter earnings for the company. As our usual operations, I will give a presentation on the overall operation and each of the operating segments, and then Bob Bahash, our Chief Financial Officer, will add on some other key measures of our performance. And after those presentations, as Don said, we’ll go in any direction that you would like and so forth.

Okay. Earlier this morning, we reported third quarter results. Earnings per share were $1.42, and were up 16.4 percent versus $1.22 last year. That’s -- which includes in that number a 1 cent after tax gain on the disposition of MMS International. So without that penny, earnings per share from operations grew 15.6 percent to $1.41, and still topped the First Call consensus forecast for the third quarter. Both our results for the First Call forecast for the third quarter include a 5-cent benefit from the discontinuation of goodwill amortization.

Revenue for the third quarter increased 2.8 percent to 1.58 billion. Our segment operating margin improved to 28.8 percent in this quarter, which is our largest each year, because of the seasonality of the education market, and we’re pleased with that number.

We started this year by forecasting double-digit earnings growth and we were using the $2.45 as the baseline, and excluding the 18-cent benefit from the elimination of the amortization of the goodwill. And we’ll repeat that -- we’ve been repeating that guidance all year long, and we do again today. And so therefore, we expect to complete the year again with double-digit earnings.

Let’s turn now to each of the operating segments, and let’s begin, when we’re emphasizing consistency, let’s begin with our financial services segment. Revenue for the financial services segment, which has grown at a double-digit rate all year long, was up 14.1 percent in the third quarter. Operating profits grew by 19.4 percent, despite a 14.5 million pretax loss on the sale of MMS International. Operating margins improved to almost 33 percent, 32.9.

There’s another message I want to repeat this morning. You’ve heard it before, but in view of the recent market volatility, it bears repeating. Our message is simply this: the new issue of statistics for the U.S. Bond market are, at best, an imperfect measure of our performance in any single period. We look at the ratable portion of the new issue market, and that’s the basis of the statistical reports that we share with you. And from that perspective, new issue dollar volume in the U.S. market was up less than 1 percent in the third quarter, and is down about 4.9 percent after 9 months, according to figures from Securities Data Corporation.

And yet, as our segment results indicate, we continue to produce these double-digit gains in the ratings market. The new issued statistics for the third quarter are included in our earnings release this morning, so I’m not going to go through a lot of them. I have them here, and into the question period, if anybody wants any aspect of those, we can get those for you, or just call Don Rubin and you can get those numbers. I have -- I would like to point out though, that these statistics undoubtedly will change some, because Securities Data regularly updates them as new information becomes available. And in short, the new issued statistics are sort of a moving target.

There’s another timing factor here as well. The structured market tends to surge in the last couple of weeks of the third month in each quarter. It happened again this year, and the third quarter was no exception.

Finally, I want to emphasize again, that it has been a strategic objective for more than a decade to decouple our revenue from issuance. To accomplish that goal, we have expanded overseas. We’ve created a growing number of non-traditional rating services that are not tied to the new issuance, and that strategy is working quite nicely.

In the third quarter, more than 31 percent of our ratings revenue comes from the international markets. We’re seeing strong double-digit growth in Europe, in Japan and other parts of the Pacific rim, and Canada as well. Only Latin America, especially with the problems of Argentina, is not growing at this time.

Non-traditional ratings are growing rapidly around the world. In the non-traditional category, we include project finance, bank loans, counter-party risk, derivative product ratings, financial strength ratings for insurance companies, and rating evaluation services. Non-traditional rating products, from domestic and international sources, now represent about 18 to 20 percent of revenue. So, a broader product mix and, wherever possible, ongoing fee arrangements, which I should point out even occur in the structured market, have smoothed our performance, and keep us moving ahead under all types of conditions, and we expect that to continue.

Our structured market was strong again in the third quarter and we expect strength for the balance of the year, particularly in the residential mortgage back securities market.

Public finance continues to show good growth as states turn to the public markets to deal with the falling tax receipts and budget deficits. In the corporate market, we still don’t see much of a sign of a pickup, but as I pointed out all year, we did not expect the corporate market to grow in 2002.

We continue to see rapid growth overseas. The structured market is strong, and we’re seeing good growth in our non-traditional product services. Our client base in Europe is also continuing to expand quite nicely.

Recent business scandals have raised new concerns about the effectiveness of corporate governance. Long before the current revelations, Standard & Poors started evaluating corporate governance practices in Europe, in Asia, and parts of Latin America. Last week, Standard & Poors launched its corporate governance service for the U.S. market. The new transparency and disclosure rankings for the S&P 500 index companies are based on publicly available information. S&P examines 98 attributes of good governance to create its rankings on a scale of 1 to 10, with 10 representing the very best.

These attributes include a number of things. They include board and management structure and procedures. They include information disclosure and financial transparency. They include ownership structure and they talk about investor rights. S&P is making its transparency and disclosure rankings publicly available, and we will soon issue them for companies listed in the S&P Europe 350 Index.

S&P is also offering to provide companies with a corporate governance score, a more detailed confidential measurement that incorporates non-public information into the corporate governance analysis. Companies in a variety of countries have engaged S&P to provide this service for a fee. Some companies such as Orix [phonetic] Corporation in Japan, which received an overall score of 7.8, are making their globally comparative scores public to highlight their strong governance practices for investors. S&P is also offering additional analysis and research for a fee through its corporate governance evaluation and its corporate governance, customized research services.

We pruned the portfolio in this segment by divesting MMS International as part of our efforts to focus on higher growth opportunities and to improve our return on sales. We are also seeing the impact of cutbacks in Wall Street on our subscription business, and reduced demand for our internet redistribution services. We continue to expand our index services. S&P sector futures were launched at the Chicago Mercantile Exchange, and three new income trust indices have just gone live in Canada. In Japan, we’re very pleased with the launch of the S&P Japan 500 index, and that’s comprised of the S&P Topica [phonetic] 150 companies, plus the 100 mid-cap Japanese companies and the 250 small-cap Japanese companies. And we’re working with a major Japanese institution to create a fund based on this new index, and there’s more to come there as we go forward.

Despite all the turmoil in the stock market, assets under management in our indexes have grown. At the end of September, there was 49.1 billion under management, an increase of 27.5 percent from the comparable quarter last year. We’re continuing to increase the visibility of Standard & Poors to the buy side as a source of independent investment analysis. In the latest step, S&P Equity Research is now available through Thompson Financials First Call Notes. There will be information and rankings on more than 1,200 stocks.

The decline in merger and acquisition activity dampened the short-term result at Corporate Value Consulting, our new acquisition this year from Price Waterhouse Coopers, but the passage of the Sarbanes Oxley Act of 2002 in July is going to fundamentally improve the competitive environment for CBC. The law now significantly restricts the -- that major accounting firms from providing their audit clients with a type of services that CBC offers. And since CBC is the largest provider of valuation services, it is very well positioned to be the source of independent objective advice that corporations need. That’s one reason why CBC’s client base has recently expanded.

Coming up for the financial services segment, another outstanding quarter; continued strong growth overseas, and a good finish for the year with improved margins.

Let’s go on over to the education segment. In the education segment, revenue and operating profits in the third quarter were virtually flat. The operating margin was unchanged at 30.5 percent. As we signaled earlier, growth in our higher education, professional and international group offset the anticipated decline in the school education group. That’s our El-High Group. The higher ed group’s revenue grew by 9.1 percent in the third quarter, and school education revenue declined by 5.9 percent.

Another year of double-digit growth is taking shape for us in the college and university market. It has been driven in part by increased enrollments. At a projected 15.6 million students this year, college enrollment will set another record. That growth will continue for many years. In fact, enrollments in degree granting post-secondary institutions are projected to grow by 15 percent over the next 10 years. That’s also another reason why the college and university business continues to be the steadiest in the education market.

Another critical factor in our growth here is the successful marriage of text and technology. There’s no doubt that instructors and students are embracing the value added material and increased functionality that we’re providing in this market and that will continue.

We’re seeing improvement in all of our major lines, the science, engineering and math, the humanities, social sciences and language, as well as the segment of business and economics. Higher education sales also contributed to improvement in the international market. A national reading program, for example, in Mexico, was also a tremendous plus. Softness in the computer book market continues to dampen some of the professional sales worldwide.

Now, let’s take a look at the school education group. The industry statistics indicate that elementary high school sales were off about 9.9 percent through August. That’s the market. We don’t expect that figure to change appreciably for September. Our revenue picture is much brighter than the industry’s. After nine months, our school education group is up 4.6 percent. We knew at the offset that the adoption calendar was much weaker for 2002. We now estimate that the new adoption market this year would be down about 25 percent, declining from more than 900 million in 2001 to just over 670 million for this year, 2002. I want to be clear on this point. This is our estimate of the total available dollars in this year’s new adoption market.

According to industry figures, sales figures, open territory sales were off 3.3 percent through August. At this point in the year, open territory should not be expected to close that industry sales gap, so clearly, the El-High market will finish well below last year. The fourth quarter typically represents about 10 to 12 percent of the industry sales year. And so, under these circumstances, it now appears that the market could be off 8 to 10 percent.

Some cuts in K-12 spending, and caution in spending new funds for the new school year, have contributed, obviously, to this decline. And paradoxically, their new No Child Left Behind Act may also been a little bit of a factor in the slow down in sales here. We believe some schools have delayed purchasing basal and supplementary material until they get a better understanding of what the new federal programs require and how much funding will be available.

But this we do know: so far, 16 states have received grants from the Department of Education for the new Reading First program. Many more have applied, but the Department of Education knows, as well as you do, about the supplement versus supplant issue. For that reason, states must submit very clear plans about what they’re going to do with the funds for the Reading First program. Some state plans have been rejected and will have to be resubmitted, but some of the Reading First funds are starting to reach the market. And in these early days, we are starting to see a blending of local, state, and new federal funds to launch these programs.

Detroit, for example, used local, state, and new federal funds from the Reading First program, to purchase more than $18 million worth of our products and services. We believe this is the largest single adoption in the open territories this year. It also is incremental revenue for us. I think you should expect to see more of that blending of resources as eligible school districts start to implement these programs.

We believe our lineup of research based reading products puts us in an excellent position to help school districts achieve their goals. Let me share with you an example of what I mean. The Council of Great City Schools is a coalition of nearly 60 of the nation’s largest urban public school system. Last month, the Council published an independent study of how some urban school systems are improving student achievement.

A research team studied four districts from across the nation, Sacramento, which is California’s eighth largest school district; Houston, the largest district in Texas; Charlotte-Mecklenburg, the largest school system in North Carolina; and a special district in the New York City school system. The study is called Foundations for Success, and reports how districts are making real progress. These urban districts are setting goals and demanding accountability. They are using data to make informed decisions, and are starting reform efforts in the early elementary grades.

But particularly noteworthy for us is that three of the four districts in the study, Houston, Sacramento, and Charlotte-Mecklenburg, use our open court reading program in the elementary grades, and reading scores are improving significantly. And we’re very, very proud of that, and we want to keep this Council in front of us, and we’ll get some of that study to you if you would like to see some of that information.

Next year already shapes up to be a better year in the adoption market, and programs like Open Court, that help districts meet the new federal guidelines for reading, should also help us move ahead here as well. Open Court and other research-based programs are performing well this year in the adoption state, as well as the open territory. The California K-8 reading adoption, which included literature in the middle schools, is the largest opportunity in the market this year. Open Court and our literature program captured more than 33 percent of the K-8 adoption market in California. Open Court and reading mastery programs also helped win more than 20 percent of the Florida reading adoption, even though our basal program did not meet expectations in this state.

Such a performance underscores the effectiveness of our broad based product strategy, and it is another reason why we improved our market share by capturing more than 31 percent of the new adoption dollars this year, versus 29 percent last year. In social studies, for example, we have the broadest lineup of products in the marketplace, and the leading K-12 market share. Prizewinning historians like James McPherson, the noted Civil War scholar, Alan Brinkley, helped write our texts. In science this year, we will lead the K-12 market. In Texas science, the second largest adoption opportunity this year, we took a 40 percent share. In the science market, material in the wrong place or [audio gap] from the text, can cost you an adoption. And we did a better job than ever before in customizing material to meet our customers’ requirements, and we’re going to build on this competitive advantage.

The supplemental market has been mixed here, but some of the programs we acquired from the Trivium [phonetic] have performed exceptionally well and we’re pleased there. In particular, “Everyday Math” is doing exceptionally well, as is the Jamestown Remedial Reading Program for the middle school market.

The third quarter is normally a light one for testing and this year was no exception. But we continue to win new business, including statewide contracts in Maryland, Connecticut and West Virginia. The HR1 testing money hasn’t made its way into the marketplace as of yet. Many states are still in the very early stages of the -- in their response to the new requirement. But as that situation develops, we are in an excellent position to help our customers create programs that comply with the new mandatory testing requirements that will be starting in 2005; as that grows, so will we.

So let’s sum up for education. Strength in the college and university markets helps offset some softness in the El-High market. Increased market share in the El-High market, we’re pleased with that, and in improved prospects for 2003.

Okay. Let’s now go to the final segment, our information and media services. Revenue for this segment declined 2.1 percent, but operating profits increased by almost 140 percent, 138.7, lower numbers coming off last year, but boy, I like those increases.

Obviously, we have not been waiting for the advertising recovery before taking action to protect the bottom line. Excellent cost controls resulted in an 8.6 percent expense reduction in the third quarter, and 6.7 percent for the first nine months. We have begun to see some improvement in advertising, and that’s very welcome.

Business Week with 13 issues this year, versus 12 last year, actually showed a modest increase in the third quarter after a 33.5 percent decline in the first quarter, and a 20.4 percent drop in the second quarter, and that’s all according to Publishers Information Bureau. The fourth quarter is off to a very good start. The October 7th issue was up 13.4 percent. The October 14th issue was up 35.5. The October 21st issue was up 8.6, and the October 28th issue was up 23.1 percent. Now, granted, as we said, these comparisons are getting easier, but it has been some time since we’ve seen percentage increases like the ones I just cited and a continuation month after month.

In our business-to-business verticals, aviation, we benefited from the Farmborough [phonetic] Air Show, which is held every other year. Energy continues to show strength, but there was some softness in construction and the healthcare market was weak as well. Revenue at broadcasting increased 10.5 percent in the third quarter, and in the fourth quarter, we are experiencing the strongest pacing -- yeah, I thought that was pretty good news. In the fourth quarter, we are experiencing the strongest pacing of the year with a boost from political advertising. We are looking at a double-digit increase.

So, summing up the information and media services segment, we see signs of improvement in advertising, and we’re pleased with that. And it’s coming across the board, and we will keep our costs in check to improve on the leverage capability for this segment and across the corporation.

So, there’s a run-down of our three operating segments. And for the McGraw Hill Company, we are looking forward to completing a year of double-digit growth. We’re seeing some improvement in advertising, continued strength in financial services, and improving prospects in the overall education market for next year.

Okay. With that, let’s go to Bob Bahash, and we’ll through some of the performance measures. And then we’ll go to questions in any direction you would like.

Thank you, Terry. The corporation continues to maintain its strong financial position. In today’s environment, we think it is an attribute more investors will more highly value. Let’s look at some of the measures of our performance.

Our debt peaked in June this year at 1.2 billion and stands at 790 million at the end of September. That’s 449 million lower than it was for the same period in 2001, and 266.4 million lower than it was at year-end. Virtually all of our debt is in regular commercial paper, at favorable rates. The average interest rate on our commercial paper borrowing for the year has declined from 5 percent in 2001 to 1.9 percent in 2002. At the end of September, our outstanding commercial paper had a weighted average maturity of 45 days. As a result, we continue to benefit from lower interest costs.

Interest expense in the third quarter decreased 56 percent to $6 million from 13.6 million for the same period in 2001. Through September, interest expense was down 58 percent to 19.5 million, from 46.5 million for the same period in 2001. The primary reason for the decrease in 2002 is the reduction in the average interest rate versus 2001. Now, given the low interest rate environment and other factors, we expect our year-end debt level to change only moderately from the current level. Now, this is a significantly better position, and given the guidance that we gave last quarter, where we indicated our debt level absent acquisitions was going to be in the $900 million range, this is a significant change and a nice improvement.

Now, as part of a world wide restructuring program announced last fall, we planned a work force reduction of 925 positions. At the end of September, all of the positions under the restructuring program have been terminated. The third quarter impact of the divestiture of MMS International was a pretax loss of 14.5 million, and an after tax benefit of 2.2 million, or 1 cent per diluted share.

Now, the variance between the pretax loss on the sale of MMS and the after tax benefit is a result of previous book write-downs, and the company having to wait until the unit was sold to take a tax benefit for those write-downs. The divestitures’ impact on the effective tax rate for the third quarter was to reduce the rate 2.6 percentage points from 37.5 percent to 34.9 percent. And we expect to return to our blended tax rate of 37.5 percent for the fourth quarter.

We continue to focus on ways to reduce costs. It is worth noting that our total costs and expenses through September decreased modestly from 2001. Lower manufacturing costs continue to play a role in this effort. We expect to reduce manufacturing expenses by approximately 3.8 percent this year, and expect only a modest increase in these expenses next year. In general, manufacturing expenses constitute roughly 20 to 23 percent of our operating expenses.

Let’ look at some other costs. Republication costs still represent our biggest single investment each year. We spent 68 million in the third quarter, and 183 million through September. Those figures represent 7 percent and 3.1 percent decreases respectively versus the same periods in 2001. We’re still expecting to spend about 300 million for the year.

Our capital expenditures for the third quarter came in at 8.4 million and stand at 35 million through September, down about 50 percent from the same period in 2001. We expect to end the year substantially under last year’s total of 117 million.

I’d also like to point out a relatively new line on our cash flow statement for technology projects. Through September, we have spent 47.5 million on these projects. The global transformation project for the overall education segment is a major undertaking and it accounts for most of the dollars in this category.

To simplify our business processes for the entire McGraw Hill Education Group, we are in the process of re-engineering our systems for customer service, production, inventory, and data management. Our pilot program is running in Canada, and we will begin our U.S. rollout next year.

Depreciation for the third quarter was 20 million, which is flat with 2001, and 67 million through September, an increase of 2.2 percent. Amortization of prepublication cost us 129 million for the third quarter, and 233.5 million through September, an increase of 18.3 percent. We expect to come in under 290 million this year. Amortization of goodwill and intangibles declined 59 percent to 9.3 million for the third quarter and declined 57 percent to 29 million through September. For the year, we expect to report about 38 million. These reductions, of course, relate to the fact that we no longer amortize goodwill in accordance with the Statement of Financial Accounting Standards 142, which was effective since January 2002.

Through our share repurchase program, we have bought back 965,000 shares this year. Blackout periods preventing us -- prevented us from purchasing shares during October. However, we still plan to repurchase between 3 and 3.5 million shares this year.

Finally, let’s spend a moment on the outlook of our free cash flow. Cash provided by operating activities per U.S. GAAP through September of this year was 726.6 million. Now, of course, when we talk about cash flow to this audience, we describe free cash flow in a much broader and stricter fashion, going beyond operating cash flow. We define free cash flow as what’s left after working capital needs, internal investments, including prepublication costs and capital expenditures, interest expense, and approximately 196 million annually for dividends, but before one-time real estate projects. Free cash is available to repurchase stock, make acquisitions, and repay debt. Based on normalized free cash flow of last year, which we defined as 340 million, under the above definition, we’re on track to produce another year of solid, double digit gains.

Thank you, and back to Terry.

Okay. Thanks very much, Bob. And that concludes that aspect of it. Again, obviously, we’re very pleased with the largest quarter of the year for us coming in the way that it did. You know, there’s a lot of aspects to it, and we are very pleased that some of the areas that have been weak all year, namely advertising, is starting to pick up, and that we see continued improvement there. Although, I would caution a little bit, that again, given last year in terms of comparisons, the September and post-September 11th effect, you know, that was a very negative period at the end of September, and pushed forward into the fourth quarter, and a lot of activities. So the comparisons there will be a factor as well.

Okay. Let’s go to questions and Don Rubin.

Thank you. Just a couple of instructions for our guests here, at the meeting. Please use the microphone when asking your questions so that the phone participants can also hear the question. And would you please state your name and your company. You may signal Sam, who’s standing here when you have a question, so he can bring the microphone to you. For our phone participants, please press star 1 to indicate you wish to enter the queue to ask a question. To cancel or withdraw your question, simply press star 2. If you have been listening through a speaker phone, but would now like to -- but would like to ask a question, we ask that you lift your handset prior to pressing star 1, and remain on the handset until your question’s been answered. This will ensure good sound quality. We are going to start now, if there are any questions in the room.

Great, thank you, good morning. Brian Shipman, UBS Warburg. Given your comments on the outlook for the education markets, specifically El-High adoption in 2003, is it fair to assume in the fourth quarter, and especially in 2003, for McGraw Hill to expect revenue growth again in the education segment overall? And then, separately, on the cost side, you’ve consistently -- well, I guess on the margin side within financial services, you’ve consistently maintained margins above 30 percent this year. Any thoughts on raising your corporate target to above -- somewhere above 30 percent for that division consistently going forward? Thank you.

You bet. Thanks, Brian. First, on the L-High side. Yeah, the -- you know, the market is soft this year, and I don’t see, you know, any element in the fourth quarter that’s going to change any of that. We’re going to do better than that because of, you know, our strength in getting market share in a couple adoption areas, as well as some of our supplemental testing businesses that have done very well for us. So, and it’s also small. The fourth quarter, as we were saying, is only about 10 to 12 percent of the industry’s sales for the year. So that part will pretty much continue.

We will give out growth rates for market growth rates probably in December. We’re in the process now of watching that very carefully, watching state fundings and all of that. I will say this though, that our expectations at this point and as we’re -- and again, it’s still pretty early on, is that, yes, we are going to be growing positively as an industry next year, and then we would expect to do better than that. I’ve heard numbers in the 4 or 5 percent range, and that’s our current thinking at this point. But I’ll wait until, you know, December, to give you a definitive number of what we’re thinking about at that point, but yes, we do expect El-High growth next year.

Secondly, on the margin levels for financial services, we talked about holding to a 30 percent margin because of the investment schedule. Obviously, given the type of year, and we want to see the corporate market coming back and helping out with the structured municipal markets, as well as the non-traditional products. We are running this year somewhere probably going to be around a 32 to 34 percent margin on financial services. And we’ll still hold to 30 on that one, but again, when we give guidance on market activity as we go forward for 2003 in December, we’ll be looking at that number.

But clearly, obviously, if we were not investing, I mean, you know, that market keeps going up quite significantly. But it’s very, very important in a rapidly growing market, and we expect to see continued strong growth, not only in the traditional areas, but in the non-traditional and the global markets as well. So, we will continue to push on that, but we’ll hold at 30 percent at this point, but this year it’ll be between 32 and 34.

Hey, it’s Alan Salowski [phonetic], U.S. Trust. Terry, is the market share data that you kind of provided us today, is that apples to apples with last year, or are there some supplemental acquisitions in that number? And then secondly, [audio gap] traditional areas, for instance, in the STM area, any thoughts about adding to complement in some places?

Yeah. First on the market share one. Yeah. Where we compete with an adoption, as in the California adoption, we made a decision to go with a phonics based, research based product, i.e. Open Court. And therefore, we did not go after it with a, you know, directly with a basal reading program in that market. So, those assets, the SRA assets, are included in our total numbers of the 31 percent on the adoption market.

In terms of acquisitions, we’re looking at, you know, obviously, a lot of things across the board. We’re continuing always to build size and scale in those markets, and you can see exactly where we are. You know, there’s a lot of activity going on right now in the markets, and so we’re very active in terms of evaluating those opportunities. Now let me be clear here. What we’re looking for are what we call tuck-in acquisitions, where we can take out the costs; we can bring in and leverage that product base; and be able to get and generate that new revenue growth that maintain or build on a higher margin level. So, we’ll be looking at a lot of opportunities there, and anything that we’re getting close on, we’ll obviously be keeping in front of you.

John Kornreish [sp] of Sandler Capital. Focusing on the information and media group, the numbers, I thought, were extremely disappointing. Just breaking it out between broadcasting and business-to-business, the broadcasting was up 10 percent. I would imagine most of that is political, and that was against an absolutely disastrous third quarter a year ago. I would have thought it would’ve been up a lot more than that. And then, in the business-to-business group, again, against very, very weak numbers a year ago, still down 5 percent. So, can you go into some more detail as to why this just doesn’t seem to be happening on the up side yet?

Well, we’ve seen -- John, we’ve seen weakness in this segment, you know, coming out of 2001 into this year. The B to Bs actually are doing quite nicely, and most in particular, I mean, we’re very pleased with the progress that we’re making with Platts [phonetic] and the integration of FT Energy into that group, and we’re pleased, very pleased with those prospects. Aviation regroup is obviously, is hurt by -- I don’t know if we can actually call it a consolidated industry anymore. I think we’ve got one or two advertisers, and so it’ tough on that.

And you’re also getting skewed by the Air Show, you know, activity; the Paris Air Show in June one year, and the Farmborough in September, the other. When we start talking about the healthcare publications, a lot of the advertising there currently is still consumer related, and the pharmaceuticals are going after, you know, broad based television markets on a national scale. So we’ve been, you know, hurt that way a little bit.

Business Week, and now we’re talking the larger, you know, product, has actually shown, I think, some tremendous resilience. It has been a little bit more disappointing this year than we expected coming in. We thought that we’d have a slower first half, and start to build. It really didn’t start to build until about six weeks ago, when we started seeing more activity. And it was collectively across the board with the exception of some of the more capital-intensive technology, you know, pieces. And so we’re very buoyed by that, on that part.

The broadcasting side started showing pacing increase double digit in July and had steady improvement all the way through. So we’re actually, you know, feeling quite good. Obviously, the comparisons off of last year, which were poor, are showing up as higher comparisons to these numbers, but we’re actually more upbeat about the prospects of what it means in the fourth quarter, and more what it portends for 2003.

I do have one unrelated follow on cap ex this year. It looks like it’s heading for maybe as low as 75 million versus 120 a year ago. This is practically, I think, the lowest cap ex as a percentage of revenue that I’ve ever seen for the company. So the two questions are, are we heading to that 75-ish year this year? And what’s a more normal number for next year?

I don’t think we’re quite heading to the 75 million. There’s been some delays in programs, but programs that have been identified and will be completed in the fourth quarter. So I think, most likely, we’ll be in the 100 million, or probably below the $100 million this year. A reasonable run rate, absent the major build out of space needs, would be roughly $100 million for our company, of which 60 percent of that roughly is for technology related equipment. So it’s relatively modest for a company of our size.

And John, following onto Brian’s comments about, you know, the financial services side margin. Yeah, this has been a tough year, and 2001 was a tough year. And you know, we are not, you know, in a full investment mode. We are prioritizing and focusing on certain key, you know, growth areas where we can get the size and scale that Alan was talking about, but you know, we are very tight. Again, you know, the expense management, you know, is very strong and as we see things start to improve, as we start to see, you know, the kinds of things we’re beginning to see on the advertising front now, then we’ll start to open that up again on that one, but I want to be very, very cautious until such time as we see that.

Back to the questions here, Don. [Indiscernible] a lot of activity here.

We’ve completed the questions in the room. We will now go to our questioners on the call. Thank you.

First we have a question from Peter Apper [sp] with Goldman Sachs.

Hi, good morning, Terry. With regards to the -- back to the margins in the financial services segment, could you give us a sense of how much of the year-to-year profit improvement is a function of just the volume gains you’re seeing, so the inherent operating leverage in the business versus a mixed change in terms of the kinds of products and services you’re providing?

Okay. Hi, Peter, and congratulations to you on your new position. The financial services story is a very solid one, and if you’d back out, you know, the MMS piece, you could see a tremendous growth that we’re looking at for the second half of this year. It is obviously not only volume related in terms of the red hot structured market, both asset-back, which is very strong here, Europe, and Asia, but increasingly now with the mortgage-back market. We’ve also seen a very, very strong municipal market, which is a little bit more transaction related, but the non-traditional areas are doing quite well as well. So that and the index services -- and we were talking about some of the activity there -- they’re starting to contribute quite nicely as well, so it is a mix of both.

And do the non-traditional services carry margins that are similar or above the traditional product offerings?

I’m sorry, say that again?

The relative profitability of the non-traditional services versus the traditional services is the question.

Again, you know, it depends on which ones we’re talking about, especially in the bank loan market and some of the rating evaluation services. Those are very competitive. Those are very competitive margin numbers.

And then, an unrelated issue, just any possibility you could quantify the dollar impact from the Reading First money in ‘02 and what you think it could look like in ‘03?

Yeah. We’ve got -- of the 16 states now that have gotten into completed appropriations, have gotten the monies back. We’re seeing about -- and I’ll give it to you exactly; I’ve got it right here. As of right this moment, out of the 900 million for Reading First, 365.7 million represents the 16 states so far. And at this point, the way the Department of Education expects that most of that will be spent, 20 percent will go to the state for the administration of it, and 80 percent is eligible directly to the schools.

And we’re going to get, you know, two hits on this, both in terms of the Reading First, but also the testing component that goes with it in terms of the screening diagnostics and the outcome measurement part of it. But we can give you, you know, the detailed information on each of the 16 states, but I fully expect that the 900 million will be spent in 2003, and that, you know, we’re very, very pleased that those funds are already starting to be there.

And again, even though, you know, the states are having some problems on the state deficit level, you know, in the supplant and the supplement issue, you know, in the shorter term, it’s going to be a bigger pool of dollars at a time when focus is very important. And it’s right in the sweet spot of what we’re -- what we do best in terms of the reading and the testing and so forth. So we’re very pleased with that, but right now, of the 16 states, it’s 365.7 million and it’ll be 900 in the full year.

Great, thanks Terry.

You bet, Peter.

Next we have Douglas Arthur with Morgan Stanley.

Yeah, a couple questions. First of all, can you just sort of flush out -- if we look at financial services and look away from the ratings business for a second, you’re talking about a substantial gain in profitability from tighter cost controls in the information businesses. Obviously, you’ve let some people go; you’ve sold some assets. Can you sort of flush out what is the main, you know, element of that? And then I’ve got a couple follow-ups.

Sure. Thanks, Doug. Yeah, we’re quite pleased. The information -- or the investment services side has contributed very nicely in the index and portfolio management area. Also, increasingly, in the index, I mean, besides the index and the portfolio management services, also on the equity research side. On the equity research side, we are entering into lots of different kinds of contracts with brokerage houses, and we’re looking at being able to expand and extend, you know, that capability as well. So we’re quite pleased with that participation, and yes, we’ve had some cut backs there that also have helped.

Okay. Now Terry, when you’re talking about, if I understand you correctly, 900 million for Reading First coming into the ‘03 market, is that included in your assumption of 4 to 5 percent growth, or is that not the right way to look at it?

Well, and again now, I’ve got to be careful, because, you know, we’re still in the planning process of what we’re going to give you in December for market growth rates. But yes, I think that in terms of the aggregate pie, you know, that would have to be included. And again, it will be the federal money, state and locals combined, that will be a part of, you know, how that market is going to grow.

Okay. And then, a question for Bob. On the handling of this $14.5 million loss on the sale, I’m kind of befuddled. You say you included it in your operating results. So in essence, operating segment results were understated by 14.5 million, but with the tax, taking advantage of the tax shield, it was a net addition to your reported results of a penny. I mean, is there a way to normalize that or have you normalized it?

Well, the way to look at it Doug, this was part of the financial services segment. We divested a unit within financial services, so the $14.5 million charge goes against that segment. We reported roughly a 19 percent increase in operating profits. If you normalize it, in a sense take that out, the operating profit growth was roughly 32, almost 33 percent. But the ultimate gain of 1 penny was simply due to the sale of the stock of that particular subsidiary.

When we wrote down the assets, we could not take tax advantage of that during the past several years when we wrote that asset down. When you sell the asset and you sell the stock, you’re then in a position to take the tax benefit. But going back to the operating profit from a normalized perspective, if you added back the 14.5 million to the apples-to-apples operating performance for the quarter, the growth rate would be roughly 32, almost 33 percent, compared to 19 percent.

So if you were to add that back and then use the normal tax rate, and not take into account the tax benefit, that would give you a more normalized earnings per share than what you reported, bottom line? I mean, it’d be up a couple cents from what you reported?

No, not really, because if you stripped the item out by itself, we’re still using the same 37.5 percent effective tax rate for our operating business. If you just simply isolated that item by itself, there’s a $14.5 million charge and a much more significant benefit that generates a 1 penny benefit. So if you just separate the equation -- that from the equation, the operations did 1.41; this item gave us 1 additional penny bringing us to 1.42.

Got it, thanks.

Okay.

Our next question comes from William Bird with Salomon, Smith, Barney.

Good morning. Terry, do you have the double-digit growth expectation for S&P credit market services in Q4? And second, the release mentioned some timing factors, which resulted in some softness in testing in Q3. Just wondering if you could elaborate on this and give us a sense of how big the effect was? Thanks.

Yeah. You know, as I was saying, you know, with the fourth quarter, especially for credit market services, you know, a lot was accelerated into the fourth quarter last year, and so -- you know, however, if you look at the numbers for the second half of last year, of the second half of this year, you’re going to see a huge double digit increase. And we’re pleased with that, but you know, for the fourth quarter, I’m hard pressed to see double digits, you know, from CMS, you know. I guess we could be surprised structures and municipals continues to be quite strong, as well as non-traditional, but again, I think double digit [audio gap] for the fourth quarter for CMS would be a stretch.

The other one was on CPB. Testing is a -- normally, in the third quarter is an off period, because it’s still really very much into the selling season for material, and so we’ll start to see a pick up there. There’s no -- nothing in the testing area just, you know, that I’m seeing that’s negative, either from a market activity in terms of demand or our capability on that. In fact, we were -- we are very pleased with the three new state contracts that we have, but it’s traditionally a softer month for testing. And you’ll see that starting to pick up again.

Harry, just a follow-on on financial services. I was just wondering if you could discuss, you know, any further plans to improve the financial services portfolio.

Sure. Thanks. We are obviously continuing to look at a number of things. We were very pleased with the new platform of CBC, and we continue to look at ways to strengthen that platform. As you know with the Andersen situation, we were able to take advantage of that, and develop a broader base in Europe, and we’re going to continue to push on that one. I think areas that we also are watching very carefully are a lot in the quantitative analysis area. We are very pleased with some of the activity in what we call risk solution, a lot of the quantitative modeling aspects like that.

And we continue to, you know, watch those kinds of activities, but again, there’s a wide range of activities across the board that we’re looking at. And again, we would very much -- like Alan’s question on education acquisitions -- we would be very much looking for tuck-in components that would strengthen an existing capability, and where we could get some cost advantages as well.

Terry, given the wideness of activities in that segment, is there any thought as to, you know, focusing really on fewer, bigger opportunities? In other words, looking at possibly trimming the portfolio?

Yes, and I think you must be looking at the strategic plan, because that’s exactly what we’re doing. And MMS and JJK brokerage, you know, were both components of divestitures that were allowing us to focus more on the analytical, the research, and the index management side, especially in the investment services area, but very definitely, we want to, you know, develop a very strong, you know, component in those particular areas. And therefore, a lot of the investment is being fed into those specific areas.

Thanks a lot.

You bet.

Our next question comes from Lauren Fine with Merrill Lynch.

Oh, thank you, just a couple of quick ones. When you look at the El-High business and how it shaped up this year, versus your original expectations at the beginning of the year, are there one or two things that you can identify that, you know, caused the biggest changes? And then secondly, could you talk about your margin expectations in this business, which you’ve discussed in the past in terms of where you think you’ll be this year and next year?

Okay. Well, hi, Lauren. The El-High market, the expectations coming into this year, as you know, were -- as you know, we were looking for the market to grow 0 to 4 percent, and that was the guidance that we gave for the market in December of last year. And we thought, obviously, because of our mix within that portfolio, we would do a lot better than that. By the time we got to May, you know, we were saying, all right, 0 to 4, we still have to see more. But if I had to come up with a number, I’d said probably it was going to be about 2 to 2.5, and that is exactly what the AVP numbers through the end of May were showing. June and July both went down about 11 percent each for the market and therefore, now we’re in a very different situation. And that’s why down in Miami, we gave that guidance that the market was going to be down.

So, yeah, I think the expectations, you know, coming in it was going to be for a -- we knew it was going to be a softer market, but that it was going to be a little bit more robust. We are going to focus clearly on, you know, the key disciplines, key adoptions; but increasingly making sure that you’re focused, and have the ability to focus on the open territories, is going to become very important on that one. So, those are areas that we’re focused in. The testing is doing better than expected, and we’re very, very pleased with that, and especially with the new federal dollars. And so between that and the augmentation of the supplemental, you know, we think again, our prospects look pretty good as we go into ‘03.

Margin levels, Bob, you want to take that?

Yeah, margins. Our objective, Lauren, as you know, is being at the 15 percent level climbing, and growing that business over time to 20 percent. I think with the revenue performance that we’re experiencing this year, our margins will dip below the 15 percent level, which is where they were last year, if you exclude the impact from the goodwill amortization. So we’ll probably -- last year, if you exclude the goodwill amortization from this particular segment, we’re a little bit over 15 percent. We’ll be a bit under 15 percent this year on an apples-to-apples basis, simply because of the much lower revenue performance from the school education group.

Yeah, I think that’s right Lauren. And you know, some of us optimistic ones think that maybe we’ll get pretty close to it, but I think Bob is, you know, right that we’ll be under that. And then the expectation would be fully to get back to that as a minimum near term goal for 2003.

Great, and one last question. I’m just curious, in California, are you pleased with your market share performance there, because given that there were just two participants, that might have been a disappointment, but I don’t know what you had expected.

Oh, no. And again, in terms of the various philosophies that exist in California on, you know, how to teach reading and the like, we made the decision to go after it with an existing program, the costs of which were already embedded into the system. And we went with a research phonics based component and, you know, we got a little bit more market share than we fully expected, you know, for people that were looking for that kind of phonics based reading program. So, no, we were quite pleased actually with that and it was a very profitable piece, I might add.

Great, thank you.

You bet, Lauren.

Our next question comes from Steven Barwell with Prudential Securities.

Good morning. Just focus in a little bit more on margins; if you had a $50 million increase in El-High revenue based on the fixed cost base that you have, what percent of that 50 million bucks would fall to the bottom line? And could you -- a similar sort with 50 million of the testing revenues? Thanks

Go ahead, Bob.

Well, the point is, it’s -- I’d sure like to know some of the other component pieces associated with that 50 million, Steve. But obviously, it’s going to be dependant upon, as Terry said, is that 50 million coming from, as an example, the Open Court Reading program that we already had made investments in, where we’re selling in California. That’s naturally going to carry with it a much stronger margin. Or, is it related to a program that will require a fairly high level of planned investment? So, it’s hard to answer that question in the abstract, but I think realistically, the overall margins of the segment, where we have identified at 15 percent and going higher, is the objective that we have identified.

Our testing business, testing business comes -- shelf business comes with higher margins than some of the state contract business would, but again it depends on the particular state contract, because some of those carry with them, not only customized tests, but a fair level of what we refer to as spoon business, or business that carries with it new supplemental tests going over a number of years. So, you really have to look at the component pieces. We obviously are aggressive in our pricing and focus on our margins. But I think the overall, where we have said 15 percent growing upwards to 18 percent, the ultimate effect of a 20 percent is where we need to be.

Yeah. And I’d add also to that, Steve, the supplemental business is in a little bit more of an improved market. It’s faster growing and higher margin, and therefore, you know, one of the reasons we wanted to have such a solid platform, you know, to augment some of the larger adoption states where, I think obviously, the going cost for a major reading, or science or math adoption are going to be higher and a little bit lower margin.

Therefore, on that, are you spending a certain amount of money now for some new projects that are going to be adopted in 2003? Are there new textbook syllabuses that you’ve developed for the ‘03 market?

Oh, absolutely. We’re going to be very competitive in math and in 2003, social studies, as well as continued emphasis on science, a little bit of reading on that one. But again, you know, this was -- we knew that 2002 was going to be a softer adoption year and 2003 is looking up. It’s a much stronger overall schedule, as is going out to 2005, 4 and 5; both are going to be quite good that way. I would caution though, again, Steve, that increasingly, the emphasis in the open territories is something that we all have to pay attention to. A lot of the education reform movement has, you know, has pushed very aggressively through the large adoption state, and into those territories, and their appetite for a lot of different materials is very important.

When we get into intervention and remedial markets for example, a lot of primary products that were being developed for adoption states, can be used that way, as well as supplemental, kinds of businesses that can benefit that way as well. So, we’re very focused in the open territory markets as well.

Okay. Then lastly, a strict interpretation of your guidance would get you about $2.88; consensus is 2.93. Are you comfortable with the $2.93?

I am comfortable, Steve, with double digit earnings growth for the full year and, you know, we’ll see where those numbers all come out on that one, but I’m not going to give a particular pinpoint number yet. We’re still in real time and finishing up this year, but again, I am pleased with the way the third quarter came through, and given a difficult year, we’ve had some very, very good performances. And we’ll finish up 2002 double digit, and then we’re off to ’03, and we’re going to do it again.

Thanks.

Our next question comes from Kevin Grenick [sp] with Bear Stearns.

Hi, and thank you. One question and then a couple follow-ups. I was wondering, Terry, if you could talk about the return from the education transformation project? For instance, what are you expecting in terms of annualized savings, and when will they kick in?

Okay, thanks Kevin. Bob?

The billable transformation project is, as I mentioned earlier, we have launched the pilot effort in Canada. We begin the U.S. implementation in 2003, and that will carry into 2004, coupled with the implementation of our -- of the other international locations. The savings will really start to accrue to us, Kevin, most likely late 2003 for some of those U.S. based businesses that will be converted later in the year, but stronger in 2004.

Clearly, when we entered into this effort, we do our own modeling and our forecasting. When you make an investment of this size, we’re expecting a pretty solid return, and the returns are pretty significant. We’re expecting a fair amount of savings in all the areas that I’ve identified, customer service, production, manufacturing, inventory management, et cetera. Without getting into what the specific numbers are, you can rest assured that they will help us get to the margin objectives that we identified here. And that’s a large part as to why we did this, as well as being much more efficient in the distribution of our products and services globally.

Thank you. I was wondering, Terry, could you talk about this blending in Detroit? How do you distinguish that, you know, from supplanting?

Well, I think the, you know, Detroit issue is very strong because this Council has really focused, and brought a lot of attention to the urban market. And as we all know, the No Child Left Behind Bill was directly focused on the urban market, and so the focus is to get some of these large urban markets the help they need quicker. And so we were very excited to see the 18 million coming out. And I think in the short term, you know, Kevin, some of that, you know, could clearly be coming from the federal government because it will be meeting the Reading First initiative, and because of the fact, you know, the Open Court phonics based program is so strong and the standardized instruction initiative, we are in a wonderful position to take advantage of those and we were able to do that in Detroit.

But you’re going to see, you know, coming out of this Council, you’re going to see a tremendous push and emphasis to get funds right now, and get them started on that, and federal monies will be included in that. Longer term, according to the Department of Education, they’re going to be able to target, you know, those funds and to make sure that they are being spent as they say they are being spent, but in the short term, I think it’s safe to say they probably are being supplanted.

Third and final question, thank you. On MMS International, could you isolate for us just the Q3 and full year revenue and operating loss impact?

Do we have that, Bob?

I’m sure I do. If you just give me a moment, I’ll just dig for it.

Tell you what, Kevin. We’re going to have to get back to you on that one.

Okay, fair enough. Thank you.

Done.

Our next question comes from Brian Bilbell [sp] with Credit Suisse First Boston.

Thanks, guys. Two quick questions: first, if you could kind of isolate the impact of the low-rate environment, and really focus on the secular trends in Europe and Asia in financial services, maybe walk through the similarities or differences are between those [audio gap] the U.S., maybe perhaps in terms of kind of where they are on a time line relative to the U.S. for securitization of your asset back or mortgage backs?

And then, switching over to the education division, a recent article we saw talking about more customization where you guys are focused perhaps just on, kind of California and Texas and the bigger states developing textbooks, some of the smaller states become a little bit more, I guess aggressive, on asking for really customized materials for their own state standards. What kind of impact do you think that trend might have either on pre-plate costs or margins, or in terms of market share within the larger publishers? Thanks.

You bet. And Brian, first on the Europe and the Asia side, you know, we’ve seen tremendous strength in the -- early on, in the development of the commercial paper market. Then, that spilled over into the insurance market, and then into the Eurobond market and those [indiscernible]. Then, what we started to see as some of the large financial institutions, namely banks, you know, started wanting to get loans off their books, we started to see, really, about six years ago, the asset back market starting to really pick up.

And with that, we’re starting to -- and we continue to see real strength in terms of a lot of, you know, those kinds of instrumentation. The mortgage back market, you know, has come to the party a little bit later, and you know, is now doing quite well. It’s about a third of what the overall structured market is, structured finance market is, but that’s been tremendous growth. Asia really is also focused on the securitization of the bank loan market, as a lot of the Japanese banks, you know, have had problems. But we’ve had good representation also in the overall lending market in areas like Korea and Taiwan and so forth. So, it’s really focused more on the Japan that we’re seeing that kind of securitization benefit.

On the customization, that’s a big piece, and Brian, you know, this is where size and scale really helps. And having a very strong digital asset management capability, it is going to give us the capability to leverage off of that base more easily, and to be able to customize more specifically to growth state requirements, but also school requirements, as districts get more involved. So, we’re very pleased with that. It’s going to push to the electronic, you know, side, where we feel quite strong, and it’s going to give us, you know, added competitive advantage to be able to meet with it.

I just saw -- California just passed this new legislation, AB2532, which is the bill that Governor Davis signed talking about the weight of textbooks, and how they’re going to put standards to break that part down, and we’re looking at that one very carefully. Again, you know, textbooks have increased in size in recent years due to the requirement to meet 100 percent of the state specific standards, and to meet manufacturing standards of durability.

But now what they’re finding, and all of these things are starting to come together, the role that learning can take on, and the migration to the web and the development of production processes to meet all of these particular needs, as well as the customization, is going to be very important. And we’re, you know, very excited about that as an opportunity.

Okay. Thanks a lot.

Terry, before you go to the next question, I’m ready to just answer Kevin’s question on MMS. The year-to-date revenue, Kevin, was roughly 25 million for MMS at about a break-even. Specifically, if you wanted to look at the quarter, it’s about $7 million in the third quarter, again, about a break-even. Okay, Kevin?

Our final question comes from Douglas Arthur with Morgan Stanley.

Terry, you mentioned when you talked about the financial information group that fact that, you know, for -- I don’t know -- for decades, I believe, S&P has provided equity research, and you talked about 1,200 companies. What is the size of -- what is the demand for that right now in terms of size of the market, and obviously, given all the regulatory scrutiny right now on research, is this potentially a big opportunity for you, or not?

Yeah. We think that it is, again, and we’re watching it and looking at it very carefully here. We just saw a number that I still cannot believe, that there is $13 billion that has been spent on equity research globally by all of the firms being represented here. And again, given some of the regulations and some of the changes that may be coming from -- we have to see also what the SEC says, you know, later on this month and next. But given that, I think the whole notion that independence, objectivity associated with that is going to give us, you know, a tremendous advantage. And we’re looking hard at that area in terms of being able to focus more clearly on a capability that we have in being able to augment a business model that’s more attractive.

Thanks.

Thanks, Doug.

Okay. Does that do it? Well, I thank you all. And again, we’re very pleased with the third quarter, and the way it came through. And we’re looking forward to completing the year with a double-digit earnings increase.

I’d be remiss if I didn’t single out one person here. You know, it’s somebody that goes to a lot of trouble on Don Nugan’s [sp] staff, Celeste Hughes, and puts together all of our slides. She is eight months, three and a half weeks pregnant, and she had to be here and developing -- and so, Celeste, in front of all these nice people, I thank you for your hard work.

And that concludes our session. And thank you.