標普全球 (SPGI) 2005 Q3 法說會逐字稿

Welcome to the McGraw Hill Companies earnings call. [OPERATOR INSTRUCTIONS] 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'd like to repeat the URL once more for those who would like to view the presenters' slides online. It is http://www.mymeetings.com/nz/join. You will be prompted to enter your name and the net conference meeting is PG3226632. The password is McGraw Hill. All caps with a space between McGraw and Hill and the event type is conference. The call is also being simultaneously Webcast from McGraw's Hill's Investor Relations Website and will be available for replay about two hours after this meeting ends both by phone and on the Web for seven days. [OPERATOR INSTRUCTIONS] I'd now like to turn the conference over to Donald Rubin, Senior Vice President of Investor Relations for the McGraw Hill Companies. Sir, you may begin.

Good morning and thank everyone here for joining us at the McGraw-Hill headquarters building as well as those here and abroad on the phone and on the Web for the McGraw-Hill's Companies third quarter 2005 earnings conference call. I'm Donald Rubin, Senior Vice President Investor Relations for the McGraw-Hill Companies. With me this morning 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 third quarter 2005 results. We trust you've all had a chance to review the release. If you need a copy of it and for the financial schedules, they can be downloaded at www.mcgraw-hill.com/investor relations. Once again that's www.mcgraw-hill.com/investor relations.

Before we begin need to provide certain cautionary remarks about forward-looking statements. Except for historical information the matters discussed in the teleconference may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including projections, estimates and descriptions of future events. Any such statements are based on current expectations and current economic conditions and are subject to risks and uncertainties that may cause actual results to differ materially from results anticipated in those forward-looking statements. In this regard, we direct listeners to the cautionary statements contained in our Form 10-K's, 10-Q's and other periodic reports filed with the U.S. Securities and Exchange Commission.

We're aware that we do have some media representatives with us this morning on the call. However, this call is for investors and we would ask that questions of the media be directed to Mr. Steve Weiss in our New York office at area code 212-512-2248 subsequent to this call. Today's update will last approximately an hour. After our presentation we will open the meeting to questions and answers. It's now my pleasure to introduce the Chairman, President and CEO of the McGraw-Hill Companies, Terry McGraw.

Thank you very much, Don and good morning, everyone, and thank you for being here. And if you're listening in, we welcome you as well and thank you very much for your interest in the McGraw-Hill Companies. I'm Terry McGraw. I'm Chairman, President and CEO. With me this morning, as Don said, was Bob Bahash our Executive Vice President and Chief Financial Officer. I'm going to review with you our third quarter results and I will discuss some of our operations and Bob will then review our financial condition. So, let's get started with that.

Well, in the biggest quarter of the year, we're pleased to report a very solid growth. Revenue grew by 14.8%. Diluted earnings per share from continuing operations increased 17.7% to $1.00 and that includes a $0.01 gain on the sale of corporate value consulting. The operating margin was 32.6% and that versus 31.9% last year. In reviewing our priorities and prospects in recent months we have focused on four key points. We expected to have another outstanding year in 2005 and clearly we are on our way to meeting our goal. Our prospect and growing, you can see that in our results. We have strength in our operations in recent months with strategic acquisition. And that is evident in some of the progress that we're making in all three segments. And we continue to build on our total shareholder value. We're allocating a greater percentage of our free cash flow each year to dividend and stock buybacks.

I'll underscore these points by reaffirming our earnings guidance for the year. For 2005, we expect double digit growth in earnings per share from continuing operations including $0.08 to $0.09 dilution from acquisitions in 2004 and 2005 and changes in our pension plan assumptions for 2005. But excluding a $0.01 gain on the sale of corporate value consulting and the 2004 non-cash benefit of $0.05 per share from accrued tax liability. We continue to operate under favorable economic conditions. Although Hurricane Katrina has obviously dampened somewhat the second half outlook for growth of U.S., GDP. Although, I think it's had a lot less effect on the U.S. economy than originally assumed.

David Wyss, Standard and Poors' Chief Economist now expects the U.S. GDP growth rate of 3.1% for the second half of 2005. He's forecasting GDP growth of 3.4% next year. Some of that growth will be stimulated obviously by rebuilding activity and government funding for Hurricane Katrina. We're also expecting some additional interest rate increases from the Federal Reserve, which continues moving at a very measured pace. The Fed will probably end the year, our guess is around 4.25. We could see another hike in January to 4.5% but still the key point in interest rates is that it remains very low by historic standards.

With that, let's go to our operating segments and review those results and let's begin with McGraw education. In this seasonally most important quarter of the year, McGraw education produced very solid results. We're very pleased with those results. Revenue increased 10.7%. Operating profit grew by 17.8%. The operating margin expanded to 33.3% up from 31.3 last year. Our performance in the elementary/high school market was a key factor in achieving these results. Revenue for the McGraw school education group grew 18.9% in the third quarter and is up 17.5% for the nine months of this year. We built this record on capitalizing effectively on this year's improved state new adoption opportunity.

At the top of our list, social studies. The discipline representing the biggest market for states' new adoption opportunity this year. Texas, the biggest market for state new adoptions this year. In both, we produced very impressive results. Our middle school and high school programs captured more than half of the secondary social studies market with outstanding performances in Alabama, Florida, South Carolina and Oregon. The new adoption market in Texas this year was worth nearly 440 million of the estimated 900 to 950 million of total state new adoption opportunities. That is even big for a state the size of Texas with 4.3 million students. The situation developed because Texas in 2005 had planned to buy two years of adopted materials at one time.

That would have been 140 million for technology, business, family and consumer science programs that were adopted but not funded last year as part of the Proclamation 2001. And 295 million for health, music, art, and world languages materials adopted by Texas school districts this year under Proclamation 2002. Funding for Proclamation 2001 was never in doubt. Funding for Proclamation 2002 came entangled entangled over school financing and taxes.

As we know state officials resolved the funding issue in August by deciding to exercise special executive budget authority. On September 20, Lieutenant Governor David Dewhurst and Tom Craddick, Speaker of the Texas House sent a letter to the Texas Education Agency underscoring the Special Legislative Budget Board's commitment to pay the 295 million for textbooks associated with Proclamation 2002. They authorized the Texas Education Agency to use funds from available appropriations to purchase the textbooks. The Texas Education Agency started processing orders in mid-August. Since the third quarter ordering started slowly in Texas, we shipped an awful lot of material in September. And we'll realize even more business in the fourth quarter. We're having a very good year in Texas with a 43% share in grades 1 through 12 health market. And a 55% share in the elementary school music market.

We've enjoyed success in other adoption states, health in California and Indiana, science in North Carolina and Indiana, language arts in Arkansas and math in Louisiana and Tennessee. Our El-High is also benefiting from growth in open territories. This market isn't growing as fast this year as it did in 2004 but we have improved our performance with programs in music, health and science. Incremental sales for our reading products and services can be attributed to the No Child Left Behind Act's Reading First program. It's placing new emphasis on developing reading skills in the early childhood years and large urban school districts are finding that our research based programs produce results.

Growth in testing, as the market responds to the increased emphasis on measurement, accountability, and reporting that the No Child Left Behind Act requires. Only the supplemental market has softened somewhat this year and we have seen some shortfall in some of our literacy titles. In testing, custom contracts continue to grow as states prepare to implement programs mandated by the No Child Left Behind Act, and we're going to see more increased activity going forward in the custom contract business. We're also seen a slight decline for higher margin demand norm reference tests at the district level with the replacement there going to custom contracts.

The increased emphasis on reporting test results to the public is also creating new opportunity. With the acquisition of the Grow Network last year we have significantly improved our capabilities in the emerging reporting market. Furthermore, our ability to develop effective individualized study guides has captured the market's attention and is producing new revenue. In the third quarter, The Grow Network produced and delivered 4.9 million individualized student reports for the California standardized testing programs, the largest in the country. The new color-coded report quickly shows parents how their children fared on the California tests, which are administered each spring to students in grades 2 through 11.

The reports on all the students also go to their teachers, which meant that the Grow Network actually produced 9.8 million reports. The Grow Network's new report is being well received because information is presented clearly and effectively. The Oakland Tribune observed that our report card replaces, "the convoluted, wordy and technical" document that California used to send parents. Achievements like this helped us recently win a new five year contract for reporting test results in New York State. Building on its success with individualized study guides in Texas, the Grow Network won a contract with Arizona.

In the third quarter Grow created individualized student study guides to help 53,000 juniors and seniors in Arizona try again to pass a reading, writing and math test required for graduation. The personalized study guides transforms test data into insight for each student and helps close the gap between standards, curricula and assessment one child at a time. This is a powerful concept and educators recognize it. In reporting on the arrival of the first study guides in Arizona earlier this month, the Arizona Republic quoted the following statement from the Curriculum Director of the Phoenix Union High School District, "it looks like somebody cares and somebody knows what's going on with each and every kid." And that may be a message kids don't get often. We're very proud of that.

In McGraw higher education, international and professional group, revenue was flat in the third quarter and is up 3.3% after nine months. This year in Higher Education, it got off to a very fast start but we saw slow down in the last few weeks of the third quarter. In professional markets we face tough comparisons in the third quarter because last year we published the 16th Edition of Harrison's Principles of Internal Medicine. There's also continuing softness in the computer book market and we did not repeat a back list promotion. Higher education products have been selling well both here and abroad. In the United States we've had the greatest success so far this year with our science, engineering, math imprint. Particularly in applied biology with Hole's Essentials of Human Anatomy and Physiology. And in allied health with Computers In the Medical Office by Sanderson.

Internationally, we benefited from the release of Harrison's Principles of Internal Medicine in Spanish and Portuguese language editions. And in looking we expect an upswing in our U.S. college and university business in the fourth quarter with some new editions being released. And we're optimistic about the prospects in the U.S. higher education market this year. As we pointed out in the news release, we now think that the market could grow faster than we originally projected. We were looking at 3% to 4%. We now believe the market will grow 5% to 6% this year and we expect to match that performance.

So summing McGraw education we expect the El-High this year to grow by 10% or more and we expect to take share in the El-High market. We expect the U.S. college and university market this year to grow 5% to 6% and we will match that.

Okay. With that, let's go to the financial services segment. For financial services in the third quarter, revenue grew by 20.5%. Operating profit increased by 24.7. And the operating margin expanded to 41.6 versus 40.2 last year. This record was produced by growth in ratings, growth in equity markets, growth in the United States and growth overseas. That's the hallmark of a resilient portfolio that keeps us moving forward even when dollar volume issuance of U.S. corporate declined by 12.2% and European issuance was off by 16.3% in the third quarter.

We have strength in this portfolio since 2004 with strategic acquisitions and alliances. ASSIRT, which provides mutual fund information and research for the Australian market. Capital IQ, which is giving us the platform to aggregate and disseminate S&P's valuable information. Vista for primary research, controlling interest in CRISIL, the leading ratings and financial services company in India, a very exciting opportunity. We've created a alliance with the rating agency of Malaysia and late last month we sign an agreement to acquire majority interest in Taiwan Rating Corporation, the largest domestic rating agency in Taiwan. All-important steps that will increase S&P's global footprint in the growing financial markets.

In the third quarter, structured finance set the pace with growth in all of its asset classes. In the United States the phenomenal durability of the residential mortgage backed securities market was evident again in the third quarter. As new dollar issuance climbed by 27% and after nine months issuance in residential mortgage backed securities is up 41.4%. In the smaller but rapidly growing commercial mortgage backed securities market, at one point which was higher than residential, new dollar volume issuance was up 91.6% and after nine months issuance is up 79.5%. The asset backed new issue market was up 13% and 17.3% after nine months. And the U.S. CDO market, collateralized debt obligation market, was very strong in the third quarter. With new dollar volume issuance growing by 120.6% and after nine months dollar volume issuance is up 113.1%.

Although structured finance softened somewhat in Europe, in the third quarter, we saw solid growth in the Asia-Pacific region as well as Latin America. That's another reason why Standard & Poors grew faster overseas than it did in the third quarter. Probably a trend that we're going to see more and more of. In the U.S. corporate market we benefited from comparative recovery in the high yield issuance area, strength in the insurance sector, and growth in revenue from annual fees in surveillance.

In the public finance sector, the market was driven largely by continuing refunding activity. And products and services that are not tied to the new issue volume, our nontraditional products and services, also contributed to our improvement in the third quarter. These include rating evaluation services and global infrastructure finance ratings. On the equity market side we continue to benefit from the growth of index services which has more new products in the pipeline. The demand for independent equity research from settlement and nonsettlement firms. And the sale of financial data and information.

We're very pleased with the progress at Capital IQ, which has more than doubled its customer base in the last 20 months to over 1,100. Significant new customers signed in the third quarter include Blackstone, Deutsche Bank and Wachovia. The lineup of new customer includes banks, investment managers, corporations, law firms, corporations, data feeds from Yahoo. We are developing plans for adding more S&P content to the Capital IQ platform. Clearly we are well along in producing the double digit top and bottom line growth that we expected for the year and that we expect for the second half.

In assessing the fourth quarter, we now expect some growth in U.S. corporates with demand created by debt financed merger and acquisition activity. Slower growth in the U.S. public finance if the yield curve steepens, that would reduce the impetus for refinancing. Momentum to continue in the U.S. residential mortgage backed securities market. We note that the Mortgage Bankers Association recently raised its fourth quarter mortgage obligation forecast from 595 billion to 639 billion. More growth in the commercial mortgage backed security. commercial real estate fundamentals remains strong and investor demand for commercial mortgage backed security paper remains high.

We enter the fourth quarter with a very strong pipeline. A pickup in the asset backed securities market with more credit card strength in autos as a result of the downloads and their corporate debt in the second quarter. Growth in CDO's in the U.S., the pipeline looks strong there. Growth in ratings and services that are not tied to new issue volume and continued strength overseas. There is a very strong pipeline for corporate ratings and structured finance instruments in Asia. We also expect our products and services in equity markets to continue contributing to our improved performance.

And again no review would be quite complete without a comments on the current regulatory outlook on the ratings. Not much change here. We obviously remain committed to constructive change that would eliminate barriers to competition. We don't believe legislation's the answer. And S&P is obviously working, as it has been, with the SEC and all government agencies that relate around the world. And we're again are very pleased with some of the comments coming from IOSCO, the international organization of security commissioners. As well as Cesar, the security regulators in Europe. And are working with the SEC. We continue to believe there will be no material adverse effect in the way S&P conducts its business.

So summing up for financial services we're on track for a double digit top and bottom line growth. Structured finance will continue to grow globally. The operating margin will be at least at the level we were at last year.

Now, let's go to the information and media services segment. And for the third quarter revenue increased 21.9%. The operating profit declined 47.8%. Operating margin was 5.4%, versus 12.7% last year. On the top line, JD Power and Associates added $51 million to the segment's revenue in the third quarter. It's also worth noting that JD Power and Associates had no material effect on the segment's operating profit.

On the bottom line we are still battling the decline in print advertising. In broadcasting our revenue increased 2.2% to 27.6 million despite a steep decline in political advertising in a nonelection year. Actually, that's a very, very good result on the broadcasting side given the nonpolitical advertising year. Broadcasting's growth is based on a solid performance in local time sales. National time sales were off in three of our four markets. But it was offset by improvements in those local time sales in areas of service, automotive, leisure time, and retailing.

Revenue at our business-to-business group increased 25.3% on the strength of JD Power and Associates and gains in information products and services. The slow pace of the advertising recovered continues to impact Business Week. The rate of decline has improved somewhat in each quarter this year. And I guess that's our positive. Advertising pages in the North American edition were down 11.5% in the first quarter, down 9.2% in the second quarter, down 8.3% in the third quarter. And through the September Business Week's ad pages were off 9.6%.

The audience for Business Week is solid and growing as editors expand and improve on the online distribution channels. This represents a growing audience of tech savvy people who are attracted to the new site's new content channels. As well as it's podcasts on weekly cover stories, blogs moderated by our editors and RSS feeds. Really simple syndication feeds, which deliver news to the desktop. That's undoubtedly why Business Week online was in fifth place on Ad Week's list of Hot Websites for 2005. Business Week Online was also named the best investment Website and best Website For news by the Web Marketing Association. We appreciate that.

In the energy market, we are seeing growth as our news and pricing services provides the transparency that customers require in a volatile market for oil and natural gas. In construction, our new publications, My House and Constructor, both helped offset softness in other parts of the market. The integration of JD Power and Associates is moving along smoothly and the business is exceeding our expectation. We are particularly pleased with the growth in the nonautomotive business sector in the third quarter. As well as some of the penetration into parts of the Asia-Pacific region. The team is also making progress in identifying and evaluating potential collaboration activities with Business Week, Standard & Poors, Construction, Plats and others.

Therefore, summing up the information and media services. Pursue collaborative opportunities with J.P. Power and Associates and with other companies, continue growth in the high value added information and expand and improve our online distribution channels.

And for McGraw-Hill Companies overall, I'll reaffirm our earnings guidance for the year. For 2005 we expect double digit growth in earnings per share from continuing operations and again that includes $0.08 to $0.09 dilution from acquisitions in 2004 and '5 and changes in the pension plan assumptions in 2005. But excludes a 1% gain on the sale of CVC and the 2004 non-cash benefit charge of $.05 per share for accrued tax liabilities. Okay. With that, let me turn it over to Bob Bahash to through the financials and then we'll go in any direction you would like. Bob.

Thank you, Terry. As Terry discussed this morning, the Corporation had a strong operating performance in the third quarter and for the nine months of 2005. That strong performance also contributed to an acceleration in our cash generation. Even during a period of increasing investing activities in the form of acquisitions and share repurchases. The share repurchase goals for 2005 was to buyback 6 to 10 million shares on a postsplit basis. We completed the goal of 10 million shares in the third quarter by acquiring 800,000 shares at a cost of 37.9 million.

The 10 million shares were acquired at a cost of 443.5 million. 7.8 million shares remain in the program, the board authorized in January 2003. The diluted weighted average shares outstanding for the third quarter was 381 million shares, a 2.9 million share decrease compared to the third quarter of 2004. Year to date we've spent approximately 455 million for acquisitions. The investment total includes a controlling interest in CRISIL, the largest rating agency in India, JD Power in Associates, Vista Research and ASSIRT. In the third quarter we added TurnLeaf Solutions, a national provider of customized online reporting and data analysis. Which will become part of the Grow network and serve the assessment and reporting market.

We continue to track with the forecasted dilution that we presented to you earlier this year. In the third quarter we had $0.015 dilution, $0.01 from acquisitions and about $0.005 from the pension plan assumption changes. For the fourth quarter we expect a similar amount. So, for the full year we expect dilution of $0.08 to $0.09 from the impact of 2004 and 2005 acquisitions and pension plan assumption changes. By 2006, the acquisitions made in 2004 and 2005 will be cash positive. They will dilute 2006 earnings per share by about $0.01 to $0.02. And, of course, virtually all that will dilution will come from the amortization of intangibles.

On September 30, 2005 the Company sold its corporate value consulting business. The valuation services unit of the financial services segment. We recognized a pretax gain of 6.8 million. On an after-tax basis it represents a $4.2 million gain, or $0.01 increase per diluted share. Even with the increase investing initiatives and cash provided from the CVC divestiture, we returned to a surplus cash position ahead of schedule. We had expected to have surplus cash by the end of the fourth quarter. Now at end of the third quarter our net cash position is a positive $462 million.

We had briefly entered the commercial paper market in the second quarter as a result of recent acquisitions and share repurchases. We're completed that program and are essentially debt free with just 4.5 million in total debt outstanding at end of the third quarter. Net interest expense increased modestly in the third quarter to 2.8 million, which is about 941 million over the previous year. The increase from the acquisitions and related commercial paper borrowings and to a lesser extent the accelerated share repurchase program. Given the early extinguishment of the commercial paper debt, we expect fourth quarter net expense to decline. And for the full year, we're looking at roughly $8 million for interest expense, which compares to 6 million for 2004.

Now, corporate expenses increased in the third quarter by 3 million to 35.3 million. This is due in part to increased compensation related expenses. For the full year we expect only a modest increase in corporate expense, as compared to 2004.

As I discussed earlier in the year, we have been studying the repatriation incentive under the American Jobs Creation Act. Under this provision, we anticipate repatriation to be in the range of 200 to 230 million. The incremental income tax is estimated to be about $10 million, which represents an approximate one time charge of $0.03 on EPS in the fourth quarter. The final decision will be made toward the end of this year. This one-time event would increase the effective tax rate for the fourth quarter only. And we would expect it to return in 2006 to approximately the same rate that's be being used this year. So, just to highlight $0.03 of additional tax, $0.03 additional dilution in the fourth quarter as the result of the Jobs Repatriation Act, the one-time charge.

Let's now review capital expenditures, which includes prepublication investments and purchases of property, plant and equipment. Our prepublication investments were 66.6 million for the third quarter, which is about $10 million higher than last year. For the year, we're lowering our projection due to spending efficiencies and now expect 2005 prepublication investments to be about 250 million. Purchases of property, plant and equipment were 29 million, which is 22.6 million lower than last year. And for 2005 we're staying with our original projection of 130 million.

Let's not look at some of the noncash items. Depreciation for the third quarter was 26 million, compared to 22 million a year ago. And for 2005 we expect about 110 million. Reflecting the higher level of capital expenditures in 2004 and, of course, the recent acquisitions. Amortization of intangibles for the third quarter was 12 million, a $3 million increase from last year. For 2005, we expect about 49 million, which is largely driven by the recent acquisitions. Amortization of prepublication costs for the third quarter was 99 million, a 13.8 million decrease compared to the third quarter of 2004. The decrease is the result of product mix and adoption cycles. As a result, we're lowering our projection in 2005 and we now expect about 230 million for the year.

And finally there's two situations in the El-High market that I want to highlight for you. The first is Texas funding and the timing of orders. Terry recapped the Texas funding situation and why there was a delay in ordering. Nevertheless, we recognized 37.5 in revenue for orders of Proclamation 2002 materials shipped in the third quarter. We expect more Texas business in the fourth quarter and some may possibly spill over into 2006.

There also have been questions about on the impact of the hurricanes on the elementary/high school business in the Gulf states. Mississippi and Louisiana represent about 46 million or less than 5% of this year's new state adoption market. Since orders for new materials from these states were placed and shipped before the hurricane struck, the storms had very little impact on third quarter sales. Some school materials were destroyed by the hurricanes and we've already sent some replacement sales.

The hurricanes will affect adoption schedules next year in Mississippi and Louisiana. Mississippi, which had planned to buy new language arts and health books next year, has postponed that adoption until 2007. The state will use its 2006 funds to buy replacement materials. The state is also cutting back on testing, since so many school days were lost. Louisiana is expected to delay its 2006 social studies adoption. We now expect the new state adoption market for next year and, of course, this is preliminary, to be in the $700 million range. But we also anticipate that shortfalls in 2006 resulting from the postponed adoptions will be at least partially offset by sales of replacement materials. Thank you, and now back to Terry.

Okay. Thanks, Bob. And that's the pitcher for the third quarter and now for the first nine months of the year. We're obviously quite pleased with the results. Most importantly, this is a very big quarter, obviously, in the education marketplace. And to see the very strong elementary high school results was very, very pleasing. So okay, with that we go to Don and then any direction you'd like.

Thank you. [OPERATOR INSTRUCTIONS] So let's start with questions in the room.

Clarence, [Clarkson] Investment Research. In terms of the advertising and media services, could you discuss any long term game plan you have for that division? Certainly we want to look at expectations of good return on equity, good return on the bottom line earnings. And we're looking at the advertising, which is really not keeping up to par. So in terms of the game plan, are there any specific strategic measures being undertaken right now to offset some of the segments, which continue to be a loss. The political situation could be an up-and-down type thing. So just what are you doing in that particular division on a longer term basis to improve things? And do you rule out divestitures of certain segments in this business?

Thank you, Clarence. Well, first of all, the entire information media services segment is getting a lot of attention. It was one of the reasons for the acquisition of JD Power and Associates and creating a new platform that will allow us to extend and also build out on growth initiatives with some of the other information products. You're seeing a transformation quickly into the online environment. And you're going to see more and more push into that area where we're going to be going after subscription-based and fee-based products rather than advertising transaction-related costs.

As it relates to the business advertising, aside from Business Week, it has been a very difficult year. We saw the decline really in the post 9/11, 2002 period. It had started to improve into the point where we thought we had a solid enough base that this year would show some significant sign of recovery. The technology sector, which has been a big advertising sector for us, both computers and communication has been soft. Big pharma has been soft on that one. And financial services is another big area for us, has had some mixed results there.

We still feel upbeat about the recovery. We think that there is a broader capability of a value proposition that needs to be pursued. That's why we're pushing very aggressively on the Business Week online site. But yes, you'll see some differently cost-cutting measures continue on that one. And we're going to refocus and reposition that. But I don't see at this point a rapid return to this. I see at this point that the hope is we're going to start to see some advertising pick up. But we're not going to wait. And we are very aggressively going after the repositioning of Business Week and taking much more of an online posture. But online is going to be the operative word for the information media services segment overall. Thanks.

Doug.

Doug Arthur, Morgan Stanley. Terry, how big is the ratings opportunity in India, China, you talked about alliance Taiwan, Malaysia? How - - all things being equal, how big could that business be as a percent of your international five years out? And then I have a follow up.

Doug, I think in that kind of time frame, when you start talking five years out, I think it's going to be huge. And it's why it's getting so much attention right now. India is a very exciting market because of the political changes that have taken place about 12 months ago. In terms of the push to becoming more aggressive as a global player. To improving the business environment. To encourage a higher level of foreign direct investment. And in doing so that is going to open up more small and medium size companies in doing business. And we are going to be very helpful in terms of helping them access capital markets and the capital information process. So we're very excited about those opportunities. CRISIL is a wonderful opportunity for us. And CRISIL as an operation has a terrific management team. And we're going to be aggressively pushing on that one. So, India's going to be a very exciting market.

China is going to have different issues and challenges. There is no fixed income market to speak of in China. There's a very impotent equity market. Their state owned enterprise banks are very insufficient and have very high nonperforming loans. And so the overall capital formation process is one that has to improve. And I was again encouraged by Secretary Snow's recent visit in terms of pushing on the Chinese to get after some of the financial services reform, opening up the market to financial services. And we can only benefit from that. But in the five-year time frame I think we're going to see in China continued stunning growth in terms of the modernizing and the infrastructure process.

Overall, when you talk about Taiwan and Malaysia and you talk about essentially the non-Japanese portion of the Asian base, I think what you're seeing is a coalition of countries that are in region there, that is that is quite solid. And it is certainly the attention of China, India and Japan focused on that market. And we're treating the Asian base as a single entity. And therefore, the Malaysia and Taiwan and all of those components are just building the footprint there. But I think the Asia-Pacific market at some point is going to become a very, very powerful region for us. And that's why we're spending so much time over there.

And just a quick follow-up on, unrelated, Texas. You had talked about the possibility that you would actually help Texas ship books given the late nature of the orders. Did you incur any costs related to the Texas budget issues?

Very little.

Very little.

Very little.

Thanks.

Yes. And in fact, once they got moving and got mobilized, they were in pretty good situation to handle that themselves.

If there are no further questions in the room, we will now go to our telephone participants.

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

Hi, good morning. Two questions please and I'll throw them both out at once. First, I'm wondering, Terry or Bob, if the strength of the cash flow and the near completion of the buyback makes you rethink the pace of buyback activity going forward? Whether perhaps you might be thinking about stepping it up going into '06? That was number one. And then number two, Terry please don't take this, the wrong way, I'm wondering why the margin performance isn't even better in the S&P units? And again not meant to be a slight as to how strong the results are actually are. But rather just in the context of prior quarters when you've done 20% kind of revenue growth we've actually seen more dramatic year to year margin improvement. I'm wondering if there's anything going on from a cost standpoint?

And I was just a little unclear with that Peter on the last part. You were wondering about overall cost structures at Standard & Poors?

Yes. I'm wondering why we're not seeing more operating leverage out of S&P in the context of these very strong revenue gains? And if perhaps you're doing things on the investment side that would account for that?

Thanks, Peter, and let me address your first question first and Bob jump in on that one. As far as our cash flow goes and the strength of the cash flow, as you know from the shareholder return standpoint, we look at the organic growth, the acquisition growth, we look at dividends and the share repurchase. The share repurchase program as very important program to us. And it is one that we have increased. And again, we will be opportunistic for the rest of this year in terms of utilizing our remaining. We're going to be discussing this very fact at an upcoming Board meeting. And we could very likely be in a position to accelerate that program. But, again, that's a Board vote and we will leave that to that part of it. But given the cash flow and given our growth opportunities and given the strength of the markets that we're in, we think it's a great investment. And therefore, we are very, very positive on the share program. Bob, do you want to anything to that?

Just to reemphasize Peter, the remaining portion of the authorized shares for repurchase that was established by the Board in 2003, it's roughly 7.8 million shares. So as Terry mentioned, that would be the amount if we elected to do so and if the Board elected to do so as well to be opportunistic through the balance of the year.

Great.

And on the overall margin side, we take a little bit of a different view. Again, when you take a look at the overall business at Standard & Poors, you've got different components and different margin levels and expectations within. On the ratings side, it is obviously quite strong. And again, as you get into the more complex instrumentation such as the CDO market and so forth, you're going to be doing very well in those kind of markets. When you start taking a look at some of the financial information and the content products and the like, they take on different kind of investment needs. And they also take on - - or different margin expectations. So overall, the kind of growth that we have shown going from the 30% margin level to the 35% margin level to the 40% margin level, and now holding to at least what we did last year. We think, overall given the investments that we've made that that is a good situation. But we continue to look at the cost structures and manage them aggressively and given our thinking about the market opportunities we would hope that we would be able to improve upon those - - on that one. But we're pleased at the level that we are given the investment schedule that we have and given the breadth and the depth of the types of businesses that are contained in Standard & Poors.

Terry, do you think there's sufficient flexibility in the costs that you could maintain the margin even if revenue growth were decelerate in a less favorable interest rate environment?

Well, if we thought that there was going to be a decline, Peter, in some of the core revenue generating areas we would correspond very quickly with sizing to the opportunity. So the answer to that question is we feel very comfortable that we can maintain these levels. And again, our promise has been to continue to improve upon. So I don't see a revenue decline, a significant revenue decline that would cause us to do that. But if there was such a thing, hypothetically, we would correspond aggressively as well.

Thanks very much.

Thanks.

Thank you, our next question comes from Lauren Fine from Merrill Lynch.

Thank you, a couple quick questions. I guess going further with Peters questions on the margins in financial services. Is there a way for you to break down for us either the dollar contribution of each of the major businesses, the proportion or the growth rate of the respective businesses, how ratings did versus Capital IQ versus the index business? It gives us a better sense of how to look at the margins over time. And then I guess also getting to margins in the information and media segment. Understanding that J.P. Power wasn't really contributing, I don't fully understand why the margins were down that much. Especially since you're right, you did a superb job on the TD business. So I'm trying to understand more there. And then I'm curious what you think the margin potential is for JD Power over time?

Okay. Last one first. And again, this is a business that has grown very, very rapidly in the last, in the last ten years as it picked up on automotive side and picked up on the non-U.S. component. And, therefore, like most content businesses, we would expect healthy double digit margin levels out of this business. It's certainly not going to be at the margin levels that we expect from credit ratings. But it would be in line with a strong broad content platform, which would be double digit. And that is what we'd be aspiring to.

On the INS margin level, Lauren, we have been impacted significantly on the business advertising side of Business Week. And on the North American ad pages level we are now just under 3,000 pages for the year. Compared to about 3200 last year. And in context, in 2000, we were at 6,000 ad pages. So, that has had in the short term a very negative effect on that business. At the same time, we've taken the opportunity to invest and reposition. Some of the businesses like plats are doing exceptionally well in the construction area and some the other areas that we're pushing very aggressively on the online market. And requiring P&L investment and having some margin erosion. I expect that to be in a much improved state by the time we complete the year and as we get into next year. And that's certainly the plan there.

As far as the breakdown of margin levels on the Standard & Poors side. Again, we have not broken down the individual components on that one. Clearly, when you start talking about structured finance ratings, those are going to be very high ratings. I mean, very high margins there. As are some of the other categories on that side. Index business, you're coming off of a lower number, if you will, compared to something like structure. But those are very high margin obviously businesses.

And then the content businesses are usually in the 15% to 25% margin, which is in keeping with what some of those content capabilities are. So, you've got a mix there but for competitive purposes and others we haven't broken those down individually. But, that's about the range that we look at.

I guess I was hoping if you could give us; rather than the breakdown on margins even, I'm willing to do my own work. Just a breakdown on revenues might be helpful. And I do have one follow-up question. So, I guess the question is how big the index business relative to the total segment? How big is Capital IQ relative to the total?

Well, again we don't breakdown those components. But Capital IQ obviously is a very young embryonic entity that we are going to grow very rapidly. And you're going to see very high revenue growth there. Especially as you cap on to that platform, which we are doing. Things like CompuStat and so forth. So - - but, again, you're talking about a relatively small embryonic platform and it should see high revenue growth. And I don't, - - again, in terms of margin support and profits, we're really in an investment mode with that platform. And that is going to be a very exciting piece of our overall data and information capability on that one. And what was the other one?

Just if you could give us the size of the index business overall? I know it's - -.

The index business, it's a very strong business but obviously compared to the total, it is a relatively small percentage of the overall revenue. But a highly profitable one.

One last question switching gears. You mentioned some weakness in the supplemental business in literacy in particular. I'm curious if your assessment is that the overall industry is weak or if you might be losing share because Scholastic in particular has had strength in this area?

Right. Well as you know, we organize our supplemental and alternative basal products all into the McGraw-Hill learning group. This is a stellar group. And it has been growing at such enormous rates and benefiting from the No Child Left Behind legislation. We don't see a problem at all in terms of the product line not doing well or the sales and distribution capability. It's just year-over-year comparisons are very tough for us. And we don't see any discontinuity in this group. In fact, just the opposite. The whole promise of the education reform movement is refocusing on the urban centers. And in doing so, this is going to be our lead capability to be able to continue to accelerate on this. This is a group that has literally in a very short period of time doubled its revenues.

Great, thank you.

Thank you, our next question comes from Fredrick Searby with J.P. Morgan.

A copple questions. It looks like another MVP year for you guys. But European issuance was off, was down and it's interesting that you implied and maybe you said this explicitly in the press release I didn't pick up. But you said you overcame. So, were European revenues actually up in spite of issuance being down? Would be one question. And maybe another way, another question is; what percent in the quarter or for the year would you expect of the revenues at Standard & Poors to not be tied to new issuance volumes, relationship pricing, ETF's, equity and all of that? Can you give us some sense there? And in spite of the great quarter, one minor negative, of course, was on the university side. I was surprised that the number wasn't higher if you look at some of the official statistics. I thought there was a pickup coming there. And if you could give us some sense of where we're going there and why you didn't catch the uplift or why the uplift isn't occurring for everyone.

Okay. On the European side, yes, again, it has to do more with the size of the deals and the breadth of the categories that are being done, but overall issuance was down what, 16.3% in Europe. And we don't break out the revenue base up and down. But up is a good word on that one. So, we're not concerned about the third quarter issuance level. The structured finance market is very aggressive in Europe. And I think that is going to continue for some time. We're also seeing, you know, a pickup in corporate behavior. And so corporate activity I think, you're also going to see some results. I think it's more on the issue of timing in all of that. But Europe is still the most important region in terms of revenue recognition and will be for some time. And that is only going to be a market that is going to get stronger in our opinion.

On the latter point, the higher education side and university, yes, it surprised us a little bit as well. Because we got off to such a strong start, especially in the science and engineering and mathematics side. And last year the comparisons - - it was a very good year. And the comparisons were against the business and economics recycles, which were doing really well on this one. But science, engineering and math were - - is where we're getting the higher performance from. I think it's a little bit of comparisons year-over-year. There's going to be more in the fourth quarter and there's an issue in timing in all of that. From a return standpoint, everything like, that we're not seeing anything out of the ordinary relative to our cycles on that part.

So, I think it was a little bit of a catchup and could be timing. But we'll see. We have higher expectations obviously into the fourth quarter and some of the spilloff. The other encouraging part obviously was the strength on the elementary high school side and the expectation for more in the fourth quarter there. So, what we're seeing now in the activity that we see, we moved up what the market will do from 3% to 4% to 5% to 6% percent. And for the third quarter we were 3.3 and we will be at the market by the end of the year. So the fourth quarter is going to have more to it.

So if I read the ruins here, the fourth quarter, we should see kind of a mid-single digit type university number?

No. I mean, I think that, I think that we're going to benefit in the fourth quarter, and we are going to get up to the 5%, 6% level. So, we're obviously going to see growth.

Great. Thank you very much, Terry.

Thanks.

Our next question comes from Brian Shipman from UBS. Please go ahead.

Thanks, good morning. You mentioned that you thought new adoption opportunities now in 2006 look to be in the 700 million range. Hurt a little bit obviously, by the hurricanes. But you also mentioned you thought you'd make some of that up in orders for replacement textbooks. Could you give us a sense of what you thought the total adoption sales could be including residual sales in 2006? And also if you'd take a stab what you thought pinning down what you thought total open territory states might produce in 2006? Thank you.

Brian, we're still in the process of adding it all up in 2006 in the planning. The adoption area, I think you've got a pretty good number. And it's a very fluid situation. And obviously given Louisiana and Mississippi and some of that effect, we were saying 750 to 800 million and then we said probably closer to 800 million. Given some of those dislocations, I think it's - - right now if you had to lock in a number, I would say it's probably 700, maybe better than that on that one. But then you have to factor in too the replacement monies and associated with some of these postponements. So it's a pretty fluid situation. But I would say that based on what we were giving before 750 to 8, you're probably talking 700 and north at this point. In terms of open territories, we saw great growth in the open territories. Last year's residual sales were a very important part of that. We're seeing good growth this year albeit a little bit slower than last. And our expectation as we start to build again to latter half of this decade in terms of the aggressiveness of the adoption schedules and so forth we think residual sales in 2006 are going to be very important to the overall scheduling. And therefore we would - - our expectation at this point would be that we're going to see higher growth open territories.

So, do you think the overall market can grow again in the high single-digit range to even 10% again similar to '05?

That's a pretty - - again it's pretty early on for us in getting there, but that's pretty aggressive number, Brian. I don't see that.

Terry, if I could add to that. Brian, just with regard to the $700 million forecast that we have for adoptions. That number came down because of as I mentioned Mississippi. Louisiana.

Right.

And we're forecasting adoptions for them of about 60 million that will be moved to 2007.

Correct. Right.

But also there may be some moneys spent for replacement products but we don't necessarily know how much that is.

Correct.

So, with a reduction in the adoption calendar from that level from this year's roughly 930 level, it would be difficult to get to the growth rate that you were forecasting.

Yes. As you take a look at the schedule, for the out years, clearly 2006 is a lighter adoption year overall. 2007, '8 and '9 look very aggressive on that part. And, of course, you're always leading in terms of development of those products. And we're already into 2007 product now on that part. So, overall a very good situation. And we just have to see through the fluidity of events here what replacement monies come in, what postponements and so forth.

Very helpful thank you.

You bet.

Our our next question comes from William Bird with Citigroup.

I was wondering if you have an organic revenue growth number for financial services? And you provided a lot of detail on Texas, which was great. I was wondering if you could just clarify; were there any Proclamation 2001 sales? And was roughly a quarter of the Proclamation 2002 funds spent? Thanks.

Okay. Let's go to the organic growth. As you know with Standard & Poors because of the very nature of what it does, the major of that activity is organic growth. The acquisition activity are coming in two areas where we're strengthening information content platforms. And the other is in the global infrastructural development. And what you're seeing is these are modest investments, given these countries. But it is building out on the overall network capability to go deep within that country but also very important in terms of the cross border activity as well. So, that's basically where the acquisition has come. As you know from the numbers that Bob was giving, those are relatively small compared to the majority of what S&P does, which is organic growth. On Texas, we have seen a good portion of the 295 being appropriated. And we've benefited nicely from that. Mot all of it has been completed and we expect more to flow into the fourth quarter on that part. But, again, it's a little bit of an elusive number not only what is remaining from their standpoint but also what our share of that portion is. Bob, do you want to - -?

Yes, I'll just say a couple points. Just about all the Proclamation 2001 shipments occurred in the third quarter. There's just a little bit hanging over.

That's the 140 million.

Yes, and a relatively small amount from our vantage point. The 37.5 million that I mentioned earlier that we shipped in the quarter is about roughly 40% to 50% of what we expect to sell under proclamation 2002. But as I mentioned, we're not certain that all of that will occur in the fourth quarter. Some very possibly could fall into 2006 because the school year has obviously been underway for two, three months so it's possible that some school districts may elect to defer shipment in the fourth quarter and wait until next year. But still within the fiscal year to purchase those materials and start either in the second semester or start the following year. We still expect them to complete those orders but we're not certain of the timing of those.

And just to clarify on a prior question on the El-High market, would you expect the overall El-High market to be up in 2006?

Yes.

Thank you.

Thanks, Bill.

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

Just a couple follow up ones in the education space. Maybe Terry, if you could put a little more color around open territory growth both for '05 and '06 relative to what you saw last year? Even some percentages or ranges would be great. And also in the press release you mentioned continued growth in Reading First dollars. Maybe some more color upon what the contribution is there there or what the growth rates of those dollars have been recently. And is there anything that would change the view of that going into 2006?

Okay. Brandon, again, with open territories, you're really talking about either initial sales or residual sales. And usually when you see the large states participating, the Californias, Texas, Floridas, New Yorks, et cetera, what you're going to see in those adoption disciplines that in the year - - the out year - - the first two out years that you're going to see probably more sales in those open territories. When you have a lighter year with the big states, you're probably going to see softer open territory sales. Now, again, that's a simplification and we've got to be careful with that. But from our standpoint our expectations is that with open territories it's a little softer this year than last year but still strong in our terms. That next year we think it will be better because of the residual sales aspects. So, that would be our expectations on that one.

The other one was on Reading First. Yes, rEading First continues to be well, because states understand it. And they also understand better what programs work. They're going after research based, proven to work product. And the competitive advantage factor that one has to have to compete in that market is that you've got to be able to prove that it is research based and proven to work. And that's what we've been able to do. And that's why open day court and everyday mathematics and impact mathematics and those products have done so well. But the growth in the urban markets and the sophistication - - or the growing sophistication of the understanding standardized instruction materials is what Reading First has really pushed. It has pushed the whole notion of standardize the instruction in an urban market. And that is what we've benefited from and will continue to benefit from on our part.

As far as 2006, again it's too early to get into it. The adoption number, we just went through on this thing. We think open territories is going to be a little bit higher. But it is not going to be growing at 2005 levels. But we're gearing up as well not only for the residual open market - - open territory sales for next year as well as the adoption but also for 2007 product as well, which will be a very aggressive year.

Okay, and then I want to follow up maybe for Bob. If you look at the education segment year-to-date, obviously, good margin expansion up a 100, 150 basis points. But as prepub amortization has come down, I'm just trying to get a sense for how you guys look at the investment needs relative to margin expansion opportunities. If strip out the amortization the margins I think are down about the same amount, 100, 150 basis points. I'm just trying to get a feel for how we should model those two factors as we think about the longer term dynamics in that segment?

Yes, the prepub investment obviously as very, very important component because that's your life blood to develop those - - the right kind of products and services to meet the market needs. We're focusing very hard on that because as you aptly point out those numbers come in the way of prepub amortization in the income statement. So, to the extent that we can focus on efficiency measures in how we develop our programs, how we make certain that we have the right kind of products and services but done in a fashion that meets both the print needs as well as the online or electronic needs, all up front, we benefit long term. So we've got a number of initiatives. We're looking at activities with regard to how we source our materials, and we're trying to be much more efficient on it.

We're approaching it from a more global perspective in terms of how we source our activities. But also from the standpoint of development of a program. We're taking a posture with regard to the development of these programs and making decisions up front that will affect future electronic components of these programs as well as the print side. So, what you're going to see from us and what we're focusing on is a greater level of efficiency on our dollar spend. So, we hope to spend less or spend smarter on these programs and still achieve the same types of levels of penetration that we are going after or perhaps even greater. So hopefully, what we want to see is the benefits that we're going to be accruing from our prepub investments fall right into better prepub amortization. And that's, quite frankly, why modestly we have a $20 million reduction in our prepub investment this year, just simply because of some of the those efficiencies that we put in place earlier this year.

So, as we think about the cash flow dynamics and the business longer term, is it safe to model a kind of a structural decline from what we've seen prepub over let's say a previous three to five years cycle. If you look out three to five years there should be a kind of sustained or persistent decline in that number relative to K/12 revenues or education segment revenues?

Our objective is be efficient. But I think what you have to factor is; what is the adoption calendar going to look like? So looking at, for instance, 2007, which is a very big year, we would spend x, we would expect to spend x less our efficiency levels. So, it's not necessarily a linear number that you'd be looking at because of the adoption calendar but clearly we expect to spend less per program and deliver more.

Appreciate it. Thanks a lot.

Thanks, Brandon.

Thank you, our next question comes from Steven Barlow with Prudential.

Thank you. Can you give us the operating profit number and revenue number for CVC now that you have sold that so we can strip that out for next year? And then if you'd talk a little bit more just about JD Power. I guess it was my original impression when you bought it was a seasonal and the fourth quarter was the largest quarter. Can you sort of elaborate on that? And would it be accretive to earnings in the fourth quarter?

Let me address parts of that. CVC's fourth quarter is generally a little bit bigger. So - - because of the fact that it's coming out doesn't necessarily benefit us. But instead of getting into the profits and losses there, revenue-wise I guess I can talk to revenue-wise. Last year the revenue of CVC on an annual basis was about a $100 million. It's a bit higher because of the acceleration with regard to M&A activity. But the margins are significantly lower than our core financial services segment. So, if you look at the performance of financial services excluding CVC, there is a margin pick up. Which follows with the strategy that we've been employing over the past few years of divesting businesses that may not necessarily have the same growth trajectories as our businesses and also carry lower margins.

And Steve as you know on the CVC that was an acquisition that we were very excited about the because of the fact that the SEC was the one that was limiting accounting and audit firms to go into certain consulting and advisory businesses. And it gave us an opportunity to consolidate a tremendous platform in the valuation capability, which is a competency that we have. That did not take place. The SEC didn't follow through on some of those. And therefore, the growth opportunities albeit I thought pretty good, were not what they were when we acquired it and, therefore, we had the opportunity to divest on that part.

JD Power please.

JD Power in terms of quarterly contributions, on that one, is going to benefit fairly evenly over the year. It's going to look - - it's going to be tied obviously because of 65% of its business tied still to automotive cycles on that one. So you are going to see a little bit more second half completion as auto manufacturers are trying to unwind inventory. So, you're going to see some on that part. But, again, JD Power is in an investment mode. We're aggressively going after the nonautomotive side, which is not going to be a part of that automotive cycle. And obviously the consumer side in Asia-Pacific. So, I don't think at this point you can really make a distinction that the fourth quarter would be a higher contribution component to it.

Okay. And since you sort of mentioned returns, which is one of the reasons you got rid of CVC, is there anything in the media information portfolio particularly that doesn't look like it's a long term keeper?

Well, everything that's in the portfolio is as a keeper until it's not on that one. So, we are committed to growing those businesses and improving those businesses and that is exactly what we're going to do. But, again, if we do not think that we have the growth potential in a particular area, or to be able to achieve a sufficient margin level then it becomes a candidate on that.

And lastly, Bob, do you have options expense for '05 and a forecast for '06?

Options expense for '05 which you'd see in the foot notes, would be roughly, on an annual basis around $0.12 . And as we're looking at modeling our figures for 2006, Terry and the HR team are working on differently strategies, a combination of restricted shares as well as options at different configurations for different groups within the organization. But focusing on the total dollars that are being spent in 2005 and being in line with 2006. So the component pieces are going to change. But I think the key is that we're focusing on dollars spent this year versus dollars spent next year.

Okay, thanks.

Thank you. Our next question comes from Michael Meltz with Bear Stearns.

Hi, it's actually Bobby Hinn for Michael. Just a couple questions for you. In Business Week regarding the circulation situation there, are you issuing a rebate to advertisers and are you considering lower the rate base? And also for JD Power, if revenues were up 51 million in the quarter, what was the growth year over year?

Bob, you can have the latter one. I'll take the first one. Business Week, with ABC, we did have a payment. We have made that payment and it is paying for back, what, five years in terms of that audit? It was a modest amount on that part. In terms of the rate base, there's no change - - no planned change on the rate base at this time. In fact, one of the things that we've been heartened by is the fact that we've seen such strong circulation numbers. And that is a function of the fact that we believe the editorial product is very solid on that part. But the rate base at this point at 975 is where we're at.

With regard to JD Power, we're really encouraged by the performance of JD Power since we've owned it. Not ust the third quarter but also the second quarter as well. And the things that we're really excited about is the growth in both the automotive as well as the nonautomotive side. JD Power is - - when we were involved in negotiations, we focused hard on the annual plans that they had put together this year. And they are tracking very close, very, very close to their top line projections for their annual plan. Of which, of course, we're only going to be recognizing 3/4 of that annual plan. So without getting into the specific growth rates what I can say to you they had a very nice attractive growth in all parts of their business. Both automotive as well as the nonautomotive piece. And we're realizing that this year.

If you can't give the actually growth rates could you kind of I guess maybe compare it to other segments of the Company?

I'm sorry. I didn't get that.

Is it, would you say the growth is comparable to say growth at like financial services or maybe if you can compare it to other segments in INS?

JD Power right now is part of the B to B reporting segment. And as we've addressed certain other questions earlier today, we don't break out certain components. And JD Power with regard to growth rates etc,, would not be broken out. The reason why JD Power was discussed as prominently as it was; was simply because it was a large acquisition relative to the overall performance of that particular segment. But again, it's part of that information media services segment. And I just want to emphasize that with regard to the overall performance, we are tracking against the annual plan that they had put together prior to the acquisition of JD Power.

And at the upper end.

And at the upper end, Yes.

Great, thank you.

Thank you, our final question comes from Jim Baker with Neuberger Berman.

I just wanted to ask two questions. One you've talked about your long term goal of getting the margin at education, I believe Terry, back up towards 20%.

Right Jim.

I don't think you discussed that today. But do you still see that as the goal? And perhaps within what time frame might be realistic to consider that? And in particular, for next year, for 2006, with the revenue growth slowing down, do you still see the possibility of good margin improvement in that segment? That's my first question. The only other one is just a quick one for Bob. Whether he could give us year to date the cash flow from operating activities for the nine months and perhaps a projection for the year?

Yes. Thanks Jim. Yes. The margin objective, the 20% by 2010 is exactly on target. That's we plan to be able to achieve. And there's a number of things. Bob alluded to some of the costs restructuring and some of the benefits from global transformation projects in terms of how we go about producing the materials, the online component and the stronger pieces there that are higher margin. And so I think that we are definitely no change in that plan. As far 2006 goes; again to the extent to which you can, we are obviously very conscious of the fact that it is not going to grow - - the market is not going to grow at the same level that it did this year. And therefore, expense controls are there. And so our hope is that we will continue to see the kind of improvement that we want.

Jim, with regard to the cash provided by operating activities, the 10-Q will be filed shortly. But to give you the highlights, the 2004 cash provided by operating activities was 553.2 million. And this year it's 897.3 million.

And those are year to date numbers?

Yes.

And any sense of what it could be for all of 2005 Bob?

No. I'm not really projecting because as you know there's a lot of ins and outs that can influence that. But we're very pleased with that cash performance so far this year. And we expect it to continue. But it's difficult to project that out at this point.

If that's it, again, thank you for your attention and your interest in the McGraw-Hill Companies. We're very pleased with the third quarter. And it gives us the strength now that our guidance for 2005 is in great shape on that part. And thank you for your interest.

Thank you. That concludes this morning's call. On behalf of the McGraw-Hill Companies we thank you for your participation. And have a good day.