標普全球 (SPGI) 2004 Q4 法說會逐字稿

Good morning and welcome to The McGraw-Hill Company's fourth quarter 2004 earnings call. At this time, I would like to inform you that the call is being recorded for broadcast and that all participants are in a listen-only mode. At the request of the company, we will open the conference to questions and answers after the presentation and instruction will follow at that time. To enhance the call for today's telephone participants, McGraw-Hill has made the presenters' slides available on the internet. To do that, go to http://www.mymeetings.com/nc/join. I'll repeat the URL once more for those who would like to view the presenters' slides online. It's http://www.mymeetings.com/nc/join. You will be prompt to enter your name, the conference meeting is P as in Paul, G as in good, 2484869. The password is McGraw-Hill, all caps, with a space between McGraw and Hill and the event type is conference. This call is also being simultaneously webcast for McGraw-Hill's Investor Relation's website and will be available for replay about 2 hours after the meeting ends, both by phone and on the web for 7 days. If you need assistance at any time including having your volume adjusted higher or lower, press star 0 and I will assist you momentarily. I will now turn the conference over to Donald Rubin, Senior Vice President, Investor Relations of McGraw-Hill Companies. Sir, you may begin.

Thank you and good morning to everyone. Thank you for joining us here at the McGraw-Hill headquarters building as well as here and abroad on the phone and on the web for the McGraw-Hill Company's fourth quarter 2004 conference call. I'm Donald Ruben, Senior Vice President of Investor Relations for The McGraw-Hill Companies and with me today are Harold McGraw, III, Chairman, President and CEO, and Robert Bahash, Executive Vice President and Chief Financial Officer of the Corporation. This morning we issued a news release with our fourth quarter 2004 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 underscore relation. That's www.McGraw-Hill.com/investor underscore relations. Before we begin this morning, I need to provide certain cautionary remarks about forward-looking statements.

Except for historical information, the matters discussed in the teleconference today 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 that are subject to risks and uncertainties that may cause actual results to differ materially from results anticipated in these forward-looking statements. In this regard, we direct listeners to the cautionary statements contained in our form 10-Ks, 10-Qs and other periodic reports filed with the US Securities and Exchange Commission. We are aware that we do have some media representatives with us on the call. However, this call is for investors and we would ask the 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 upstate will last approximately an hour. After our presentations we will open the meeting to questions. It's now my pleasure to introduce the Chairman, President and CEO of The McGraw-Hill Companies, Terry McGraw.

Okay. Thank you very much, Don, and good morning to on all of you. And good morning to all of you that are listening in from wherever. We very much appreciate your interest in McGraw-Hill. As Don said, I'm Terry McGraw. I'm Chairman and CEO and with me today is Bob Bahash, Executive Vice President and Chief Financial Officer. We will review our year-end results and the financial condition of the corporation and we'll take a look at 2005. After our presentations we will be pleased to answer any questions that you may have about the McGraw-Hill Companies and go in any direction that you would like. Let me -- let me begin by briefly recapping the highlights of a very successful year. For 2004 diluted earnings per share from continuing operations were $3.92. Now remember, that includes a non-cash benefit of $0.10 per share, from accrued tax liabilities from the completion of federal, state, local and foreign audit. That compares with diluted earnings per share of $3.58 in 2003 and, again, that included an after-tax gain of $0.30 from the sale of equity real estate.

Revenue for 2004 grew by 7.4 percent. That's our biggest annual increase since 1997. And for the fourth quarter we reported diluted earnings per share of $0.98 which included $0.01 dilution from acquisitions last year. And the revenue increase for the fourth quarter was 10.6 on that one. Let me also take this opportunity to review our guidance for 2005. We expect double-digit growth in earnings per share from continuing operations in 2005. That now includes $0.10 to $0.12 of dilution from acquisitions last year and changes in pension plan assumptions for 2005. But excludes the 2004 non-cash benefit of $0.10 per share from accrued tax liabilities and a change in accounting for share-based compensation affective next July 1 or this coming July 1.

Now, when we get into that, Bob will walk through all of the -- those changes for you so that you got a really good clear picture of that. But, we do expect double-digit growth in earnings per share from continuing operations in '05 including that 10, $0.12 -- including that 10, $0.12 of dilution from acquisitions and the changes in pension plan assumptions. In evaluating the outlook for 2005, we expect to continue operating in a healthy economy with GDP growing here in the states at about 3.7 percent. The year will also be marked by continued low inflation, double-digit growth and spending on capitol equipment, which can be very helpful as we start to see a shift from the residential mortgage-backed market to the commercial mortgage-back market. Continued business expansion, a pick-up in debt financed merger and acquisition activity and continued low interest rate environment.

We expect the Federal Reserve to increase interest rates gradually as they have been through 2005, going from a current 2.25 percent to 4 percent by either the end of the year or just as we get into 2006. So a very healthy environment, improved business conditions from which to operate. We did some background. Let me now go through the prospects for our 3 operating segments and let me begin with McGraw-Hill Education. The McGraw-Hill Education in 2004, revenue grew by 2 percent. Operating profits improved by 5.7 percent and the operating margin improved to 14.2 up from 13.7. Our higher education professional and international group continues to develop its global business. Obviously to meet the increasing worldwide demand for education.

Emergence of higher education as a global industry is in full swing and with it a numerous opportunities, not only for 2005 but beyond. Growing worldwide sales are key to this group's 4.8 percent increase in revenue in 2004. The 1.1 billion in revenue produced by this group in 2004 now represents 47 percent, almost half of the segment's revenue and that's a very positive factor there. The world's best selling economics title is McConnell's Economics with a 16th edition of McConnell's leading the way. It was a big year for our business and economics imprint both in the U.S. and especially in our international market. Harrison's Principles of Internal Medicine is another successful world traveler. It's been the best selling medical text in the world for many years. In 2004, more copies of Harrison's 16th edition were bought overseas than in the United States with sales in the Asian markets leading the way and that's the English language edition.

This year we will build new sales for Harrison's by publishing the 16th edition in Spanish, Portuguese, and Italian. In the U.S. college and university market all of our major imprints in business and economics, humanities, social science and language, and science engineering and math increased sales. We also experienced the echo effect in the fourth quarter. After gains in the third quarter you expect a pick-up in December orders for the second semester classes. We heard the echo of the third quarter business in December and we finished the year by taking that at market share. We believe the higher education market in the United States grew by less than 2 percent in 2004 and, obviously, we did much better than that. For 2005, we're estimating the market growth to be around 3 to 4 percent and we expect to do better than that.

We expect improvement, again, in all our major imprints. But this time science, engineering and math will lead the way with biology, chemistry, and math titles. And we're expanding in career education to build on our solid sales success in the profit post secondary market. In the elementary high school market, a 30 percent decline in the new state adoptions limited opportunities in 2004. The market was, essentially, flat for 2004. And by the way, that's a much improved position from what we thought coming in when we originally thought the market would be down about 5 percent. The dominant portion of the market, the K-12 basal sales, were off 2.1 percent and only an increase in supplemental sales nudged the industry into positive territory by 0.1 of 1 percent, essentially flat.

As expected, the growth in 2004 came in large part from a lot of the supplemental areas as well as from territories. And these are all preliminary numbers in the AAP. McGraw-Hill School Education Group, that's our pre-K and kindergarten through 12 group, closed the year on a strong note with sales rising by 9.1 percent to 216.5 million in the fourth quarter. Revenue for the group in the 2004 was 1.3 billion, essentially flat year-over-year. Fourth quarter orders from Alabama added to our market-leading performance in the new state adoption for mathematics. We were the K-12 market leader in new state adoptions for math with a 37 percent market share. That demonstrates the depth and the breadth of the product line which produced a market-leading share despite a soft performance by our elementary basal program.

At the elementary level our reform-base program, everyday mathematics, achieved notable success and our programs for middle and high school, the largest portion of the math market, produced outstanding results. The increasing traffic from students, parents, teachers on Glencoe's website is an indication of how our math business is growing. The content on the website correlates to our text and our state standards. The quality of the content, the growing use of the internet, the ease of accessibility that we provide have all contributed to the increase success in the math market. Reading First funding also helped trigger some late in the year ordering in Texas and in California.

At the start of the year the outlook in California for the third year of its reading adoption was not really all that promising. The state was considering deep cuts at the time in its education budget. But when the budget finally passed at the end of July, it included increased funding for instructional materials. Reading First funding added to the market potential in the early grades. The testing market is changing and expanding under the impact of the No-Child-Left-Behind Act. And the requirement to test children in grades 3 through 8 in reading and mathematics during the 2005 2006 academic year. States are preparing to meet the new requirement with customized tests aligned with their standards. 50 states and 50 sets of standards adds up to a lot of customization.

The new emphasis on the development of state-specific customized tests is changing the seasonality of the testing market. Traditionally, heavy fourth quarter ordering of off-the-shelf products is declining as states prepare for annual testing to meet the No-Child-Left-Behind requirements. As a result, we had solid growth late in the year for reading in California with our open-court program. Some districts bought open-court for the first time. Some added grade levels, including pre-K materials, to existing implementations and some districts like Oakland replaced older editions of open-court with our newest one.

We also had excellent results with our state adopted reading intervention program. As a result, we completed the 3 year reading program, Reading Adoption in California, with a 37 percent share of that market. That had an impact on our fourth quarter results. We expect this pattern to continue as more business shifts to earlier in the year. We won several important new multi-year testing contracts in 2004, but we don't start to recognize those benefits until 2005 and beyond. Major new business was won last year in Massachusetts and New York, North Dakota and Arizona. Important existing contracts were extended and expanded in Colorado and in Indiana. The Grow Network just won a new 2 year contract from Ohio. The Grow Network will develop instructional report and tools based on the results of the state's high school graduation test and you'll be hearing a lot more as the year unfolds about the successes of The Grow Network as part our overall McGraw-Hill Investment Group.

We've already pointed out the new state adoption calendar improves significantly in 2005, going from approximately 530 million this year to over 900 million in 2005. Science, math, social studies play to our strength in the middle and the high school market and we have excellent new programs in health, music, and in the arts. We also expect to continue benefiting from the Reading First program as new funds reach the market. Third-year funding of about 1 billion was released to the state last fall and we expect to see these funds in the market in 2005. There's no doubt that this program will continue to be a factor in our market for many years to come.

Early next year -- early next month, rather, the Bush Administration will submit its budget for the 2006 fiscal year which starts in October. The President has already stated -- calling for an expansion of testing. He wants to require universal testing for grades 9-11 as part of a much broader effort to improve high school education. You're going to hear an awful lot about that, very exciting. There is also an expectation that funding will increase for the fourth year of the reading first program as well. For 2005, we expect the elementary high school market to grow by more than 10 percent and we think our school education group is going to do very well. A big year, obviously, requires a big effort and so we are ramping up our activities to make the most of the substantially improved opportunity in 2005's L-high market.

There's a cost associated with the increased sales and marketing effort and that's a primary reason why the operating profit declined at McGraw-Hill Education in the fourth quarter. Okay, summing up for McGraw-Hill Education, high-single digit revenue growth for the entire segment. The L-high market can grow by 10 percent. The U.S. college and university market will grow 3 to 4 percent. We like our opportunities in both., And new global growth opportunities in higher education. Okay, let's go over to the financial services segment. We had a record year and a record fourth quarter at Standard & Poor's. We're very pleased.

For 2004, revenue increased by 16.2 percent, operating profit grew by 25.7 percent, and the operating margin expanded to 40.8 percent up from 37.7 percent in 2003. These results are a solid indication of Standard & Poor's's growing global opportunities, greater product diversity, decreased dependence on the new issuance in the U.S. bond market and reduced sensitivity to the interest rates cycle. All these factors contributed to outstanding performance in 2004. It's also another reason why new issue volume in the U.S. bond market is no longer the litmus test that it once was, if it was.

For 2004 and the fourth quarter, new issue dollar volume declined in 3 of the 4 categories in the U.S. bond market. That's according to reports from the Securities Data Corporation and Harrison Scott Publications. Corporate issue was off 12.1 percent for the year and 2.2 percent for the fourth quarter. Public finance was off 9.2 percent for the year and 9.1 percent for the fourth quarter. Asset back issuance declined 5.1 percent for the year and 50.9 percent in the fourth quarter. Mortgage backed securities and its issuance was clearly the star performer, increasing 53 percent for the year and 45.9 percent for the quarter. That's the core reason why total issuance in the U.S. bond market increased by 9.8 percent here and 19 percent in the fourth quarter.

Now, there's no doubt that a record level of activity in the U.S. residential mortgage-backed securities market made 2004 an even better year than we originally anticipated. However, if we had not seen growth in the residential markets executed, we still would have had double digit top and bottom-line performance. U.S. residential mortgage-backed securities increased 48.8 percent in 2004, 58.6 percent in the fourth quarter, both very, very strong records. We start the first quarter of 2005 with a favorable pipeline for residential mortgage-backed securities, but we don't expect 2005 will match last year's remarkable activity. Instead we expect new issuance of U.S. residential mortgage-backed securities to decline probably about 20 percent. And our track record on predicting this has not been good.

But, you know, just have to believe that as strong as that will be we will see it about 20 percent and given the equipment spending numbers, that are very healthy double-digit numbers, we expect to see a shift throughout the year from the residential to the commercial mortgage-backed security market. Nevertheless, we are still forecasting double-digits, top and bottom-line growth for our financial service segment for 2005. Some of the same trends that contributed to our performance in 2004 will keep us growing in 2005. New rating products and services. Bank loan ratings, for example. They're not tied to new issuance, they'll continue to grow faster than many of our traditional ones. In 2004, they represented approximately 21 percent of ratings revenue. 10 years ago, they represented only about 8 percent of ratings revenue.

Our international ratings revenue will continue to grow and it will continue to grow more rapidly than our domestic revenue. Overseas revenue represented over 35 percent of ratings in 2004 total and more than 38 percent of ratings fourth quarter revenue. We expect international ratings to continue to grow in 2005 and beyond and represent an increasing proportion of the total. Securitization will continue to an important driver of international growth. The recent European securitization form last week forecasted record issuance for the market there in 2005. Survey respondents in Europe expect substantial growth, collateralized debt obligations, as well as commercial mortgage-backed securities. And, incidently, 10 years ago, when we were in the real buildup phase of our global network with some 32 locations around the world, overseas business accounted for only about 21 percent.

By the time we finish this decade we'll have over half of our revenue [inaudible-audio bad]. We have also developed a fee structure to produce ongoing revenue streams that is less interest rate sensitive. Another reason why I find this chart so [Inaudible - bad audio]. As you will see, global debt issuance has soared in the last 5 years, adding substantially to recurring revenue as we follow each instrument to its maturity and charge annual fees for continuing surveillance. Since 2000 more than $15 trillion of debt has been issued globally growing to more than $4 trillion net a year annually. Compare that with the 5 year period from 1990 to 1994 when a total of 4 trillion was issued in that entire 5 year period.

We expect the global debt markets to continue growing robustly for the rest of the decade. If the last 5 years produced a total of 15 trillion, we expect that over the next 5 years we're going to be approaching $30 trillion in global debt issuance. So we certainly like the growth opportunity at that rate. But there's more to the performance in this segment. As you know, divesting low growth, lower margin businesses such as ComStock in 2003 have improved overall performance. Yesterday we announce the divestiture of a non-core operation, our soft dollar institutional brokerage business. Sold that to Bank of New York. In the future, S&P's customers will be able to obtain Standard & Poor's investment research and corporate data products through a wide range of execution services provided by the Bank of New York and their securities group.

After the close, which is scheduled for February 28th, S&P will further concentrate on providing clients with analytical and research products. The sale of SPSI assets, as well as future royalties, will have negligible impact. We also continue to expand our high-margin products like indexes. At end of December, assets under management and exchange-traded funds based on S&P indices grew to 113.7 billion, a 42.5 percent increase over the same period last year. We generate fees based on assets under management as well as, obviously, trading volume. The market has grown as hedge funds adopt exchange-traded funds as efficient trading tools. We are also seeing more exchange-traded funds incorporated in managed accounts. Our goal is to create a family of liquid and investable indexes.

That has lead to the development of exchange-traded funds and derivatives all based on our index. The derivatives generate royalties based on the volume of the contract. In the fourth quarter we benefited from an increase in the average daily volume of contracts based on S&P indexes, traded on the Chicago Mercantile Exchange as well as the Chicago Board of Options Exchange. On January 10, all 6 U.S. option exchanges started trading a new derivative based on the S&P depository receipts, Spiders. There has been enormous interest in trading of Spider options. We're pleased to see this product on the market and we're pleased to see that all 6 option exchanges are buying them. In the first 10 trading days since the product launched, over 1.5 million contracts traded or about 155,500 contracts per day were traded.

We think the first expiration at the end of March will stimulate additional activity. But this same period, 2.4 million option contracts, or about 245,000 contracts per day, based on the S&P 500 were traded at the CBOE. We will continue to use index to drive growth with new products and greater asset coverage both here and, obviously abroad. We also realize incremental revenue in 2004 from providing independent research to the global settlement firms. We're also beginning to see requests for increased analytical coverage from some of these firms. We believe the trend to purchasing supplemental coverage from independent sources will continue to create new opportunities for us with settlement and non-settlement firms, both here and abroad. S&P's 5 Star Stock Selections continue to outperform the S&P 500 as it has done on a regular basis since 1986. In 2004 the 5 Stars model grew by 16.5 percent versus 9.0 percent gain in the S&P 500.

n view of the recent activity, I will also comment a little bit on the current regulatory outlook for the rating agencies. We are encouraged, very encouraged, by the growing acknowledgement that independent and objective opinions are essential to the functioning of open markets. In recent weeks that recognition was clearly evidenced in the code of conduct issued on December 23rd by the IOSCO, that's the International Organization of Security Commission. It was evident again at the Committee of European Security Regulators here and in Paris on January 14th, CESR. Financial companies and trade groups supported a market approach. The committee will make recommendations to the European Union Parliament by the end of March. On February 8th, the rating agencies will testify before the U.S. Senate Banking Committee and we look forward to that opportunity and we continue to believe that there is no material adverse change in the way Standard & Poor's's conducts its business.

In fact, we are encouraged that our own code of conduct, so much in line with only IOSCO, but the initiative associated overseas or in Europe, relationship with the [inaudible - audio bad]. So summing up for financial services, another year of double-digit top and bottom-line growth in 2005. Solid growth overseas in nontraditional products and services, continued expansion of indexes with the exchanges around the world. New opportunities for selling independent equity research. Okay. And with that, let's go to our information and media services segment. Revenue for 2004 in this segment increased by 3.5 percent. Operating profit grew by 8.6 percent and the operating margin improved to 14.9 percent up from 14.2. Improvement in advertising and continued cost containment were key factors in this segment's performance. That helped make the fourth quarter the biggest and most profitable of the year for this segment.

Our broadcasting group's revenue grew by 23 percent for the fourth quarter and finished up 10.7 percent for the year. Political advertising, obviously, was a driver this year, producing gross revenue of more than 16 million. That made 2004 an even better year for political advertising than 2000. We obviously benefited from the presidential election, particularly when Colorado became a battleground state late in the campaign. The results of the contest in Colorado between Ken Salazar and Pete Coors for the open U.S. Senate seat in Colorado and the race for the Governor in Indiana. But it wasn't only political races. The top positions in California continue to contribute importantly to our total. A strong political year will make 2005 a little bit more of a challenge for broadcast, but we have an aggressive sales plan and some recent hits from ABCs prime-time schedule. We also continue to use technology to improve our productivity and keep our costs low. And that will continue.

And broadcasting will continue to grow its internet, its cable new channels and its retransmission revenue from cable and satellite. Advertising also improved this year at BusinessWeek. Ad pages in the North American edition were up 4.2 percent, with one less issue than -- one more less issue as measured by the Publisher's Information Bureau. From a revenue recognition standpoint, BusinessWeek had the same number of issues in both years. BusinessWeek is also benefiting from efforts to extend their brand. That helped build revenue in 2004 and we expect more growth this year from BusinessWeek Online. A few more issues of BusinessWeek Small Biz. Foreign language editions in China, New Fashion Week supplement and the syndicated BusinessWeek television show and the workshops and conferences on investor education. We're also going to add to our publications lineup this year in the construction market. Last fall we successfully published 2 regional additions of My House, a new residential publication for regional markets. We will expand that program this year.

And we'll also begin publishing Constructor, the magazine for 38,000 members of the Associated General Contractors of America. 5 issues are planned for 2005. Half of the information in media services segment revenue comes from value-added business information services and we expect more progress in that percentage in 2005. In the construction market, the McGraw-Hill Construction Network continues to add new subscribers and plans to add new services later this year. Volatility in oil and natural gas markets continues to drive demand for energy information services, continuing to build our global presence there. Platts opened its first editorial and sales offices last year in Russia and in China to improve our regional coverage in 2 of the world's most important oil markets. In China we now operate an office operation in Beijing and in the fuel oil trading center in South China, Bong-Jo[ph].

We also launched 2 Chinese language online services, one called China Fuel Oil Report and the other China Liquified Petroleum Gas. And so summing up for this segment, another year of improvement in advertising, growth and higher value-added information products and continued focus on cost containment. Therefore, summing up for the corporation overall, we are very pleased with a very strong 2004. Very pleased also with the total shareholder return significantly outpacing the market and our peer proxy group. And incidentally, on an annualized basis we've been able to do that for 3 years, 5 years, 7 years and 10 years now. We take that very seriously and we're very proud of that. For 2005, continued strength in financial services, a rebound in the education market, a bigger contribution from our information media services and clearly in all more global approach. And with that, let me leave it there. Let me turn it over to Bob and Bob's going to walk through some of the specifics for you and then we'll go in any direction that you would like.

Thank you, Terry. As part of the McGraw-Hill Company's commitment to produce total shareholder value, we have been returning cash to shareholders through increased dividends and share repurchases. We built on that record achievement again in 2004. In fact, since 1996, the McGraw-Hill Company has returned more than $3 billion to shareholders through dividends and stock repurchases. That combination produced a compound annual growth rate of 16 percent through last year. Now, the board of directors reviews the dividend and stock repurchase program at its January meeting and that takes place tomorrow. This morning I'm going to discuss our strong financial condition at the end of 2004 and provide some indication of what we expect for 2005. Our cash position at the end of 2004 was 681 million, which was about equal to last year's balance.

I'll speak to the specifics of key components of cash flow in detail but it's important to note that our strong cash flow for the year was sufficient to fund all operating investments, our return to shareholders in the form of dividends, an increased share repurchases net of option exercise proceeds, the tax payment of 172 million in 2004 resulting from the sale of our 45 percent interest in this building that was completed in 2003 and, of course, the 306 million spent on acquisitions primarily Capital IQ and The Grow Network. In 2004 we stepped up our commitment to repurchase shares. Our new goal was to buy back 3 to 5 million shares in 2004. Now, we met our new share buyback goal by acquiring 5 million shares at a cost of 401 million, for an average price of $80.13 per share. 8.9 million shares still remain from the January, 2003, board authorization for the repurchase of 15 million shares. Even with the increased buyback, there was an increase in the diluted weighted average shares outstanding in 2004. It increased 900,000 over 2003 to 192.9 million shares.

Under the treasury stock method, all the in money -- all in the money options are assumed to be exercised. An increase in the share price results in more shares assumed to be issued since more options are considered in the money. The approximate 30 percent increase in the share price was a primary contributor, of course. Our repurchase of 5 million shares in 2004 helped to offset it, this effect, but couldn't completely offset the impact of the dramatic increase in the stock price. Next, we are anticipating, as Terry mentioned, 10 to $0.12 of dilution in 2005 from last year's acquisitions and also from changes in 2005 pension plan assumptions. I'll go into more detail here. In 2004 we spent approximately 306 million on acquisitions, primarily The Grow Network and Capital IQ. The impact of these acquisitions on the fourth quarter EPS was about $0.01 of dilution and $0.02 for the full year. We expect the acquisitions to dilute earnings by 5 to $0.06 in 2005.

We're also changing the discount rate for the company's over funded pension plan. They will be 5.75 percent, down from 6.25 percent in 2004. Also for 2005, the expected return on planned assets assumption has been reduced to 8 percent from 8.75 percent in 2004. Now, the combined change in the 2 pension plan assumptions will create dilution of 5 to $0.06 in 2005. And emphasize this point, both items, the acquisitions and the pension plans assumption changes, individually dilute 2005 earnings by 5 to $0.06 and combined the dilutive impact in 2005 is 10 to $0.12. In our earnings release this morning, we reported the reclassification of revenue from McGraw-Hill Education for 2004 and 2003.

I'll give you some more details. The company reclassified revenue in accordance with Emerging Issues Task Force Issue 0010, Accounting for Shipping and Handling Fees and Costs. As a result, revenue reported in 2004 increased by 62.5 million and by a like amount, 62.5 million, in 2003. The guidelines stipulate that all amounts billed to a customer in a sales transaction for shipping and handling represent revenues for the provided goods. The corporation has historically recorded the net cost of shipping and handling in product-related operating expenses, since the majority of these costs is a direct pass-through to the customer and were not considered significant. Now, simply put, we had netted in operating expenses a shipping and handling cost with the payment of these services from the customers. With this change, we must show the amounts received from the customer as revenue instead of netting against the shipping and handling cost. Again, no impact on the bottom line, simply reclassifications between revenue and product-related operating expenses.

We're also actively studying the repatriation incentive under the American Jobs Creation Act. The repatriation incentive is of most value to companies that operate in tax-saving countries with extremely low statutory rates. Since the bulk of our reinvested earnings are in relatively high taxed, developed countries with high tax rates, the impact on us is less dramatic. But the repatriation incentive still represents a tax-attractive opportunity to consolidate cash in the U.S.. Under this provision, we could repatriate between 150 and 200 million at an incremental tax cost of 4.5 to 6 million. We'll finalize the repatriation later this year. Now, let's now review capital expenditures which includes prepublication investments, purchase of property, plant and equipment, and additions to technology projects. Our prepublication investments in 2004 were 238 million.

For 2005, prepub investments are projected to be 270 million due to the expanded opportunities in the new state adoption calendar. Purchases of property, plant and equipment totaled 139 million for 2004 and for 2005 we project 130 million. Additions to technology projects totaled 11 million last year. For 2005 we project 30 million as we increase our investments in several -- a number of projects. Now, let's look at corporate expenses. Corporate expenses increased by 33 percent or 31 million to 124.1 billion for 2004. This is for rental --primarily for rental space we retained for future expansion, which is mainly due to the new Canary Wharf facilities in London and an increase in compensation related expenses. For 2005, we expect a much more modest increase in corporate expense compared to 2004. Now, let's take a look now at the non-cash items. Depreciation for 2004 was 92 million.

For 2005, we expect about 110 million, reflecting the higher level of capital expenditures in 2004, mainly from short-lived technology related equipment. Amortization of intangibles for 2004 was 32.5 million. For 2005, we expect about 37.5 million, the increase being driven by the 2004 acquisitions. Amortization of prepublication costs for 2004 was 268 million and for 2005 we expect it to come in about 250 million. I'd now like to review our progress with McGraw-Hill's Global Transformation Project, or GTP. And as I've mentioned in the past, it provides a common North American platform for order to cash processing, which encompasses order entry through revenue recognition, receivables management and customer payment. In 2004, GTP was successfully launched at the domestic school education group and higher education and profession. Public[ph] expenditures in 2004 were 28 million versus 38 million in 2003. Now the total 2004 amount, we expensed 22 million of that.

We planned to complete the international units during the 2005-2006 period through a combination of the new platform, the Oracle platform, and for certain regional areas a consolidation within their existing platforms. We will then be in a position to begin to realize the benefits from implementing this system on a global basis. And finally, let's discuss free cash flow. We describe free cash flow in a much broader fashion going beyond operating cash flow. We start with operating cash flow and reduce that amount by certain cash outflows for investing and financing activities that are recurring by nature. We also modified this definition in 2004 to eliminate volatility caused by an unprecedented level of stock option exercises, which was a component of our calculation.

As you can see from the table, cash provided by operations for U.S. GAAP was 1.1 billion for 2004. We then subtract the following which we have already described -- Investments and prepublication costs, purchases of property and equipment, additions to technology projects and dividends paid to shareholders. We've also adjusted for the following -- The one-time tax payment of 172 million relating to the [Rocket Growth] transaction and other adjustments principally for foreign exchange that totaled 10 million. Under this revised definition, free cash flow for 2004 was 630 million versus 725 million in 2003, a 13 percent decrease. The decrease is the result of a return to a more normalized working capital level after several year of significant improvement and some higher investment spending in 2004.

For 2005, we anticipate free cash flow in the range of 600 million, reflecting the higher investment spending. Now, it's evident by now that we have ample cash for dividends, share repurchasing and, to me they're internal investments, and clearly cash in our debt capacity will enable us to continue making strategic acquisitions. Thank you and now back to Terry.

Okay, thank you, Bob. And that's a lot of information and a lot of detail and I have to tell you, Bob, you and your team have done just such a terrific job keeping it all together for us and all of that. And hopefully that's pretty clear in terms of where our guidance is for that. Again, our guidance for 2005 is to see double-digit growth and earnings per share from continuing operations and that includes 10 to $0.12, not only from the acquisitions but also from the change in the planning assumption, but excludes the non-cash benefit of $0.10 from accrued tax liabilities and a change in accounting for share B [Inaudible]. With that, let me turn it over to Don Rubin and he'll give us some introductory whatever and then we're off to anything you want to go.

Thank you. Just a couple of instructions for our guests here in the meeting room. Please use the microphone when asking your question so that our phone participants can also hear the question. Please be sure to state your name and your company. Now, you may signal Sam when you have a question so he can bring microphone to you. For our phone participants, please press star, 1 to indicate that 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 speakerphone but would now 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 a good sound quality. So, let's now begin with questions in the room, if we have any.

There is a question in the room .

What was the annual impact of for/ex on revenues and OI, operating income.

Annual revenue -- annual impack on revenue was a little bit less than 1 percentage point so you could reduce the overall revenue growth by about 0.9 of a percent, roughly. On the bottom line it was almost immaterial because we have a mixture of businesses that have expenses in U.S. dollars as well as local currency, so the bottom line impact was almost diminimus.

One other quick one. I, just to reiterate, your definition of free cash flow is after dividends?

Yes.

Okay, thanks.

Anymore questions in the room? At that, we'll proceed to the people who are on the call.

Thank you. This question comes from John Janedis, Banc of America Securities. You may ask your question.

Hi, good morning. Just 2 brief questions. First, Terry, you've talked about margins peaking at the financial services segment in the high 30s in the past. Given what you saw in -- there in '04, could that be a little bit higher going forward? And then secondly, can you talk a little bit more about the equity research business. Now that the money is flowing, where are you versus the initial budget and how much incremental revenue do you see in '05? Thanks.

Thanks, John. Well, margins at the Financial Services, as we came into this year and we finished up 2003, what was it, 37.7 percent margin. We said, okay, we would like to be able to maintain that in 2004 and then as we saw the continued strength, especially on the residential side, we upped the guidance on that and said, that at least 2003. he 40.8 was very strong and I would like to see us in 2005 stay in that vicinity. It might come off a little bit. We've got the investments in Capital IQ and we've got terrific growth plans there and there could be some impact on that part of it. But given the strength and overall it will be somewhere in that -- in that vicinity. And we see a both top and bottom-line, very good year shaping up for them and it's off to a very good start. On the equity research side, you know, now that we're also participating very nicely with the Jaywalk program out of Bank of New York and our relationship with Bank of New York, the recent sale of SPSI, you know, is going quite well. We continue to do well with non-settlement houses that are looking for specific independent research in particular areas. Our coverage in geographic regions. We expect to see good continued growth in 2005 here as well, John.

Thank you.

Thank you. This question comes from Lauren Fine, Merrill Lynch. You may ask your question.

Thank you. A couple of quick ones on education. I'm wonder within High Read if you could give us the split between domestic and international. Then the fourth quarter investment that you made in the segment that you isolated as largely sales and marketing, how much of that was, you know, very much weighted towards the end of the year given the strength in other segments that you saw that you could take the investment or had you planned on it? And was any of it related to the Global Transformation Product accelerating, anything there? And then, finally, on education, if you could give us the sense of margin expectations for that segment in 2005.

Yes, great. Thanks, Lauren. We don't brake out domestic and international. We put it altogether into higher education, international and professional component. The international is a growing part and it's a big par. Now that 47 percent of the whole segment's revenue now is coming from higher education, and that's growing, that the international portion is becoming a significant part of that. And will continue. The sales and marketing expense in the fourth quarter, clearly, we were somewhat opportunistic in terms of being able to take advantage of a strong year to be able to accelerate some of the sales and marketing expenditures to take advantage of the stronger 2005 agenda. And so that did influence the fourth quarter on that one. GTP is on schedule. As Bob was walking through and these added sales and marketing expenditures were not a part of that. And for the education margin overall, we were very pleased to see continued improvement in '04. But given the schedule, we expect to improve upon the margin in '04. Will it be able to get to a 15 percent near-term target in 2005? That may be a little high. But we'll see. We'll see how the year unfolds. It's still a little bit early but we'll be pushing aggressively on being able to.

Terry?

Yes.

I guess, going back on the higher Ed, maybe you can give us the growth rate of domestic and the growth rate of international so we at least have a better sense. Because you said you did better than the U.S. market in higher Ed and I'm just trying to get a sense of that actual growth rate.

Yes. We've been giving the higher education overall growth rate and we said for '05, 3 to 4 percent. We think -- we may be conservative but I think that's a good number for this point of the year going in. Again, we don't break that out on the international part. But obviously, as we -- as the whole emergence of higher education as part of being a global industry is a global platform now, you're going to see continued investment and you're going to see continued contribution participation from overseas. We're seeing a lot of activity for the competition of foreign students. You're starting to see a lot of American-style, American degree programs taught in English competing with our university. You're seeing that coming out of Britain. You're seeing that coming out of Germany. New Zealand and Australia are going to compete very heavily for these kind of students. As is Taiwan and Hong Kong. And so as we're starting to see this whole platform expand, our opportunity goes up and so, too, does our representation in terms of being able to get after [inaudible-audio bad].

Terry, if I could add to that. 2004 was a strong year for the business and economics lists of the higher education group. Those products, as you know, Lauren, tend to travel well. So, we had good performance overseas as well through the sale of the U.S. product, the translation of those products and translations as well.

Thank you.

And, Lauren, that also includes, as we were talking about on terms of some of the professional texts as well. Science, engineering and math are also going to be hard disciplines that are going to travel very well outside the United States this year.

Thank you.

Thank you. This question comes from Peter Appert, Goldman Sachs. You may ask your question.

Terry, just as a follow-on to the earlier question, with regard to your previously stated target of 20 percent operating margins within the education segment, I would expect that margin to already maybe has changed a little bit in the contect of the accounting change there. Can talk about a timeframe to getting to that type of margin and then I'll just throw a second question at you. The more short-term, the social studies market, I understand, is a particularly important one in terms of the adoption opportunity in '05. Can you give us any early sense of how you're doing in the stated options there?

Okay, Peter. On the margin. No, there is no change in our outlook that way. We're seeing a much improved environment. We saw much better state, you know, market than we expected. We're beginning to see more -- more participation and push in the open territories on that one. So, given what our expectations are for GTP in the outyears, in '06, '07, we're going to be looking for continued margin improvement here. I definitely believe that a 20 percent margin target is doable and not -- not in a longer-term timeframe. Again, the influence is on that is in the higher investment areas in the elementary area. And we want to watch that part and we want to be very judicious as we make what kinds of investments in that particular area. As a segment that is a very realistic target and we've got that on an intermediate term. We've got to get to 15 first. And given some of the changes that have taken place, that is our first push and we're -- think we're getting closer to that. And then we'll start working on [Inaudible-audio bad].

Does intermediate mean sort of 3 years?

I'd say intermediate would be more like 3 to 5 in that time kind of timeframe. You never know in terms of the acceleration of all this. We did about 1.3 billion in the school education group this year. If you take a look at the adoption market, we did about 1.9 billion made up of new adoption materials as, which were low for 2004, plus residuals and about 2 billion in open territory. So, in that kind of comparison we like the kind of percentage that we're showing there and we expect that to continue. Specially as the open territories will continue to improve and obviously with a much improved adoption market.

Great. And how about the market share trends in social studies or maybe even more broadly so far?

Yeah, it's really, really early, Peter, to be talking about those kind of things. We're very exited in the middle and the high school areas. These are areas of clear dominance for us and we like that and our expectations are quite high. We've got rebuilding issues on the elementary side. But we're also very sanguine about their representation. But overall, we expect to do very well and it's just too early to start to [ Indiscernible ]. Folks are excited.

Okay. Thank you.

Thank you, this question comes from Fredrick Searby, J.P. Morgan. You may ask your question.

Thank you, Terry. Congratulations on the results. You guys are eating your Wheaties at Standard & Poor's. A couple of questions. First, can you give us some sense -- Capital IQ, clearly, it look like a great acquisition. But you paid a high multiple, what this year we should expect. That you should probably have a pretty good window into that given the nature of the contracts in terms of growth. And then secondly, what is your strategy on -- at S&P on the relationship-based pricing when you're signing up new customers, corporate customers, in the international market? Are you trying to keep it on transactional more or are you still favoring a more stability relationship-based pricing model and is it still about 60 percent of your total corporate clients or, I mean, issuance is relationship-based pricing. If you could give us an update there. Thank you.

Yes, thank you, Fred, and thanks for the comment on the earnings. Capital IQ, you're right. We did pay a good price on that one. This is one where you do. Strategically, this is going to be a terrific opportunity for Standard & Poor's to create a data and technology platform, you know, that is going to combine a lot of content, some of ours and more proprietary. It will allow us extend into some third party relationships and it's going to allow us to touch on a much, much bigger customer base that allows us to customize some of their needs. So, this is going to be on -- I think, when we look back on this one, this will be a really, really one of the best acquisitions that we've made and progress that we're making right now and it's only been a month. This one is terrific. They're a great management team. There's so much energy and excitement there. You had our -- we've had teams in India with the data development component.

We're very pleased with the operations, especially in Heidelbach, and the way they're going and we're going to be able to continue to build out on that platform with other businesses as well, on that one. So, we were -- we're very pleased with where that is and you're going to see more and more contribution from it. But, you're going to see it in terms of the -- in terms of the customization of the product offering for the different customers that we can can put together on that. On the fee-based side, on the relationship side, you know, we are protecting about 60 percent of that volatility. And we're doing so by being able early on to bundle activities around the customers' need and in terms of being able to provide a broader array of capabilities for them. And one of the things that, competency is the right word, that we've been able to do is we've been able to touch customers in multiple ways to allow for a more complete pricing of that keep of relationship.

So, the relationship of the 60/40 will shift depending upon where the market is on every given year. But as a rule of thumb that's still a pretty good benchmark to hold on to. Also, the more sophisticated and complex the instrumentation, there is obviously need for more monitoring surveillance capability and gives us more from a technology standpoint capability to be able to monitor multiple activities. So, the bundling and the feesing goes up with the complexity of the instrument.

Okay. Thank you.

Thank you, this question comes from William Bird from Smith Barney. You may ask your question.

Yes, in financial services, European issuance seems to have slowed a little bit the last couple of quarters and just wondering what you're seeing there? Do you expect slower growth there to persist? And also, what's the expected impact of the Repatriation Act on issuance in S&P. Thank you.

Yes. Thanks, Bill. No, European issuance has been -- has been picking up and we're starting to see more activity. Where we're really seeing it in particular is in the securitized world. The residential mortgage and commercial mortgage-backed markets, asset-backed markets all are going to show good growth. And with a little bit more of a business expansion kind of environment that should help their level of corporates as well. Europe is going to be -- Europe is going to be a very strong market for us. It is and will continue. The repatriation, Bob?

Yes, that's a difficult one, Bill, to try to project what the impact would be on U.S. corporations bringing cash back to the U.S. Of course, we're in a global society, so a number of acquisitions that do occur are outside the U.S., which would most likely be funded through borrowings outside the U.S. and S&P is in an excellent position to go and rate those. But, in terms of what that implication would be, it's too early to tell.

Thanks a lot.

Thank you, this question comes from Douglas Arthur from Morgan Stanley. You may can ask your question.

Terry, I'm just trying to better understand what happened to margins in the financial service group in the fourth quarter. Your year-over-year segment profitability was up $70 million, which was well over double the rate of the third quarter, I think it was up 30 million year-over-year, and yet the makeup of the issuance trends were actually worse in the fourth quarter than in the third quarter, particularly in the asset-backed area. So, it looks like the incremental revenue went straight to the bottom line because your cost, year-over-year increase in cost was substantially lower in the fourth quarter than it was in the third quarter. Was there anything unusual, I guess, is the question, in the quarter or was there anything unusual in the costing in financial services in Q3?

Well, let's see. As, again, you know, the market continued to be quite strong. Some surprise expectations on the upside coming out of residential. But the foreign exchange rate contributed about 7.7 million in growth and revenue and did not impact profit lines, on that one. Bob, do you want to add to that?

No, Doug, there was nothing unusual in terms of how we were running our business, looking at either the fourth quarter of '03 or the fourth quarter of '04. I think what you probably have seen is that we had pretty good cost containment initiatives in place through the early part of 2004, and they just simply continued. We do have the influence, to a slight degree, of the Capital IQ acquisition. But that was very, very modest. But nevertheless, we have been able to generate the very significant revenue increases in -- under an environment where we've been watching how we've been spending our money. There's been a number of initiatives in place in all the different segments most certainly, of course, in financial services with regard to being much more efficient in how we spend and being judicious in where we're spending those dollars.

Okay. Thank you.

Thanks, Doug.

Thank you. And our next question comes from Steve Barlow from Prudential. You may ask your question.

Thank you. 2 education questions. You mentioned in one of your slides, Terry, a list of states where you've won contracts or had contracts renewed. How many states are you you in and how many states, I guess, have contracts up for grabs in 2005? Second question, you talk about there'll alway be an adoption market, got a $900 million opportunity. What do you feel is the market opportunity in the open territories in '05?

Well, let me adjust the later part on the adoptions. Now I'm thinking of the first one. What was the second one? With the 900 million new adoption?

Expectation for growth in open territories in 2005.

Oh. I think, Steve, when we get the final numbers from AAP, my guess is that we're going to see a pretty good number in '04, open territory which is really what helped bring it, you know, back to flat. I think that's going to continue. I think that we're using roughly a $2 billion number for open territories and I think you're going to see modestly healthy growth on that side. And I think that's going to be a continued key component. Especially now when they start getting the shift from the supplemental side from the basal. All of that research-based, performed-based activity are doing very, very well in inner cities, as well as in open territory markets and, therefore, you know, that's one of the reasons I think that you are going to see continued participation on that. In term of the number of states, as you know in the fact book, Steve, that we give you, it lists all the individual states.

We focus on, obviously, the core ones. But for social studies, for example, at the higher level, you know, you're going to have Alabama, Florida, Georgia, Mississippi, Nevada, New Mexico, Oregon, South Carolina, a very, very strong on that side. On the elementary side, for social studies, you're going to have , again, Alabama, Florida, Georgia, Mississippi, New Mexico, and Oregon. So you're going to have the big concentration, you know, components there and I will send you, or Don can send you, a precise list of that. But you're also going to have a number of open territory components on that way and we can give you a more complete list on that one. For the most part, I focused on the larger opportunities where we're going to do the lion share of the adoption dollar.

And Terry, I would like to focus a little bit on the testing side, that's what I was trying to get at, in terms of the number of states that you won contracts with. And where are you, I guess, in market share on testing with all of the legislation that's come out of the Bush Administration? And are there a number of states that are up for jump ball in terms of you versus your competitors to win state testing contracts for the grades 4, 6, 8 that need to have their annual testing come into place in '05.

Yes. Did we -- I'm sorry. On the educational testing side, it's going to be a very exciting marketplace. As you know, not only are we benefiting from the informative side, but we're also benefiting from the summative side with the No-Child-Left-Behind on that part. And that is going to increase. The emphasis that we're going to see coming out of the new initiatives that they're going to want to add on to No-Child-Left-Behind in the middle and high school is going to be very, very important. And as they gear up for that so, too, will we. With Ohio, I believe we're in 22 states. Is that correct? 22 states at this point, and we -- in terms of new opportunities, we're very close to announcing a 23rd on that one, and we'll continue to be as aggressive as we possibly can. These are very big contracts. And with it, we have to continue to work on strengthening our own capability in all of this, but this is a priority area for us and it's going to be very lucrative.

Thank you. Thank you. This question comes from Brandon Dobell, Credit Suisse First Boston. You may ask your question.

Thanks. A couple of quick one. First on the financials, Bob. Maybe if you could give us a little bit more color of the dynamics between prepub spending and amortization. We've seen a couple of years of increases in spending but I guess looking at '05, thinking about amortization being down, just trying to get a sense for how that looks on a 2 or 3 year cycle so we can think about how to model going forward. And then, Terry, maybe if we could get a little bit more color on Reading First dollars. And over the past couple of years there has been a number of the slugs of money come out from the Fed. Just trying to figure out how much you guys actually see or how much is still kind of locked up in states or districts or areas where they are still making decisions versus actually seeing money hit the ground. Thanks.

Okay, Bob, prepub.

Let's go ahead to prepublication. On the spending side we have been, as you know, in the 220 to $240 million range over the past couple of years. With the opportunities that we're facing in 2005, 2006 we're stepping that up into the $270 million range. We've been trying to employ as much as possible technology and smart buying so that's helped to keep our spending levels down. And we expect to benefit from that as well in 2005. The reason -- one of the reasons for the amortization being a little bit lower in 2005 versus 2004 is as you go through and you do your own assessments with regard to different programs across the line, K through 16, those programs that may not necessarily be performing as well as you had expected, you take a relook at. In 2004 we looked at several programs and simply accelerated amortization on those particular programs. So, that's why you see a slightly higher number in 2004 verses 2005. The run rate for 2005 is solid. I would expect that you could look at that to step up a bit for 2006 - 7 simply because of the higher spending we're doing and the new opportunities coming forward.

Okay, and, Brandon, on the Reading First, we know that we're through the year 3 and we had another $1billion in the market last year. We fully expect that with the new federal budget there'll be at least another billion in terms of Reading and that will put us into the forth year of this program, on that one. Again, if you take a look at how that breaks down, and I think it's a good rule of thumb, about half of those funds are from professional development. About 20 to 30 percent from materials and about 20 percent from testing. And as part of that, we are doing exceptionally well with McGraw-Hill Learning Group. The McGraw-Hill Learning Group, again, is our No-Child-Left-Behind group. It's focused on the inner cities and it's focused on those things that Reading First dollars are being spent for, And we're doing quite well on that one and whereas we don't project that, those that do project that, some newsletters and the like, have us clearly way out in front. We sort of like that notion.

One quick, quick follow-up there on the Reading First. It seemed like initially it took quite a long time for the money to start to show up. Are we seeing kind of now more regular disbursements, more regular decision making processes or is it still coming in fits and starts for you guys?

No, again, using our McGraw-Hill Learning Group as a proxy for that, you're seeing a very healthy steady revenue stream that is coming from those kind of funds. And the administration aspect of this is a lot better, obviously, than it was. As we all know the administration or the Department of Education was not prepared administratively to deal with 50 states and allocating all of these kind of funds. Let alone the states not being in a particularly good administrative position to allocate how they were going to deal with all their local educational agencies. Therefore, there was a lot of -- there was a lot of confusion about what classified as -- or qualified as Reading First products and so forth. Now that we're into completing year 3, I think there is a much smoother transition that is taking place. However, in my own travels in dealing with various governors and at various state levels, there still seems to be some administrative gap that exist on that one. So, it's not completely smooth but it's an awful lot better than it was in [ Indiscernible ]. And certainly the expectations and certainly these are the comments of Margaret Spellings. She's made it very, very clear that the emphasis on this creative handling is going to be critical to getting the higher education funds approved. So, my guess is that we're going to see continued progress that we've [ Indiscernible ].

Okay. Thanks a lot. I appreciate the color.

We will now take our final question from Michael Meltz, Bear Stearns. You may ask your question.

Hi, 2 quick questions so you can you finish up. Bob, you mentioned the GTP P&L expense for '04, what are you expecting that to run in '05? Secondly, Terry, at S&P I'm just wondering what you think the impact will or could be from some of the serious concerns of the financial health of the airline and auto sectors that we're seeing currently. And have you already seen an impact there? Thanks.

Okay, Bob.

Okay, the P&L expense I mentioned in 2004 is about 22 million. We expect a number generally in that range also in 2005. That will be a combination of both cash expenditures as well as non-cash expenditures relating to the amortization of the deferred project components. But it should be in that general range from a P&L standpoint.

Michael, on the airlines and the transportation sector, I'm not really an expert and I shouldn't really speak beyond phrases on this and we can put you in touch with our S&P analyst to do that. We're, obviously, monitoring those situations very, very carefully and Standard & Poor's continues to monitor those credit ratings and you have seen some actions of late and so forth. What you're seeing, obviously, is a tremendous shift from the higher cost, major trunk providers to the lower cost. And probably neutral providers and the industry sector influx and obviously it'll get the proper kind of attention. But, I think I'd best be putting you in front of a transportation analyst to handle that.

Well, I mean generally if there is deteriorating health in say the auto industry how does that impact the revenues S&P may get from those type of issuers.

From our standpoint, our relationships with the major airline and major autos are quite strong, as you can well imagine. The size of financing activities at a General Motors or a Ford is enormous and we work very carefully and have very, very strong relationships and I don't see in terms of our ongoing business activity any disruption to that.

Okay. Thank you.

Thank you, this concludes this morning's call. On behalf of McGraw-Hill Companies, we thank you for participating and wish everyone a good day.

Thank you all very much.