標普全球 (SPGI) 2003 Q4 法說會逐字稿

Good morning and welcome to the McGraw-Hill Companies’ fourth-quarter 2003 earnings call.

[OPERATOR INSTRUCTIONS]

I would like to turn the conference over to Donald Rubin, SVP, Investor Relations of the McGraw-Hill Companies. Sir, you may begin

Thank you and good morning and thanks everyone for joining us here at the McGraw-Hill headquarters building as well as those here and abroad on the phone and on the Web for this morning's announcement of the McGraw-Hill Companies’ fourth-quarter earnings.

I'm Donald Rubin, SVP for Investor Relations with the McGraw-Hill Companies

With me today are Harold McGraw III, Chairman, President and CEO; and Robert Bahash, EVP and CFO of the corporation.

This morning we issued a news release with our fourth quarter 2003 results. We trust you have all had a chance to review the release. If you need a copy of it, and the financial schedules, they can be downloaded at 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 tele-conference 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 on our Form 10-Ks, 10-Qs and other periodic reports filed with the U.S. SEC.

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 Mr. 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 presentations, we will open the meeting to questions and answers. It is now my pleasure to introduce the Chairman, President and CEO of McGraw-Hill Companies, Terry McGraw.

Okay. Thank you very much, Don. And good morning to everyone with all the talk of a pending snow storm that is not evident at this point. I thank all of you for being here and if you are joining us on Web cast, I too welcome you to our conference this morning.

As Don said earlier this morning, we released our fourth quarter and full year earnings for the McGraw-Hill Companies.

We completed another very good year and we did so with a very strong finish. The 7.1% revenue increase in the fourth quarter was our best quarterly performance in 2003 and a little stronger than anticipated. And we have also taken some actions in the fourth quarter and we did so to strengthen our overall position for 2004 as we continue to position the portfolio for higher growth.

One of those items was the sale of our 45% interest in our corporate headquarters building in New York City and the other was the planned disposition of our juvenile retail publishing operation. Both were valuable, but non-core assets. We took advantage on the real estate side of a very strong real estate market here in New York City as well as a very attractive low interest rate environment. We use this opportunity to sell our interest, our 45% interest in our Rockefeller Center headquarters building.

The other Juvenile Retail Publishing has been a slower growth, low margin business. And in terms of our thinking, in terms of strategic fit, it just does not fit into our overall growth plan and we've been able to go through that divestiture.

Let's spend a moment on how these decisions now are reflected in our results so that you can look at your own models and make the appropriate comparison.

Based on GAAP reporting, we reported EPS from continuing operation of a $1.12 for the fourth quarter and $3.58 for the year.

Now both reflect an after-tax gain of 30 cents from the sale of our interest in headquarters building and excluding that after-tax gain from the real estate diluted EPS for the year from continuing operations would be $3.28 and 82 cents for the fourth quarter, clearly exceeding the First Call mean estimates for both periods.

Now one other point, the First Call mean averages had a forecast of 3.20 for the year and 75 cents for the fourth quarter and they do not reflect the operating loss from the juvenile retail publishing business. And if they did, you’d need to add 2 cents for the year and 1 cent for the quarter for the fourth quarter.

Finally, we observed that there is no difference in EPS for 2003 for net income and continuing operation because the 30-cent after-tax gain on the first quarter sale of S&P Comstock was, it just so happens offset by a 30-cent after-tax loss on the sale of the Juvenile Retail Publishing business.

Now, we have carefully laid out all of these figures for you in an attachment that accompanies our earnings release. As Donald Rubin said, you can also go to the investor relations' section of our Web site at www.mcgraw-hill.com. And just click on the investor relations' section and click on the fourth quarter earnings release and you can have those files for your downloading.

In addition, Bob Bahash and myself, when we go to questions and answers, we will go in any direction that you would like to go through that further.

Now, let's take a look at each of our operating segments and the results and the outlook for 2004. Let's start with financial services. At Standard & Poors we benefited from an outstanding year in global rating, recovery in the U.S. stock market and the improving profitability of our customers on Wall Street.

As a result, we fully achieved our forecast of double-digit top and bottom-line growth for this segment. Revenue grew by 13.7%, operating profits grew by 19 and the operating margin increased to 37.7% from 36%.

In ratings, structured finance was the pacesetter. Issuance followed the usual pattern in 2003. In the structured finance market, the third month of the quarter is typically the biggest of each period and the fourth quarter is the biggest of the year. Measured either by dollar volume or by deal count in 2003, Standard & Poors were the US market leader in securitization ratings for the sixth year in a row.

Now, that report comes from Asset Backed Alert, that's the authoritative industry newsletter that tracks all the deals, newsletter reports that not only did S&P rank first in mortgage-backed securities, it is also the leader in rating asset-backed issues.

In total S&P rated 94.9% of the deals completed last year in the United States and our nearest competitor participated in 84.6%.

Residential-mortgage backed securities were a major factor in the growth of the structured market last year. The pipeline for the first quarter still looks very healthy although we do expect residential mortgage-backed securities and the issuance including home equity loans to decline about 25% this year.

We're looking for growth in asset-backed issuance this year. This category will benefit, as consumer confidence in an improving economy continues to grow. Tax refunds, later in the spring could also have a very favorable impact whether it be credit card receivables, student loans, auto loans, etc.

Structured finance will be a growth driver again this year in overseas market, which represent about a third of our ratings revenue and growing.

We expect growth overseas to outpace the domestic market in 2004 just as it did in 2003.

Europe and Asian markets are both poised for a good year. In Europe the collaterized debt obligation market, CDO market, continues to evolve very rapidly. Structured finance is also growing very rapidly for us in Japan.

And as we expected, the public finance market finished with a gain in 2003, about 4.4%. Refinancing played an important role in the municipal market last year and the opportunity is not as great in 2004, but is significant.

About 75% of the $155 billion of debt issued in 1993 with a 10-year call provision was refinanced last year. The opportunity this year from 1994 bonds with a 10-year call protection is approximately $81 billion. Of course, some of the 1993 bonds could still be refinanced this year.

We could also see state and local governments continue to come back and increase their borrowing as they may face some shortfalls.

We expected improvement in the US corporate market last year and after slow start in the first quarter new issuance for investment-grade US corporates was off 0.6% for the first half, but the second half grew at 8.9% and for a total for the year 2.9%. That excludes the high-yield market, which obviously was about 35% of corporate issuant and was quite strong, was up almost a 100% in the first half, almost 300% in second half and for a 163% gain for the full year.

So when you take a look at the overall US corporate issuance, the first half was up 10.3, the second half was up 36.2 for a 19.7% gain for the full year, a very important component that we see continued strength going into '04.

Therefore, for 2004, we again expect improvement in the US corporate market. The year-end pick-up in activity in 2003 underscores that the economic recovery is stimulating the increased investment spending not only by corporations but more broadly and is spreading to the mainstream industrial issuers.

We also believe that speculative grade issuance in the United States should remain healthy this year. Capital spending and debt-funded acquisitions will be the key drivers of new issuance. The declining default rate on improving economy and investor appetite for high-yield instruments will also be positive factors for 2004.

We expect to operate in a low interest rate environment in 2004. Our experts do not expect to change by the Fed Reserve until perhaps even August of this year and maybe not even before the election. If there is slow growth in employment, the Fed could keep the funds rate at 1% through the fall elections and into 2005.

When we take a look at the European market, however, given the strength of the Euro, we could see in the second quarter of this year an interest rate cut by the European Central Bank.

The Global Research Settlement represents another opportunity later this year to prepare S&P is expanding its fundamental research coverage to over 1400 US firms from 1100. We have developed an interactive version of equity research reports and established a liaison desk to provide timely access to our analysts for settlement firms and their investors. It is still not clear if the regulators will encourage the settlement firms to launch their programs before the August 1 deadline.

Our Index businesses continue to expand and we're looking for more growth in 2004 with the addition last fall of the S&P's CitiGroup indices. We are beginning to reach agreements with clients for new customized versions of the S&P's CitiGroup indexes, notable new 2003 indexes included in exchange traded fund on the Borsa Italiano (ph). It is sponsored by Society Generale, Luxor and in Japan, Sumitomo and Mizuno have created new institutional funds based on the S&P Japan 500 index.

At the end of 2003 there was $79.8 billion under management in exchange traded funds based on S&P Industries. That is a 26.3% increase over 2002.

Therefore, summing up for the Financial Services segment, a strong finish in the fourth quarter of 2003 continued strength as we start 2004, another year of double-digit top and bottom-line growth in 2004 although maybe not at the same level as 2003.

Global ratings will be the pacesetter, strength in indexes, new opportunities in independent equity research and we expect to maintain our operating margin in 2004 at 2003 levels.

Okay. Let's move forward to the McGraw-Hill Education Segment. The performance here was mixed. Some clear areas of strength and some instances where we do not meet our expectation, revenue for the year grew by 0.5%, operating profits declined by 3.4% and the operating margin slipped from 14.6% to 14.1%.

Revenue for our higher education, professional and international group increased last year by 1.5% and represented 47% of the segment’s total. Worldwide sales of higher education materials was a key factor in this group's performance; in international market sales of our business and economics titles were very strong.

In the U.S., college market 2003 was a low point in the revision cycle for our major business and economic titles, but growth in other disciplines kept us moving ahead, science, engineering, math, humanities, social sciences and world languages all contributed to our year-over-year improvement.

Final figures for the U.S. higher education market have not been announced yet. But we expect to see growth in the 2% to 3% range for the year.

We believe the slower than expected growth last year can be attributed to a reduction in course enrollment, faced with rising tuition cost students cut back in the number of courses they were taking and some schools under funding pressure reduced the number of classes they offer.

Overall enrollment continued to grow and we are projecting them to grow by 18.2 million getting up to a level of 18.2 million by 2013. In the professional markets we had some mixed results. Mostly the sales of computer and technology titles continued to be negatively impacted.

And therefore the outlook for the Higher Education, Professional and International market improves this year in 2004. In the professional area we are publishing a new edition of Harrison's Principles of Internal Medicine, the best selling medical textbook in the world. Harrison's will be published in the third quarter. In the U.S. college market we expect an upswing because we are entering the major revision cycle for our business and economic titles.

At the top of the list will be new 16th edition of McConnell and Bruce (ph) economics, one of our best all-time sellers, it's also a fine example of how we continue to improve the value proposition.

The new addition comes with the DVD, so students can see economic concepts demonstrated online. There is a Web site with quizzes and feedback on each chapter. There are interactive graphing problems, there is fully integrated tutorial with 200 minutes of original video and that was produced for us by Paul Solomon, the economics correspondent for the LeherNews Hour on PBS. There is also access to BusinessWeek and to the Wall Street Journal.

There is more, but I think the point is clear that we are using every means possible in the technology front to help make construction more effective and to be able to build the value proposition in helping us to improve sales.

At the McGraw-Hill School Education Group, revenue declined by 0.4% to $1.2 billion in 2003 and we had some very important successes last year. We also had some disappointments, which we recapped in this morning's earnings announcement. The new adoption market last year came in at approximately $750 million. And our share was about 27%.

Overall the industry not including testing grew at about 2.5% last year, which may surprise some after all the headlines about state funding cuts. In fact our survey showed that the state budgets for the fiscal year ending in June actually had a 2% increase for elementary high school education.

In evaluating prospects for 2004 consider the following, education obviously remains a priority in the United States and by each state, the funding picture is beginning to improve in many states.

Targeted federal dollars is starting to reach the market creating new opportunities for us in reading and in testing, a point I will come back to in just a moment.

We also know that the available dollars in the 2004 adoption calendar will show a year-over-year decline of approximately 30% and the overall market will be off about 5%. We also are going to be very busy this year getting products and services ready for the 2005 and beyond market when the adoption market rebounds so sharply. There is still good opportunities for us this year in the new math adoption in both the elementary and secondary markets.

We have new math programs for the secondary market. Where we have been a leader for many years. We have a new elementary program called McGraw-Hill Mathematics and we also have Everyday Math our research-based program, which also competes for adoption dollars.

We have observed recently that the targeted federal funds for Reading First represent the wild card in this year's market. We've estimated that more than a billion dollars is now available in the market for Reading First programs. More will become available later this year. When Congress approved the administration's budget last week it included another $1 billion for Reading First and $95 million for early Reading First for the current fiscal year.

We believe the Department of Education will allocate these funds between July and October of this year. We also believe the administration will seek at least another billion dollars for Reading First when it submits its budget next week for the new fiscal year which starts on October 1. That's added up.

Reading First is a six-year program and there is visibility now on four years of funding that will top $4 billion. For our part, we are following the money down to the district level just as if Reading First were a national reading adoption.

We've identified 28 states that have created lists of Reading First's products that will meet the federal guidelines and we have more products on these lists than any of our competitors.

In the fourth quarter we began to see some signs of sales activity that could be attributed to this federal stimulus. It isn't always easy to tell if the products were bought with Reading First funds. But we do know at this early stage that sales are starting to come from districts that are eligible for Reading First funds.

We expect to see more materials purchased in the second and the third quarters as schools prepare for classroom implementation next fall. States are already preparing for the new tests in reading and math which are required by the No Child Left Behind legislation for the 2005 and the 2006 school year.

As a result, our custom-testing business grew substantially last year and we expect to benefit again as states build out their program and since assessment is a mandatory element in the Reading First initiative, we have box in a box, casanova 1 (ph) and casanova 2 on the approved list in 18 states as well as in many local districts.

Therefore, summing up for the outlook for the McGraw-Hill education a better product cycle in the U.S. college market, a very light calendar in the adoption market may lead to a 5% decline in market sales, federal dollars are creating the new opportunities in 2004 with at least $1 billion available but remain the wild card in the marketplace.

Now, let's take a look at our information and media services segment. Revenues declined in 2003 by 4.6%, operating profits were down 7%, operating margin was 14.2. Rigorous cost control played a key role in a difficult year for advertising.

In a challenging environment, most of our magazines improved or maintained their market share. The caliber of our journalism in print and in broadcasting also gained well-deserved recognition in the market place. BusinessWeek's editorial (indiscernible) continues to attract new readers.

BusinessWeek ended the year with circulation at an all-time high of 991,000 in North America. That record was achieved even as we raised our three-year subscription price by 20% to $119.97.

In Broadcasting, the highest honor you can receive in journalism in any year is the Alfa Dupont Columbia University Award and our Denver television station KMGH TV. Channel 7 just won it for a series called Honor and Betrayal and Scandal at the Academy; it's an outstanding coverage on the deplorable treatment of women cadets at the US Air force Academy. That recognition follows the 29 emmies received last year.

Recognition like this clearly indicates that we have got the audience advertiser will be seeking as a recovery takes hold. Very encouraging signs. In Broadcasting, we are pacing 2.4% ahead of last year in the first quarter. Even though we had the benefit of the Super bowl last year.

This is a presidential election year and so we would like our prospects for political advertising in broadcasting after a 5.7% decline in revenue last year. Key contests, political contests in our markets this year include races for the U.S. Senate in California, Colorado and Indiana where there is also a governor ship.

San Diego will be electing a new mayor. BusinessWeek ad pages in January were off 2.4% versus last year according to the publisher's information bureau. This is a decline of 3 pages and certainly not indicative of the year that we expect to have. There are signs of new activity both here and abroad and for the first time in over a year, business confidence in Asia and Europe is at least as strong as it is in North America. This bodes well for advertising and we expect to see an increase in global and regional promotions. New activity will begin to show later next month or as we get into March.

Just about a year ago, as activity ground to a halt as speculation about a war with Iraq dominated the media, the invasion of Iraq actually commenced on March 20th and made those comparisons quite different.

A year later, we expect to see improvement in advertising across the business-to-business group. In our key vertical markets we are continuing to make strong progress with the McGraw-Hill Construction Network, network went live last September and it is already attracting important new business. The aviation market will benefit this year from important air shows in Singapore and Farnborough, England. We also expect to see improvement in our energy businesses, which we will expect to continue to span.

Summing up for the Information and Media Services segment, a recovery in advertising in 2004, high single digit to possible double-digit revenue growth, tight costs control and definitely improved margins.

There is a look at our prospects for our three operating segments and looking ahead for the McGraw-Hill Companies, we expect to produce an another year of growth in 2004 and even with the anticipated decline in the elementary high school market place, we project income from continuing operations to increase in the mid to high single digits in 2004 and remember that does not have the reoccurrence of the 30 cent after-tax benefit from the sale of the equity interest in our real estate building.

With that, let me turn it over to Bob Bahash, our CFO and then we will go to your questions.

Thank you, Terry. The corporation ended 2003 in a strong financial position and we expect to maintain that position in 2004. I'd like to begin by discussing two significant transactions that influenced our fourth quarter and full-year results. Consistent with our strategy, to focus resources on growth opportunities in each of our businesses.

The Company in December 2003 sold its 45% equity investment in Rock-McGraw Inc. The transaction was valued at $450 million including assumed liabilities. Proceeds from this disposition were $382 million. The sale resulted in a pre-tax gain of $131 million and an after-tax benefit of $58.4 million or 30 cents per diluted share in 2003.

Prior to the sale, the Company received a cash dividend of $103.5 million for its Rock-McGraw equity investment. The Company will remain an anchor tenant with an existing lease that continues for the next 16 years. We continue to occupy approximately 18% of the building.

Due to sale lease back accounting rules, a portion of the gain or $212 million is being deferred and will be amortized over the remaining lease term as a reduction in rent expense.

Now, what does this mean in terms of P&L impact for 2004? The income that we previously received from our 45% equity interest in this property will be offset by interest income from proceeds that we receive as well as the amortization of the $212 million gain pursuant to sale lease-back accounting rules.

The reduction in rent expense will be reflected in segment operating results in the same proportion that the equity income from the Rock-McGraw ownership had been previously allocated. Interest expense must also be accrued against the deferred gain. That will be reflected as interest expense in our financial statements. The net effect of these items will result slightly in excess of 1-penny dilution in 2004.

The second item I'd like to discuss is the planned divestiture of the Company's Juvenile Retail publishing business. The products being divested are pre-K to grade 8 materials that are exclusively distributed in the retail and education dealer distribution channels. They include, Landoff, Frank Shafer and related juvenile retail business imprints.

As we previously announced, these products are not strategic to the education group's core businesses and we lack size and scale necessary for market leadership. Also outside the scale would be difficult achieving appropriate margins while distributing through these channels.

As a result of this planned divestiture, we reviewed the carrying value of these business assets and adjusted them to their fair market value less cost to sale. This is in accordance with financial accounting standard 144, accounting for the impairment or disposal of long-lived assets.

Accordingly, the Company recognizes impairment to the carrying value of these assets of approximately 54 million net of tax in the fourth quarter or 28 cents per diluted share. Since we removed these businesses from operations, there is an additional operating loss of 2 cents incurred during the year, which is now reflected in discontinued operations bringing the total loss to 30 cents per diluted share. We expect the sale of this business to close on Friday.

Now, let's review some key measures of our performance. With the sale of the equity interest in Rock-McGraw and the divestiture of Comstock during the year coupled with strict working capital management, lower prepublication investments and capital expenditures lower than originally forecasted, we will end the year with net cash of approximately $670 million, this compared to a net debt level at the end of 2002 of approximately $520 million.

I will discuss our investment strategy in a moment but I like to pay particular attention to another year of very solid working capital management. Both inventories and AR declined versus 2002. For example, inventories declined by 16.5% in 2003, following a decline of 10.4% in 2002.

As the Company continues to focus on effective inventory management, AR showed significant improvement as well versus 2002. The decline in accounts receivable equates to a decrease in DSO of 8 days. This comes on top of an 11-day improvement in 2002 and 4-day improvement in 2001.

Now let's look at some of the more significant investments. CapEx finished the year at 115 million. Fairly came in lower than previously anticipated. We did spend approximately $36 million on the facilities build out in Canary Wharf that is little bit less than we have forecasted. We are spending less across the board as we delayed a number of technology and infrastructure investments in other parts of the Company.

For 2004 we anticipate spending to be in the range of $140 million and that would include approximately $17 million for the completion of the Canary Wharf build-out. Prepublication investments were lower in 2003 as we had been indicating during the course of the year. This is primarily due to the weaker adoption opportunities in the K-12 market in 2004.

We finished the year at 218 million for pre-pub investments. dBut with the significant opportunities in 2005 and 2006, our spending will be ramping up. We currently expect to spend approximately $290 million in 2004.

Additions to technology projects finished the year at $28 million, which is down considerably from the $55 million spend in 2002. We’re anticipating spending to come back up a bit to reach approximately $50 million for 2004. The major technology project is GTP and for education segment. Total expenditures for 2003 were $38 million, which includes deferred technology costs, capital expenditures and operating expenses.

As we have previously mentioned, GTP will provide all of McGraw Hill education with enhanced customer service, finance, production, inventory and data management functions. The project continues on target for a spring launch of the Oracle 11-I solution in three-school education units -- McMillan and McGraw Hill, SRI and the Wright Group. We also continue with the accelerated implementation in the fall of 2004.

We remain on schedule for Higher Education, Professional publishing and the remainder of the domestic school education group businesses. We plan to complete the international units during the 2005, 2006 period at which time we will begin to realize the benefits from implementing this system on a global basis. We still anticipate total project expenditures at $180 million.

Now, let's review some non-cash items. Depreciation ended the year at $84 million it’s a decline of 6% versus 2002. We anticipate an increase to $100 million in 2004.

Amortization of prepublication costs ended 2003 at $285 million. Amortization as forecasted still lower rate $260 million for 2004 which reflects the later adoption calendar for the year.

Amortization of intangibles now that we no longer amortize goodwill this number is relatively modest at $34 million in 2003 and should decline slightly to $30 million in 2004.

Now, let's look at the interest category for 2003 and the outlook for 2004. As we continue to build cash during the course of the year, our interest expense declined. In fact, in the fourth quarter we showed a small amount of interest income. For the full year, 2003 net interest expense was $7 million. Significant decrease from 2002.

As we look out to 2004 net interest expense will remain generally at the same level or slightly below $10 million in 2004.

Now we had a significant cash balance of course at the end of 2003 but we are anticipating a major tax payment of approximately $176 million in March as a result of the gain from the sale of our equity interest in Rock-McGraw as well as the dividend we received prior to the sale.

We also made a $57 million deferred tax payment in Germany in January of this year, that arose from the European legal restructuring that was completed back in 2001.

Other factors to consider with regard to interest are that interest expense, the line item includes cash management and credit line fees, interest on deferred compensation, also includes the interest relating to the recognition of deferred rent expense from the Rock-McGraw sale. So, that's why, as I previously stated, interest expense should be around $10 million for 2004.

Let's briefly review our share buyback program. On a trade day-to-basis, we reached 3,467,000 shares for a total of 212 million 600, at an average price of 61 31 per share. 13 million 900 shares still remain for the January board authorization of a total of 15 million shares.

Since 1996, we repurchased 24.1 million shares. This strategy is a compliment to our dividend program. In the last 8 years, the combination of share repurchase program and dividends paid returned to total 2.5 billion to shareholders, that's a growth of 11.7% compounded for the 8-year period.

Now, let's just spend a moment on free cash flow. Cash provided by operating activities for U.S. GAAP for 2003 was $1.38 billion. We described free cash flow in a much broader fashion going beyond operating cash flow. Now, in accordance with GAAP, I must walk you through some of the figures based on our definition. We define free cash flow as what is left after the following items:

Investments and prepublication cost 218 million, purchase of property and equipment 115 million, addition to technology projects (indiscernible) million; dividends paid to shareholders 206.5 million, the exercise of stock option 79 million, one-time dividend resulting from Rock-McGraw equity investment at 103.5 million; and other adjustments principally for FX of about $14 million. That results in free cash flow for the year 2003 of 804.4 million, a 21.5% increase over 2002. Several factors propelled cash provided by operating activities to an atypically high level.

Those factors include strong profit growth, significantly lower working capital usage as we focused on reducing inventory and receivables, lower interest expense due to lower average debt levels and interest rates and of course lower prepublication and additions to deferred technology projects. We anticipate free cash flow as we define it to approximate 450 million for 2004.

As mentioned earlier, increases in prepublication cost and preparation for the larger 2005, 2006 adoption years will also influence our 2004 free cash flow.

Now thanks, and back to Terry.

OK. Thank you, Bob. And again, we are very pleased with our earnings announcement this morning. As I said, the fourth quarter came in little stronger than anticipated. It allowed us to take some actions to continue to position the portfolio for higher growth. And we're off to a very good start in 2004, although it is very early. But we're pleased with those prospects.Okay.

With that, let me go back to Don Rubin and lets open it up for questions.

Thank you, Terry.

[OPERATOR INSTRUCTIONS]

Yes, Terry Dougherty (ph), Morgan Stanley. Looking at LHI for '04, '05 and '06, not withstanding amortization of pre-pub, you did mention your presentation the need for developmental clause in '04 for the big adoption outlook in '05 and '06. What impact could that have if any on margins in LHI in '04 and then can you update us on any new thoughts on the potential size of the adoption market in '05 and '06? Thanks.

Yes, thanks, Doug. Obviously with the anticipated skinny adoption market that we've got roughly 525, $530 million for 2004 is going to have an effect on us. And then the market (indiscernible) about 5 we will do a little better than that because of our educational testing.

Also the new McGraw-Hill Learning Group which comprises of SRA McGraw Hill, Contemporary and Wright Group which is all focused as a No Child Left Behind group on the urban markets. We expect good results there. And the wild card obviously is being the Reading First, as we need to see some signs there.

For 2004 I would expect in terms of margin levels that we would probably be at or below slightly below where we currently are at this point. And again we have to see what the Reading First numbers do and McGraw-Hill Learning Group on that one.

As we get toward 2005 we are going to almost double the new adoption market. It will go to about a billion. And it will have reading in three states, math in three states. The big one will be social studies in eight states, including Florida and Georgia and built from there. Reading becomes very important in 2006 and you're going to have almost a billion dollar new adoption market there, as well.

Then the next question has to be what's the effect in territories outside of the adoption markets? And in those open territories we would expect some growth there, as well. So we would see in terms of overall participation a significant enhancement that way. Therefore as Bob was saying what you're going to see is a ramp-up of pre-pub cost. As we develop 2005, 2006 product our margin expectations all along is to get back to a solid 15% and to build from there.

We believe that over time this should be a 20% margin business and there is a lot of factors that need to come together to make that happen. Certainly one of them is the whole global transformation project. After we get through the implementation in the United States this year and begin the implementation outside the United States next year we should have pretty much some added clarity as to what that will do for our margins, as well. Our near-term target is 15 and we want to get to a 20% margin business overall.

Terry if I can just expand on that point. With regard to the pre-pub amortization we of course will not be affected in 2004 because of the investments in 2005 and 2006. Our actual amortization declines from 285 million to 260 million. It will then ramp up.

So the investment that we are making of 290 million is deferred on the balance sheet and is amortized over the life of the programs. I think the key impact I'm hoping to maintain margins or slight decline in margin is really due to the much lower revenue opportunity that we face in 2004.

Thank you.

Any more questions in the room? Let's go to our next question by phone from Peter Rapper.

Good morning. May I ask two questions, please.

Number one, Bob, given the finances you have outlined in the strength of the balance sheet at year-end I'm wondering why you wouldn't you commit to perhaps stepping up the pace of share repurchase activity going into '04?

Then, second, unrelated to that, I was hoping, Terry, you might give us if you have it any incremental break out on Reading First data and specifically you have given us some information previously about how you saw the dollars breaking out.

I'm wondering if your sense of the market is it is coming along as previously described, that is number one related to that question. Number two, any sense of market shares among the publishers in terms of how the Reading First dollars are being spent. Thanks.

Okay. On your first question on share repurchase, let me add something to this. I mean the question in terms of having capacity. Overall comes up. We work very hard to put ourselves in a position to have this capacity and we like having the flexibility to be able to enhance our ability to strengthen the overall portfolio and to grow.

We are very focused on the three markets that we represent. They represent significant growth opportunities here and outside the United States. And both organic and acquisition growth in terms of taking on new capabilities are in vogue.

Having said that, that it is also very important that when you are talking about strategic fits that you also talk about availability in price.

You know we just aren't going to do anything and therefore from time to time I mean you know given the overall conditions of the market place and so forth you know, when you take a look at what we're focused on, which is total shareholder return, you need to look at the other components that make that up. Besides earnings, obviously your dividend policy and also your share re-purchase initiatives.

Now as you know that we usually look at all of these issues at the beginning of the year and we present our recommendations to the Board of Directors in January which happens to be meeting tomorrow.

And, therefore, you know, we look very hard at those and we might be doing a little more, but I don't want to preempt what the final board decision is on that. But we will probably be having a further announcement tomorrow on that part. Bob you want to add anything to that?

I guess the only thing I would add is, Peter, as you know, what we've stated is that under the 15 million share buyback program that we currently have we have authorization of re-purchase between 3 and 3.5 million shares on an annual basis. We had been buying roughly 3 million 1, 3 million 2. This year we did get up to almost to 3 million 5 in terms of shares. But as Terry stated this is a Board action and as he indicated there is a board meeting tomorrow.

Great. Thanks.

Peter also on the Reading First initiative, this is one that we have focused on very hard. And it was really at the heart of putting together, you know, a lot of our supplementary components with that of the Tribune acquisition. That came this year altogether in what we now call the McGraw-Hill Learning Group, again which has the old SRA McGraw-Hill, the Contemporary Title and also the Wright Group.

Now, what we have done both in terms of reading and math and our capability there is to focus this group on the national urban market. And you might have seen the announcement recently of the hiring of the superintendent from the Fair Field - the Fairfax rather County in Virginia, Dan Dominic, arguably one of the top superintendents in the country also the former President of the Charles Mckenberg (ph) school district, Arthur Griffin who has joined this team. And we are living in these urban markets and of course the Reading First component is a big piece of that as well as the testing and as well as the Early Reading.

So, in terms of - it's a little early to be talking about share of the Reading First. We'd like to see, you know, some of the state spending the dollars from the Federal level have been appropriated and the bog-down if you will has been at the state level and again where is that -- a billion dollars now available for this year and there is even further spending issues that could take place for 2004.

So, the money is there. The time left for spending is this year and therefore we're working very hard focusing on those assets. But it’s little early to talk about share and whatever. We like the position that we have got with McGraw-Hill learning group and we are focused on being able to achieve the improvement that both governors and secretary of education are looking for.

And in terms of those allocation between instructional materials, training, et cetera, is that going to break as previously described?

Again, these are sort of rough estimates but about 50% of those funds are going to be focused on professional training and then about 20%, 30% on materials and about 20% on assessment. That's our best guess at this point; we've got capability obviously in all categories.

Great. Thank you.

Thank you. Our next question comes from Fred Searby with J.P. Morgan.

Thank you, gentlemen. Couple of quick questions. One, Terry, can you give us some color on obviously, BusinessWeek has struggled and we've seen that in the numbers, but you have a pretty fairly long lead time, when you are seeing, expecting the 2004 pick-up and if you have already started to see that in the orders on BusinessWeek?

Then, can you just touch upon -- this may not be an issue, but there has been a lot of talk about soft dollars and how it is going to hit independent research. I know you are structured to soft dollars and one of the law of unintended consequences is actually that it may -- you may have to change the way that you structure these deals, if you have thoughts on that? Just quickly on exchange traded funds, if you think you are starting to see some benefit from some of the scandal and fall-out on the mutual fund side?

Thank you, Fred. Okay, BusinessWeek. Let me put it into context for you and I'm just going to -- these are rounded numbers, so that you have just a good sense of activity. If you go back to the 1997, 1998 levels, BusinessWeek did about 4,000 pages, which was a record in the North American edition. By 1999, BusinessWeek hit an all-time high of about 5,000 pages and in the year 2000, when we started all the rate hikes and the like and BusinessWeek was down in the fourth quarter.

So, for three quarters, it had been able to complete 6,000 ad pages, which was a remarkable number. We completed 2003 with little over 3,000 pages, I think it was 3,034.

So you can see just in terms of just that history and the build-up in the tech bubble and all of those kinds of things where we are at this point. So, from a recovery standpoint, we believe that we are - we have hit a trough in 2003 and we will start to see that recovery.

Number two, in 2002, we had already seen the ad-based recovery. That had started in mid-year and really started to materialize in the end of the third and the fourth quarter. Then of course with Iraq and some of the other geopolitical events that complicated the advertising market from an economic standpoint and we have seen that decline.

We expected to see a little bit more of an increase in the latter part, third quarter and fourth quarter of 2003. We started to see it and then it disappeared, it came back and it was very mixed in all of that.

As we come into 2004, we really are focused on those indicators, indicators that really influence the advertising market for us and our kind of advertising. Corporate profits, we expect to be up very strong in '03 and will be up about 14% in '04. Equipment spending, which we had around 9% is now running at a run rate of about 13 - a little over 13% and we expect that to increase. Low interest rates on that part.

So those kinds of factors and the projected carry out of growth and when we start taking a look at the corporate new issuing market at S&P and all of the corporate activity, especially in the investment grade area, we believe all of those indicators support a very strong ad recovery.

To date, January, as I said, was off just a little bit against a very strong January last year. We expect February to start to show some real increase. That prolongs some of the advanced positionings we should expect all through the year and again the comparisons because of the lower portions in the first half of last year as well as in second half of last year should start to show some significant gains.

But again, just in terms of looking at ad pages as a way of measuring that, I think looking at the 3,000 ad pages that we completed in '03; we need to see us get up to another level. What kind of level could we get to in 2004? Really, it's impossible to gauge that but I would like to think that given the strength of the Company, that we ought to be able to get at least to the 3,500 page level, which I think would be a very significant number on that window. Who knows, maybe a little bit better.

When we talked about independent equity research, it's still a little bit early, Fred. We are in negotiations with all the ten settlement houses in terms of the relationship with Soft Dollar, that has not been an issue as much for us, but we're still in the negotiations part of that.

And in fact in terms of some of our orientation, we have pulled back somewhat from focusing on a business model dependent upon soft dollar advertising. In terms of exchange traded funds, we have not seen any, with mutual fund issue, any material focus that would have us concerned about our ability to grow that business and to extend it.

Well, I was thinking upside.

I'm sorry, Fred.

Funds, it would probably be upside for you there would be some --?

I think it’s a little -- in terms of drawing a comparison to that and what one could gain from that standpoint, the only fact I have is that of the increase which was $79.8 billion, I think it was, in terms of exchange trade funds using S&P industries, that was a 26% increase year-over-year and that's pretty healthy. But I don't know if I can attribute that to the mutual funds, but it can't hurt.

OK, thank you. Just one general philosophical question if we're out telling clients that it seems like your preferences is and I know this is opportunistic and you can never go anything out but with the usual disclaimers here is for bolt-on acquisitions as opposed to large transformational deals, would you say that we’re correct in making that assessment?

I think Fred; our focus is on the three markets that we are in. Again we believe we have enormous growth opportunities in all three, given the recovery that's taking place and reflecting our strength in the marketplace. We believe that both in terms of organic and acquisitions that would add new capabilities that our focus needs to be on those three markets and their growth.

OK. Thank you, gentlemen.

Thank you. Our next question comes from Lauren Fine with Merrill Lynch. You may ask your question.

Thank you. Just a couple of quick ones. I'm wondering if there are any more contemplated divestitures on any of the units you are looking at? Second, if you could you give us your assumptions for pension, income or expense for the year comparatively to '03? And then I just want to clarify on free cash flow -- if the target that you gave for the year was before or after any of the gains that you already have in place? That should do it. Thanks.

Thanks, Lauren. Well first of all I will take divestiture and then we will go over to pension expense with Bob and free cash flow, which we are obviously quite pleased with that capability. On the divestitures, we don't signal any asset in the portfolio. Whether it be divestiture or acquisitions and the like. Until they get completed.

But, as a general rule, Lauren, as you know we focus very hard on the entire portfolio and the offsets built into that system and any business that has a stand-alone nature that has lower growth or lower margin is one that we're going to be looking at to see how we can strategically reposition it into a broader context, or if we can't then it obviously becomes a divestiture candidate.

A good example of looking at particular assets as McGraw-Hill Learning Group. We have lots of different components, but given the size, the strength and the commitment of No Child Left Behind and the funding requirement it gave us an opportunity to take a lot of different assets and to be able to combine them in such a way to create a higher level of purpose and focus and that with the strength of the management team I think that we put together with it, a high sense of opportunity to what we can achieve.

So that would be an example of going the other way. Any low growth, slower growth or lower margin business that is more stand-alone we can't get into a strategic fit, would fall into that category. Bob, do you want to handle the pension expense?

Lauren, with regard to pension expense, first off, the pension fund is in an over funded status. We have 124% of assets for each dollar of liabilities. The discount rate that we are using going forward will be 6.25%. We had been using 6.75% and the return on assets is 875, no change there. The reduction of 50 basis points as well as additional service cost will affect us by roughly 4 cents in 2004. Just a normal thing, as you increase your -- normal increase in service plus the impact of the lower discount rate on service.

With regard to the cash flow, I'm not sure I understood you fully, but with regard to 2004 the $450 million is operations after dividend, after investments and such that I had mentioned. The reason for the reduction most principally is because of the higher level of investments in prepublication cost returning back to a normal level and not anticipating two years of a decline in inventory or three years of a decline in accounts receivable.

So just going back to normal growth level in those working assets and the little bit higher capital expenditure as well. So the $450 million is more of a getting back to a normal level for McGraw-Hill.

One last question. I guess on the free cash flow as it builds and as your cash balances build, is there any concern or sense of urgency of re-deploying that cash to maintain the returns you successfully generated for shareholders? Because it can become a large number quickly and lower your growth rate given how low interest rates are today.

I think the answer there, Lauren, is stay tuned on that one. Again, in terms of our overall dividend policy, share repurchase policy as well as any acquisitions that we might take on obviously all three are operative and we are looking very hard at those.

And again when you take a look at overall total shareholder return, we are very mindful of the things that can influence that and you know we'll be talking about that at our meeting tomorrow with our Board.

And Bob, I guess on free cash flow, I just want to clarify -- in your free cash flow you've already—that’s after the tax payment that you were referring to in March?

Yes, that's right.

OK. Great, thanks.

After both tax payments, the March tax payment and the one that we made in January with regard to European restructuring.

Right. Thanks.

Thanks, Lauren.

Thank you. Our next question comes from Kevin Gruneich with Bear Stearns.

Hey thanks. Just some clean-up questions. I apologize if I missed this. Was there a net proceeds number for the sale of the juvenile business? Secondly, I was wondering if you had a year-over-year expense operating expense comparison for the global transformation project, again both in Q4 and for the full year?

And then finally, I think Terry at the last conference call you mentioned you thought there might be some time shifting of sales in college from Q3 to Q4. Did you see some shifting in Q4 from the second semester into the first, so January into December?

Okay. First, Kevin, on the juvenile publishing, Bob.

Kevin, as I mentioned, this transaction is scheduled to close on Friday. So we have not announced a selling price.

OK and GTP?

GTP, you’re after the expense piece, Kevin?

Correct. Thank you.

OK, well first of all, for the fourth quarter, total spending for GTP was $15 million in 2002, and $8 million in 2003. Of that, in terms of what was expense, $14 million in 2002 and $5 million in 2003. $38 million was the total spend number for GTP for 2003. That number will come down to $30 million in 2004 and the expense element will be lower by around $10 million on the year-to-year basis.

On the college question, Kevin, as you know as we came into last year, we were looking at 5% to 7% market growth and it became very clear as we got towards June that the effect of the tuition hikes and some of the behavior of both students and of colleges and universities in terms of cutting back on programs, the market wasn't going to grow at that pace and that's when we made the comment that or gave the guidance that we think the market is going to be 2% to 3% rather. We have seen no material shifts from one semester to the other.

And, therefore, our guidance at this point is that the market is going to grow about 2, 3% this year. And if we start to see the recovery and the influence on that one, we will probably be raising that forecast. But at this point I think it is safe to say that there is no material change that we have seen to change that guidance at this point.

Thank you.

Thank you. Our next question comes from Steven Barlow with Prudential.

Thank you. Wondering if you can give us a wrap-up on the foreign exchange gain for the year in terms of revenue and EPS? Secondly, is BusinessWeek losing money overseas?

OK, Steve, with regards to foreign exchange, the impact on revenue for the full year is getting by at least a $55 million. That's for the full year.

And in terms of bottom-line impact, it was 6 cents and that was primarily in the financial services segment mainly credit market services.

OK.

BW Overseas is - it's we look at it in a variety of ways. It is not necessarily a profit center per se as we look at the core business because of the opportunity to bring advertisers not just into the European and Asian editions but also to bring the advertisers into the North American edition. So, we really benefit by having the local presence, the local sales organization as well as the demographic additions that we have in Europe and Asia. Those are very important.

We don't necessarily want to look at it just on contribution specifically with regard to the bottom line on that particular issue because there is an additional contribution that accrues to foreign advertisers coming into a book. So, it's a very important asset to us.

In addition to that, we also have translation benefits with regard to BusinessWeek and a number of different languages that are very, very profitable.

OK. And can you tell me on the cash flow side, again, could you give me an indication possibly of what your debt level would be at the end of the first quarter and forecast for the end of '04? I guess that would also be really cash.

That would definitely really be cash, yes. With regard to the first, I don't necessarily have a specific number for you. We do have two major outflows against the $176 million in March relating to the very specific payment with regard to Rock-McGraw. We have naturally a March tax payment and we did have the $57 million payment relating to the European restructuring. Those are two major cash outflows.

Normally in the first half of the year through July, August period, we tend to build debt -- increase debt or in this particular case, we will be reducing our cash position as we invest in prepublication cost. We invest in inventory for the normal selling season and just because of the seasonality of our profits and our cash flows.

So, you'd expect to see probably a little -- lower cash position at the end of the first quarter. We will be clearly building cash during the course of the year, I mentioned what our free cash flow is and that is after dividends, but before share repurchases. So depending upon where the share repurchase’s level is at, I am sure we will still be fully funded with regard to share repurchases as well as increasing our cash position at the end of the year. Not being specific as to the exact number but clearly we will increase cash balance absent acquisitions.

Thanks.

Thank you. Our next question comes from Brandon Dobell with Credit Suisse First Boston.

Thanks. Couple of quick ones. Bob, if can you give us color on how you think about G&A, that line for 2004? Then, Terry, maybe you could give us some color into kind of what college revision cycle looks like for '05 - for '04 and '05 given where you saw things play out in '03? And kind of in the context of what the used book market looks like these days. Are you seeing any material moves up or down in terms of how share the used books have for you guys.

Brandon, let me take the latter one first. What was the first one that you were looking for?

G&A corporate expense for G&A for 2004, just kind of a guidelines to go by.

OK Bob, you can do corporate expenses and I will start with college. The revision cycle for '04 and the benefit is the business economics, you know titles, which is a major – the start of a major revision cycle here in the United States. That is obviously a sweet spot for us and that is an area of that we are very much counting on and looking forward to in the market. Also, in terms of the used book component, it's still a very healthy share.

It's been sitting roughly in the 30% range on that one but increasingly now as things like Power Web and on-line learning centers and we make this transformation to much more of a digital based learning environment. Increasingly, it is going to have an influence bringing that down.

You know, we are - we look very hard at pricing everything towards the value proposition that we provide both to the student and instructor. And therefore, the more components we can get to help, get a better result in terms of student performance, we are going to be able to do. I think as you see more and more of the on-line environment being utilized; it is going to have a positive effect on bringing down the used book market on that part. Bob, do you want to cover corporate expenses?

Corporate expense let us start with 2003 and look at corporate expense excluding the gain from the Rock-McGraw transaction. Corporate expense is about $93 million and grew by a little over 1% for the full year, relatively modest. What we will see in 2004 is a pretty good sizable double-digit increase in corporate expense, most likely in the 15 to 20% range. This is being driven by primarily factors relating to our vacant space or what we deem as vacant space. As we continue to consolidate our locations around the globe and as we take major presence like we did in Cainary Warf, we are taking space for the future, we are not necessarily taking space exactly for the head count that you have so there is an element of additional growth space that we have which we keep at the corporate level. Also in this Cainary Warf move we had to really plan this out a few years ago. And in planning that out we were taking space of the beginning of this year and moving people in, but we had to protect ourselves so a number of our facilities we have leases going out through March, April, May, June of this year.

So we have duplicate rent element, if you will, just to protect ourselves. So, that's why corporate expense will see a larger increase in 2004 and then it will just come right back down again. But it's a one-time -- primarily a one-time phenomenon. One because of the absorption of vacant space which hopefully we will see through growth but also the duplicate rent element in order to protect ourselves in this very, very significant move within the London facility.

I can definitely add on that, Brandon, that you know we are very excited about the Cainary Warf, and probably it shows tremendous progress that we have made in the European environment as our new headquarters building there. And we started in the occupation of that building yesterday. And that will go on for the next 2.5 months. But, we are very pleased with the facility and the consolidation that it represents but also you know the hope of what that means for us in the European environment.

Thanks, Thanks a lot.

Thank you. Our next question comes from William Bird with Smith Barney. You may ask your question.

Yes. Just two quick questions. First I was wondering if you can tell us what the percentage of structured finance revenues and S&P ratings are? And Secondly, I was wondering if you could give us an approximate margin level of the non-S&P ratings businesses within Financial Services? Thanks.

Bill, those are elements that we do not break out. As you know, we report Financial Services as one segment, so we do not break out the component pieces. So, I'm sorry we can't answer that question. But it is obvious, Bill, but that is a very significant you know piece. It is a very fast-growing and complex and it is a large market.

Thank you.

Thank you. Our next question comes from Ted Finch (ph) with Lumas Sales (ph). You may ask your question.

Yes this is Ted Finch at Lumas Sales. My question is your prepublication expenses are going up. I think they were from 218 to 290 for '04. But the amortization of pre-pub goes from 280 to 260 in '04, it goes down. So, could you explain how that math works?

Yes, the pre-publication, the first number that you mentioned the 218 to 290 is prepublication investment.

Yes.

That is investment that we're making in the development of our products and services. So those are investments that are capitalized, placed on the balance sheet and then amortized when those products go live.

The second set of numbers the 280 to 260 million is the reflection of the amortization of those programs. So, in 2004 with a much lighter adoption calendar, which is probably the lightest of the decade, we do not have major releases.

So, therefore the amortization is actually going down.

But at the same time, our investment is going up rather dramatically because we are preparing for new products and services for the major 2005, 2006 adoption cycle. So that's how that math works.

One, the second set of numbers the 285 I think was to 260 is actually on the expense - on the income statement.

The other, the 218 to 290 is actually on the balance sheet capitalized on the balance sheet. And you could see that movement within the cash flow statement.

So, in other words your amortization that hits the P&L expense is a function more of your expected units being sold? What level of business basically?

That's correct. And depending upon the business we use an accelerated method of amortization for instance in the elementary, the K through 6 or even into the secondary level it might be 5 years, some of the digit amortization, but within Higher Education it could very well be 3 years, some of the digits and in some cases even 2 years some of the digits. So, it's really a reflect -- the amortization curve is a reflection of the expected sales curve of the particular product.

And the other question is why were the inventories down 16%?

The inventory was down just because we have some darn excellent folks working awfully hard to manage inventory. We break it down between A, B& C levels stock. We are trying to produce one more closer to our publishing dates, we are trying to be much more selective in terms of the size of our production counts with the benefits that we have on manufacturing paper, print, distribution that permits us to do lower runs and therefore lower inventory, then we could go back for a second imprint, third imprint. So it is really blocking and tackling with regard to the management of our inventory and the management of our cash.

OK, thank you Bob.

I would also add that the whole global transformation project is an initiative to enhance that overall condition and we look for further improvement on that.

Thank you.

Thank you. Our next question comes from Smike Asab (ph) with BNP Paribas. You may ask your question.

Good morning, gentlemen. Could you please comment on the proposed in the California budget for '04, ‘05 to eliminate categorical funding for text books and maybe elaborate on differences if any between states where such designated funding is available and states where it is not, maybe in terms of pricing, competition, profitability? Thank you.

I am not sure I got all of that. The first one was on -

Actually it is - I think the same one but I guess in the California budget '04, '05, there was a proposal to eliminate the categorical funding for textbooks and whether you could elaborate on the impact this may have on your business in this state and maybe in other states if this should happen in other states as well?

Go ahead, Bob.

Sammy, I don't think that is precisely accurate. I think that part of the categorical funding for structural material is being retained in the governor's proposed budget and half which actually I think represents an increase of about $10 million over the previous year.

The other part was an indication that part of the funding could go into the general of funds at the school districts. So, I don't think it is quite as stark as your question might suggest. The categorical funding for instruction materials is still alive in California.

Thanks.

Thank you. We will now take our final question from Nadea Sterling (ph) with Cedar Rock Capital (ph). You may ask your question.

It is Nadea Sterling from Cedar Rock Capital. Just a couple of quick questions. One, given the fact that you have happily taken capital out of the real estate in the U.S., why is it that you are happy to be putting so much capital into real estate in the UK? Second question is do you have any thoughts about the future issuance of stock options? What level makes sense to you?

OK, in terms of the real estate activity, in most of our large facilities which include Cainary Warf, we do not take an ownership position. We enter into a long-term lease on those facilities and where we do have large facilities that we do have ownership positions and we do take a look hard at real estate environment, interest rate environment and the like and look at the appropriate time to be able to liquidate those components. So, we do not have a ownership in Canary Warf. It is a lease - situation on that one.

As far as stock options go, I guess I'm a bit of contrarian on this. Very strong in terms of the support of our stock option program that goes deep into our organization both in management and non management in terms of incentivizing the people that are doing the good work on that line. But it is mute, 2005, they will go away and we're looking at alternative incentive proposals now in terms of how we can replace some of those components.

But, you know, again from a stock option standpoint, we have been very strong in our support of the program that we have had and the benefit that it is given us in terms of be able to incentivize those people that are doing it.

Is there any reason you couldn't serve that same purpose through the use of restricted stock?

We are looking at that now. We have a number of proposals that we are taking very seriously, performance units, restricted shares, PanAm stocks, a whole host of initiatives that way. I guess the most important thing is to align it to the cash that is being undertaken and anything that puts a binding more connection to all of the capabilities at McGraw-Hill Companies.

Thank you very much.

You're very welcome.

If that’s it, I thank you all for your attention. Again, we are very pleased with the strength of the fourth quarter and the start it gives us to '04. It is early and we are off and running. Thanks very much for being with us.