The McGraw-Hill Companies, Inc. (MHP) Q1 2009 Earnings Call April 28, 2009 8:30 AM ET
(Operator Instructions) Welcome to McGraw-Hill Companies First Quarter 2009 Earnings Call. Now I’d like to introduce Mr. Donald Rubin, Senior Vice President of Investor Relations for the McGraw-Hill Companies.
Good morning to our worldwide audience and thank you for joining us for the McGraw-Hill Companies First Quarter Earnings Call. I am Donald Rubin, Senior Vice President of Investor Relations at 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 we issued a news release with our first quarter results. We trust you 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. 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’re aware that we do have some media representatives with us on the call, however this call is for investors and we would ask that questions from the media be directed to Mr. Steve Weiss in our New York office at 212-512-2246 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's now my pleasure to introduce the Chairman, President and CEO of the McGraw-Hill Companies, Terry McGraw.
The outlook that we have for 2009 as Don mentioned with me today is Bob Bahash our Executive VP and Chief Financial Officer. On today’s call I’ll 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 then 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’re going to spend time this morning assessing recent development and what they may portend. 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 cost 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 the higher education market.
In the elementary, high school market the outlook is more difficult to call because it’s nearly impossible at this time to gauge the impact of the Federal Stimulus plan on educational spending. Without the benefit of the stimulus the el-hi 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 to $725 million range. Now, however, we believe that a projection of $550 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 form of grants for IDEA special education programs and Title 1 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 a $6 billion for IDEA programs and $5 billion for Title 1. 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 sometime in the second quarter. Beginning in July a second round of IDEA and Title 1 grants for the same amount, $6 billion of IDEA and $5 billion for Title 1 will also be distributed.
Later in the second quarter we expect to have greater clarity on the states plans for using their shares of the $53.6 billion fiscal stabilization fund. This fund is intended to help the states 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 its 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 their 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 spending 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 1 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 that we have heard, the administrations 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 the 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’s also new emphasis on college and workforce 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 leader 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 el-hi 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 its math adoption this year by postponing the 6th through 12th 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 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 legislatures 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 time obviously to predict whether the stimulus funds will wholly or even largely reverse the trend toward postponement.
Fortunately, McGraw-Hill is strongly positioned in other adoption states; specifically we’re doing very well with reading in Georgia, science in Tennessee, social studies in Indiana, and math in South Carolina, Kentucky and Oregon. 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 bi-annual 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, 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 test. 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 its 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. Because of delays in the second year of the math adoption we expect incremental purchasing in that discipline too. 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’s our formative assessment program. LAS Links, our assessment program for English language learners, and TABE CLAS-E which measures English language proficiency in adults. We have just won the first statewide adoption for this new product in Arizona.
We’re getting market 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 had been cancelled. Acuity and LAS Links should benefit from the new administration’s focus on real time assessment and the availability of stimulus money. Both products fit will and within the federal guidelines for Title 1 and IDEA spending.
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 the for profit post secondary market. The quarter over quarter comparison also benefited this year from a timing shift as more orders move 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 enrollment 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’s 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 grants 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.
Summing up for McGraw-Hill Education, without factoring in any benefit from the Federal Stimulus package, we see a 15% to 20% decline the el-hi market and a 3% to 4% growth in the US college and university market.
For the segment, we now project 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%. Again, we’re not putting any factor at this point of any federal stimulus monies into our forecast. We’ll see as we get into the second quarter.
In Financial Services, surging investment grade corporate issuance primarily in the industrial 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 the most of the programs including TALF and TARP and TLGP. It’s not surprising these government efforts have been labeled the acronym credit market relief program.
At this point it’s fair to say that these programs have been most helpful. Obviously any actions that help restore confidence to the market are obviously welcome. 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 policy makers 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 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 term asset backed securities loan facility or TALF product 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 programs is shaping up in May and these include deals for student loans, credit cards, auto loans, auto leases 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 then TALF. The TLGP program 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 buy in 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 address maturing long term debt, and a narrowing of spread 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 on $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 de-leveraging balance sheets and shrinking liabilities. We expect this trend to continue. Despite the pressures on the banks, we expect modest lending growth. Banks want to maintain their franchises. Hereto, government aid packages are encouraging banks to support local economies. Libor spread remain the relevant cost of funds benchmark. In recent months we’ve 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 government 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 are challenging.
As this chart shows, 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 financial institutions seek ways to improve balance sheet 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. 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 of credit markets continue to stabilize. The market for collateralized debt obligations will be muted all year.
Unsettled conditions in the 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 credit market services revenue was off only 3.8% in the first quarter. Non-transaction revenue again includes annual contracts, surveillance fees and subscriptions.
The main factors for the first quarter 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 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 the face of the credit market conditions that I’ve 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 softness in investment research products for the retail market and lower demand for fund management rating from European funds.
For S&P investment services 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 in 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 its client base in the first quarter and that 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 for 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 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 the exchange traded products for European investors. The exchange traded products will be traded on the Deutsche Bourse.
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’ve 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 staff with analytical and commercial responsibilities and confirming our long standing 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 dialogue with policy makers, regulators and market participants S&P last month published a paper that lays out a regulatory framework for rating agencies. If you haven’t seen it you can find a copy on the home page of S&Ps website at www.StandardandPoors.com. It is entitled “Toward a Global Regulatory Framework for Credit Ratings.”
In early April in preparation for a appearing on a panel at the SECs roundtable on rating agencies S&P published another white paper on business models for credit rating agencies. S&P believes that 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 disadvantaged each model brings to participants.
In examining each model, the following key requirements should be addressed. Certainly the highest should be transparency, prevention of conflicts, quality, breadth of coverage, market scrutiny, and of course investor choice. You can find that white paper again on the home page of S&Ps website at www.StandardandPoors.com.
At the SEC roundtable on April 15th there were 26 panelists from the rating industry, academia, and 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 its 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 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’s not clear when the regulation will take effect but it could be as early as July, 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 on a range of issues including the application process and treatment of ratings issued outside the European Union. CESR has nine months to issue guidelines on enforcement type issues.
We expected more regulation in Europe and now it’s 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. The important take away here is that on balance the new regulations are very manageable and represent a level playing field for credit rating agencies operating in the European Union.
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 affect 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 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 said previously the lawsuits fall into 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 libel 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 10(b) the Securities Exchange Act. We refer to this action as the Reese case. It has been brought up by purchasers of McGraw-Hill stock who allege that company statements about its 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&Ps ratings of a variety of securities including SIVs, SIV-Lites, CDOs, Lehman Brother 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 its ratings opinions as well as other legal defenses under New York law.
In addition to the three categories already sighted 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 relating to Lehman Brothers. The company is currently preparing its 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 agencies are somehow immune from litigation or potentially legal liability this 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 cause of 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; the 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 that any new or currently proposed legislation, regulation or judicial determination would have a material adverse affect on our financial condition or results of operations.
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 & Media. Certainly a decline in advertising, strength in global energy market, and a revenue deferral were all key factors in this segments first quarter performance. Revenue decline 7.4%, operating profit decreased 76% and the operating margin was down by 360 basis points. Revenue for the business to business group was off 5.7% and revenue for the broadcasting 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 as 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%. That’s measured by Publishers Information Bureau, PIB.
In the business to business group, Platts continues to turn in 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 assessments. Demand also continues to grow for Platts’ Dispatch, that’s 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. Because the global energy market never sleeps, our service is available 24/7 365 days a 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.
Therefore, summing up for Information & Media we now expect a decline by 5% to 6% versus our previous guidance of a low single digit decrease in revenue but we’re maintaining our previous March end guidance of 200 to 300 basis points decline excluding the 2008 restructuring charge.
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 a decline of 1% to 2%. 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 have implemented a new accounting pronouncement, this is SFAS 160.
Operating margins for 2008 have been restated and our reported margins for the first quarter 2009 and our guidance reflect the new accounting pronouncement. Bob will provide a little bit more detail on the impact of SFAS 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.
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 our 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’s 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 three percentage points. Foreign exchange benefited year over year expenses comparisons by $49.5 million and pre-tax income by $12.1 million.
These different top and bottom line outcomes occurred because we primarily bill, in many cases, in US dollars and Euros while significant expenses are denominated in non-US dollars. For example, the British Pound has significantly weakened compared 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 will be roughly flat year over year as continued investment in our business 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’ve 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 later part of 2008.
Let’s now look at the segment’s first quarter results as well as the new guidance for revenue and expenses. I’ll 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 expenses. Instead of our previous guidance of expenses roughly flat we now expect the 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 investment at Higher Education with its greater emphasis on digit 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 Group’s revenue grew 6.9%. 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 not 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 and 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 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 then last year. The amount earned in 2008 was larger in the first half of the year then 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 fees under many client agreements as it completes 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 builds 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 bill and collect the applicable fees for services performed.
Historically these fees have been greater for structured finance transactions then 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 then 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’s 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 revenue from non-transaction to transaction. We reclassified these items to create a more accurate view of our transaction revenue which previously have 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 deterioration in the economy.
Investment Services revenue grew slightly this quarter but experienced a small sequential decline. While most of Investment Services bills 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 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.
Now for Information & Media, I’d like to remind you that the segments results for the year will be adversely affected by the non-cash accounting impact at J.D. Power related to the introduction of Comp-us a more robust reporting an analytical tool for our clients.
Revenue previously recognized at the time the syndicated studies release will now be recognized ratably over the 12 month life of the subscription. This of course is similar to the Suites 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 Comp-us. 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 & Media segment we are maintaining our earlier forecast of a 200 to 300 basis point decline in the segments 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 SFAS 160 non-controlling interests and consolidated financial statements which resulted in a reclassification of minority interest. Previously we had minority interest recorded in segment operating profit. Under SFAS 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 five 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 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 the 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 SFAS 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’s 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 to $450 million. That’s 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 significant 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 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 then our previous guidance of $30 to $50 million. If funding is required it would be payable in the second half of the year.
Let me recap the corporation’s financial position. Our liquidity position is strong; there is cash on the balance sheet as well as a 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 is comprised 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 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 the seasonal cash requirements in the first quarter.
Our diluted weighted average shares outstanding was 312 million in the first quarter and 11.4 million share decline versus the same period last year. It is also roughly flat compared to the fourth quarter 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. For the full year we still expect interest expense to be roughly comparable to 2008.
Capital expenditures are expected to decline in 2009. Prepublication investments were $42.7 million in the first quarter which is down $24 million compared to the first quarter of 2008. We still expect prepub investments to be $225 million in 2009 versus $254 million in 2008. Reduced revenue opportunities in 2009, prudent 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 2008 included capital expenditures related to the data center. We continue to estimate $90 million for the full year.
Let’s now review non-cash items. Amortization of prepub 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 prepub amortization from $275 to $280 million versus our original forecast of $285 million.
Depreciation was $29.4 million and that’s about $2 million higher then the same period last year. We’re still forecasting approximately $130 million for the year.
Amortization of intangibles was $14.2 million for the first quarter which is flat compared to the same period last year. For 2009 we still expect approximately $55 million.
I’ll 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.
There you have it for the first quarter for this year, obviously a small quarter for us overall. We’re pleased with the $0.20 for the quarter given the environment that we’ve been in. We see the economy overall starting to improve, that the rate of decline will decline and maybe even 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’re looking for improved environments on that.
Let me turn it now over to Don and we’ll go to any questions.
Just a couple of instructions for our phone participants. (Instructions) We’re now ready for questions.
(Operator Instructions) Your first question comes from Michael Meltz – JP Morgan
Michael Meltz – JP Morgan
At Investment Services can you talk a little bit more about what you’re seeing in that business? I know you gave a lot of detail on the call but in terms of what’s working and what’s weak can you talk about the weak properties such as the directories and managed funds and the research products. What exactly are you seeing there and what gives you confidence that that’s somewhat stabilized?
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. The funds research side was also relatively small. 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, I think that’s very important.
We’re also seeing stability in Compustat as well. Our index product offerings are even with the significant declines that we saw in assets under management which affects overall fees we’re still seeing opportunities there and we expect that to be pretty strong for the balance of the year. On an overall basis we’re pleased with the performance given the market environment that we’re seeing.
Again, it’s the equity research areas which are both domestically here as well as CRISIL which provides some outsourcing equity research capabilities mainly for some European clients it saw some weakness, some pull back. They are seeing some additional properties coming their way. Those are smaller areas that did not perform as well.
Michael Meltz – JP Morgan
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 the different component pieces. I think its safe to say that the areas that we’re looking at as the growth engines performed at our expectations or quite frankly even a little bit better given the very difficult environment that we’re in. We are encouraged for the balance of the year as we start to get some stability in the market environment.
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. 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 its coming from more traditional sources maybe but we’re pleased with both of those, those are good signals I think to the market.
Michael Meltz – JP Morgan
The SFAS 160 adjustment, what are the entities that you’re now shifting to a minority interest line, what are those investments at S&P and Education?
The larger entities would be CRISIL, there’s Taiwan Ratings, and of course in Education it would be the McGraw-Hill Ryerson, the Canadian operation those are the larger components that are being shifted.
Michael Meltz – JP Morgan
At Information 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’s on track to lose a good amount of money this year.
No comment on that.
Your next question comes from Peter Appert – Piper Jaffray
Peter Appert – Piper Jaffray
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?
This is a relatively small property. We have not seen growth in the revenue here. Let’s put it this way, you’re somewhere under $20 million.
Peter Appert – Piper Jaffray
To the ratings business are you seeing specific pricing pressure back from issuers in response to the more difficult market condition? Generally, what are you guys doing this year from a pricing perspective?
It all depends on the category within that. Given some of the strength that we’re 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’re trying to maintain whatever pricing levels at that point. We are selectively increasing in those categories that produce more demand.
Peter Appert – Piper Jaffray
Do you have an estimate in terms of what the incremental costs of the various regulations that have been put into place might be?
I really don’t want to get into that at this point we’re still developing that but clearly as you could expect we’re spending a fair amount of money in that particular area. I don’t want to get into that at this point in time. Perhaps as we get further through and we have better clarity in terms of what the new regulatory environment will be.
It’s also safe to say we have estimated where we think we are and it’s in the 38% margin.
Peter Appert – Piper Jaffray
Do you anticipate that you might have to do additional restructuring actions to get to the cost targets you’ve now set?
There’s no further restructuring built into our current forecast. Again, we think things are going to be generally improving here. Again, I think the proper answer to that is that if obviously opportunities don’t appear where we see them we will adjust the costs accordingly. I just think it’s probably safe to say don’t know at this point but certainly we’re coming to more closure on that.
Given the environment that we’re 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. In many cases we have implemented some of those contingency actions just because of the uncertainty that we’re facing. That’s why we are right now forecasting virtually in every case a lower expectation for expense growth then we had originally indicated.
Because the environment’s a little bit different, our revenue expectation for the full year is a little bit lower then we thought so that’s why we’re kind of ahead of the curve here with regard to our expense contingency implementations.
Your next question comes from Craig Huber – Barclays
Craig Huber – Barclays
Can you speak a little bit about European regulatory further? I thought it very interesting in the recent weeks that the European Commission and various bodies did not change the business model for the credit rating agencies over in Europe. What do you think that mean for the SEC Congress here in the States if anything that they may or may not change their business model in the States?
This has been a process now that’s taken almost two years. In the beginning it was way off with lots and lots of agreement and disagreement and all hosts 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. At the G20 they reaffirmed the designation process and a code of conduct requirements from IOSCO and CESR has taken on a much broader role and could be the regulatory body for 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 complementary approaches here and I think that there’ll be sort of a melding that takes place. Again, on the business model issue and again we put out that white paper. Every business model whatever it’s an 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’re managing that potential conflict.
It depends on what you’re trying to solve the equation for. If it’s for higher transparency then the issuer paid model is the better approach to take. That’s exactly what the European, after a lot of debate, the European approach took.
Craig Huber – Barclays
Could we talk about near term new issuance trends here in April? It’s 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 three weakest weeks we’ve had since you know fourth quarter and stuff. Obviously there’s some volatility or slowness around blackout dates on earnings and so forth. Are you seeing that in your business as well in April so far?
The word that we used, 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 the unthawing of the markets and the M&A activity associated with that was starting to pick up. We’re 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’ll probably go in and out of some phases. Overall we think we’re seeing a pretty good signal here that things are starting to unthaw. We’re talking corporates and governments and public finance. We’re not talking structured here. We do expect to see some improvement in the asset backed securities market especially for student loans, auto loans, credit card receivables etc.
Craig Huber – Barclays
Are you seeing any slowness in the last three weeks versus what you saw in the first quarter?
We’re seeing some on that. Corporates on the industrial sector are still showing activity on this part. We’ll have to see how it projects as we get into May. We’re pleased with where we are.
Craig Huber – Barclays
You mentioned early on in the call that you thought the adoption market would be down about 35% for the year. Maybe I missed it but what is your expectation for the open territories for elementary, high school textbooks in the US.
Actually we’re pleased and I’ve gone through a whole host of things where we were talking about reading in Georgia and science in Tennessee and social studies in Indiana, math in South Carolina, Kentucky and Oregon on that one. It will probably do better then the state adoption market but well have to see. We’ll have to see what the Federal Stimulus package; we just don’t have any data on that.
The monies are out, we’re going to see them obviously in this quarter and the third quarter. We’ve got to see what kind of impact that does. It’s a lot of money, its $104 billion, and $54 billion going back to the states specifically for this 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 postponement into 2010 are going to be reversed in this year. It’s going to be important because some of the material is starting to get dated in some of these states.
Your last question comes from [Adrian De St. Helier] – Unidentified Company
[Adrian De St. Helier] – Unidentified Company
On the higher education can you give us some color on how you’re expecting enrollments to grow in 2009? Some of your competitors have been guiding on a 10% organic increase would you follow that path?
It’s kind of difficult to tell at this point. There’s expectation that we’ll have to sort of see as we get into the 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’re certainly seeing that. We’re certainly seeing the activity at the community college level which is very important because obviously these are people that are affected by job loss or the need for job change and their looking for specific skill sets. We’re definitely seeing increased enrollments.
Overall I think that you can see over the next three, four years you’re going to see enrollment increases in the United States probably up to the 18, 19 million levels.
[Adrian De St. Helier] – Unidentified Company
Coming back on BusinessWeek, you came some trend about advertising. Can you give us some trend regarding circulation?
That’s good news. Circulation growth is up and we’re 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. We’re doing everything we possibly can to distribute through multi-channels and to be able to get more access to that editorial base. Circulation is up.
[Adrian De St. Helier] – Unidentified Company
Concerning the controlling costs, you mentioned a couple of measures. Are you getting as well on staff reductions? What is the potential you see in offshoring?
For 2008 as you know through the restructuring we have cut back 1,045 positions in the company. At this point with some small staff reductions it’s 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’re doing that in a variety of ways; China, the Philippines, India and so forth. We’ll continue to find ways to be more efficient through that so it’s a very important part but it’s all vendored from that standpoint.
That concludes this morning’s call. The presenter slides will be available soon for downloading from www.McGraw-Hill.com and 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 good day.
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