標普全球 (SPGI) 2010 Q2 法說會逐字稿

Good morning, and welcome to The McGraw-Hill Companies' second quarter 2010 earnings call. I'd 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 questions 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. (Operator Instructions) I would now 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. We are pleased to have everyone joining us this morning for The McGraw-Hill Companies' second quarter 2010 earnings 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. This morning, the Company issued a news release with results. We trust you have all had a chance to review the release. If you need a copy of it and financial schedules, they can be downloaded at www.McGraw-Hill.com. Once again, that's www.McGraw-Hill.com.

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

We're aware that we do have some media representatives with us today on the call. However, this call is for investors, and we would ask that you direct questions from the media to Mr. Jason Feuchtwanger in our New York office at 212-512-3151 subsequent to the call. 512-3151. Today's update will last approximately an hour. After our presentation, we will open the meeting to questions and answers. Now it's my pleasure to introduce the Chairman, President, and CEO of The McGraw-Hill Companies, Terry McGraw.

Thank you very much, Don. Good morning, everyone. Again, welcome to our review of the second quarter earnings and our outlook for the year. With me today as Don said is Bob Bahash, Executive Vice President and Chief Financial Officer. I will review the second quarter results and the guidance. Bob will then provide an in-depth look at our financials. After the formal presentation, again, as Don said, we'll be pleased to answer any questions or take any comments that you have about The McGraw-Hill Companies.

Earlier this morning, we reported diluted earnings per share of $0.61 for the second quarter, and that's an increase of 17.3% compared to $0.52 last year. Of course, that $0.52 last year included a total of $0.06 for a net restructuring charge and a loss on a divestiture. Revenue of $1.5 billion was up 0.6% for the second quarter, but increased 2.7% if you exclude the divestitures of Business Week and Vista Research. In the current environment, regulatory and legal matters are clearly top of mind issues with investors, so I will start this morning by reviewing developments in these areas and their impact on Financial Services. But let me say at the offset, or at the outset, that regarding financial reform and legal issues, we are pleased -- very pleased that this period of uncertainty is largely over. With the signing of the Dodd-Frank Act, we have now greater clarity on the new legal and regulatory landscape for credit rating agencies, and that, again, is a welcome development. It reduces some of the uncertainty and gives us a clear picture of the way forward.

From our vantage point, some things are now clear. First, there were no surprises in the legislation. We've been at it for some time. Second, we have anticipated the key provisions becoming law for some time. And third, the new legislation calls for greater disclosure, accountability, and oversight. These are all actions that we believe will increase confidence in the markets as well as in ratings. In this period of change, Standard & Poor's has been investing in systems and processes and people to prepare us to operate effectively in this new regulated environment to produce ratings that are relevant to investors, issuers, and other market participants to compete effectively and to comply with regulations in all jurisdictions as well as being able to manage and mitigate risk.

Now, the key to meeting these regulatory requirements is S&P's QCCR framework. Those initials, QCCR, stand for quality, criteria, compliance, and risk. And over the past few years, S&P has continually strengthened its QCCR framework within each of those four areas. That has meant establishing control groups independent of the ratings business and investing in staff, training, technology, and processes around the QCCR function. Let me elaborate.

The Q, the quality team, uses formulized review procedures to oversee the integrity, quality, and transparency of S&P's ratings. The criteria team oversees the development and approval of criteria for our ratings that would include new and revised economic stress scenarios for the rating criteria to meeting emerging market and regulatory expectations. In the compliance organization, there are now about 50 people helping to monitor that S&P meets regulatory requirements through regular compliance examinations. They also provide training and guidance on policies and guidelines. Finally, the risk control function is designed to assess various risks that could affect the integrity and quality of the ratings process. Risk control will also assess the feasibility of rating new types of securities. More global regulation is expected, but our investment in the QCCR framework in recent years has created the foundation that S&P needs to implement the control and compliance functions.

In short, not only is S&P well positioned now to deal with the pending changes, it has a leveragable framework to deal with the new regulations. Last year, S&P spent about $63 million for QCCR-related items. In 2010, spending will increase by about $15 million, or up to about $78 million. At the beginning of the year, we said we expected a decline of about 100 basis points in the operating margin for Financial Services . Despite additional costs, the operating margin forecast has not changed. It reflects infrastructure investments and new regulatory requirements that we have anticipated. Looking ahead, there will be some pressure on operating margins as we continue to deal with all the provisions of the new US legislation -- new rulemaking by the SEC and regulations recently proposed by Canada and Hong Kong. The new Dodd-Frank Act will require more changes. Let's go through some of those changes and what they include.

They include the elimination of statutory references in various US laws to credit ratings. We supported this action. Ratings across the globe should continue to provide investors a common and transparent language, and a fundamental credit risk benchmark across sectors and geographies. Independent analytical insight and transparency are the key to our value proposition.

Another issue, the repeal of the Rule 436G. Under this rule, issuers of US public offerings included the rating of a security in registration statements without triggering potential expert liability exposure for the credit rating agencies. In view of the new legal risks created by the repeal of 436G, S&P will not consent to the inclusion of its ratings in registration statement and prospectuses. And in a new development as of yesterday, by suspending regulation AB requirements for six months -- AB meaning the asset-backed area, the SEC has given the market time to study potential solutions to the problem created by the repeal of 436G. But S&P will explore many mechanisms outside of registration statements to allow ratings to continue to be disseminated to the debt market. As always, S&P ratings on new issues and presale reports are available at no charge to all market participants on our website. And let me just give you those while we're at this point. Simply log on to www.standardandpoors.com/new issues. And another, www.standardandpoors.com/presalesreports.

Another issue is the repeal of the exception to Regulation Fair Disclosure. Under this exception, issuers could share material, nonpublic information with ratings agencies without violating Reg FD. There are other ways to satisfy Reg FD so we can continue to receive confidential information as part of the ratings process, and we're currently evaluating those options. The proposed change in the law that has attracted the most attention concerns new pleading standards in federal securities fraud suits brought against credit rating agencies. The legislation permits lawsuits against a credit rating agency that, quote, knowingly or recklessly failed to conduct a, quote, reasonable investigation or obtain reasonable verification of the data that it uses to determine a rating. Undoubtedly, the new pleading standard will be tested at some point in the future. More litigation would obviously be burdensome, and motions to dismiss may be more difficult to achieve. But we will be ready to meet this new challenge.

Among other things, as I have already pointed out, S&P continues to make changes in its business to improve its procedures and control processes. But don't lose sight of another crucial point. It is simply this. Ultimately, the current fraud liability standard still applies. That has not changed. And let me be clear on this point. The new law changes what plaintiffs are required to allege in order to survive a motion to dismiss at the pleading stage. The law does not change what plaintiffs must ultimately prove to a judge or a jury in order for a credit rating agency to be held liable. And that is the same federal securities fraud liability standard to which all market participants are subject to.

On the litigation front, the outright dismissals of current cases now stands at 13, and five cases have been just withdrawn. We believe these decisions constitute meaningful precedent. Since our last update on litigation, there have been three important decisions involving S&P. Two involve a subprime case, and the third relates to S&P's index businesses, and a grant of summary judgment that thwarts an assault on S&P's intellectual property rights.

First, the Abu Dhabi subprime case and new rulings by Judge Scheindlin. Here on June 15th, she emphatically denied class action certification to the plaintiffs. In denying the motion for class certification the judge wrote, and I quote - defendants argue with considerable force against the certifying the proposed class. As defendants point out this action is a collection of a relatively small number of sophisticated institutional investors that acquired one of three different categories of rated notes at different times pursuant to different internal requirements and after conducting different due diligence inquiries. Closed quote. On July 20th, she allowed the plaintiffs to reinstate one of the ten original claims against both the credit rating agencies and Morgan Stanley that she had previously dismissed with prejudice. In responding to the plaintiffs' motion to amend their complaint, the judge concluded that she was mistaken in dismissing the aiding and abetting fraud claim because they are related to the allegations of fraud, the one claim that has been allowed to proceed.

There are three takeaways from the latest development. The first is that the decision does not affect the dismissal of the nine claims which were not based on fraud. The court, secondly, has made no finding of fraud or aiding and abetting fraud. At this early stage of the case the court's ruling must be based on accepting the plaintiffs' assertion as true until you get to a discovery dialogue. The third, the key issue here has not changed with the restoration of the aiding and abetting claim. The plaintiff still must prove fraud, and we remain very confident that neither claim can be sustained.

The victory in the Illinois Circuit Court also was significant. Judge William Maki ruled that index providers are entitled to protection against the misappropriation of their indices. The International Securities Exchange, ISE, sought to offer options based on the S&P 500 and the Dow Jones Industrial Index without obtaining a license from the owners of these indices. In his ruling, the judge observed, quote - it bears noting that ISE unabashedly admits to attempting to create a competitive product, the ISE 250, which was an index highly correlated to the S&P 500. After spending a large sum of money developing and promoting options on the ISE 250, ISE discontinued the project which had failed to garner significant trading volume. The court fails to understand how ISE's failure somehow entitles it to profit from free -- for free from the efforts, skills, and reputation of the index providers. Closed quote. With that on some of the regulatory and the legal issues, I will leave that for now, and let's move on to the operations.

Let's begin, and let's take a look at the Financial Services operating results in the second quarter, and the prospects for the second half of the year. Revenue at S&P Credit Market Services was up 0.1% as a surge in syndicated leverage bank loan ratings helped offset continued softness in the structured finance market. The value of diversity was underscored by the 4.9% increase in revenue at S&P Investment Services. For the second quarter at Financial Services, revenue increased by 1.6%. Operating profit declined by 4.2%. The operating margin was 38.7%, compared to 41.0% last year, which reflected a pre-tax loss of $13.8 million from the divestiture of Vista Research and a pre-tax net benefit of $0.4 million from restructuring charges.

The second quarter started strongly and then softened in May and June as doubts grew about the pace of the economic recovery, and uncertainty developed over European sovereigns and bank debt. In this environment, credit spreads for the investment and speculative grade bonds -- and again, when we talk about credit spreads, it's the excess interest rate over the treasury bonds -- began to widen after reaching two-year lows at the end of April. As this table shows, both the investment and speculative grade composite spreads were, on July 15th, above their five-year daily moving averages. The three-month LIBOR rose to more than 0.5%, and by the way, that's the highest since the middle of 2009. Although the volume of bank loan ratings is still at the low end of its historical average, the market picked up substantially in the first half. As this chart shows, the volume in syndicated, leveraged bank loans which are rated BBB or lower, started climbing in the first quarter and accelerated in the second quarter of 2010. Bank loan activity was primarily amend to extend to push out maturities.

The investment grade corporate market was soft in both Europe and in the United States, but refinancing requirements resulted in increased high yield debt issuance in Europe. New issuance in the high yield market increased 15.3% globally in the second quarter with gains in European issuance more than offsetting the decline in US issuance. About 73% of the total US high yield volume in the second quarter was designated for refinancing. The structured finance market declined again in the second quarter, and a key to the second half outlook is the wave of corporate debt coming due in the United States and the European markets. As these charts show, S&P estimates that US and European debt maturities by dollar amounts will grow steadily through 2014. Looking ahead, S&P expects companies to take advantage of increased investor appetite for yield to either amend credit agreements to extend maturities or refinance bank debt with longer dated high yield debt.

Credit spreads will be a factor for the level of issuance in the second half. Stable or tightening spreads could spur some healthy issuance volume in the corporate sector. The outlook for public finance is mixed. Taxable bonds, including the new Build America bonds, will probably drive growth, although S&P expects traditional tax-exempt issuance to decline in the second half.

In structured finance, we may see a modest pickup in activity. There may be slow rebirth of the commercial mortgage-backed securities market in the second half. That would be welcoming. In the near-term, S&P expects to see re-remic activity continue in the US residential mortgage-backed securities market. In the asset-backed securities market, activity could stall somewhat as various regulations are digested. The SEC's Rule 17g-5 became effective on June 2nd, and the FDIC Safe Harbor Rules, which are expected to take effect in September.

We also continue to monitor our competitive position in the marketplace. In 2009, excluding sovereign issuance, S&P rated approximately 95% of the addressable debt issued in the United States. As this chart shows, S&P has performed consistently in the range for the last six years. In the European market, S&P rated 89% of the addressable market last year, up from 83% in 2008. It is also worth noting that at $1.8 trillion, the rated European debt market with fewer but larger issues was actually bigger than the rated US market, which is just over $1.5 trillion.

The market share performance underscores another important part about S&P's track record. S&P provides a range of ratings from AAA to CCC, and if the initial credit opinion meets the test of time, you will see fewer defaults at the top of the scale and higher defaults at the lower end of the scale. S&P tracks these default rates with great care and recently updated the tables on the global corporate average cumulative default rates from 1981 through 2009 and the global structured finance average cumulative default rate from 1978 through 2009. There is a lot of information on these two tables which will appear in our new investor fact book next month, but the key point is unmistakable. In both corporate and structured finance over long periods of time, the higher the S&P rating, the fewer defaults have been experienced. That's the way it is supposed to be if S&P is doing its job properly.

In addition to defaults, S&P also looked at rating transition by conducting a comprehensive review of credit ratings spanning the spectrum of corporate, government, structured finance debt. This report is entitled quote, Default Transition and Recovery, A Global Cross-Asset Report Card of Ratings Performance in Times of Stress, end quote. And that was published last month. This review demonstrated that ratings issued in the United States, Europe, Japan, Australia for nearly all asset classes generally performed as expected with the exception of ratings on the US residential mortgage-backed securities and on collateralized debt obligations backed by structured finance collateral. That is, rated credits withstood the recent financial crisis with results in line with expectations for the economic environment. In contrast, the performance of ratings for US RMBS and CDOs issued from 2005 through 2007 have been disappointing and below our expectations.

Standard & Poor's performance review reaffirms two key attributes of rating. First, even during periods of economic stress, ratings have been and continue to be reasonable predictors of the relative likelihoods of default or different credits. In short, credits with higher ratings generally experienced lower default rates. This trend held up across asset classes for the three stressful periods studied. In 1991, 2001, and the 2008-2009 period -- with the exception of residential mortgage-backed securities and CDOs during the recent crisis. Second, sectors other than RMBS and CDOs did not experience disproportionate downgrades relative to the degree of economic stress. Downgrades typically increase in all sectors during periods of stress, but apart from residential mortgage-backed securities and CDOs issued between 2005 and 2007, the pace was not exceptional.

Earlier in this presentation, I mentioned the value of diversity that S&P Investment Services brings to our portfolio. Nowhere is that more evident than in S&P Indices, which are providing greater access to more markets for more investors around the world. The team at S&P Indices is dedicated to finding new ways to grow the business. With the expiration of a ten-year exclusive agreement with Barclays, S&P has recently licensed Vanguard to launch exchange traded funds based on our indices. Vanguard is introducing eight new exchange traded funds targeting growth and value segments of the S&P 500, and growth and value and blend segments of the S&P MidCap 400 and the S&P SmallCap 600. In May, S&P licensed seven major European exchange traded fund sponsors to create and list S&P 500 ETFs on major European exchanges for real-time trading. In the spring, S&P licensed the National Stock Exchange, the NSE of India, to create and list Indian rupee denominated futures contracts based on the S&P 500. S&P will be adding new indices in commodities, fixed income, equities, strategy, and customized others for its clients. The goal, an index for every type of investment.

So let's sum up for the Financial Services segment. New clarity on the regulatory and legal front. New requirements are manageable. Mid-single-digit revenue growth for the segment versus our previous estimate of high single-digit growth, due to some unanticipated softness in the market. With improvement in S&P Credit Market Services and S&P Investment Services, operating profit will improve. Operating margin will decline approximately 100 basis points. And this reflect infrastructure investments and compliance with new regulatory requirements.

Let's move on to McGraw-Hill Education. McGraw-Hill Education in the second quarter, a strong performance in the US higher education market, and increases in the state new adoption market by the School Education Group were partially offset by declines in the open territory and the custom testing markets. As a result, McGraw-Hill School Education Group's revenue declined by 4%. McGraw-Hill Higher Education Professional and International Group's revenue increased by 10.8%. For the segment in the second quarter, revenue increased by 1.8%, but the gain in the US higher education market had a substantial impact in the second quarter on operating profit, which grew to $51.6 million and an operating margin which increased to 9.1%. That compares to an operating profit for the second quarter of 2009 of $21 million, which included a pre-tax restructuring charge of $11.6 million and an operating margin of 3.8%.

State budget pressures continue to be a factor in this year's elementary high school market. As we had expected, only the state new adoption market will show solid growth this year, but here, too, funding concerns are driving reduced purchasing levels. As the spring adoption season progressed, it became clear that fewer California districts would be making new reading, literature, or math purchases than originally projected. South Carolina's math adoption was effectively canceled in the second quarter when the legislature did not provide funding, and many districts in Indiana decided to postpone buying math this year. District activity has been limited in other states as well, including Georgia and Oklahoma.

In view of these conditions, we are adjusting our estimates for 2010. We are now expecting the state new adoption market to range from $825 million to $875 million, and our previous forecasts have been $875 million to $925 million. We now look for the el-high market -- the market now -- to grow by 4% to 6%, down from our previous forecast of 6% to 7%. The market's growth will come from the increase of nearly 70% in state new adoption sales. We still anticipate declines in both open territory sales and residual sales.

The McGraw-Hill School Group still expects to capture about 30% of the state new adoption business this year. The biggest opportunities as we know are in Texas, Florida, and even despite the market shrinkage there, in California as well. In Texas, we are forecasting a capture rate of about 40% of the K-5 reading market, and about 18% of the 6-12 literature market. Some of those orders were deferred and will be shipped in the third quarter, so we'll see that pickup there. In Florida, we anticipate winning 40% of the 6-8 math market, about 27% of the 9-12 market, but only 5% of the K-5 market. In California, strong performances by our California Treasures program and Imagine It program should enable to us capture more than half the available dollars in the state for new K-5 reading program. In smaller states, the McGraw-Hill School Group expects to capture more than 40% of Mississippi's K-12 science adoption and more than 60% of West Virginia's K-12 math adoption. While math postponements have been heavy in Indiana and Oklahoma, we are winning substantial shares in those states, particularly at the 6-12 grade level.

The School Group has been strong historically in non-academic subjects as well, and this year is no exception. We are seeing good capture rates in family and consumer sciences, technical education, and business and computer education. In testing, growth in the formative market was offset by planned phase-outs of statewide custom contracts in Florida and in Arizona. The increase in federal funds for education remains one of the wild cards in this market. There is no doubt that the federal government is continuing to pump significant dollars into the education market. The availability and the ultimate use of these funds are developments that we are tracking very carefully, and we'll keep you informed as we go. The massive stimulus program passed last year -- now that was the American Recovery and Reinvestment Act, or ARRA, has $11.5 billion available for distribution to the states in 2010 through Phase Two of the state fiscal stabilization fund. This fund is intended to supplement education budgets in the fiscal year that has just begun in most states. Last year, most of the Phase One funds were used to save teaching jobs, and we believe that the same will be true on the Phase Two funds this year, but the ARRA stimulus legislation is also funding other programs that were released, new dollars in 2010. Race to the Top grants at $4 billion, Common Core Assessment grants at $350 million, and Investing for Innovation Grants at $650 million.

In addition, states are receiving school improvement grants from a $3.5 billion program funded by stimulus dollars and the US Department of Education's current budget. To date, 32 states and the District of Columbia have been approved for these grants which are earmarked for low performing schools. For the McGraw-Hill School Education Group, these grant programs offer potential for both assessment and instructional materials. For example, all Race to the Top proposals including formative testing, so winning states will require these product and services. Our formative products such as Acuity, Yearly ProgressPro, and Writing Roadmap, and our reporting services such as the Parent Network are naturals to meet the market's needs. At that time same time, our research-based instructional and intervention programs such as Number Worlds and Reading Mastery are proven solutions for turning around low performing schools. Timing will vary for each of these programs, but some revenues stemming from school improvement and investing in innovation grants could begin to show up by at least the fourth quarter.

All this is developing as the states embrace common core standards for K-12 math and for reading and language arts. To date, 23 states have adopted the standards, and more are expected to follow in August. More than 40 states are expected to sign on by the end of this year. Very important development. As a result of all this activity, we expect to see an expansion of digital delivery systems for instructional materials, professional development, and classroom level assessment, and we like these opportunities.

In higher education, the digital opportunity is big, and it's getting bigger. Our revenue in this space is growing at a double-digit rate. The McGraw-Hill Connect family of homework management and assessment programs are currently being used by 1.8 million students and instructors. And now, by creating a partnership with Blackboard, we will dramatically increase the reach and ease of access for our suite of digital products on US campuses. As the clear leader in course management, Blackboard reaches 70% to 80% of the US college and university market. Students and faculty will be able to use a single Blackboard logon to gain access to our content and tools. Scores on McGraw-Hill Connect assignments, quizzes, tests will post directly to the Blackboard grade book, eliminating the need for students and instructors to manage access and updates on two separate systems. We are off to a solid start this year in the US college and university market, and with a -- while a strong performance earlier in this year puts us in a good position, it is not necessarily a barometer of full year results. Those will be determined by the heavy ordering season that we have just entered into. We have benefited so far this year from last fall's surge in enrollments which carried through into the spring semester, and while we think fall enrollments will continue at this higher level, no further surge is projected. That is why we expect the market to grow by 5% to 7% despite the very strong start to the year.

In professional markets, digital products are also producing double-digit growth. We now have 5,000 eBooks available, and their sales accelerated last April following the introduction of the Apple iPad. The eBook is on its way to becoming a staple of the business to consumer market as individuals increasingly discover the convenience of downloading content to e-reading devices. Digital products are also growing rapidly in the business to business market. Here the content is assessed on a platform that is updated with news feeds, augmented with video, and rich with searchable information and professionals required to remain current with developments in their fields. Our growing family of access products offers a growing array of professional resources in medicine, engineering, and business.

So let's sum up for McGraw-Hill Education. Growth in key markets in 2010. 4% to 6% in the elementary high school market. 5% to 7% in the US college market. Segment revenue -- low single-digit growth, down from previous guidance of 6% to 7% growth, given a more challenging el-high market. Operating margin unchanged from 2009.

Finally, let's now take a look at the Information & Media segment. The growth of our global energy information business, an increase in television and advertising, and the continuing impact of the Business Week divestiture were key to this segment's second quarter performance. For the second quarter, revenue declined by 5.1%, but excluding Business Week, grew by 7.4%. Operating profit increased by $33.1 million to $47.5 million, compared to $14.4 million for the same period last year. And by the way, that included a pre-tax restructuring charge of $4 million. The operating margin was 21.2% compared to 6.1% for the same period last year. The Business-to-Business Group's revenue declined by 7.8%, but excluding Business Week grew by 5.6%.

In volatile energy market, the demand for Platts Data and Information product continues to produce solid growth, both in the United States and in international markets. To keep its clients abreast of the changing market plays, Platts is also introducing new information services. The Bakken Shale formation in the central US is one of the most significant new sources of regional oil for our nation's refiners. In the second quarter, Platts began publishing the world's first price assessment for crude oil produced from the Bakken Shale formation. Platts also began publishing daily price assessments for liquefied natural gas imported to southwest Europe and to northwest Europe, two very key consumer regions.

For Broadcasting, second quarter revenue increased by 24% compared to the period last year. National, local, and political time sales all contributed to the growth. A pickup in automotive advertising was a key factor and an improvement in local and national advertising. Political advertising benefited from the June 8th primary in California and the contest for governor in that state. In the third quarter, political advertising should again be strong. There is an August 10th primary in Colorado and spending for the Senate race and propositions expected to be key drivers.

Summing up then for the Information & Media, 2009 sale of Business Week is having a positive impact on revenue and operating margins. Revenue -- expect a mid-single-digit decline, but excluding Business Week, revenue will increase in the mid-single-digit range. Operating margin expect to rebound into the mid-teens and therefore summing up overall now for The McGraw-Hill Companies, our previous earnings per diluted share guidance for 2010 was $2.55 to $2.65. Due to the choppiness in some of our key markets, we now expect to finish the year at the lower end of that range. Okay, that concludes the review of our operations and various situations. Let's turn it over now to Bob Bahash, our Chief Financial Officer, and our other financial matters.

Okay, thank you, Terry. There should be no doubt about the strength and flexibility of the McGraw-Hill Companies' financial position as we enter the third quarter. Free cash flow is building. There is no short-term debt outstanding. No long-term debt comes due until 2012, and in the second quarter we started repurchasing shares. We have repurchased 6.5 million shares for a total cost of $186.9 million, at an average price of $28.76 per share. This is the first time we've repurchased shares since the third quarter of 2008. 10.6 million shares remain in the 2007 program authorized by the Board of Directors. Our diluted weighted average shares outstanding was 313.2 million in the second quarter, relatively flat versus the prior year as the second quarter share repurchases were offset by issuance related to employee plans as well as stock price appreciation. Diluted weighted average shares outstanding declined 3.1 million from the first quarter, reflecting the weighted impact of second quarter share repurchases. Fully diluted shares at the end of the quarter were approximately 310 million.

We continue to be well capitalized with a net debt position as of June 30th of $53 million. The shift to a net debt position from the end of the first quarter is driven primarily by funding for share repurchases. Cash and short-term investments at the end of the quarter totaled $1.145 billion, while gross debt was comprised of $1.198 billion in senior notes. Our debt is comprised entirely of long-term unsecured senior notes, and there's no commercial paper outstanding, again, as I mentioned earlier. The outlook for the free cash flow continues to improve. To calculate free cash flow, we start with after-tax cash from operations and deduct working capital investments and dividends. What's left is free cash flow -- funds we can use to repurchase stock, make acquisitions, or pay down debt.

In the first half of 2010, we generated free cash flow of $98 million. That's an improvement of $61 million from the prior year due to improved operating results and a continuing focus on asset management. We now expect free cash flow for the year in the range of $600 million to $650 million versus our previous guidance of $550 million to $600 million. The improvement is driven by reduced capital investment projections and more favorable working capital than previously anticipated. 2009 full-year free cash flow was $770 million. We generate the majority of our free cash flow in the second half of the year because of the seasonality of our education business. Our guidance implies second half free cash flow that will be roughly $500 million to $550 million which is lower than the prior year due to increased investments and more challenging working capital comparisons during that second half. Regarding our US pension plan, we still anticipate no funding requirements in 2010. We now expect an increase in pension expense of approximately $15 million versus our previous estimate of $20 million.

Now, let's look at our segment expenses, particularly in the context of the reduced revenue outlook for McGraw-Hill Education and Financial Services. As a reminder, I will speak to adjusted expense growth, which represents expense growth excluding the 2009 restructuring charges as well as the loss on the divestiture of Vista and the gain on the divestiture of Business Week. So let's start now with education.

Second quarter adjusted expenses declined 1.8%, and the first half adjusted expenses declined 2.1%. At constant currencies, the first half decline is actually larger at 3.1%. This segment benefited from savings from last year's strategy to combine our core basal publishing operations with our alternative basal and supplemental publishing operations as well as reduced expenses due to the planned phaseout of statewide custom contracts in California, Florida, and Arizona. Increases in selling and marketing costs in the second quarter for the robust state new adoption opportunities and continued digital investments partially offset these savings. For the full-year 2010 as Terry indicated, we now expect segment revenue growth in the low single digits versus our previous guidance of 6% to 7% increase. Despite the reduced revenue growth, we are maintaining our guidance of an unchanged adjusted operating margin as we now anticipate expenses to increase in the low single digits compared to our previous guidance of a 6% to 7% increase. Our full-year guidance implies that second half expense will be in the mid-single-digits, driven by an increase in selling and marketing costs because of the state adoption calendar, as well as cycling through the phaseout of the previously mentioned statewide custom contracts. Additionally, we continue to ramp up investment in both technology and personnel to support our digital initiatives, particularly at higher education and professional in order to provide value and choices for our customers.

For Financial Services, adjusted expenses increased 9.4% in the second quarter, and 10.8% at constant currencies. First half expenses increased 8.5%. Expense increase was driven by increased salaries and occupancy costs, mainly from our international hires and increased incentive compensation. For the full-year 2010, we now expect expenses to increase roughly 7% to 8%, down slightly versus our previous guidance of roughly 9% to 10%. Expense growth is largely driven by continued investment in our fast growing businesses, the carry-over impact of 2009 hires as well as planned hires for 2010, and additional investments to support our regulatory and compliance efforts. Our expense guidance assumes approximately $15 million in additional costs related to our regulatory and compliance initiatives which will occur mostly in the second half of the year. As Terry indicated, there will be some pressure on operating margins as we continue to deal with the provisions of the new US legislation, new rulemaking by the SEC, and regulations recently proposed by Canada and Hong Kong.

At Information & Media, second quarter and first half adjusted expenses declined 18.9% and 19.4%, respectively. The divestiture of Business Week reduced second quarter revenue by $27.5 million and expenses by $38.5 million for a positive profit impact of roughly $11 million in the quarter. For the first half, the divestiture of Business Week reduced revenue by $55 million and expenses by $78 million for a positive impact of roughly $23 million. The segment also benefited from restructuring actions taken in 2009. For the full year, Information & Media will reflect savings from Business Week divestiture of approximately $38 million. For 2010, reflecting primarily the divestiture of Business Week, expenses are expected to decline in the low teens versus 2009 adjusted expenses.

Corporate expense in the second quarter was $37.6 million, an $8.3 million dollar increase versus the prior year. The increase was primarily driven by increased excess space, increased incentive compensation, and growth in selected support functions. For the first half, corporate expense was $73.4 million, which is a $10.6 million increase. For the full year, we expect to -- we continue to expect corporate expense to increase about $25 million to $30 million, and the primary reason for the increase is driven by the higher excess space for New York resulting from the Business Week divestiture, as well as excess space from the restructuring actions at McGraw-Hill Education.

Let's now turn to investments where we are expecting increases in the second half. Pre-pub investments were $30 million in the second quarter, a decrease of $12 million compared to the second quarter of 2009. And first half, we invested $60 million, which is a $25 million decrease. The decline is largely due to timing as we expect increased pre-publication investments in the second half of the year. For 2010, we now expect pre-pub investments of approximately $195 million to $205 million, an $18 million to $28 million increase versus 2009. But, on the other hand, this investment is $30 million less than our previous estimate of $225 million to $235 million, reflecting the fact that with changes in state adoption [call] schedules, investments are being delayed to better align with projected opportunities. In addition, we continue to benefit from combining our core basal publishing operations with our alternative basal and supplemental publishing operations.

Purchase of property and equipment were $14.5 million in the second quarter, a $6 million increase versus the second quarter of last year. First half purchases of property and equipment were $22 million. We expect increase investments in the second half and continue to expect that on a full-year basis expenditures will be approximately $90 million to $100 million versus $68.5 million in 2009, and the increase is largely driven by technology spending.

Now let's take a look now at the noncash items. Amortization of pre-publication costs was $69 million in the second quarter, which is a $2 million decrease versus last year. In 2010, we continue to expect $260 million to $265 million versus $270 million last year. Depreciation was $26 million in the second quarter versus $29 million the previous quarter last year. We continue to expect depreciation to be roughly $115 million versus $113 million in 2009. Amortization of intangibles was $13 million for the second quarter of 2010 and $23 million for the first half, and we expect for the full year about $40 million. Net interest expense was approximately $21 million in the second quarter compared to $18.5 million in the same period last year, and $22 million in the first quarter of 2010. We continue to expect full-year interest to be roughly comparable to 2009 which was $77 million.

Regarding the Company's effective tax rate, during the second quarter and the first half of 2010, it was 36.4%, which was unchanged from 2009. And that's what we expect to see for the full year. Our unearned revenue continues to grow, ending the quarter at $1.1 billion, which is up 4.2% from the prior year. At constant foreign currency exchange rates, and excluding the impact of the divestiture of Business Week, the growth was 7%. Unearned revenue was impacted by a deferral of revenue at McGraw-Hill Education -- School Education Group -- where shipping will be completed in the third quarter. Excluding this impact, unearned revenue would have grown at approximately 3.5%.

Financial Services continues to represent 73% of the corporation's total unearned revenue. It grew in the low single-digits at a strong growth in ratings-related information, S&P Indices and Capital IQ offset declines at Credit Ratings and Equity Research products. For 2010, we continue to expect mid-single-digit growth in unearned revenue. Thank you. Now back to Terry.

Thank you, Bob. That completes the results for the second quarter, and obviously for the first half of the year. As well as guidance for the second half. And I have to say we feel very confident about the results for the full year. And again, regarding some of the financial reform and legal issues, we're obviously pleased that this period of uncertainty is largely over. And with that, let me turn it over to Don Rubin, and he'll moderate our Q-and-A session.

Thank you, Terry. (Operator Instructions) We will now -- we're now prepared to take the first question.

Thank you. Our first question comes from Brian Shipman, Jefferies. Your line is open.

Thank you. Good morning. I have a couple of questions, actually. First, with Standard & Poor's. How is relative issuance performance in June versus May and the impact on revenues? And how is issuance trending so far in July relative to what you saw in late May and June. And then still with Standard & Poor's, Terry, you alluded to watching the competitive position of S&P very closely. Are you feeling something new on the competitive front? And have you seen any impact from Bloomberg's quantitative credit rating feature yet? Then I have a question on textbooks. Thank you.

Okay. Hello, Brian. First of all, on the S&P issuance, where they're talking corporate governance, munis, structured finance. The story for the first part of the year, as we all know, January through the end of April, was very strong. And quite frankly, we were a little surprised by it. But again, what it did is it led into a May-June-July period of softness. And it was a lot slower than we anticipated on that one. And we'll just to have see going forward. I think it reflects a little bit of Fed Chairman Bernanke's comment when he was talking about entering into a summer lull of more modest recovery. But we'll have to see. We have to see what the effect of some of the economic recovery and some of the effect that that's going to have on business investment and what that means then for issuance. But right now, it's pretty soft. And again, the charts in the slides that show that -- we're not going to anticipate stronger issuance at this point. If it comes, it will obviously offset any additional costs and should improve margins. But we'll just stay tuned at this point on that one.

Competitive issues, Brian, on S&P, no. Again, when you talk about the extensiveness globally of providing credit rating services, it is a huge undertaking. We carry some 1,300 analysts around the world that are providing all of these kind of functions, and so for new entrants, that's a big hurdle to get over. We're hearing on the fringe of a lot of different people that would like to get involved or be a part of or something like that, but we're not seeing anything from a competitive standpoint that concerns us from that one. On the textbook side, Brian, what was the question?

I guess we're entering the most important time of the year, third quarter is -- call it -- it's the important quarter. So you've cut your textbook forecast several times this year. As we enter the most important quarter, what are you seeing currently that gives you confidence in this new outlook you've laid out?

Well, as we know, the countercyclicality, especially in higher education and professional, to an economic recovery is there. More people have gone back to school. More people are staying longer. And therefore, we're entering into a period that I think should be very advantageous for us. We will see. But it also gives us a lot of upside in terms of some of the new things we're doing. Very pleased with the on-line learning platforms like McGraw-Hill Connect. It is doing extremely well. Especially at the community college level. And so that part is good. Also what we're seeing is increased activity in the Educational Services area. These are on-line learning platforms that are very targeted toward professional skills in places like India and China where to get certain jobs you have to have certain skillsets, and we can rifle-shoot in with on-line learning platforms. And we're seeing a lot of success in that as well. So I think it's a good situation at this point. We just have to have stay tuned.

On the K-12 side, it really is going to depend on some of the Recovery Act federal stimulus. There's $11.5 billion that is scheduled for spending in 2010. Certainly, I think teacher jobs are part of it. But I think also we ought to see some very, very important support in some of the key states. So we'll see. The higher ed is going to clearly be the winner of the year.

Thank you, Terry.

Thanks, Brian.

Our next question comes from Sloan Bohlen, Goldman Sachs. You may ask your question.

Hello, good morning. Just to start off on the regulatory front. First on the legal liability, it's clear that there's some concern with attaching ratings to certain issues, and now we've gotten the six-month clean-up from the SEC on regards to the ABS. Could you talk about your strategy going forward with regard to that new legal liability? Then as a secondary follow-up to that, your thoughts on the SEC study. The replacement for the Franken Bill and the study on the conflict of interest?

On the legal liability side, the outcome was better than what we were hearing even a year ago on this one. As you know, in terms of the pleading standards, we were taking a look at fraud. And then you're talking about gross negligence, and then dropping down to a negligence level. And all have implications on intent and so forth. Where we are is just a little bit lower than the fraud level that we saw originally in the Credit Rating Agency Reform Act of '06. It's very livable. What we've always been concerned about is clarification of some of the language. When you talk about a reasonable investigation, what's the definition of reasonable investigation? Knowingly and recklessly. What constitutes that? And I think what we're seeing here is a dust settling period with the SEC. And I think yesterday's pronouncement suspending AB requirements for six months is really -- okay, we've got to get our arms around all of this, and we've got to clarify certain language. And we've got to put things in place that does no harm and all that. So we're actually satisfied with where that is, and regardless, we think that we are in a good position to deal with that.

As far as conflicts of interest and questions about the business model or things like that, we feel quite good. Again, it's what you are trying to solve the equation for. If you're trying to solve the equation for higher transparency, which is a good thing. Then you are going to go with the issue or pay model, and you've just got to make sure because we disseminate all the information free around the world. So you've got higher transparency. What you've just got to make sure -- and obviously being regulated, that your compliance systems and your fire walls and all of that is very, very pronounced and clearly articulated. And that is exactly what the new overhaul reform bill articulates. That they are going to be inspecting those compliance systems and the like, and we're working with various regulators to make sure they understand our compliance systems and that they are in all of that. So that's -- so I don't see anything at this point in either the business model or any potential conflicts of interest that would surface.

Okay. And just switching gears, quick question on the publishing side. Terry, you had mentioned double-digit revenue growth from the digital side of the business. Can you maybe elaborate on the partnership with Blackboard and how that may scale that opportunity? Just how quickly the opportunity set is growing with the advent of the iPad and whatever else?

Yes. Thanks, Sloan. We're very excited about that. They distribute to 70%, 80% of all US colleges and universities. And so with a platform like McGraw-Hill Connect, we see for them, and we see for us acceleration in those kind of revenues. And the bigger issue here, and the more important one, is the role that digital is playing, especially in higher education in terms of being able to expand to a larger student audience, as well as getting into the professional training area. So the digital growth is good, but it's in keeping with the transformation that's taking place in those markets.

Thanks a lot.

Thanks, Sloan.

We have a question from Craig Huber, Access 342. You may ask your question.

Yes. Good morning, Terry. Can you hear me?

Yes, Craig.

Yes, good morning. If I heard you right, I believe you said the el-high market you thought would grow 4% to 6%. The college market would grow 5% to 7%. Is that correct?

That's correct, Craig.

I believe you said you thought your education segment revenues would grow 1% to 2%. Can you talk about the differences there? Why you're overall expecting to grow only 1% to 2%?

We said low single digits on that one. 1% to 2% would be a little low on that one. I just think that on the K-12 space, we're all watching it real time. And we've witnessed some upside surprises in California that we didn't expect, and then some downside there. We've also seen some of the smaller states, Oklahoma, for example, that cut back. But overall, we're still seeing a pretty good number. We dropped the new state adoption number to $825 million to $875 million, down from $875 million to $925 million just to reflect some of that. But you still have strong representation from Texas and Florida and the market share numbers there. So it is fluid.

We have to see what the federal stimulus and the Recovery Act dollars as we were saying -- $11.5 billion is being sent to the states. And obviously, a variety of uses. But, we feel pretty confident that instructional materials and testing materials are going to be a part of that. So that's why we say 4% to 6% rather than the 6% to 7% that we see. And if it improves, and we see that stimulus having effect and some of the Race to the Top funds, we'll come back to you on it. But I think given some of the softness we've seen, I think 4% to 6% is a responsible number. I would love to see it higher.

Great.

Also, one thing, our growth rate is our planned phaseout of a number of the statewide custom contracts -- that's CTB in California, Florida, and Arizona. So that's a planned phaseout which will reduce our revenue. On the other hand -- CTB, we'll be showing lower revenue for the year, we're still very excited about the growth opportunities for our formative programs with Acuity.

As Bob is saying, the shift there, Craig, is obviously away from the summative and to the formative testing. And the formative testing is a much bigger, broader market, and we're very pleased with Acuity and how that is being received.

Then also, are you still assuming open territories and residual sales as the whole market is down mid-single-digits?

We're assuming that the open territory sales will decline around 3%. We're still holding to that, and the residual sales more at the high single digits, simply because of the much larger new adoption calendar. There's less need for replacement of product.

And that could shift a little bit with the Recovery Act funds, but we want to see that before we change that.

Shift over if we could to your S&P ratings business -- transaction revenues there. Could you give us a little better thought of what you're thinking in terms of the outlook here for transaction revenues for the back part of the year. Do you have an anticipation of when it might pick up significantly from these very low levels right now? Significant maturity next year? Do you think it's going to get pulled forward into the fourth quarter here?

I'd love to be able to tell you, Craig that it's going to be wildly up. But it's all of a function of the economic recovery and access to business investment and capital markets. Right now, as we watch spreads, the spreads have widened. What we need to see is those spreads neutralize or go lower, and that would be more issuance on that part. It's really just very unclear. I can only tell you that as strong as the pipeline was for the first four months of the year, it's been pretty anemic for the last three months. And again, we need to see business investment pick up.

One last question if I could. You talk about $15 million incremental regulatory and compliance costs this year. What is your [plenary] thought for what that number could be for next year?

We're playing with that now. Obviously, as there's still unclarity, for example, at the SEC on certain things, and we're working with them in terms of interpretation of certain things and what potential calls for staffing is, those kind of things would be. Largely, the systems part is pretty much complete. As I was saying, we pent $63 million last year on the regulatory and compliance systems. This year it is going to probably be around $78 million. Could it be a little higher? It could on that one. A lot of the one-time costs associated with the systems part are done. You're talking about the smaller, more incremental part. We'll be giving out that information as we go, but I think that growth in that is going to be very modest, if at all. But we'll see.

Great. Thank you.

Thanks, Craig.

Our next question comes from Peter Appert, Piper Jaffray. You may ask your question.

Thanks. Terry, I am wondering in the context of the increased litigation risk and compliance fees you face at S&P how you're thinking about fee structures? How do you institute any increases in fees, or are you anticipating any increases in fees?

Well, you know, any fee increase is depending upon the category and whatever are all modest on that. Again, risk mitigation situations for legal expenses, we've got all of that in place at this point. The part that's encouraging, Peter, is obviously that 15 of the lawsuits have been dismissed. Five more have been just withdrawn, and this is the trend that we expected. It's just taken so long to get judgments. The amount of litigation that's in this system overall is pretty high and getting judge time is difficult. But we're pleased with the direction that's taken. And we want to see that part continue. So I don't see from the pleading standards or any of the new reform things, I don't see anything overly onerous at this point. So again, I think that we have a pretty good situation. We'll continue to monitor it, and I think that we'll be in okay shape.

But you don't feel that you might be justified in raising fees a little more aggressively than you have in recent context of the incremental costs you're faced with?

No, I think that obviously -- well, given the current situation, we're fine in all of that. Now, hypotheticals, and we could go down a lot of paths on that. Would we pass along some of the costs? Sure, in all of that. I think we're on a pretty good path and a pretty good situation, and we're handling it as it comes. Now, obviously the part that pleases us the most is the fact that when you still have the regulatory reform bill out there and all the headline risk and all of those kind of things, the uncertainty levels were pretty high. What we're doing is we're moving from a world of uncertainty to one that is more certain. And that's good. And I think the SEC pronouncement yesterday about a six-month moratorium, especially with the AB requirement, is a good sign that the dust is settling. And we now to have get after managing the requirement. So at this point we feel pretty good about it.

Where do you think the margins go, Terry, at S&P over the next several years? Do you think you can sustain them at the 2010 levels?

Well, again, we have to see what the additional costs are. The majority of the costs, the one-time costs, have already been taken in terms of compliance systems and all of those kind of things. So we're still studying on what some of the ramifications of some of the new rules might have, especially on staffing and things like that. But if there is pressure on margins, we think they're going to be very modest at this point. So once the one-time costs are gone, and your run rate has already been adjusted on that part. That should -- and if revenue picks up, that should all go straight to the bottom line, and that will be margin improvement. We're being cautious at this point with revenue and transaction direction because we've just got to see a little bit more in terms of how this recovery takes place. But what we're focused on would be the revenue side because the ongoing costs have already been adjusted. The one-time costs will subside, and then that should have a better situation.

Okay, and then just last thing. Bob, what kind of repurchase activity should we anticipate in the second half?

We will continue to report on a quarterly basis, Peter, how we're doing on the repurchase program. I think the important thing is to indicate, one, we began the practice. We do have 10.1 million shares remaining, and we're in a very strong cash position. So without going into a forecast, I think the key is that we began the program, and we didn't begin it to stop it. So not to forecast where we're going to be, but we began the program.

How about more generally in terms of the 10.1? Would you like to complete that within some certain time frame?

No, I'll go back to what I said originally that we would purchase the 17.1 million shares over time without being specific, whether it was to be done within one year or not. But we took a pretty big slice of it, as you know, in the second quarter.

Okay, thank you.

Thanks, Peter.

We have a question from Michael Meltz, JPMorgan. You may ask your question.

Thank you. Two questions for you, Terry or Bob. Just to clarify, Terry, when people ask about pipeline and issuance activity, is it fair to -- you had said the pipeline had pulled back a bit. But isn't it fair to say the pipeline is still massive, it's just not clear when it comes to market? Then secondly, Bob, your guidance -- we're talking about a slowdown in issuance, but I think the guidance -- there's a comparable issue. S&P only grew 5% year-over-year in the first half. Your guidance implies about the same amount of growth in the second half. Is that fair? Then I have a follow-up.

With regard to that particular question, we had very strong -- looking at the ratings side of the house, as Terry pointed out earlier. Very strong growth for the first four months of the year, and a real slowdown in the last two months. Very good performance from Index Services, Capital IQ continues to grow. We did have a slowdown in the Equity Research side of the house, which began in the effectively in the third quarter of last year. So the comparables for that business will get better. We continue to expect our Index Services and Capital IQ to continue to grow, and we're anticipating a pickup in the latter half of the year -- a little bit of a pickup on the issuance side within S&P ratings. That's how we balance out to the levels that we have in the overall forecast.

Yes, and also, Michael, you're exactly right in terms of the pipeline. There's an awful lot of conversation and activity, and the question is when does it come to market. And so we just need to see some of that come to fruition. But, yes, absolutely. The number of people that are interested in raising those kind of funds is high. It's just that given the current situation, it's a little soft.

And then a question for you on index. You mentioned a bunch of the new deals, and over time, you've always mentioned the new launches. But I think this Vanguard deal could be one of your larger deals. Can you just talk about that in the context of if this is similar to the Barclays deal? Is this really nicely incremental in the second half? Or is it going to take a while to build up, as you see it?

Well, I mean, no, incrementally it's doing exceptionally well on that one. And, of course, Barclays in selling their operations to BlackRock. You've got BlackRock. You've got Vanguard, and you've got State Street. And those relationships are very strong and growing at a very good rate. It's -- what a contrast. The S & P index business and the growth of exchange traded funds, and the relationships that they take on with exchanges around the world is a great business.

All right, thanks for your time.

Thanks.

Our next question comes from William Bird, Bank of America Merrill Lynch. You may ask your question.

Good morning. Could you clarify what level of stock buybacks are in guidance? And can you just maybe give us your point of view on whether you'd consider borrowing to buy back stock?

Okay, Bob?

The guidance really reflects only what we have done. The 6.5 million shares, Bill, that I indicated in response to a question earlier. We're not forecasting how much we will repurchase, simply that we have 10.1 million shares remaining under the program, and the original statement that we made at the beginning of the year was that we would repurchase the shares over time. So we're not forecasting how much we're going to buy back this year or next year, Bill. But clearly we started off the program with a pretty good bite at it in the second quarter at 6.5 million shares. And just a modest, as you know, net debt position. Our cash flow forecast is much stronger in the second half of the year. So we're clearly in a position where if we elect to continue to repurchase shares, we're in a very good position to do that.

Terry, earlier you talked a bit about some of the federal funding initiatives that could impact educational spending. I just wanted to clarify, are those effects, in effect, in your numbers? Or could they be incremental to growth?

Those are obviously incremental. We can't count on anything. And so we're working state by state on the K-12 side, and we just anticipate of the $11.5 billion earmarked for 2010 out of the Recovery Act, plus the other grants. That it's got to come. Obviously, teachers are going to be a focus again of the administration. But it's got to come to materials and testing as well. We just don't have clarity on that. And so we have not put that in our numbers, and dependent upon what takes place, that would be incremental.

And do you have any sense of what that could boil down to in terms of spending on textbooks, for example?

We don't. It has to have some on that one, but until we actually see the monies reach the state, and the states declaring what they're going to do. We just really can't assume on that part. But I think it's intuitive that it is going to have some impact, and that would be good. Race to the Top, too, Bill, that has been very slow in terms of being approved, and Delaware and Tennessee are the two that have been approved. But given the fact that by the end of this year we'll have probably 40 states that will be signing on for common standards and eligible for those grants. That is a big, big shift. Currently, we have 32 states, and the District, as approved for that. But that's a big shift. And obviously the move to common standards is going to have a very positive effect on costs as well if you don't have to do as many state-specific kinds of materials.

Thank you.

Thanks.

Our next question comes from Doug Arthur, Evercore. You may ask your question.

I guess I'll cover something that hasn't been talked about. In Information & Media, in addition to obviously no Business Week, is there anything else noteworthy going on there in the top line?

Hello, Doug. The issues are, for example, on broadcasting, obviously given the political environment and all of that, political spending is really starting to pick up. And it's picking up earlier than we would have expected. And so that's one positive in the here and now. Big issues are in Platts. Platts is doing exceptionally well. And their pricing and benchmark assessments are being picked up worldwide. And actually now, and Bob correct me, I think it's a little bit over 60% of their revenue comes from outside the United States now.

That's right.

So it's growing at a very good rate. So those are two notables.

Okay, great. Thank you.

Thanks, Doug.

Our final question comes from Ed Atorino, Benchmark. You may ask your question.

Hello, Terry. Regarding the school outlook, is there any case that there could be some deferral here of spending? The state outlook may not be very good, but is any of this money that may not get spent in 2010, may it show up in 2011? Or is it gone?

No. Hello, Ed. That's exactly right. We have seen in places like Oklahoma, deferrals. In every case, you keep hearing the words at a time later or whatever. But, no, it can't be deferred forever, Ed. The one that we watch very carefully is the open territories. And where some of the federal stimulus will go. But, no, at this point, deferrals are very much a part of the equation.

Thanks.

Thanks.

That concludes this morning's call. A PDF version of the presenter's slides is available now for downloading from www.McGraw-Hill.com. A 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.