標普全球 (SPGI) 2009 Q1 法說會逐字稿

Good morning, and welcome to the McGraw-Hill Companies first quarter 2009 earnings call. I would like to inform you that the call is being recorded for broadcast, and that all participants are in a listen-only mode. We will open the conference to question and answers after the presentation, and instructions will follow at that time.

To access the webcast and slides, go to www.McGraw-Hill.com, and click on the link for the Earnings Announcement conference call. At the bottom of the webcast page are three links, click on Windows or Real Media if you want to access the slides and audio on your computer. If you only want to view the slides, and plan to remain on the telephone, click the third link with the telephone icon. If you need technical assistance press star-zero, and I will assist you momentarily.

Now I would like to introduce Mr. Donald Rubin, Senior Vice President of Investor Relations for the McGraw-Hill Companies. Sir you may begin.

Thank you, and good morning to our worldwide audience, and thank you for joining us from McGraw-Hill Companies first quarter earnings call. I am Donald Rubin, Senior Vice President of 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.

This morning we issued a news release with our first quarter results. We trust you have all had a chance to review the release. If you need a copy of the release and financial schedules, they can be downloaded at www.McGraw-Hill.com. Once again, that is www.McGraw-Hill.com.

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 may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including projections, estimates and descriptions of future events. Any such statements are based on current expectations and current economic conditions, and are subject to risks and uncertainties, that may cause actual results to differ materially from results anticipated in these forward-looking statements.

In this regard, we direct listeners to the cautionary statements contained in our Form 10-Ks, 10-Qs, and other 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 that questions from media be directed to Mr. Steve Wise at our New York office at area code 212-512-2247 subsequent to this call. Today's update will last approximately an hour. After the presentation, we will open the meeting to questions and answers.

It is now my pleasure to introduce the Chairman, President, and CEO of the McGraw-Hill Companies, Terry McGraw.

Thank you very much Don. Good morning everyone, and again welcome to our review of the first quarter results, and the outlook that we have for 2009. As Don mentioned, with me today is Bob Bahash, our Executive VP and Chief Financial Officer, and on today's call I will be reviewing the operating results, and Bob will provide an in-depth look at our financials. Earlier this morning we reported first quarter earnings, diluted earnings per share was $0.20. Revenue was $1.1 billion, down 5.7%, compared to the same period last year. Given the seasonality of our business, the first quarter is typically the smallest of the year, which means nearly all of our earnings in 2009 are still to be achieved.

With the biggest part of the year ahead of us, we will spend time this morning discussing the outlook for the McGraw-Hill Companies, and the importance of cost containment in this kind of environment. We are hopeful that the economy has already absorbed the biggest blows, and may be bottoming out, if not now, by some point this summer. The pace of decline has slowed, and there are now indications that the second half will look much better than the first half.

We are carefully monitoring the Federal government's efforts to support the financial sector, and restore confidence in credit markets. Federal Stimulus programs also have an important role to play in helping states resolve their fiscal problems, and improve the outlook for education budgets. Gauging the impact of the Federal initiatives on our markets is important, so we are going to spend time this morning assessing recent developments, and what they may portend. And we have a lot of ground to cover, so let me get started.

Let me begin with McGraw-Hill Education. In the first quarter our results reflected the seasonally slow start in the elementary-high school market, strong second semester ordering in the US college and university market, and the impact of foreign exchange on our international business. For the segment in the first quarter, revenue declined by 5.3%, stringent costs containment helped cut the operating loss by 15.7%, and improved the operating margin by 300 basis points.

Revenue for the McGraw-Hill School Education Group decreased by 11.6%, and revenue for the McGraw-Hill higher education Professional and International Group was off 0.7%, in constant currency this group grew though at 6.2% rate. The education market this year is still sending mixed signals. In the US college market enrollments are growing, and we still expect the market to grow by 3 to 4%, and we expect to match that growth rate. In short, we are still on-track to benefit from the counter-cyclical performance of the college and higher education market.

In the elementary-high school market the outlook is more difficult to call, because it is nearly impossible at this time, to gauge the impact of the Federal Stimulus plan on educational spending. Without the benefit of Stimulus the elementary-high market would decline this year by 15%, and possibly as much as 20%. A softening state new adoption market is contributing to this decline. The 2009 state new adoption market was also expected to be down, because Texas is not buying new materials. A couple of months ago we estimated the market for the state new adoptions to be 675 million to 725 million range.

Now however, we believe that a projection of 550 million to 600 million is more realistic. This represents a decline of more than 35% from last year. We are adjusting our estimate because of reduced opportunities in two key adoption states, California and Florida, where many school districts have decided to postpone purchasing for budgetary reasons. The key word here is 'postpone.' To be clear, the new estimate does not take into account the potential impact of any Federal Stimulus package, which could make a meaningful difference in some states and some product categories.

The first Stimulus funding to reach the local districts will take the grants for IDEA special education programs, and Title I programs for disadvantaged students. Although the districts must observe certain guidelines, they will have wide discretionary control over the use of the funds. We have conducted an outreach effort to schools nationwide, to provide information about the grants, and about McGraw-Hill products and services, that would be appropriate for purchase under the guidelines.

The first installment of these grants was released by the US Department of Education on April 1. That would be $6 billion for IDEA programs and 5 billion for Title I. By law, state level agencies can keep only 4% of these funds for administrative costs. They are required to distribute the remainder to eligible districts expeditiously, which should be some time in the second quarter.

Beginning in July, a second round of IDEA and Title I grant for the same amount, 6 billion for IDEA and 5 billion for Title I will also be distributed, later in the second quarter we expect to have greater clarity on the state's plans for using their shares of the $53.6 billion fiscal stabilization fund.

This fund is intended to help the state restore cuts made to their education budgets as a result of the downturn, saving teachers' jobs is expected to be the primary focus of state spending, but the money may also be used for instructional materials and assessment programs. The first round of this funding totaling 32.5 billion will be distributed on a state by state basis, on April 1st the states received applications that must be completed by their Governors and approved by the US Department of Education before those allocations are released.

The stabilization grants come with stringent reporting requirements. The Department of Education has warned that each state will receive a second allocation from the fund, only after it's use of the first round has been evaluated and approved. At this time it is almost impossible to predict the impact of the stabilization funding, because state spending pattern plans, and the related timelines will all vary. We could see some incremental sales funded by IDEA and Title 1 grants in the second quarter. However the grants are likely to have the greatest impact in the third quarter.

We are very well-positioned in both the special education and the Title 1 markets, and we expect to capture a significant share of district sending on instructional and assessment programs. The new fiscal year starts for 46 states on July 1. Education budgets are still taking shape in most legislatures. These new state budgets will play a major role in determining the volume of purchasing in the second half of this year.

There is yet another variable that will affect educational funding in 2009. In mid-March, the President signed an Omnibus spending bill, that included a final fiscal year 2009 budget for the Department of Education's discretionary programs, which had been temporarily funded at 2008 levels through continuing resolutions by Congress.

The new budget provided for the first significant increase in several years, raising total spending by 7%. Important beneficiaries were the IDEA program for special education, with a 5.5% increase, to 11.5 billion, and Title I for disadvantaged students with an increase of 4.3% to 14.5 billion. These sums are in addition to the funds already provided through the American Recovery and Reinvestment Stimulus Bill.

Judging by everything we have heard, the Administration's long term educational priorities create very favorable opportunities for educational publishers. On the most basic level the increases in federal assistance, especially from federally mandated programs such as IDEA, will remove some of the financial stress from state and local educational agencies, which in recent years had to meet inflationary increases out of their own pockets.

Beyond that, the proposed commitment to early childhood education should enlarge a market our Company is well-prepared to serve. In addition, Secretary Duncan's office has promised that there will be a broader program of support for primary grade reading.

There is also new emphasis on college and work force readiness preparation, which will help revitalize areas of the secondary curriculum. These developments bode well for education. They also underscore what most politicians and corporate leaders already understand, that investing in education is essential for the US to remain globally competitive.

In the short-term, we have to deal with some funding pressures, and that means cost containment will be a priority for us all year. The majority of the first quarter's elementary-high sales for the industry, as well as for McGraw-Hill School Education Group, are made up of residual and supplemental purchases, categories that have been under pressure for several months.

North Carolina is the only adoption state that places substantial orders for new materials in the first quarter, and our success in the state last year made year-over-year comparisons more difficult. North Carolina also reduced the size of it's math adoptions this year, by postponing the 6 through 12 purchasing, and electing to buy only K-5 materials. We are not taking significant share in this adoption. Overall, however, we expect to be very competitive in this year's state new adoption market, and our goal is to capture 30% of the total available dollars in this market.

The largest state new adoption opportunities in 2009 were offered by the first year K-8 reading and literature, and second year K-8 math adoptions in California, and the first year 6-12 reading and literature adoption in Florida. As I pointed out earlier, these markets have softened. Both states give school districts two years in which to buy newly state listed materials.

In both states nearly 80% of the districts have decided to postpone new basal purchases until next year. California districts that were due to buy math in the second year, have been requested and receiving waivers, to postpone these purchases until a third year. These decisions represent a significant departure from historical implementation patterns. Furthermore, the legislature in both states have enacted temporary flexibility provisions, that will allow districts to use 2009 instructional material allocations for other educational purposes if they choose.

It is probable that the Federal Stimulus funds that will be distributed in the second and third quarters, will cause some districts to reconsider their decisions, but it is impossible at this time obviously to predict whether the Stimulus funds will wholly or even largely reverse the trend towards postponement.

Fortunately, McGraw-Hill is strongly positioned in other adoption states, specifically, we are doing very well with reading in Georgia, science in Tennessee, social studies in Indiana, and math in South Carolina, Kentucky, and Oregon. And even though there are fewer opportunities in California and Florida, we expect to capture meaningful shares of the available business in those states. All things considered, the Stimulus funds and the postponements will have a positive effect next year, when we expect the state new adoption market opportunity to hit $1 billion.

The 2010 new state adoption market will be driven by Texas K-12 reading, literature and language arts. The Legislature is currently in session, and will set the next biannual budget. The situation is still fluid, but there is support by the Governor and the Senate for full funding through the use of Federal Stimulus funds.

Florida K-12 math for 2010, the new math standards have been issued by the state Department of Education for use in annual summative tests, those are the high stakes tests. The current math materials in Florida classrooms do not align with the new standards. Attempts to delay the math adoption have been turned back.

California second year reading, normally California spends at least 40% of it's adoption dollars in the first year, and 40% in the second year. In 2009, only 20 to 25% of the first year of reading adoption will be realized. We expect about a 40% buy in 2010. And because of delays in the second year of the math adoption, we expect incremental purchasing in that discipline, too.

So better days lie ahead in the state new adoption market in 2010, followed by another promising state new adoption schedule in 2011, we continue to estimate that 2011 opportunity will top 1 billion as well.

In testing, we continue to make progress with acuity, that is our formative assessment program. LAS Links, our assessment program for English language learners, and Tab A Class E, which measures English language proficiency in adults. We have just won the first state-wide adoption for this new product in Arizona. We are getting marked feedback that the Federal Stimulus funds will be a plus for testing.

Some states that were considering cutbacks are now planning to keep programs in place, or to resume programs that have been cancelled. Acuity and LAS Links should benefit from new Administration's focus from real-time assessments, and the availability of Stimulus money. Both products fit well within the Federal guidelines for Title 1 and IDEA spending. All right.

In the US college and university business, we saw solid first quarter growth in revenue, for both traditional and electronic products. Sales in this period reflected the success we experienced in last fall's campaigns for second semester sales. All major disciplines showed improvement, with the greatest percentage gain occurring in for-profit post-secondary market. The quarter-over-quarter comparison also benefited this year from a timing shift, as more orders moved from December into January and February.

As we pointed out earlier in these remarks, the US college market is poised for more growth this year. We have widespread reports of increased enrollments at post-secondary institutions across the country. The largest increases are occurring in public, rather than private schools, and particularly in community colleges, where students concentrate on developing specific job skills.

The Federal Stimulus package contains several provisions that will help post-secondary students meet expenses. The maximum Pell Grant Award for eligible students has been increased from 4,731 to 5,350. There is an increased support for work study programs, affording students part-time jobs on campuses. Students or their families will be able to claim a tax credit of up to $2,500 for tuition and related expenses, including course materials. With the approval of the Department of Education, states can use some of their Fiscal Stabilization Fund grant, to restore cuts in their higher education budgets.

In Professional markets, economic conditions have led retailers to reduce inventory and limit new orders, but digital products in both the higher education and professional markets continue to produce double-digit gains. So summing up for McGraw-Hill Education, without factoring in any benefit from the Federal Stimulus package, we see a 15 to 20% decline in the elementary-high market, and a 3 to 4% growth in the US college and university market.

For the segment we now project a revenue decline of 7 to 8%, versus our previous guidance of low single-digit decrease in revenue. But we are maintaining our previous margin guidance of a 300 to 400 basis point decline, excluding the 2008 restructuring charges. This implies low single-digit decline in expenses, and an operating margin of 9 to 10%. And again, we are not putting any factor at this point of any Federal Stimulus monies into our forecast. We will see as we get into the second quarter.

In Financial Services, surging investment-grade corporate issuance, primarily in the industry sector, weakness in structured finance, and modest growth in the S&P investment services were key factors in our first quarter performance. For the first quarter revenue declined 5.3%, operating profit decreased 12.3% and the operating margin was 38.0%. Revenue for the S&P credit market services was off 8.4%, and revenue for S&P investment services was up about 1%.

Conditions in the bond market remain unsettled, although some see the pickup in the first quarter, corporate issuance as a sign that confidence may be returning to the credit markets. Increased corporate activity and the establishment of a series of government-led programs, to provide attractive terms for issuers and investors, are certainly welcome developments. US government programs now cover virtually the entire funding mix in financial markets, and the programs are for commercial paper, termed unsecured debts, deposits, secured borrowing at bank and broker dealers, as well as equity capital.

By now, we have all heard the initials of most of the programs, including TALF and TARP and TLGP. It is not surprising these government efforts have been labeled the acronym credit market relief program. At this point, it is fair to say that these programs had been most helpful. Obviously any actions that help restore confidence to the market, are obviously welcome.

But for now, the programs have had only a modest impact on our business, and while we are not expecting any windfalls from these programs, we are committed to working with policymakers and market participants around the world, to help get capital markets on track. In an effort to stabilize the short end of the market, the Federal Reserve implemented four programs, designed to help the asset-backed commercial paper markets. These programs have been extended through October, and generally have been effective stabilizing, or have been effective stabilizing the short end of the market is obviously going to help the stability of the longer-term credit.

As this graph shows, we have not seen any increase in asset-backed commercial paper issuance. We have seen the Termed Asset backed securities Loan Facility, or TALF, produce some modest activity in the first quarter, because the deals are big, they are subject to fee caps. In the first quarter S&P was paid less than one basis point for rating $7 billion worth of TALF eligible securities.

We understand that after a disappointing April, a bigger round of funding for TALF program is shaping up in May, and these include deals for student loans, credit cards, auto loans, auto leases, and such in the asset backed area. The FDIC's Temporary Liquid Guarantee Program, or TLGP, had a more significant, but still modest impact on our business than TALF. The TLGP encouraged the issuance of rated deals, based on government guarantees.

As this chart shows, the first quarter increase in the issuance of US corporates was a key element of S&P credit market services performance. US corporate new issue dollar volume was up 13.9% in the first quarter, driven by a 23.4% increase in the industrial sector. If you look at the issuance sequentially, corporate new issue dollar volume in the first quarter in the United States market, increased 69% over the fourth quarter of 2008. Industrial issuance was up 143.4% sequentially.

Four factors contributed to the pickup in investment grade corporate debt. Pent-up investor appetite for yield, a rebound in merger and acquisition activity, refinancing as many corporations addressed maturing long-term debt, and a narrowing of spreads since December.

In Europe, low short-term interest rates, and an aversion to equity risk, fueled investor appetite for high-grade bonds. A lack of new money from banks, and corporate decisions to avoid refinancing risk over the next 18 months, produced a single quarter record issuance of $220 billion in Europe for industrials.

In today's market, liquidity is a key. Solid companies with strong balance sheets can borrow at reasonable rates, but the market has not been open to everyone. Many lower-rated companies must pay steep rates to borrow, and others are shut out completely. In the industrial market, issuers and investors remain cautious, and issuance is expected to remain lumpy, until stability returns to the financial system.

For financial institutions, times are still not normal. Banks are deleveraging balance sheets and shrinking liabilities. We expect this trend to continue. Despite pressures on the banks, we expect modest lending growth. Banks want to maintain franchises, here too government aid packages are encouraging banks to support local economies. LIBOR spreads remain the relative cost of funds benchmark, in recent months we have seen LIBOR rates stabilize.

US speculative grade issuance jumped by 55% in the first quarter, but there were not many deals. Under current conditions, we expect speculative grade issuance to remain somewhat limited. Public finance tends to be counter-cyclical to the US economy, and the fundamentals point to another good year in issuance, assuming interest rates remain relatively low. Rating requests for state and local governments continue at a steady pace. But I also must point out that the second quarter issuance last year was the largest in muni history, so the immediate comparisons now are challenging.

As this chart show, there was not much activity in the US structured finance market in the first quarter. The structured finance market will be challenging probably all year, both here and abroad, with continued weakness in most asset classes, with the exception of the asset-backed market. In the US residential mortgage backed security market, activity takes the form of re-REMICs, as the financial institutions seeks ways to improve capital requirements. Government programs like TALF and PIPP may stimulate some of that transaction volume.

In the first quarter there was no activity in the commercial mortgage backed securities market. And while spreads have tightened recently in response to government intervention, they are still too wide to produce new securitizations. This market will return, but slowly. By comparison the pipeline and the asset-backed securities market looks relatively healthy. As I pointed out earlier, the TALF program is having some impact here. We anticipate further recovery if credit markets continue to stabilize. The market for collateralized debt obligations will be muted all year.

Unsettled conditions in credit markets reduced transaction revenue in the first quarter by 18.3%. Our report of transaction revenue at S&P now includes bank loan ratings and corporate credit estimates, as well as publicly issued debt. Non-transaction revenue, which accounted for almost 72% of S&P's credit market services revenue was off only 3.8% in the first quarter. Non-transaction revenue again includes annual contracts, surveillance fees, and subscriptions.

But the main factors for the first quarter's decline were the impact of foreign exchange, and a reduction in fees on cancelled transactions, breakup fees. Bob will review non-transaction revenue in more detail in just a moment, and why we now expect it to decline slightly this year, versus our previous guidance of 1 to 2% growth. We are maintaining our guidance of a 10 to 12% decline in transaction revenue, as comparisons get easier in the second half, and foreign exchange comparisons will not be as challenging.

S&P credit market services international revenue declined by 13% in the first quarter, but was off only 3.9% in constant currency. That compares with a 4.2% decline in credit market services and domestic revenue. For S&P credit market services we now expect a low single-digit decline in revenue, versus our previous guidance of a slight decline, in a face of the credit market conditions that I have described so far this morning.

Revenue at S&P investment services grew by 0.8% in the first quarter, as gains at Index Services and Capital IQ, offset softnesses in investment research products for the retail market, and lower demand for fund management ratings from European funds. For S&P investment services that we now expect a single-digit revenue growth, versus our previous guidance of high single-digit growth for the year, in a contracting market we are seeing revenue decline for traditional S&P reference products for libraries, as well as industry surveys, and some of our directories.

It is clear that the customer base for capital IQ is feeling the effects of the recession, but capital IQ still added to it's client base in the first quarter, and now has more than 2,700 clients. The increase in the client base is 14.9% over the prior year, and 1.5% since the end of 2008. Index Services is demonstrating resilience, by growing even as assets under management in exchange traded funds based on S&P indices declined by 24.4%, to 158.6 billion at the end of the first quarter. Sales of data, increases in license fees from mutual funds, and the growth of over the counter derivatives all contributed to the improvement in Index Services.

We continue to find new ways to expand and grow our Index business. Last week we signed a license agreement that will lead to the creation of 22 new exchange traded commodity products, based on S&P GSCI, that is the Goldman-Sachs Commodity Index.

The S&P GSCI index is widely recognized as the leading measure of general commodity price movements, and inflation in the world economy. It currently contains 24 commodities from all commodity sectors. Six energy products, five industrial metals, eight agricultural products, three livestock products, and two precious metals. The agreement was signed with Source, which specializes in providing exchange traded products for European investors. The exchange traded products will be traded on the [Dorsch & Borsh].

I will wrap up my comments on Financial Services with an update on regulatory and legal issues. We continue to work very hard on the regulatory front, and we have made an awful lot of progress here. More to come.

On April 10th, additional SEC rules governing rating agencies went into effect. S&P has implemented new or revised policies to comply with these rules, including further separating separating staff, with analytical and commercial responsibilities, and confirming our longstanding policies and procedures, that employees shall not recommend to issuers, how they should structure transactions to achieve a desired rating.

As part of our ongoing dialog with policymakers, regulators and market participants, S&P last month published a paper, that lays out framework for rating agencies. If you haven't seen it, you can find a copy on the home page of S&P's website, www.standardandpoors.com. It is entitled 'Toward a Global Regulatory Framework for Credit Ratings.'

In early April in preparation for appearing on a panel at the SEC's Roundtable on Rating Agencies, S&P published another White Paper on business models for credit rating agencies. S&P believes the market participants should be free to choose from a number of business models, and that discussions of potential models, should really focus on the benefits and disadvantage each model brings to participant.

In examining each model the following key requirements should be addressed, certainly the highest should be transparency, prevention of the conflicts then, and then quality, breadth of coverage, market scrutiny, and of course, investor choice. And you can find that white paper again, on the home page of S&P's website at www.standardandpoors.com.

At the SEC roundtable on April 15, there were 26 panelists from the rating industry, academia, the financial services industry. At the end of the day, no specific actions were identified, nor was there any timeframe for any new SEC decisions on regulation. Additional public comments may be submitted to the SEC by May 15th.

The European Union last week moved to finalize it's approach to the registration and supervision of credit rating agencies. It will take the form of a regulation, a type of legislation that is directly binding on all of the European Union member states. After discussions among the European Council, the European Commission, and the European Union, a final text was approved on April 23rd.

It is not clear when the regulation will take effect, but it could be as early as July. And after it has been reviewed in detail by the European Commission's lawyers, and translated into all 23 official languages of the European Union. After that, the credit rating agencies would have nine months to adopt the necessary measures to comply with the provisions, and apply for registration in the European Union.

As far as formal procedural steps are concerned, a political sign-off by European finance ministers is likely to take place on May 5th, with a final sign-off of the text in October. After regulations come into force, the Committee of European Regulators, known as CESR, will within six months issue guidelines, including the application process, and treatment of ratings issued outside of the European Union. CESR has 9 months to issue guidelines on enforcement-type issues.

We expected more regulation in Europe, and now it is about to arrive. Clearly more will be required of S&P and other credit-rating agencies issuing ratings, which are used by European market participants. But the important take-away here is that on balance, the new regulations are very manageable, and represent a level playing feel for credit-rating agencies operating in the European Union.

But the European Commission's work is not over. Within three years of the regulation coming into force, it must deliver an assessment on how the regulation is working. What effect it is having on credit rating agency competition, and the appropriateness of the issuer-paid model. There will also be consideration of possible ways to enhance CESR's status, to give it a more fuller pan-European supervisory capability.

We are also entering a new phase on the litigation front. There will be an oral argument in connection with our motion to dismiss the Oddo lawsuit on May 13th. It is anticipated that oral arguments in connection with our motions to dismiss, other pending cases will be scheduled by the courts over the next couple of months.

Again, as we have said previously, the lawsuits fall into three three broad categories, the first are underwriter claims, and these are based on the Securities Act of 1933. This category includes a number of class actions by purchasers of sub-prime residential mortgage backed securities rated by S&P, as well as one case involving Fannie Mae ratings. These cases assert claims that Standard & Poor's is liable as an underwriter, or as a seller of securities under the Section 11 and/or Section 12 of the Securities Act of 1933, clearly S&P is not an underwriter or seller of any securities.

The Company intends to seek early dismissals of each of these actions. One underwriter case has already been voluntarily dismissed, and we were recently removed as a defendant from another one.

The second category, these are the McGraw-Hill shareholder claims, and these categories includes class actions under the 10B of the Securities and Exchange Act. We refer to this action as the Reese case. It has been brought up by purchasers of McGraw-Hill stock who allege the Company's statements about it's earnings and ratings business were misleading, a motion to dismiss this action has been filed, and we expect to present oral arguments again in the next couple of months. There are two other cases that involve essentially the same facts. We expect all the necessary papers will be filed with the courts by June.

The third category are the state law claims. These include a group of cases asserting state law claims, including fraud relating to S&P's ratings of a variety of securities, including SIVs, SIV lights, CDOs, Lehman Brothers debt. In one of these cases the Oddo asset management versus Barclays Bank PLC, pending in the New York Supreme Court, McGraw-Hill has moved to dismiss the allegations asserting First Amendment protection for it's ratings opinions, as well as other legal defenses under New York law.

In addition to the three categories already cited, there are other cases which include a complaint filed with HUD under the Fair Housing Act of 1968, and actions filed in Israel and Italy related to Lehman Brothers. The Company is currently preparing it's legal responses to those matters, and also will be looking for early release. In looking at this lineup of pending lawsuits, you can only wonder why some of our critics continue to make erroneous assertion, that S&P or other credit rating agents are somehow immune from litigation or potential legal liability. It is simply not the case.

We have always been subject to potential liability under the fraud provisions of the Federal Securities law. Moreover, over the years private plaintiffs have asserted claims under a number of additional legal theories, including the Securities Act of 1933, breach of contract, and a wide range of common law and statutory causative action. S&P and other credit rating agencies are also subject to ongoing regulatory scrutiny by the Securities and Exchange Commission, which also has the legal authority to sanction rating agencies.

The situation couldn't be clearer, that frequently repeated media sound bites by rating agency critics, simply do not match the facts regarding the legal framework, within which S&P operates on a daily basis. Importantly, we continue to assess the legal risk as low. We also do not believe at any new or currently proposed legislation, regulation, or judicial determination, would have a material adverse effect on our financial condition, or results of operations.

So let me sum up for Financial Services. A change in revenue guidance, but not in the operating margin. Low single-digit decline in revenue for S&P credit market services, single-digit revenue growth for S&P investment services. A slight decline in revenue for the financial services segment, a margin decline of 250 to 300 basis points, excluding the 2008 restructuring charges. Low single-digit growth in expenses versus our previous guidance of 6% growth. An implied operating margin of approximately 38% for 2009.

Now let's take a look at information in media. Certainly a decline in advertising, strength in global energy markets, and a revenue deferral, were all key factors in this segment's fourth quarter performance. Revenue declined 7.4%, operating profit decreased 76% ,and operating margin was down by 360 basis points. Revenue for the business to business group was off 5.7, and revenue for the broadcasting group dropped 22.9%.

In the first quarter 4.7 million of revenue, and 2.3 million of operating profit was deferred, and will be recognized ratably over a 12-month service period at J.D. Power and Associates. Bob will have more details on this deferral later, in just a moment. Advertising was soft at BusinessWeek, and with our construction and aviation publications as well. With two fewer issues this year in the first quarter, BusinessWeek ad pages obviously were going to be more impacted, and were down 39.8%. And that is measured by Publisher's Information Bureau, PIB.

In the business to business group, Platts continues to earn very solid results, with critical services for oil, natural gas, and power markets. In a volatile market, there is growing appetite for Platts real-time services, which include breaking news, market analysis, and price assessment. Demand also continues to grow for Platts dispatch. That is our end of day pricing service, with one click customers receive our end of day price assessments, third-party data, and a rolling 45-day historical database. And because the global energy market never sleeps, our service is available 24/7, 365 days year.

Turmoil in the automotive market impacted J.D. Power and Associates, and our broadcasting group. In broadcasting a decline in automotive advertising, contributed to the decrease in local and national advertising in the first quarter. Comparisons obviously were not helped by the predictable absence of political advertising in a non-election year. And therefore, summing up for information in Media, we now expect a decline by 5 to 6%, versus our previous guidance of a low single-digit decrease in revenue. But we are maintaining our previous margin guidance of 200 to 300 basis points decline, excluding the 2008 restructuring charges. Okay.

That wraps it up for the review of the operations. So let's sum up for the corporation. For 2009 we see revenue declining 4 to 5%, versus our previous guidance of decline of 1 to 2%. And based on tight expense controls, we are maintaining our earnings per share guidance of $2.20 to $2.30.

You also want to note some modest changes this year, as we implement, or as we have implemented a new accounting pronouncement. This is FAS 160, operating margins for 2008 have been restated, and our reported margins for the first quarter of 2009 and our guidance, reflect the new accounting pronouncement. Bob will provide a little bit more detail on the impact of FAS 160 in his remarks.

Let me turn now to Bob, who will be talking and having more to say about the controlling costs and expenses. Bob?

Thank you Terry. Good morning. In the current environment, liquidity is key and our position is strong. We will discuss this in more detail later, but first let's start with operations.

In the guidance we provided this morning, we have reduced revenue expectations for the year, while maintaining our original guidance for earnings per share of $2.20 to $2.30 for 2009. Obviously to achieve our EPS guidance in face of reduced revenue expectations, we must manage to keep a firm grip on costs and expenses. Consolidated expenses were down 4% in the first quarter, and that is not a bad start.

This year foreign exchange will be a key factor for both revenue and expenses. In the first quarter, it reduced revenue by 37.4 million, and cut the rate of growth by 3 percentage point. But foreign exchange benefited year-over-year expense comparisons by 49.5 million, and pretax income by 12.1 million.

These different top and bottom line outcomes occur because we primarily bill, in many cases in US dollars and in Euros, while significant expenses are denominated in non-US dollars. For example, the British pound has significantly weakened spared to the US dollar. The average US dollar to British pound exchange rate in the first quarter, was down 27% year-over-year. We expect the impact of foreign exchange on revenue and expenses to lessen in the second half of the year.

In constant currency, first quarter consolidated expenses would be roughly flat year-over-year, as continued investment in our businesses was mitigated by savings at all three segments, as a result of the 2007 and 2008 restructuring actions, continued cost containment, and lower expenses at McGraw-Hill Education, some of which is timing related. We have also benefited from a slight year-over-year decline in incentive compensation. As indicated during the last earnings call, incentive compensation comparisons will become more challenging in the second half, since we brought down long-term and short-term accruals in the latter part of 2008.

Now let's now look at the segment's first quarter results, as well as the new guidance for revenue and expenses, and I will begin with McGraw-Hill Education. The segment's expenses were down 7.6% year-over-year in the first quarter, but they were skewed by timing of sales and marketing expenses, which in some cases will shift to the second and third quarters of 2009. We are maintaining our previous margin guidance of a 300 to 400 basis point decline, excluding 2008 restructuring charges.

We have taken a closer look at Education's expenses. Instead of our previous guidance of expenses roughly flat, we now expect a low single-digit decline for the full year. The segment will benefit from restructuring actions taken in 2007 and 2008, the absence of data center migration costs, lower marketing costs due to reduced opportunities in the adoption market, and reduced variable costs as a result of reduced revenue opportunities. The benefits will be partially offset by higher plant amortization in 2009, and increased investments at higher education, with it's greater emphasis on digital products.

A final word on our revenue guidance for the Education segment. Last year ordering did accelerate in the second quarter. As a result, School Education Groups revenue grew 6.9%. Now we do not expect that pattern to repeat this year, which means that revenue comparisons for the School Education Group, will be particularly challenging in the second quarter of 2009.

In the Financial Services segment, we now project a slight decline in revenue for the year, and there are several reasons for a change in the forecast. First, we now expect a low single-digit decline in revenue at Standard & Poor's credit market services, or CMS, instead of a slight decline. For CMS, we report both transaction and non-transaction revenue.

We are maintaining our guidance of a 10 to 12% decline in transaction revenue, despite an 18.3% decrease in the first quarter, because comparisons will get easier in the second half. For non-transaction revenue, there was a decline of 3.8% in the first quarter. This was driven by a significant impact of foreign exchange, as well as a reduction in fees for work performed on cancelled transactions. We expect to earn less of these fees in 2009 than last year. The amount earned in 2008 was larger in the first half of the year than in the second half, with the largest amount earned in the second quarter.

Just to give you a better understanding of these fees S&P collects these under many client agreements, as they complete certain milestones in the process of determining a rating for a particular transaction. In practice, S&P typically waits until a debt is issued, and then bills and collects the entire rating fee. However, if the issuer decides to cancel a transaction and not issue the debt, S&P is permitted to collect and bill the applicable fees for services performed.

Historically these fees have been greater for structured finance transactions than for corporate transactions, since the structured market was hit hardest by the credit crunch, it saw a larger number of cancelled deals. Furthermore international fees for work performed on cancelled transactions have been greater than domestic fees. Given slightly lower growth projections for surveillance and subscription fees, we now expect non-transaction revenue this year to decline slightly, versus our previous guidance of 1 to 2% growth.

There is one more point to make about our transaction and non-transaction revenue at CMS. While it has no material impact on guidance, we reclassified bank loan ratings and corporate credit estimates in CMS' revenues from non-transaction to transaction. We request by these items to create a more accurate view of transaction revenue, which previously had been limited to public new issuance. We have provided an exhibit in the earnings release showing transaction and non-transaction revenue by quarter for 2008.

As Terry indicated, we are reducing our revenue guidance for S&P Investment Services from high single-digit growth to single-digit growth. While Index Services and Capital IQ continue to perform strongly, we have seen softening in investment research, including equity research outsourcing support, due to continued to deterioration in the economy. Investment services revenue grew slightly this quarter, but experienced a small sequential decline.

While most of investment services is billed in US dollars, CRISIL and our European operations were adversely impacted by the strong US dollar. Results were also impacted by the divestiture of CRISIL's Gas Strategies group, which occurred last year. Despite our lower revenue expectations, for Financial Services, we are maintaining our previous margin guidance of a 250 to 300 basis point decline, excluding 2008 restructuring charges. This implies a low single-digit increase in expenses, versus our previous guidance of 6% growth.

For the first quarter expenses were down 0.4% year-over-year. Adjusting for currency, expenses were up 25.9 million, or 6.8%. The increase is being driven by the full-year impact of 2008 hires, primarily in India at CRISIL and Capital IQ's data collection operation. Continued investments in our fast-growing businesses, though at a reduced pace, and increased compliance and regulatory costs, partially offsetting these are benefits of the restructuring actions.

And now for information in Media. I would like to remind you that the segment's results for the year will be adversely affected by the non-cash accounting impact at J.D. Power related to the introduction of Compass, a more robust reporting and analytical tool for our clients. Revenue previously recognized at the time of the syndicated studies release, will now be recognized ratably over the 12-month life of the subscription. Now this of course is similar to the suite's transition, that we had previously talked about in 2006.

For the full year we continue to expect a $15 million decline in revenue, and 10 million decline in profit, due to the impact of Compass. For the first quarter this change resulted in a 4.7 million decline in revenue, and a 2.3 million decline in profit. Despite our lower revenue guidance for the information and media segment, we are maintaining our earlier forecast of a 200 to 300 basis point decline in the segment's margin, excluding the 2008 restructuring charges. This essentially implies a low single-digit decline in expenses for the year, versus our previous guidance of virtually no growth.

In the first quarter we adopted FAS 160, non-controlling interests and consolidated financial statements, which resulted in reclassification of minority interest. Previously we had minority interest recorded in segment operating profit. Under FAS 160, we now separately report net income attributable to non-controlling interests as a new line below net income. While the change has no impact on earnings per share, or on margin guidance on an overall basis, the reclassifications do modestly impact operating profit and margins for McGraw-Hill Education and the Financial Services segments.

To facilitate comparisons for this revised presentation, we have restated 2008 by quarter in Exhibit 5 of this morning's release. Corporate expenses in the first quarter were 33.4 million, roughly flat to the 33.9 million for the same period last year. We continue to expect that corporate expenses will increase this year by 25 million to 30 million, largely a reflection of increased stock-based and short-term incentive compensation.

There also are changes in the Company's effective tax rate. Last January I indicated that effective tax rate for 2009, would decline 50 basis points from 37.5 to 37.0%. The drivers of the lower tax rate remain the same. The continued higher growth in our international operations has a favorable impact on the rate, and we also formed Standard & Poor's Financial Services LLC, a Delaware limited liability company, to operate most of the US S&P businesses.

In addition to operational benefits, we expect the new structure to be more tax-efficient. Due to the impact of FAS 160, the effective tax rate for the full year 2008 was recalculated as 36.9%. We still expect a 50 basis point decline for the effective tax rate, which results in a rate of approximately 36.4% for 2009.

Let's now review free cash flow. To calculate free cash flow we start with after-tax cash from operations, and deduct investments and dividends. What is left is free cash flow, funds we can use to repurchase stock, make acquisitions, or simply pay down debt.

We indicated in January that we expect free cash flow for the year to be in the range of 430 million to 450 million. That is approximately equal to last year, despite lower profits, due to easier working capital comparisons, and our focus on prudent investments. In the first quarter of 2009, free cash flow improved by 207 million, relative to the prior year. In the first quarter free cash flow is generally negative due to the seasonality of our businesses, but as we had anticipated, our free cash outflow was substantially lower than prior year, driven by reduction in incentive compensation payments, and more favorable working capital comparisons, particularly for inventories. For 2009 we still expect free cash flow in the range of 430 million to 450 million.

The free cash flow guidance does not reflect any pension plan contributions. The US plan is now underfunded following last year's significant market declines. We will follow the guidance from the government agencies regarding contribution formula changes. They are still being reviewed. Based on current expectations, we may have no funding requirement in 2009. If one is required, it could be up to 30 million, which is lower than our previous guidance of 30 million to 50 million. If funding is required, it would be payable in the second half of the year.

Now let me recap the corporation's financial position. Our liquidity position is strong. There is cash on the balance sheet, as well as the commercial paper program in place, that is supported by a backup credit facility. As needed, we can access the commercial paper market at reasonable rates. On a gross basis, total debt at the end of March was 1.36 billion. This comprises of the 1.2 billion in unsecured senior notes issued in 2007, as well as about 160 million in commercial paper. This is offset by 497 million in cash, primarily in foreign holdings.

The first long-term debt payment is not due until the end of 2012, and the majority of our long-term the end of 2012, and the majority of our long-term debt matures in 2017 and beyond. Our net debt at the end of March was 861 million, up from 796 million at year end, this increase is due to seasonal cash requirements in the first quarter. Our diluted weighted average shares outstanding was 312 million in the first quarter, an 11.4 million share declined versus the same period last year. It is also roughly flat compared to the fourth quarter of 2008.

The year-over-year decline is primarily due to 2008 share repurchases, and to a lesser extent the decline in our stock price. The figure for fully diluted shares at the end of the quarter was approximately 312 million shares. Interest expense was 20.6 million in the first quarter, which is slightly higher compared to 17.8 million in the same period last year, and so for the full year we still expect interest expense to be roughly comparable with 2008.

Capital expenditures are expected to decline in 2009. Pre-publication investments were 42.7 million in the first quarter, which is down 24 million compared to the first quarter of 2008. We still expect pre-pub investments to be 225 million in 2009, versus 254 million in 2008. Reduced revenue opportunities in 2009, accrued investments, and continued offshoring benefits are all factors. Purchases of property and equipment were 8 million in the first quarter, compared to 23.6 million in the same period last year. The first quarter of 2008 included capital expenditures related to the data center, and we continued to estimate 90 million for the full year.

Let us now review non-cash items. Amortization of pre-pub costs in the first quarter was 27.3 million, which is approximately 1 million lower than the same period last year. For the full year we expect a reduction in pre-pub amortization from 275 million to 280 million, versus our original forecast of 285 million. Depreciation was 29.4 million, and that is about 2 million higher than the same period last year. We are still forecasting approximately 130 million for the year. Amortization of intangibles was 14.2 million for the first quarter, which was flat compared to the same period last year. And for 2009, we still expect approximately 55 million.

I will conclude with a comment on unearned revenue. Unearned revenue ended the quarter of 2009 at 1.1 billion, which is roughly flat with the prior year. In constant currency, it grew 3.6%. At the end of the first quarter, Financial Services comprised 74.1% of the corporation's total unearned revenue. Given the lower revenue guidance, we now expect unearned revenue to grow minimally in 2009, versus our original forecast of low single-digit year-over-year growth.

Thank you, and now back to Terry.

Okay. Thanks Bob, and there you have it for the first quarter for this year. Obviously a small quarter for us overall. But we are pleased with the $0.20 for the quarter, given the environment that we have been in.

We see the economy overall starting to improve, that the rate of decline will decline, and maybe show positive GDP growth in the fourth quarter. Credit markets are starting to unthaw, and government support which we don't have in our numbers, government support for state education numbers, I think will be very helpful as well. This is definitely going to be a first-half/second-half, and we are looking for improved environments on that.

Let me turn it over to Don, and we will go to any questions.

Thank you Terry. Just a couple of instructions for our phone participants. Please press star-one to indicate that you wish to enter the queue to ask a question, to cancel or withdraw your question, press star-2. If you are listening through a speakerphone, but would now like to ask a question, we ask that you lift your handset prior to pressing star-one, and remain on the handset until your question has been answered. This will ensure good sound quality for everyone.

We are now ready for questions.

Thank you. Our first question comes Michael Meltz , JPMorgan, your line is

Thank you. At investment services, Bob, can you talk a little bit more about what you are seeing in that business? I know you gave a lot of detail on the call, but in terms of what is working and what is weak, can you talk about the weak properties, such as the directories and managed funds, and the research products? I mean, what exactly are you seeing there, and what gives you confidence that is somewhat stabilized?

Yes, Michael, the areas that were not performing as strongly as the others, are the relatively smaller properties, the equity research piece, which as you know has been challenged. And the funds side, funds research side, which is also relatively small. I think the important thing is that in this environment, with a very, very difficult situation for the financial services industry, Capital IQ saw modest but still growth in their annualized contract value. I think that is very important. And we are also seeing stability in Compustat as well. I think our Index products offerings, even with the significant decline we saw in assets under management which affects overall fees, we are still seeing opportunities there and we expect that to be pretty strong for the balance of the year.

So on an overall basis, we are pleased with the performance, given the market environment that we are seeing. Again, it is the equity research areas that which is both domestically here, as well as CRISIL, which provides some outsourcing equity research capabilities. Mainly for some European clients that saw some weakness and some pull-back, but they are seeing some additional properties coming their way. But those are smaller areas that did not perform as well.

Is there a way to tell us, percent of revenues that grew, versus percent of revenues that declined, or something like that?

This is a broader portfolio and I don't want to get into all the different component pieces, but I think it is safe to say the areas we are looking at as the growth engines performed at our expectations, or quite frankly a little bit better, given the very difficult environment that we are in. We are encouraged for the balance of the year, if we start to get some stability in the market environment.

Michael, also on the index side, even though there was a little bit of softness in some of the traditional exchange traded funds, there was still a fair bit of activity. And the new commodity component is off to a very good start, and I think that a lot of investors are looking for those kinds of basket investments. Capital IQ is up to 2,700 clients, and is adding clients as we go. So it is coming from more traditional sources maybe. But we are pleased with both of those. Those are good signals I think to the market.

The FAS 160 adjustment, what are the entities that you are now shifting to minority interest line, what are those investments at S&P and Education?

The larger entities would be CRISIL. There are Taiwan ratings, and of course in Education it would be the McGraw-Hill Ryerson, the Canadian operations. Those are the larger components that are being shifted.

Okay. And last question, at information and media, we saw yesterday that advance is closing portfolio. Can you talk about BusinessWeek, and with pages down this much, what are you doing there to kind of stem the losses? I would think it is on-track to lose a good amount of money this year?

Michael, no comment on that.

Okay. Thank you.

Thanks.

Our next question comes from Peter Appert, Piper Jaffray, your line is open.

Great. Thanks. Just a follow-up to one of Michael's question, with the expiration of the global settlement, how big of a revenue hit do you take from that on the equity research side of the business?

Again, this is a relatively small property. We have not seen growth in the revenue here. So let's put it this way, you are somewhere under $20 million.

Okay. Great. And then to the ratings business, are you seeing specific pricing pressure back from issuers in response to the more difficult market conditions? And generally what are you guys doing this year from a pricing perspective?

Well, Peter, it all depends on the category within that. I mean, given some of the strength that we are seeing on the corporate side, both here and in Europe, the European one is very pleasing to see. We are selectively putting in price increases. Obviously in the areas where there is much lower demand, we are trying to maintain whatever pricing levels at that point. But we are selectively increasing in those categories that produce more demand.

Okay. And then do you have an estimate, Bob, in terms of what the incremental cost of the various regulations that have been put into place might be?

I really don't want to get into that at this point in time, because we are still developing that. But clearly, as you could expect, we are spending a fair amount of money in that particular area. But I don't want to get into that at this point in time. Perhaps as we get further through when we have better clarity, in terms of what the new regulatory environment will be.

But it is also safe to say, Peter, that we have estimated where we think we are, and it is in the 38% margin.

Right. Got it. Last thing, you anticipate Terry that you might have to do additional restructuring actions to get to the cost targets you have now set?

there is no further restructuring built into our current forecast. Again, we think things are going to be generally improving here, and so forth. But again I think the proper answer to that is, if obviously opportunities don't appear where we see them, we will adjust the costs accordingly. So I just think it is probably safe to say, I don't know at this point. But certainly, we are coming to more closure on this.

Peter, I could add a point to that. Given the environment that we are faced with this year, and the high level of uncertainty, each one of our segments, as well as the different corporate areas, created rather significant contingency plans, with regard to their expense portfolios. And in many cases we have implemented some of those contingency actions, just because of the uncertainty that we are facing.

So that is why we are right now forecasting virtually in every case, a lower expectation for expense growth than we had originally indicated, just because the environment is a little bit different, our revenue expectation for the full year is a little bit lower than we thought. So that is why we are kind of ahead of the curve here, with regard to our expense contingency implementations.

Right, okay, thank you.

Thanks, Peter.

Our next question comes from Craig Huber, Barclays. You may ask your question.

Yes, good morning, a couple of questions. First one, can you speak a little bit about European regulatory further? I thought it very interesting in recent weeks that the European Commission, and the various bodies, did not change the business model for the credit rating agencies over in Europe. What do you think that means for the SEC Congress here in the States, if anything, that they may or may not change their business model in the States?

I mean, this has been a process now that has taken almost two years, and in the beginning it was way off, with lots and lots of agreement and disagreement, and a whole host of different ideas. We were very pleased with the outcome on the European regulatory front. As things started to settle and time passed, there was a much better understanding of what good regulation should be, smart regulation.

And at the G20 they reaffirmed the designation process and the Code of Conduct requirements from IOSCO, and CESR has taken on a much broader role, and could be the regulatory body for a pan-European focus on that part. Very simple on that part. I think that also speaks very, very well, coming back to the SEC, that you want to see some complimentary approaches here, and I think there will be sort of a melding that takes place.

Again on the business model issue, and again we put out that White Paper, again every business model, whether it is issuer paid, investor paid, utility models, whatever, they all have pros and cons, and they all have the potential for conflict, and you have to be able to satisfy yourself that you are managing that potential conflict.

But it depends what you are trying to solve the equation for. If it is for higher transparency, than the issue we are-paid model is the better approach to take. And that is exactly what the European, after a lot of debate, the European approach took.

Can we just talk about near-term new issuance trends here in April? It is my understanding the last three weeks in April have been quite weak, in terms of new issuance in Europe and in the States here, among the three weakest weeks we have had since the fourth quarter and stuff, obviously there is some volatility or slowness around black-out dates around earnings, and so forth. Are you seeing that in your business as well in April so far?

The word that we used, I mean, we were very pleased obviously with the way the first quarter new issuance in the corporate industrial side, both here in the United States and Europe came about. It was certainly sounding on investment-grade securities, that the unthawing of the markets and the M&A activity associated with that, was starting to pick up. We are also looking for a signal from the high-yield market. We have seen some in Europe, and we want to see where that continues.

The word I used was lumpy, because one doesn't know, and you will probably go in and out of some phases, but overall, we think we are seeing a pretty good signal here, that things are starting to unthaw. Now we are talking corporates and governments and public finance. We are not talking structure here. We do expect to see some improvement in the asset-backed securities markets, especially for student loans, auto loans, credit card receivables, et cetera.

I am sorry, but are you seeing any slowness in the last three weeks, versus what you saw in the first quarter?

Well, again, we are seeing some. On the corporates, on the industrial sector are still showing activity on this part. We will have to see how it projects as we get into May. But we are pleased with where we are.

Lastly if I could, you mentioned earlier on in the call, that you thought the adoption market would be down 35% for the year. Maybe I missed it, what is your expectation for the open territories for elementary-high school textbooks in the US?

We are pleased there, and I went through a whole host of things where we talk about reading in Georgia, and science in Tennessee, and social studies in Indiana, and math in South Carolina, Kentucky, and Oregon on that one. It will again, it will probably do better in the state adoption market, but we will have to see. We have to see about the Federal Stimulus package. We just don't have any data on that. The monies are out. We are going to see them, obviously in this quarter, and in the third quarter.

But we have got to see what kind of impact that has. It is a lot of money. It is $104 billion, $54 billion going back to the States, specifically for the support. Obviously a lot of that money is going to go into school construction, and teachers, and so forth. But we have to see if some of the postponements into 2010, are going to be reversed in this year, and it is going to be important, because some of the material is starting to get dated in some of these states.

Okay. Thank you.

You bet.

We will now take our final question from [Adrian Disane-Hellair, Exane], your line is open.

Yes, hi, good morning everybody, thanks for taking my question. I just had a couple of questions if I may, first on higher education. Can you give us some color on how you expect enrollments to grow in 2009? So much of your competitors have been guiding on a 10% organic increase, would you follow that path?

Again, Adrian, it is kind of difficult to tell at this point. There is expectations that we will have to sort of see, as we get into that new semester enrollments. Obviously the higher education business is a counter-cyclical business. In times of economic downturns and the like, more people go on this one, and we are certainly seeing that.

And we are certainly seeing the activity at the community college level. Which is a very important, because obviously these are people that are affected by job loss, or the need for job change, and they are looking for specific skill sets. But we are definitely seeing increased enrollments. Overall, I think that you can see over the next three, four years, you are going to see enrollment increases in the United States, probably up to the 18 million to 19 million level.

Okay. Thanks. And coming back on BusinessWeek, you gave some trend about the downsizing. Can you give us some trend regarding circulation?

Well, thank you. Because that is good news. The circulation growth is up, and we are very pleased on that, because the readership is strong, circulation is growing. Obviously the problem is on the business model, and the advertising side of it. And we are doing everything we possibly can to distribute multi-channels, and to be able to get more access to that editorial base. But circulation is up.

Okay. And one final question I would have concerning the controlling costs. You mentioned a couple of measures. Are you getting as well on the staff reductions? That is my first question. And the second is, what is the potential you see in offshoring?

First of all for 2008, as you know through the restructuring side, we have cut back 1,045 positions in the Company. And at this point, with the some small staff reductions, it is not material for the first quarter. Outsourcing things we vendor all of our outsourcing relations, and this is an additional way, especially in the Education space, to get cost savings, and we are doing that in a variety of ways, China, the Philippines, India, and so forth. And we will continue to find ways to be more efficient through that. So it is a very important part, but it is all vendored from that standpoint.

Okay. Thanks a lot, guys.

That concludes this morning's call. The presenters' slides will be available soon for downloading from McGraw-Hill.com, and replay of this call will be available in about two hours.

On behalf of the McGraw-Hill Companies we thank you for participating, and wish you a good day.