• This Day (Nigeria) aagm: Political Economy of Sustainable Democracy in Nigeria (2)

investments in India, opened a state-of-the-art regional headquarters in Mexico City, and we began the year by moving into our new London headquarters in Canary Wharf.
These, among others, are all large and growing markets where we see opportunities to grow for our franchise. Sum, it was a year in which our balanced portfolio continued to generate profitable growth and create value for our shareholders.
Most importantly, our markets remained vibrant. Our financial foundation is strong. To provide some additional insight into our performance and some context for evaluating our balance sheet and our growth prospects, I've asked Bob Bahash, our Chief Financial Officer, to comment this morning.
Bob and his financial team have had a tremendous impact on this corporation and its performance for many years. I'm delighted to have him speak to us this morning. Bob?
Bob Bahash, Chief Financial Officer, McGraw-Hill Inc.: Thank you, Terry. As you've heard, 2004 was another year of significant growth for the corporation. In fact, we exceeded our initial projections for the year and produced solid double-digit gains in earnings per share, continuing our track record of (audio break).
The results show that our strategy of directing resources to businesses that have the best opportunities to achieve significant financial growth and market leadership and carrying the portfolio's slower-growing and less-profitable businesses is a strategy that's paying off.
It has produced a balanced portfolio of leading business brands that deliver positive results in a variety of markets.. In 2004, we continued to execute on that strategy by acquiring promising new companies that added to our capabilities.
One key acquisition was the Grow Network, leading provider of assessment, reporting and customized content for states and large school districts across the (audio break). What grow network does is unique, using proprietary technology that provides customized test reports, instruction materials for students, families and educators.
Diagnosing each student's feats, providing personalized instructional recommendations that are fully integrated with state academic (inaudible). The powerful combination of CTB McGraw-Hill, digital learning and the Grow Network comprised the McGraw-Hill Assessment and Reporting Group, which gives McGraw-Hill Education additional capabilities to serve the growing testing assessment market.
A case in point is the selection announced earlier this week. CTV McGraw-Hill to serve as the primary contractor administration of the Florida Comprehensive Assessment, which 1.9 million students will par (audio break). This three year, $82-million contract enables Florida to comply with its testing assessment (audio break).
Other key acquisitions during the last nine months include (audio break)research, (audio break) Capital IQ, JD Power and Associates. You'll hear more from Harry on Capital IQ and JD Power and (audio break)
We also made a strategic equity investment in CRC EDU, leading online educational service provider tying these universities (audio break). The Corporation's healthy balance sheet and strong cash flow enables us to make strategic acquisitions.
In 2004, we strengthened our balance sheet even further, generating $630 million of free cash flow and ending the year with $680 million in cash and virtually no debt. As a result of acquisitions and share repurchase activity so far in 2005, we've returned to the commercial paper market for some short-term borrowing. (audio break) this fall we expect to return (audio break). Our strong cash flow and debt capacity enable us to continue making strategic acquisitions to invest in our key business operation, increase cash dividends, (inaudible) share repurchases.
I'd like to focus on the latter two increasing cash dividends and continuing share repurchases and their role I providing total shareholder value. Well, as Terry just announced the 2 for 1 stock split subject to shareholder approval to the increased aggregate number of shares of common stock, which would be distributed on May 17 to shareholders of record on May 6.
The following discussion of dividends and share repurchase will be on a pre-split basis. Since 1996, the McGraw-Hill Companies has returned more than 3 point ( audio break) billion dollars to shareholders, increased dividend payments (audio break) share repurchase.
That combination produced a compound annual growth rate of 16% through last year. In 2004 alone, we returned more than 638 million to our shareholders through these programs, an increase of more than 50% compared to 2003.
In January of this year, our Board of Directors approved a 32nd consecutive annual increase in our cash dividend. The new annual rate of $1.32 per share, an increase of 10%, represents a compound annual dividend growth rate of (audio break) percent revenue.
The McGraw-Hill Companies has increased its (audio break) 32 consecutive years. It is one of fewer than 35 companies in the S&P 500 with that achievement. Additionally, the Corporation has stated dividend to shareholders every year since 1937.
In 2004, the Corporation expanded the range of its share buyback program from 3 to 3.5 million shares with current rate at 3 to 5 million shares. And ultimately achieved all 5 million shares last year. And during 2005, the McGraw-Hill Companies intends to maintain the expanded 3 to 5 million share range of this program. And in fact, we've already purchased 3.6 million of those shares year to date.
In addition to our strong cash flow and other aspects of the corporation's strength, we have funded pensions. In fact, our pension is overfunded. We are only one of 54 companies in the S&P 500 with that distinction. No cash (ph) contribution has been made to our pension (inaudible) We did not see a need to (audio break) any time in the foreseeable future because of this overfunding.
Our priorities are quite clear. We will continue to maintain our (audio break) while providing a strong return to shareholders. We have a wonderful record of delivering on this (audio break). And through the successful execution of our business strategy, we are once again well positioned to keep delivering on this commitment in 2005 and beyond.
Now I'd like to return the program to Terry, who will discuss our strong and growing positions in our core markets, look at how the Corporation can benefit from some powerful global trends.
HARRY MCGRAW: Thanks, Bob. The- you know, I am taken by, you know, when you hear a number like we're one out of 54 companies in the S&P 500, I'm very pleased and(audio break) But it also shows (ph) within the overall pension plan, that andSocial Security reform. It's-(audio break) very, very (audio break).
Bob also mentioned the Grow Network and that is a wonderful acquisition. This whole area of assessment in reporting in the education space is going to take on, you know, tremendous dimensions and the Grow Network is going to provide a wonderful component to all of that.
I'd like to introduce you to David Coleman and Mark Malastina (ph), the CEO and President-(audio break)--.
As you heard, looking ahead to 2005, we see another year of growth and we're off to a strong start. Recapping our first quarter earnings announcement yesterday, revenue increased 11.9%. Diluted earnings per share from continuing operations grew $0.41 versus $0.39 for the same period.
As we noted in the earnings release, that $0.39 last year included a non-cash benefit of $0.10 per share from accrued tax liabilities in 2004. That means on a non-GAAP basis, $0.41 versus $0.29 last year, we had an increase of 41.5 % increase, and we're very pleased with that. And that's after $0.02 dilution. Thank you.
Thank you, and that's after $0.02 of dilution capitalized after the Capital IQ acquisition and-(audio break).
Now, given the seasonality of our business, the first quarter is obviously traditionally a very small one. But clearly, the year is off to a good start and we think there is a lot more good news ahead. Of course, beyond the first quarter and even beyond 2005, the prospects of the McGraw-Hill Companies depend obviously on our ability to meet needs of our customers.
And as gratifying as it is to report our results, it is the vital role that we play in providing intellectual capital in a knowledge-based economy that makes the future of the McGraw-Hill Companies a bright one. As our world grows up, it obviously becomes more and more interdependent. Worldwide conditions influencing our markets will drive our growth, not only in 2005, but in years to come.
In the relatively brief time that we have this morning, I want to examine two essential capabilities, two capabilities needed for success in our knowledge economy as never before. It's a straightforward proposition. Begin by giving people a sound education foundation on which they can build and acquire the skills necessary to compete, and then provide them with the information, tools and capabilities that enable them to access capital and business markets to improve decision making and succeed.
We live in an age where what you know determines what you can do. That means education and really, continuous learning, has never been more important. We are now in a 21st-century economy that has new requirements and where high wages will require high skills. And this knowledgeable economy does not know nor does it understand borders. And to succeed, as we said, it's all about what you know and what you can do.
In the United States, the days when a high school degree and then a factory job could get you through your working career, those days are over. Some may blame global sourcing and that's hardly the correct story. The underlying and more fundamental story is about productivity growth, one of the key factors in achieving economic growth.
In the past decade, factory productivity in the United States alone increased some 47%. In other words, factories produced 47% more goods using the same number of employees. That increase in productivity has reduced the need for workers in our manufacturing sector, much the way productivity increases in agriculture reduced the number of farmers from over 90% in 1800 to less than 2% today.
There's been an increasing demand for better educated workers who have the skills to use technologies that promote productivity growth. The number of jobs requiring a bachelor's degree is expected to grow by 25% in the next three years, and those requiring an associate's degree will grow by more than 30%.
And yet, and please hear this, right here in the United States, the percentage of 9th graders, the percentage of 9th graders who graduate high school on time that enroll in college and then graduate within six years, is just 18%. That's less than 1 in 5 9th graders that is on that track.
And ultimately, only 28% of adults in this country attain a bachelor's degree, a number that has improved only marginally in the last 10 years. For far too many young many people, the opportunities to share in the American dream are increasingly shrinking.
Recent statistics indicate that about half a million students in grades 9-12 leave school each year without completing a high school program. That number of high school dropouts is greater than the population of a fairly large city. The 10 largest school districts in the United States together see 180,000 high school dropouts each year. Now, while these facts are disturbing and America's future's growth is in question, change and reform is clearly under way and the opportunity is enormous.
To boost student achievement in large urban school districts, McGraw-Hill launched an urban education initiative to help close achievement gaps and enable large school districts to meet the adequate yearly progress requirement and to fulfill the promise of the No Child Left Behind Act.
American competitiveness depends on leaving no child behind, and that means we have much work to do. Through the urban education initiative, MCH is partnering with large school districts, evaluating their needs and providing them with solutions to improve their student performance and school performance.
To give you an up-close look, we've prepared a very special video. In it, we visit Public School 45, PS 45, here in the Bronx, about 10 miles from this auditorium. And it reflects the challenges of urban markets throughout the nation and what we are doing for them. It's a video that illustrates the special mission of our urban education initiative . Let's take a look.
(video)
Thank you, and I thank the kind people that put that together for us. It's always nice to be able to bring our customers front and center to us.
You saw in that video some wonderful people, too. Lots and lots of wonderful people. Keith Syevski (ph), who's talking about the name of the child reading to him. He's probably one of our very, very best managers out here at McGraw Hill.
You saw Dan Dominique (ph) and Dan Dominique is one of the best superintendents in the country. He was out of the Fairfax, Virginia, school system. We hired him. Arthur Griffin with the president of the Charlotte-Mecklenburg school board, arguably one of the best districts in the country. You saw Betty Gage (ph) talking about how we assemble people that have these kind of backgrounds.
We live in New York. We live in Philadelphia, we live in Detroit, we live in Los Angeles Unitedand we are going to be head bent to make sure that we are improving upon these kind of capabilities.
Our future, all of our futures, depends upon it. By the way, that talented young man that you heard playing the violin, that was Trevor Ochieng. He is 16 years old. He is featured in McMillan McGraw-Hill's Spotlight On Music. It's a textbook series, as well as the national program from the top.
We had invited Trevor to be with us this morning, however, he has an A.P. English class - and he made a good choice. But we know he is listening, and Trevor, we enjoyed your music. Thank you.
And while we are talking about students, I want to introduce another fine group with us today. And they are among 20 high school students from Morris Campus High School in the Bronx who are being mentored by employees of the corporation, which is one of our long-standing programs in every major facility and every major community where we are.
McGraw-Hill employees are mentoring young people and they love to be able to do it. We're proud of all of our students. We have high hopes for them. And I'd like to introduce them to you. Would you please stand up, and would Gary Israel (ph) and Judy Goodman (ph), with their faculty members, please stand as well? There you go. Thank you very much.
We believe in high expectations for all students. The education reform movement obviously is about standards and putting in place the infrastructure to make sure those standards are met. And while we are acutely focused on the needs of school districts and higher education markets in the United States, McGraw-Hill is also working with governments around the world to meet their needs for an educated workforce. That is because as we all know, learning is a global business and it's becoming more global every day.
Over the next generation, for example, Asia will turn out more college graduates than Europe and the United States combined. India is producing some 3 million college graduates a year, and China, almost as many.
In fact, college enrollments in China hit a record 20 million last year. To compete in the 21st century global economy, countries need educated and skilled workers.
India is a good example here to illustrate this. Let me use it. India, which began a process back in 1991 to open and liberalize their markets, has shown gradual progress throughout the last decade as it deals with numerous social and political issues, as well as economic.
India had taken a more protectionist view, and on a global scale, a somewhat obstructionist approach in dealing with other potential trading partners. Nine months ago, the New Coalition government led by Prime Minister Singh signaled a new, more cooperative, very exciting directive to be more open and constructive as a global player, and having a desire to work with developed countries to achieve that goal.
From the McGraw-Hill Companies, our journey in India began back in 1970, with a joint venture from the Tata organization, establishing Tata McGraw-Hill to pursue educational opportunities.
On the Financial Services side, S&P provided a sovereign credit rating in 1990 and developed a relationship in 1997 with CRISIL, the Credit Rating and Information Services India Ltd. It started to grow as they started to grow and to build. We have many other businesses there, like Business Week's relationship with India that goes back three decades. But our presence in just the last decade has started to significantly rise. We have some 1,600 people now in India alone.
I just returned from a trip in India where I visited customers, employees, business leaders, government leaders, and I met with Prime Minister Singh about changing conditions. Incidentally, it's always bad probably to digress, but we had a nice session as well with President Kalaam, their head of state.
And he is a fabulous individual. He's a philosopher, he's a thought leader, and he's a beloved individual within India. We had a wonderful conversation. It could have gone on for a long time. A fabulously interesting man.
And the presidential palace is not bad. It's quite large. And the gardens in the back where his office looks out on go forever, and I'm not kidding. They go this way and they go that way, and they just, as far as you can see. And he said to me, he said, "come, come, let's go for a walk in the garden." And so we're walking through the garden, and he's talking to the flowers and the flowers are talking to him. And he's giving me all these phrases that the flowers are saying, and they're good.
I mean, these are very good things, and I'm starting to jot some of these down. And I said to him, I said, "Mr. President," I said, "It shows you, you know, how much alike our two countries are," and blah, blah, blah, democracy and so forth.
And also how different we are." Startled, he looked at me, how different. And I said, "Yeah, because, see, here, you can walk through the garden and talk to the flowers and they can talk to you. Where I come from, if I'm in the garden talking to the flowers, they're going to lock me up."
So we met with Prime Minister Singh and we talked about changing conditions. We talked about a focus on education at the state level as more authority shifts from the central government to the 28 states. The focus on strengthening financial market structures or prior capital needed to grow and to be able to get after the improvement of the overall infrastructure. The need for higher foreign direct investment and therefore complying with how to create a more accommodating business environment.
And the desire to work with developed countries to strengthen multi-lateral initiatives. As we know, without the large developing countries, the emerging markets in the developed countries, nothing is going to immediately happen at the multilateral or at the regional level in terms of being able to patchwork and knit some of these capabilities.
My point is simply this. As markets and countries seek to grow and be a part of the global economy, the opportunities for the McGraw-Hill Companies are simply enormous. And this is especially true with large developing countries which here today have been outside of this fabric. India, China, Brazil, Russia, and eventually Indonesia, Turkey and even someday Nigeria.
Our mission of opening doors applies in every corner of the country and every region of the world for individuals, businesses and the broader communities they serve. It's that straightforward proposition. Begin by giving them a sound education foundation that they can build on and then provide them with the information, tools and capability that enable them to access capital and business markets and improve decision making.
Let's turn our attention the second element, then, of that equation: the need for enabling information and tools as well as for the new capabilities. Here too the McGraw-Hill Companies is opening doors to those opportunities.
Nowhere is the need for trustworthy and actionable information more acute than in capital markets. Consider this. Some 60% of U.S. government debt is financed by foreign central banks. Capital inflows now achieve $700 billion a year, most of it from private sources. Globally, net foreign direct investment has more than tripled in the last decade.
High income countries continue to attract the most capital. But the amount going to low and middle income economies grew rapidly during the 1990s, from $24 billion to $171 billion, with most of that money going to Latin America, East and Central Asia and Europe.
What enables this inflow of capital? The answer is trustworthy and actionable information on which investors can base their decisions. S&P got its start during the U.S. industrial revolution by providing information on U.S. railroad bonds to British investors. Today S&P rates over 100 sovereign nations that seek our ratings for the express purpose of participating in the global capital market.
Its global network enables S&P to meet the growing demand in the expanding credit culture. Hear this. Global debt issuance for the five-year period starting in 1990, the five-year period starting in 1990, global debt issuance was $4 trillion.
Compare that to the last five years of global debt issuance, which is $16 trillion. And our estimate for the next five years going out, in terms of global debt issuance, is almost $30 trillion. Our future is bright.
Securitization. The pooling of debt and then the issuance of security backed by these pools continues to be a key factor in S&P's global growth.
Innovation in the structured finance market, including collateralized (ph) debt obligations, or CDOs, commercial mortgage-backed securities, residential mortgage-backed securities, a host of asset-backed securities, has driven record volumes of issuance for the S&P and we have the lead market share.
The structured finance market is now nearly as large as the corporate bond market and its growth has accelerated in Europe, emerging markets, Japan and throughout Asia. Joanne Rose runs our Structured Finance Ratings business.
She is one of the most respected individuals in the industry, and I'd like to introduce her to you. Joanne Rowe. Thank you, Joanne. Incidentally, Joanne started her career with us in the legal department and, you know, Tim (ph) is pretty tough on -(inaudible)- there, but we were able to pry her loose and she is one of our outstanding operating managers.
Standard & Poor's is the only global network that will produce solid international growth again in 2005. Indeed, 35% of Standard & Poor's revenues are generated outside the United States, and by the time we leave this decade, it will be about 50%.
As mentioned a moment ago, we are strengthening that global network. We have put out a voluntary tender offer for a majority stake in CRISIL that I mentioned in India, the Credit Rating and Information Services India Limited.
And they are a provider of credit ratings, financial news and risk policy and advisory services, and it appears now that that tender offer has been very successful. We're waiting for the validation of the exact numbers but we are-have succeeded in securing majority control.
And in February, S&P signed an affiliation agreement with the rating agency Malaysia Berhad. This is the leading rating agency of Malaysia, a country that is one of Asia's greatest economic success stories.
The growth of Standard & Poor's indices is also a global story. As continued globalization drives the need for standards and benchmarks that are understood by all.
The global phenomenon of aging populations, which is heating up those discussions around Social Security and pension reform, is increasing the demand not only for S&P's credit analysis, but also for its indexes.
As more and more capital is invested to fund retirements and pension liabilities, there's a greater demand for fair and impartial benchmarks and investment products based on those benchmarks.
Standard & Poor's indices are known and trusted throughout the world. More than $1.2 trillion is directly invested in S&P indices, and more than $3.5 trillion is benchmarked to the S&P 500 alone.
Look at the growth of exchange traded funds, or ETF. An ETF is similar to an index fund but is traded more like a stock. Market returns, low volatility, low cost. You know, it's very exciting.
Exchange traded funds are growing in importance as fund management tools. Assets under management in ETS based on S&P index continue to grow. At the end of the first quarter, there was $113.4 billion under management, a 39.5% increase over the same period last year.
Standard & Poor's record of leadership in equity research is yet another demonstration of its strength in providing trustworthy and actionable information, with many exciting developments in this area.
We made an important acquisition last year that will enable S&P to bring its data and analytical capabilities across all asset classes into one database, Capital IQ. Capital IQ is a data and technology platform that is transforming S&P's businesses into a full-service operation based on the latest advances in data delivery over the web.
That provides in one web-based environment, research and analysis on debt, equities, other public and private market data, in a manner that integrates with the customer's workflow.
It's a very exciting company. It's got an ideal strategy for us and it's got some very wonderful talented people. With us today is Steve Turner (ph), the managing director of Capital IQ, and I'd like to introduce him. Steve?
The need for reliable and actionable information also extends obviously beyond capital markets and financial services. It permeates every market and industry throughout the globe, and we have strengthened our other web-based platforms to meet that need.
Seventeen years ago, only eight countries were online. Today 1 billion people are connected. Internet traffic is doubling every 100 days. Every day, 45,000 people go on line for the first time.
There are many other exciting demonstrations of how the McGraw-Hill Company is using the internet to become a part of the daily work life and the workflow of professionals. Including new services on the McGraw-Hill Construction Network, the launch of (inaudible) into two Chinese online energy information services.
The addition of the world's leading pharmacological reference to access netison.com (ph) by McGraw-Hill professionals. These all are next generation tools opening doors to this generation's professional.
And this month, the Corporation broadened its business information platform with the acquisition of JD Power and Associates, which provides customer satisfaction ratings and market research recognized worldwide as benchmarks for quality.
JD Power is a leading provider of marketing information services for the global automotive industry and established a strong and growing presence in several other important industries, including finance and insurance, healthcare, homebuilding, telecommunications, and energy.
Most important, like that of our other franchises, the mark of J.D. Power is one of excellence, it's one of independence and it's one of integrity. And people have asked me, as we were talking last night at a board dinner, you know, is there really a Power?
Is there really, in this JD Power? Where there really is a Power. His name is David Power and he's here with his wife Joan, along with their president, Steve Goodall and their Executive Vice President, Jamie Power. Would you all please stand?
Welcome to McGraw-Hill. We also have a wonderful new leader in Business Week. Before I introduce him, I do want to say once again, it's always difficult to say goodbye. Steve Shephard, who is our editor-in-chief at Business Week for 20 years, and every one of you knows, everybody loves Steve.
He has done so much for us in so many different ways. If you want to know what to do when you turn 66, go see Steve. He decided to retire and become the founding dean of the New Graduate School of Journalism at the City University of New York in CUNY.
I can't think of a better person to start a brand new school and set the right kinds of value structures than somebody like Steve. So we will-we are not going to say goodbye to Steve. We will always have him around, but we thank him for everything.
But coming to Business Week we have some equal excitement, somebody with a tradition of editorial excellence and our new editor-in-chief, Steve Adler. Steve previously served as deputy managing editor of the Wall Street Journal and the editorial director of the online edition.
His experience in print and new media will play a vital role as we continue to grow Business Week in all the delivery channels and we look forward to his leadership. I'd like to introduce the editor-in-chief of Business Week Magazine, Steve Adler.
I want to conclude this morning by touching on how we are opening how we are opening opportunities not only through our businesses, but through the-for our men and women of the McGraw-Hill Companies, but in our communities.
Last year we launched several programs in the Company to further develop the talent and leadership abilities, build the skills and capabilities and enhance the performance of our employees. These learning and mentoring initiatives are promoting dialogue and collaboration that enable us to leverage our strength across the Company, in addition to strengthening our leadership pipeline.
One area that we always like to highlight is our associate development program, which also strengthens our pipeline. These are young men and women who have gone back to school, having significant work experience, and we'd like to take this opportunity to introduce them to you.
This is our 12th year of the program, attracting top business school graduates who join our management ranks following three half-year work assignments in the Company. And they are a great, great group of people.
Ladies and gentlemen, I'd like to introduce you to Emily Sawtel (ph), who joins us from Harvard Business School. Emily Michael (ph) and Regan Brown (ph), both from the University of Virginia's Darden Graduate School of Business.
This is the good part. Okay. Now we go to work. Our commitment to opening doors to opportunity also extends to the communities in which we live and work and to our larger society.
Yes, because it's the right thing to do, but also because. like everyone else in the community, we have a responsibility to be a productive partner. And we understand that solving problems and addressing needs through corporate citizenship is an integral part of any sustainable business plan.
We have a history of responding at times of need, such as the horrific situation of the tsunami. I was so proud. We put out a matching program. Through our program of matching the donations of employees, we sent a check for $1 million.
And it obviously doesn't stop there. There will be a lot of in-kind giving as we participate more directly in those areas, and eventually as those markets and those economies get stronger and stronger. Having been embedded in those (inaudible), we find more ways to be able to work.
And our corporate citizenship activities also we have on May 5th, for example, we have the sponsor of our second global volunteer day, with more than 2,000 employees, 2,000, participating in some 70 volunteer projects literally around the world. All of our volunteers are leaders and I applaud each one of them.
I'd like to close once again by thanking our Board of Directors for its leadership, insight and dedication. I'd also like to thank all of the men and women of the McGraw-Hill Companies for their enormous contribution to the Corporation's success.
We talked today about a world full of opportunities, opportunities to make positive change for our customers and opportunities to grow our businesses and to continue our record of strong performance for shareholders, opening new markets, serving new customers.
And we talked today about a straightforward proposition for opening doors to opportunity. Begin by giving people a sound educational foundation which they can build and acquire the skills necessary to compete, and then provide them with the information, the tools and the capabilities that allow them to access capital and business markets that allows them improve decision-making and succeed.
Ladies and gentlemen, that straightforward proposition is the McGraw-Hill Companies. We've been opening doors of opportunity for 188 years. It's our heritage. It is also our future. It's embedded in everything that we do.
That's why we're exciting about our prospects and to look ahead, we understand that the opportunities ahead are for us to open. And I thank all of you for your support of the McGraw-Hill Companies and your investment in this corporation.
Thank you very much. Okay. The meeting is now open for questions or comments concerning any subject generally relating to the McGraw-Hill Company. I would then request that all questions and comments be directed to me. Yes, sir?
Richard Reeve, Shareholder: Hello. My name is Richard Reeve (ph). I'm a shareholder. And first of all, I'd like to congratulate you on another great year. I'd like to know if you plan to restrict or reduce the number of stock options granted to employees in light of the new FASD rule on expensing options that goes into effect in June.
HARRY MCGRAW: Dick, thank you very much, and it's good to see you back. What we have done, according to the-on all share-based compensation, we have been following the government-provided guidelines for being able to implement a different kind of plan at the end of June, start of July, which-when it was mandated.
The government has come back at this point and once again postponed and made unclear the direction that it's going to take, other than to say that they're now postponing the requirement to do that until the end of this year.
So we are not going to implement changes at this point to our stock option plan. As you know, I've been someone who has been very strongly favorable to stock options, because I believe if I have the capability, if Management has the capability, to put in place those that are making it get done, you know, that kind of incentive and capability, that can enrich.
And we had gotten to the point where we were pushing towards about 2,000 employees that were in that program, and my desire was to get it even further, because it's through a share-based compensation I think you can really create wealth on that part if you're doing well and you're making those kind of things happen.
So we are going to be looking at a number of alternatives as we approach the end of the year. My guess is that we will go to some sort of performance-based, restricted share program of some sort.
We are not going to reduce the overall compensation. All we're going to do is shift in terms of some of the makeup of how that gets done. But it's now for most at the end of the year rather than mid-year.
How about those students at Morris High School? Back to you, Dick.
RICHARD REEVE, SHAREHOLDER: Thank you. Many companies are eliminating or reducing healthcare coverage benefits for retirees. Does McGraw-Hill have any such plans?
HARRY MCGRAW: No. The-no, no, because when you retire you will go onto the Medicare plan, on that one. When you're talking about healthcare coverage overall, we, like everyone else, have continued to see increases for the active population that are unprecedented.
Whereas-and with Joe Dion sitting here, it was back in 1994, Joe, I think it was, that we were one of the first corporations to go to managed care. And our costs had gone-were high, high double-digit in terms of increases.
We were one of the few corporations to get it down to about 7% costs, which was terrific then, as high as that is, on that. Only to see and you're ratcheting back up again on these kinds of costs.
We need to have some public policy intervention on this. But it is going to be one of the things that, you know, all corporations are going to have to face when we start talking about the whole issue of co-pays.
And we have a co-pay. It's very small and it's going to be one that we're going to struggle with for some time until we have a broader public policy that's going to allow for more even distribution on that. But for the-for the retirees, it is a switch to the Medicare plan.
Pretty active over there, Dick. That do it? Yes, sir?
UNIDENTIFIED AUDIENCE MEMBER: How will the McGraw-Hill Company prepare to compete against with other companies around the world?
HARRY MCGRAW: Well, it's going to be all about you, because competing against others and all of that is about attracting the right kind of talent. If you have people that work hard that are continuous learners, that take pride in what they do, that are excited about the opportunity to make a difference, to make an impact, on that one, you can go in any direction you want.
Following market needs and following-we can talk about, you know, opportunities, endless opportunities. I think we need to focus. It's that clear priority, but it's all about talent.
And I think one of the things that McGraw-Hill Companies-and I feel very strong in this comment, that the 18,000 men and women of the McGraw-Hill Companies are a very special group of people. Because they do have not only the skill and the talent capabilities, but they also care deeply about what it is that we do and what they can do.
There's a sense of individual responsibility on that. And I look forward to you getting through school and then you come see us. You know, and we'll find a need, on that part. Anything else?
Okay. If there are no further questions, we will now proceed to the next order of business. I understand that the inspectors of election have now submitted their report to the secretary. Mr. Vittor, will you read the report?
KEN VITTOR: The tally of votes by the inspectors shows that the four persons nominated as directors of the McGraw-Hill Companies, Inc., have been elected by the affirmative vote of approximately 99, 860,000 shares.
This represents an affirmative vote of approximately 62.9% of the shares voted. Key executive short-term incentive compensation plan received the following number of votes for, against, and abstaining. Votes for 128, 423,029. Votes against 12,572,947. Abstaining 1, 383.088.
The proposal to amend the restated certificate of incorporation to increase the authorized shares common stock received the following number of votes for, against, and abstaining. Votes for 143,082,380. Votes against 14,630,065. Abstaining 1,154,127.
Ernst and Young LLP received the following number of votes for, against, and abstaining in connection with the ratification of their appointment as the Corporation's independent registered public accounting firm for 2005. Votes for 151,145,580. Against 6,665,207. Abstaining 1,055,7 (inaudible).
Shareholder proposal requesting a shareholder vote on poison pills received the following number of votes for, against, and abstaining. Votes for 101,376,901. Votes against, 39,282,265. Abstaining 1,719,898.
A certificate of inspectors of election will be filed with the records of the meeting.
HARRY MCGRAW: Terrific. That's very good. I appreciate that vote of confidence, and let me again thank you all for your support. With respect to the advisory proposal, Mr. Snyder (ph), I assure you the board will review the proposal in light of the shareholder vote in an upcoming board meeting.
I also want to encourage you one more time to please take the opportunity to spend a little time in the gallery and see some of those fine people that have done all that work that we've been talking about.
There being no further business, I will entertain a motion for the meeting to be adjourned. Thank you, Mr. Murphy. Is there a second? Thank you, Mr. Goldberg. Had that orchestrated pretty well. All in favor? I declare the meeting adjourned. Thank you very much.
OPERATOR: That concludes this morning's call on behalf of the McGraw-Hill Companies. We thank you for participating and wish you a good day.
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Document FNDW000020050511e14r001bs
EDITORIAL

Reducing oil dependence in the future

Sudha Mahalingam

1,581 words

23 April 2005

The Hindu

THINDU

10

English

(c) 2005 Kasturi & Sons Ltd
It is time we followed traditional wisdom by fully exploiting indigenous sources of energy — both commercial and non-commercial — to fuel the growth of our economy.
TODAY, THE world is pumping more oil than ever before. At 82 million barrels a day, crude supply just about matches demand. Since last July, crude prices have stubbornly stayed above the $40 a barrel mark, thanks to a combination of factors — galloping demand in China, supply disruptions in Nigeria and Venezuela, slow production recovery in Iraq, speculative deals by traders and a terror premium prompted by attacks on Saudi oil installations.
This year, crude prices have again risen by 25 per cent over last year and are now cruising above $50 to a barrel, buoyed by increased U.S. and European demand for inventory build-up. OPEC — the producers' cartel — is furiously pumping 27.7 million barrels of crude a day, its highest in 25 years. Saudi Arabia, the queen bee in the OPEC cartel, can no longer swing prices by fine-tuning output to demand movements. With spare capacity at historic lows, OPEC does not have the wherewithal to cool the market. Ali Naimi, Saudi Oil Minister, ominously hinted that prices would continue to stay high.
Alarm bells
Alarm bells have started ringing in oil-importing countries, partly because of the spiralling oil prices and partly over fears of a potential supply disruption. The Paris-based International Energy Agency — a buyers' cartel of OECD members — has hastily put together a draft report entitled Saving Oil in a Hurry: Measures for Rapid Demand Restraint in Transport. The 121-page report underlines the vulnerability of the member nations to price shocks and supply disruptions, and goes on to discuss ways of reducing dependence on oil used in the transportation sector, which leads oil consumption all over the world. The measures include, apart from the usual mix of energy-saving options such as flexible work schedules, car pooling, telecommuting, speed restrictions, even tyre pressure calibration etc., steep cuts in mass transport tariffs to encourage greater use of public transport.
What is surprising, however, are the rather drastic emergency measures contemplated by the report, such as driving bans on weekends, alternate day car-use, etc. The report goes so far as to compute the extent of policing that would be required to enforce the ban and justifies the costs involved. The upshot is that fuel importers must be ready with a plan to suddenly curtail consumption without seriously disrupting normal life.
Not to be left behind, a motley coalition of American security experts spanning the entire political spectrum from neo-conservatives to liberals and labour unionists has put together a blueprint to liberate America from excessive reliance on imported fuel from a region it perceives to be increasingly unstable. More importantly, the Americans believe that the large sums they pay for their oil imports go to support terrorist regimes in oil producing countries — so much so that they pay for the cost of the war on terror on both sides. Titled Set America Free, the document is a strident call for an urgent transformation of the U.S. transportation sector which accounts for two-thirds of all the oil the country consumes.
Alternative modes
The blueprint envisages alternative modes and fuels for automotive propulsion to be put in place in the next four years. It recommends replacement of existing oil-guzzling vehicles with plug-in light and ultra-light hybrid vehicles that can run on both electricity and oil. Car users are urged to switch over to alternative fuels such as alcohol, ethanol, methanol and even bio-diesel — fuels whose technologies are already tried and tested and do not require large-scale investments in new R&D. The Institute for the Analysis of Global Security, a Washington-based think-tank that does pioneering work on energy security issues, maintains that a complete switchover to hybrid vehicles and new fuels will reduce U.S. oil consumption by 8 million barrels a day, cutting down oil imports by nearly two-thirds. The estimated cost of this makeover is $12 billion. Supporters of the plan argue that the sum should be raised through a small levy on petroleum products. After all, at 43 cents to a gallon, the North American gasoline consumer gets away lightly on petroleum taxes, compared to his counterparts in Japan or Europe.
Meeting the challenge
Set America Free does not stop there. Acknowledging the challenge posed by excessive oil consumption — the U.S. has just 3 per cent of global oil reserves even as it consumes 25 per cent of global production — the coalition wants billions of tonnes of biomass, crop residues and agricultural waste produced in the country to be utilised to generate electricity that would fuel vehicles in future — a veritable leap back to the future! After all, drilling in the Arctic National Wildlife Reserve — endorsed by President George Bush in his Energy Bill — will help the Americans cut down imports by no more than 3 per cent and that too in the next 20 years!
Tax-shy Americans are being persuaded to fund extraction of costly shale oil and Alberta tar sands through levies on petroleum consumption. These fuels cost thrice as much to mine as conventional oil. The recent explosion at a BP refinery near Houston that claimed lives has further accentuated the American sense of paranoia over the vulnerability of global oil pipelines and infrastructure, forcing them to look inward for solutions. The U.S. Representatives are currently debating the Energy Bill, which also calls for tough fuel economy measures to be implemented by automakers.
Call for a paradigm shift
It is instructive to note that the developed countries' call for a paradigm shift comes at a time when India and China, the two developing nations, are strenuously trying to move from non-commercial sources of energy — like biomass and crop residues — to hydrocarbons, much of which is supplied by imports. Similarly, in our eagerness to ape Western lifestyles, we have opened the floodgates to automobile manufacturers locking us firmly into a spiralling fuel consumption trajectory. Every year, we in India add around 900,000 passenger cars and about 1,50,000 sports utility vehicles and this does not even include trucks and heavy vehicles. Everyday, we are bombarded with images of the latest model sports utility vehicles and sedans, seducing us to buy bigger and better gas-guzzlers.
Apart from the adverse environmental impact of the growth model India has chosen, opting for more and bigger passenger cars aggravates our import dependence. Transportation accounts for two-thirds of India's oil consumption and within this category, it is the passenger car segment that is the biggest and fastest growing. Fuel import bill for the financial year that just ended is estimated to be a staggering $25 billion and it requires little imagination to guess where it might head in the next financial year if the price spiral continues, as experts believe it would. With our domestic oil production well past its peak, dependence on imports is expected to be near total in the next 20 years. Apart from Kyoto-related considerations, the sheer burden of a ballooning import bill is something that we can ignore only at our own peril.
Increase in imports
Power generation is another activity for which India is becoming increasingly import-dependent. During the last decade, most of the new thermal projects that have come up are gas-based. Domestic gas production is unable to cope with the growing demand for gas and we are increasingly turning to gas imports — currently in the form of LNG, to be supplemented by piped gas from the neighbourhood as and when the pipelines materialise. The just-commissioned Hazira LNG project pushes up India's gas imports by 50 per cent to 7.5 tonnes a year. Further expansion of LNG capacity is also on the anvil. LNG prices being firmly locked to crude prices, the present crude spiral spells even steeper import bills for gas. While gas is surely a cleaner alternative to coal-based generation and gas turbines have shorter lead times to construct and commission, the implications for our import-dependence cannot be lost sight of.
It is time we followed traditional wisdom by fully exploiting indigenous sources of energy — both commercial and non-commercial — to fuel the growth of our economy. The Ministry of Power has identified 50,000 megawatts of hydel capacity that it deems feasible. Many of them are run-of-the-river, mini and micro-hydel projects that can be built speedily without involving massive relocation or rehabilitation. Hydel is a clean source of energy without recurring fuel costs and it needs to be fully exploited, before we rush to add more gas-based capacity. We must also fully harness non-conventional sources of energy such as crop residues and biomass, but while doing so, we must employ technologies that will enable us to utilise these indigenous resources in a clean, efficient and sustainable manner. Simultaneously, we must beef up our public transport systems and provide a clean and affordable alternative to the present profligate and unsustainable quest for personalised transportation. Even when we implement all the measures outlined above, our dependence on fuel imports will continue but at least we can slow down the pace of growth.
(The author is with Centre for Policy Research, New Delhi. The views expressed are personal.)
Document THINDU0020050422e14n00064

China-Nigeria telecom deal signed
184 words

18 April 2005

Industry Updates

BDU

English

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