<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1993
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from-----------to---------------
Commission File Number 1-1023
McGRAW-HILL, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 13-1026995
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1221 AVENUE OF THE AMERICAS, NEW YORK, N.Y. 10020
- ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 512-2000
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
--------------------------- ------------------------
Common stock - $1 par value New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
----------------
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
-----
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
---- ----
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of February 28, 1994, was $3,412,401,842.
The number of shares of common stock of the registrant outstanding as of
February 28, 1994 was 49,485,689 shares.
Part I, Part II and Part IV incorporate information by reference from
the Annual Report to Shareholders for the year ended December 31, 1993. Part
III incorporates information by reference from the definitive proxy statement
mailed to shareholders on March 21, 1994 for the annual meeting of shareholders
to be held on April 27, 1994.
<PAGE> 2
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
Item Page
---- ----
<S> <C>
1. Business. . . . . . . . . . . . . . . . . . . . . . . . 1-2
2. Properties. . . . . . . . . . . . . . . . . . . . . . . 3-5
3. Legal proceedings . . . . . . . . . . . . . . . . . . . 5
4. Submission of matters to a vote of security holders . . 5
Executive officers of the registrant . . . . . . . . . . . . 6
PART II
5. Market for the registrant's common stock and
related stockholder matters . . . . . . . . . . . . . . 7
6. Selected financial data . . . . . . . . . . . . . . . . 7
7. Management's discussion and analysis of financial
condition and results of operations . . . . . . . . . . 7
8. Consolidated financial statements and supplementary
data . . . . . . . . . . . . . . . . . . . . . . . . . 7
9. Changes in and disagreements with accountants on accounting
and financial disclosure . . . . . . . . . . . . . . . 7
PART III
10. Directors and executive officers of the registrant. . . 8
11. Executive compensation . . . . . . . . . . . . . . . . 8
12. Security ownership of certain beneficial owners
and management . . . . . . . . . . . . . . . . . . . . 8
13. Certain relationships and related transactions . . . . 8
PART IV
14. Exhibits, financial statement schedules, and
reports on Form 8-K . . . . . . . . . . . . . . . . . . 9-13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 13-15
Exhibits . . . . . . . . . . . . . . . . . . . . . . . 16-136
Consent of Independent Auditors - Ernst & Young . . . . . . 137
Supplementary schedules . . . . . . . . . . . . . . . . . . 138-140
</TABLE>
<PAGE> 3
PART I
Item 1. Business
The Registrant, incorporated in December 1925, serves business, professional
and educational markets around the world with information products and
services. Key markets include finance, business, education, law, construction,
medical and health, computers and communications, aerospace and defense. As a
multimedia publishing and information company, the Registrant employs a broad
range of media, including books, magazines, newsletters, software, on-line data
services, CD-ROMs, facsimile and television broadcasting. Most of the
Registrant's products and services face substantial competition from a variety
of sources.
The Registrant's 15,661 employees are located worldwide. They perform the
vital functions of analyzing the nature of changing demands for information and
of channeling the resources necessary to fill those demands. By virtue of the
numerous copyrights and licensing, trade, and other agreements, which are
essential to such a business, the Registrant is able to collect, compile, and
disseminate this information. Substantially all book manufacturing and
magazine printing is handled through a number of independent contractors. The
Registrant's principal raw material is paper, and the Registrant has assured
sources of supply, at competitive prices, adequate for its business needs.
Descriptions of the company's principal products, broad services and markets,
and significant achievements are hereby incorporated by reference from Exhibit
(13), pages 2 and 3 and pages 7 through 22 (textual material) of the
Registrant's 1993 Annual Report to Shareholders.
Information as to Industry Segments
The relative contribution of the industry segments of the Registrant and its
subsidiaries to operating revenue and operating profit and geographic
information for the three years ended December 31, 1993 and the identifiable
assets of each segment at the end of each year, are included in Exhibit (13),
on page 38 and page 39 in the Registrant's 1993 Annual Report to Shareholders
and is hereby incorporated by reference.
Impact of Change In Segments
In 1993, the Registrant realigned its segments to combine the Broadcasting
and Information and Publication Services segments and Tower Group International
into one segment, Information and Media Services.
The Registrant's segments are: (1) Information and Media Services, which
includes Broadcasting, all of the company's publications, construction
information products and Tower Group International; (2) Educational and
Professional Publishing, which includes College, professional and legal
publishing and now also includes the Macmillan/McGraw-Hill School Publishing
Company. The Registrant acquired the remaining 50% of the
Macmillan/McGraw-Hill School Publishing Company from its partner in October
1993 and (3) Financial Services, which includes the Standard & Poor's Ratings
Group and all of the Registrant's Financial Information Services.
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<PAGE> 4
A summary of the company's revenue and operating profit (unaudited) for the
realigned segments by quarter for the years 1993 and 1992 follows:
<TABLE>
<CAPTION>
1993
----
First Second Third Fourth
Revenue Quarter Quarter Quarter Quarter Year
------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Information and Media Services $184,191 $201,119 $190,165 $255,601 $ 831,076
Educational and Professional
Publishing 109,935 118,609 190,949 247,951 667,444
Financial Services 172,821 171,179 173,855 179,078 696,933
-------- -------- -------- -------- ----------
$466,947 $490,907 $554,969 $682,630 $2,195,453
======== ======== ======== ======== ==========
Operating Profit/(Loss)
----------------------
Information and Media Services $ 16,105 $ 28,646 $ 15,627 $ 41,966 $ 102,344
Educational and Professional
Publishing (1,644) 1,278 39,539 10,201 49,374
Financial Services 51,731 50,763 48,267 50,104 200,865
-------- -------- -------- -------- ----------
$ 66,192 $ 80,687 $103,433 $102,271 $ 352,583
======== ======== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
1992
----
First Second Third Fourth
Revenue Quarter Quarter Quarter Quarter Year
------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Information and Media Services $190,036 $212,793 $196,496 $266,248 $ 865,573
Educational and Professional
Publishing 109,736 120,974 182,654 153,999 567,363
Financial Services 155,036 150,508 153,574 158,437 617,555
-------- -------- -------- -------- ----------
$454,808 $484,275 $532,724 $578,684 $2,050,491
======== ======== ======== ======== ==========
Operating Profit/(Loss)
----------------------
Information and Media Services $ 17,251 $ 34,604 $ 15,123 $ 46,220 $ 113,198
Educational and Professional
Publishing (1,513) 3,449 36,182 24,628 62,746
Financial Services 42,634 40,308 40,295 45,157 168,394
-------- -------- -------- -------- ----------
$ 58,372 $ 78,361 $ 91,600 $116,005 $ 344,338
======== ======== ======== ======== ==========
</TABLE>
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<PAGE> 5
Item 2. Properties
The Registrant leases office facilities at 394 locations, 322 are in the United
States. In addition, the Registrant owns real property at 25 locations; 22 are
in the United States. The principal facilities of the Registrant are as
follows:
<TABLE>
<CAPTION>
Owned Square
or Feet
Domestic Leased (thousands) Business Unit
- -------- ------- ------------ ---------------
<S> <C> <C> <C>
New York, NY leased 1,639 See explanation below
Hightstown, NJ owned See explanation below
Office and Data Ctr. 490
Book Dist. Ctr. 412
New York, NY leased 606 Financial Services
Delran, NJ leased 106 Datapro
Colorado Springs, CO owned Shepard's/McGraw-Hill
Office 181
Manufacturing Plant 63
Denver, CO owned 88 Broadcasting
Indianapolis, IN leased 58 Broadcasting
Englewood, CO owned
Rocky Mt. Data Ctr. 14 Corporate Data Center
Office 119 Financial Services
Lexington, MA owned 53 Corporate Data Center
leased 122 Data Resources
Blue Ridge Summit, PA owned TAB Books
Office 67
Book Dist. Ctr. 114
Peterborough, NH owned 51 Byte
Chicago, IL leased 68 Various operating units
</TABLE>
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<PAGE> 6
<TABLE>
<CAPTION>
Owned Square
or Feet
Domestic Leased (thousands) Business Unit
- -------- ------- ------------ ---------------
<S> <C> <C> <C>
Washington, DC leased 73 Various operating units
Kent, WA leased C.J. Tower
Warehouse/Dist. Ctr 79
Office 6
Monterey, CA owned 207 CTB
Blacklick (Gahanna), OH owned
Book Dist. Ctr. 519 School and Glencoe
Office 57
Westerville, OH owned 59 Glencoe
New York, NY leased 132 School
Columbus, OH leased 76 School and Glencoe
Dublin, OH
Warehouse leased 112 SRA, School and Glencoe
Dallas, TX leased
Assembly Plant 148 School
Office 6
Desoto, TX leased
Book Dist. Ctr. 382 School
Foreign
- -------
Whitby, Canada owned McGraw-Hill Ryerson Ltd.
Office 80
Book Dist. Ctr. 80
Maidenhead, England leased 85 McGraw-Hill International
(U.K.) Ltd.
</TABLE>
The Registrant's major lease covers space in its headquarters building in New
York City. The building is owned by Rock-McGraw, Inc., a corporation in which
the Registrant and Rockefeller Group, Inc. are the sole shareholders. The
Registrant occupies approximately 950,000 square feet of the rentable space
under a 30-year lease which includes renewal options for two additional 15-
year periods. In addition, the Registrant subleases for its own account
approximately 693,000 square feet of space for periods up to 25 years.
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<PAGE> 7
The largest complex owned by the Registrant is located in Highstown, NJ where a
book distribution center and offices for accounting operations, data processing
services, order fulfillment and other service departments are housed. The
Registrant plans to consolidate its domestic book distribution operations by
centralizing the distribution operations in Blue Ridge Summit, PA and
Hightstown, NJ to Columbus and Blacklick, OH.
Item 3. Legal Proceedings
While the Registrant and its subsidiaries are defendants in numerous legal
proceedings in the United States and abroad, neither the Registrant nor its
subsidiaries are a party to, nor are any of their properties subject to, any
known material pending legal proceedings which Registrant believes will result
in a material adverse effect on Registrant's financial statements or business
operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Registant's security holders during the
last quarter of the period covered by this Report.
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<PAGE> 8
Executive Officers of Registrant
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Joseph L. Dionne 60 Chairman and Chief Executive Officer
Harold McGraw III 45 President and Chief Operating Officer
Robert J. Bahash 48 Executive Vice President and
Chief Financial Officer
Michael K. Hehir 46 Executive Vice President, New Ventures
Robert N. Landes 63 Executive Vice President,
Secretary and General Counsel
Thomas J. Sullivan 58 Executive Vice President,
Administration
Frank J. Kaufman 49 Senior Vice President, Taxes
Barbara A. Munder 48 Senior Vice President and
Executive Assistant to the Chairman
Frank D. Penglase 53 Senior Vice President, Treasury
Operations
Donald S. Rubin 59 Senior Vice President,
Investor Relations
Thomas J. Kilkenny 35 Vice President and Controller
</TABLE>
All of the above executive officers of the Registrant have been full-time
employees of the Registrant for more than five years except for
Thomas J. Kilkenny.
Mr. Kilkenny, prior to his becoming an officer of the Registrant on
December 1, 1993, was a director of the Registrant's Corporate Audit
Department since October 1, 1991. Previously he was with Ernst & Young
from 1980 through 1991.
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<PAGE> 9
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
The approximate number of holders of the Company's common stock as of February
28, 1994 was 5,724.
<TABLE>
<CAPTION>
1993 1992
----- -----
<S> <C> <C>
Dividends per share of common stock:
$.57 per quarter in 1993
$.56 per quarter in 1992 $2.28 $2.24
</TABLE>
Information concerning other matters is incorporated herein by reference from
Exhibit (13), from page 46 of the 1993 Annual Report to Shareholders.
Item 6. Selected Financial Data
Incorporated herein by reference from Exhibit (13), from the 1993 Annual Report
to Shareholders, page 30 and page 31.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Incorporated herein by reference from Exhibit (13), from the 1993 Annual Report
to Shareholders, pages 24 to 29 and page 32.
Item 8. Consolidated Financial Statements and Supplementary Data
Incorporated herein by reference from Exhibit (13), from the 1993
Annual Report to Shareholders, pages 33 to 44 and page 46.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
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<PAGE> 10
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning directors is incorporated herein by reference from the
Registrant's definitive proxy statement dated March 21, 1994 for the annual
meeting of shareholders to be held on April 27, 1994.
Item 11. Executive Compensation
Incorporated herein by reference from the Registrant's definitive proxy
statement dated March 21, 1994 for the annual meeting of shareholders to be
held on April 27, 1994.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Incorporated herein by reference from the Registrant's definitive proxy
statement dated March 21, 1994 for the annual meeting of shareholders to be
held April 27, 1994.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference from the Registrant's definitive proxy
statement dated March 21, 1994 for the annual meeting of shareholders to be
held April 27, 1994.
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<PAGE> 11
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) 1. Financial Statements.
2. Financial Statement Schedules.
McGraw-Hill, Inc.
Index to Financial Statements
And Financial Statement Schedules
<TABLE>
<CAPTION>
Reference
---------------------
Annual Report
Form to Share-
10-K holders (page)
---- --------------
<S> <C> <C>
Data incorporated by reference from
Annual Report to Shareholders:
Report of Independent Auditors......... 45
Consolidated balance sheet at
December 31, 1993 and 1992........... 34-35
Consolidated statement of income
for each of the three years in
the period ended December 31, 1993... 33
Consolidated statement of cash flows
for each of the three years in the
period ended December 31, 1993....... 36
Consolidated statement of shareholders'
equity for each of the three years in
the period ended December 31, 1993... 37
Notes to consolidated financial
statements........................... 38-44
Quarterly financial information........ 46
Consent of Independent Auditors............... 137
Consolidated schedules for each of the three
years in the period ended December 31, 1993:
VIII - Reserve for doubtful accounts.... 138
IX - Short term borrowings............ 139
X - Supplementary income statement
information.................... 140
</TABLE>
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<PAGE> 12
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or the notes thereto.
The financial statements listed in the above index which are included in the
Annual Report to Shareholders for the year ended December 31, 1993 are hereby
incorporated by reference in Exhibit (13). With the exception of the pages
listed in the above index, the 1993 Annual Report to Shareholders is not to be
deemed filed as part of Item 14 (a)(1).
(a) (3) Exhibits.
<TABLE>
<S> <C>
(3) Articles of Incorporation of Registrant, incorporated by
reference from Registrant's Form SE filed March 29, 1989
in connection with Registrant's Form 10-K for the year ended
December 31, 1988.
(3) By-laws of Registrant.
(4) Indenture dated as of June 15, 1990 between the Registrant, as
issuer, and the Bank of New York, as trustee, incorporated by
reference from Registrant's Form SE filed August 3, 1990 in
connection with Registrant's Form 10-Q for the quarter ended
June 30, 1990.
(4) Instrument defining the rights of security holders, certificate
setting forth the terms of the Registrant's 9.43% Notes due 2000,
incorporated by reference from Registrant's Form SE filed
August 3, 1990 in connection with Registrant's Form 10-Q for the
quarter ended June 30, 1990.
(4) Instrument defining the rights of security holders, certificate
setting forth the terms of the Registrant's Medium-Term Notes,
Series A, incorporated by reference from Registrant's Form SE
filed November 15, 1990 in connection with Registrant's
Form 10-Q for the quarter ended September 30, 1990.
(10) Rights Agreement dated as of October 25, 1989 between Registrant and
Manufacturers Hanover Trust Company, incorporated by reference from
Registrant's Form SE dated October 26, 1989 in connection with
Registrant's Form 8-A.
*(10) Restricted Stock Award Agreement dated December 4, 1987 incorporated
by reference from Registrant's Form SE filed March 30, 1988 in
connection with Registrant's Form 10-K for the year ended
December 31, 1987.
(10) Indemnification Agreements between Registrant and each of its directors
and certain of its executive officers relating to said directors' and
executive officers' services to the Registrant, incorporated by reference
from Registrant's Form SE filed March 27, 1987 in connection with
Registrant's Form 10-K for the year ended December 31, 1986.
*(10) Registrant's 1983 Stock Option Plan for Officers and Key Employees,
incorporated by reference from Registrant's Form SE filed March 29, 1990
in connection with Registrant's Form 10-K for the year ended
December 31, 1989.
</TABLE>
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<PAGE> 13
<TABLE>
<S> <C>
*(10) Registrant's 1987 Key Employee Stock Incentive Plan.
*(10) Registrant's 1993 Key Employee Stock Incentive Plan.
*(10) Registrant's 1990 Key Executive Short-Term Incentive Compensation Plan, incorporated by reference from Registrant's
Form SE filed March 28, 1991 in connection with Registrant's Form 10-K for the year ended December 31, 1990.
*(10) Registrant's Key Executive Short-Term Incentive Deferred Compensation Plan.
*(10) Registrant's Executive Deferred Compensation Plan, incorporated by reference from Registrant's Form SE filed March 28, 1991
in connection with Registrant's Form 10-K for the year ended December 31, 1990.
*(10) Registrant's Senior Executive Severance Plan, incorporated by reference from Registrant's Form SE filed March 29, 1989 in
connection with Registrant's Form 10-K for the year ended December 31, 1988.
(10) Credit Agreement dated as of November 12, 1991 among the Registrant, the Banks' signatory thereto, and Bankers Trust
Company, as Agent incorporated by reference from Registrant's Form SE filed November 18, 1991 in connection with
Registrant's Form 8-K dated November 19, 1991.
(10) First Amendment to Credit Agreement dated as of November 8, 1993 among the Registrant, the Banks' signatory thereto, and
Bankers Trust Company, as Agent, incorporated by reference from Registrant's Form 8-K dated November 15, 1993.
(10) Line of Credit dated as of November 12, 1991 among the Registrant, the Banks' signatory thereto and Bankers Trust Company, As
agent, incorporated by reference from Registrant's Form SE filed November 18, 1991 in connection with Registrant's
Form 8-K dated November 19, 1991.
(10) First Amendment to Line of Credit dated as of November 10, 1992 among the Registrant, the Banks' signatory thereto, and
Bankers Trust Company as Agent, incorporated by reference from Registrant's Form 8-K dated November 16, 1992.
(10) Second Amendment to Line of Credit dated November 8, 1993 among the Registrant, the Banks' signatory thereto, and Bankers
Trust Company, as Agent, incorporated by reference from Registrant's Form 8-K dated November 15, 1993.
(10) Partnership Interest Purchase Agreement, dated as of October 4, 1993, with respect to the Macmillan/McGraw-Hill School
Publishing Company, incorporated by reference from Registrant's Form 8-K dated October 18, 1993.
(10) Trademark Purchase and Sale Agreement (Macmillan), dated as of October 4, 1993, incorporated by reference from Registrant's
Form 8-K dated October 18, 1993.
(10) Trademark Purchase and Sale Agreement (Merrill), dated as of October 4, 1993, incorporated by reference from Registrant's
Form 8-K dated October 18, 1993.
</TABLE>
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<PAGE> 14
<TABLE>
<S> <C>
*(10) Registrant's Employee Retirement Account Plan Supplement, incorporated by reference from Registrant's Form SE filed March
28, 1991 in connection with Registrant's Form 10-K for the year ended December 31, 1990.
*(10) Registrant's Employee Retirement Plan Supplement, incorporated by reference from Registrant's Form SE filed March 28, 1991
in connection with Registrant's Form 10-K for the year ended December 31, 1990.
*(10) Registrant's Savings Incentive Plan Supplement, incorporated by reference from Registrant's Form SE filed March 28, 1991 in
connection with Registrant's Form 10-K for the year ended December 31, 1990.
*(10) Registrant's Senior Executive Supplemental Death, Disability & Retirement Benefits Plan, incorporated by reference from
Registrant's Form SE filed March 26, 1992 in connection with Registrant's Form 10-K for the year ended December 31,
1991.
*(10) Registrant's 1993 Stock Payment Plan for Directors, incorporated by reference from Registrant's Proxy Statement dated March
21, 1993.
*(10) Registrant's Director Retirement Plan, incorporated by reference
from Registrant's Form SE filed March 29, 1990 in connection with Registrant's Form 10-K for the year ended December 31,
1989.
*(10) Registrant's Director Deferred Compensation Plan.
(12) Computation of ratio of earnings to fixed charges.
(12) Pro forma Computation of ratio of earnings to fixed charges.
(13) Registrant's 1993 Annual Report to Shareholders. Such Report,
except for those portions thereof which are expressly incorporated by reference in this Form 10-K, is furnished for the
information of the Commission and is not deemed "filed" as part of this Form 10-K.
(21) Subsidiaries of the Registrant.
(23) Consent of Ernst & Young, Independent Auditors.
*These exhibits relate to management contracts or compensatory plan
arrangments.
(b) Reports on Form 8-K.
A report on Form 8-K was filed on November 15, 1993. Item 5 and Item 7 (Exhibit 10) were reported in said report on
Form 8-K.
A report on Form 8-K was filed on October 18, 1993. Item 2 and Item 7 were reported in said report on Form 8-K. The
audited financial statements of the Macmillan/McGraw-Hill School Publishing Company for the three year period ended
December 31, 1992 were incorporated by reference in said report on Form 8-K.
</TABLE>
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<PAGE> 15
A report on Form 8-K/A No. 1 was filed on October 27, 1993. Item 7 was
reported in said report on Form 8-K/A. The unaudited interim balance
sheet of the Macmillan/McGraw-Hill School Publishing Company as of
September 30, 1993 and the related unaudited statements of income and
cash flows for the nine month period ended September 30, 1993 were
incorporated by reference in said report on Form 8-K/A. The pro forma
statements of income reflecting the acquisition by the Registrant of the
additional 50% of the Macmillan/McGraw-Hill School Publishing Company
were filed in said report on Form 8-K/A.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.
McGraw-Hill, Inc.
- -----------------
Registrant
By: /s/ ROBERT N. LANDES
--------------------------------
Robert N. Landes
Executive Vice President, Secretary and General Counsel
March 30, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on March 30, 1994 on behalf of Registrant by the
following persons who signed in the capacities as set forth below under their
respective names. Registrant's board of directors is comprised of fifteen
members and the signatures set forth below of individual board members,
constitute at least a majority of such board.
/s/ JOSEPH L. DIONNE
--------------------------------
Joseph L. Dionne
Chairman and Chief Executive Officer
Director
/s/ HAROLD McGRAW III
--------------------------------
Harold McGraw III
President and Chief Operating Officer
Director
/s/ ROBERT J. BAHASH
--------------------------------
Robert J. Bahash
Executive Vice President and
Chief Financial Officer
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<PAGE> 16
/s/ THOMAS J. KILKENNY
--------------------------------
Thomas J. Kilkenny
Vice President and Controller
/s/ VARTAN GREGORIAN
--------------------------------
Vartan Gregorian
Director
/s/ JOHN T. HARTLEY
--------------------------------
John T. Hartley
Director
/s/ GEORGE B. HARVEY
--------------------------------
George B. Harvey
Director
/s/ RICHARD H. JENRETTE
--------------------------------
Richard H. Jenrette
Director
/s/ DON JOHNSTON
--------------------------------
Don Johnston
Director
/s/ PETER O. LAWSON-JOHNSTON
--------------------------------
Peter O. Lawson-Johnston
Director
/s/ LINDA KOCH LORIMER
--------------------------------
Linda Koch Lorimer
Director
/s/ DAVID L. LUKE III
--------------------------------
David L. Luke III
Director
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<PAGE> 17
/s/ JOHN L. McGRAW
--------------------------------
John L. McGraw
Director
/s/ LOIS D. RICE
--------------------------------
Lois D. Rice
Director
/s/ PAUL J. RIZZO
--------------------------------
Paul J. Rizzo
Director
/s/ JAMES H. ROSS
--------------------------------
James H. Ross
Director
/s/ ALVA O. WAY
--------------------------------
Alva O. Way
Director
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<PAGE> 18
Exhibit Index
<TABLE>
<S> <C>
(3) Articles of Incorporation of Registrant, incorporated by
reference from Registrant's Form SE filed March 29, 1989
in connection with Registrant's Form 10-K for the year ended
December 31, 1988.
(3) By-laws of Registrant.
(4) Indenture dated as of June 15, 1990 between the Registrant, as
issuer, and the Bank of New York, as trustee, incorporated by
reference from Registrant's Form SE filed August 3, 1990 in
connection with Registrant's Form 10-Q for the quarter ended
June 30, 1990.
(4) Instrument defining the rights of security holders, certificate
setting forth the terms of the Registrant's 9.43% Notes due 2000,
incorporated by reference from Registrant's Form SE filed
August 3, 1990 in connection with Registrant's Form 10-Q for the
quarter ended June 30, 1990.
(4) Instrument defining the rights of security holders, certificate
setting forth the terms of the Registrant's Medium-Term Notes,
Series A, incorporated by reference from Registrant's Form SE
filed November 15, 1990 in connection with Registrant's
Form 10-Q for the quarter ended September 30, 1990.
(10) Rights Agreement dated as of October 25, 1989 between Registrant and
Manufacturers Hanover Trust Company, incorporated by reference from
Registrant's Form SE dated October 26, 1989 in connection with
Registrant's Form 8-A.
*(10) Restricted Stock Award Agreement dated December 4, 1987 incorporated
by reference from Registrant's Form SE filed March 30, 1988 in
connection with Registrant's Form 10-K for the year ended
December 31, 1987.
(10) Indemnification Agreements between Registrant and each of its directors
and certain of its executive officers relating to said directors' and
executive officers' services to the Registrant, incorporated by reference
from Registrant's Form SE filed March 27, 1987 in connection with
Registrant's Form 10-K for the year ended December 31, 1986.
*(10) Registrant's 1983 Stock Option Plan for Officers and Key Employees,
incorporated by reference from Registrant's Form SE filed March 29, 1990
in connection with Registrant's Form 10-K for the year ended
December 31, 1989.
</TABLE>
<PAGE> 19
<TABLE>
<S> <C>
*(10) Registrant's 1987 Key Employee Stock Incentive Plan.
*(10) Registrant's 1993 Key Employee Stock Incentive Plan.
*(10) Registrant's 1990 Key Executive Short-Term Incentive Compensation Plan, incorporated by reference from Registrant's
Form SE filed March 28, 1991 in connection with Registrant's Form 10-K for the year ended December 31, 1990.
*(10) Registrant's Key Executive Short-Term Incentive Deferred Compensation Plan.
*(10) Registrant's Executive Deferred Compensation Plan, incorporated by reference from Registrant's Form SE filed March 28, 1991
in connection with Registrant's Form 10-K for the year ended December 31, 1990.
*(10) Registrant's Senior Executive Severance Plan, incorporated by reference from Registrant's Form SE filed March 29, 1989 in
connection with Registrant's Form 10-K for the year ended December 31, 1988.
(10) Credit Agreement dated as of November 12, 1991 among the Registrant, the Banks' signatory thereto, and Bankers Trust
Company, as Agent incorporated by reference from Registrant's Form SE filed November 18, 1991 in connection with
Registrant's Form 8-K dated November 19, 1991.
(10) First Amendment to Credit Agreement dated as of November 8, 1993 among the Registrant, the Banks' signatory thereto, and
Bankers Trust Company, as Agent, incorporated by reference from Registrant's Form 8-K dated November 15, 1993.
(10) Line of Credit dated as of November 12, 1991 among the Registrant, the Banks' signatory thereto and Bankers Trust Company, As
agent, incorporated by reference from Registrant's Form SE filed November 18, 1991 in connection with Registrant's
Form 8-K dated November 19, 1991.
(10) First Amendment to Line of Credit dated as of November 10, 1992 among the Registrant, the Banks' signatory thereto, and
Bankers Trust Company as Agent, incorporated by reference from Registrant's Form 8-K dated November 16, 1992.
(10) Second Amendment to Line of Credit dated November 8, 1993 among the Registrant, the Banks' signatory thereto, and Bankers
Trust Company, as Agent, incorporated by reference from Registrant's Form 8-K dated November 15, 1993.
(10) Partnership Interest Purchase Agreement, dated as of October 4, 1993, with respect to the Macmillan/McGraw-Hill School
Publishing Company, incorporated by reference from Registrant's Form 8-K dated October 18, 1993.
(10) Trademark Purchase and Sale Agreement (Macmillan), dated as of October 4, 1993, incorporated by reference from Registrant's
Form 8-K dated October 18, 1993.
(10) Trademark Purchase and Sale Agreement (Merrill), dated as of October 4, 1993, incorporated by reference from Registrant's
Form 8-K dated October 18, 1993.
</TABLE>
<PAGE> 20
<TABLE>
<S> <C>
*(10) Registrant's Employee Retirement Account Plan Supplement, incorporated by reference from Registrant's Form SE filed March
28, 1991 in connection with Registrant's Form 10-K for the year ended December 31, 1990.
*(10) Registrant's Employee Retirement Plan Supplement, incorporated by reference from Registrant's Form SE filed March 28, 1991
in connection with Registrant's Form 10-K for the year ended December 31, 1990.
*(10) Registrant's Savings Incentive Plan Supplement, incorporated by reference from Registrant's Form SE filed March 28, 1991 in
connection with Registrant's Form 10-K for the year ended December 31, 1990.
*(10) Registrant's Senior Executive Supplemental Death, Disability & Retirement Benefits Plan, incorporated by reference from
Registrant's Form SE filed March 26, 1992 in connection with Registrant's Form 10-K for the year ended December 31,
1991.
*(10) Registrant's 1993 Stock Payment Plan for Directors, incorporated by reference from Registrant's Proxy Statement dated March
21, 1993.
*(10) Registrant's Director Retirement Plan, incorporated by reference
from Registrant's Form SE filed March 29, 1990 in connection with Registrant's Form 10-K for the year ended December 31,
1989.
*(10) Registrant's Director Deferred Compensation Plan.
(12) Computation of ratio of earnings to fixed charges.
(12) Pro forma Computation of ratio of earnings to fixed charges.
(13) Registrant's 1993 Annual Report to Shareholders. Such Report,
except for those portions thereof which are expressly incorporated by reference in this Form 10-K, is furnished for the
information of the Commission and is not deemed "filed" as part of this Form 10-K.
(21) Subsidiaries of the Registrant.
(23) Consent of Ernst & Young, Independent Auditors.
*These exhibits relate to management contracts or compensatory plan
arrangments.
(b) Reports on Form 8-K.
A report on Form 8-K was filed on November 15, 1993. Item 5 and Item 7 (Exhibit 10) were reported in said report on
Form 8-K.
A report on Form 8-K was filed on October 18, 1993. Item 2 and Item 7 were reported in said report on Form 8-K. The
audited financial statements of the Macmillan/McGraw-Hill School Publishing Company for the three year period ended
December 31, 1992 were incorporated by reference in said report on Form 8-K.
</TABLE>
<PAGE> 1
McGRAW HILL, INC.
BY-LAWS
(As amended July 28, 1993)
ARTICLE I
STOCKHOLDERS
1. A meeting of the stockholders shall be held annually,
wheresoever designated by the Board of Directors on the last Wednesday in April
of each year or on such other date as a resolution of the Board of Directors
may designate, for the purpose of electing directors, hearing the reports of
officers and directors, and for the transaction of such other business required
or authorized to be transacted by the stockholders. Any previously scheduled
annual or special meeting of stockholders may be postponed by resolution of the
Board of Directors, upon public notice given prior to the date scheduled for
such meeting.
2. Unless waived in writing by all stockholders, notice of the
time, place and object of such meeting shall be given by mailing, at least ten
days previous to such meeting, postage prepaid, a copy of such notice,
addressed to each stockholder at his address as the same appears on the books
of the Company.
3. Special meetings of stockholders for whatsoever purpose shall
be held at the principal office of the Company or at such other place as may be
designated by a
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resolution of the Board of Directors and may only be called pursuant to a
resolution approved by a majority of the Board of Directors.
4. Notice of each special meeting, except where otherwise
expressly provided by statute, and unless waived in writing by every
stockholder entitled to vote, stating the time, place and in general terms the
purpose or purposes thereof, shall be mailed not less than thirty nor more than
fifty days prior to the meeting to each stockholder at his address as the same
appears on the books of the Company.
5. At a meeting of stockholders the holders of a majority of the
shares entitled to vote, being present in person or represented by proxy, shall
be a quorum for all purposes, except where otherwise provided by statute or by
the certificate of incorporation.
6. If at any meeting a quorum shall fail to attend in person or
by proxy, a majority in interest of stockholders entitled to vote present or
represented by proxy at such meeting may adjourn the meeting from time to time
without further notice until a quorum shall attend and thereupon any business
may be transacted which might have been transacted at the meeting as originally
called had the same been then held. The Chairman of a meeting of stockholders
may adjourn such meeting from time to time, whether or not there is a quorum of
stockholders at such meeting.
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7. The Chairman of the Board, and in his absence the President,
and in his absence a Chairman appointed by the Board of Directors, shall call
meetings of the stockholders to order and shall act as Chairman thereof.
8. The Secretary of the Company shall act as Secretary at all
meetings of the stockholders and in his absence the Chairman of the meeting may
appoint any person to act as Secretary.
9. At each meeting of stockholders every stockholder entitled to
vote may vote in person or by proxy, and shall have one vote for each share of
stock registered in his name. The Board of Directors may fix a day not more
than fifty days prior to the day of holding any meeting of the stockholders as
the day as of which stockholders entitled to notice of and to vote at such
meeting shall be determined, and all persons who shall be holders of record of
voting stock at such time and no other shall be entitled to notice of and to
vote at such meeting.
10. At all elections of directors the polls shall be opened and
closed, the proxies shall be received and taken in charge and all ballots shall
be received and counted by two inspectors who shall be appointed by the Board.
If any inspector shall fail to attend or refuse to act, the vacancy may be
filled at the meeting by the
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Chairman of the meeting. No candidate for election as director shall be
appointed an inspector.
11. The inspectors shall, before entering upon the discharge of
their duties, be sworn to faithfully execute the duties of inspector at such
meeting with strict impartiality and according to the best of their ability.
ARTICLE I-A
NOMINATION OF DIRECTORS AND PRESENTATION
OF BUSINESS AT STOCKHOLDER MEETINGS
1. Nominations of persons for election to the Board of Directors
of the Company and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (i) pursuant to
the Company's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) by any stockholder of the Company who was a stockholder of
record at the time of giving of notice provided for in this Article I-A, who is
entitled to vote at the meeting and who complied with the notice procedures set
forth in this Article I-A.
2. For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (iii) of Section 1
of this Article I-A, the stockholder must have given timely notice thereof in
writing to the Secretary of the
<PAGE> 5
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Company. To be timely, a stockholder's notice shall be delivered to the
Secretary at the principal executive offices of the Company not less than 60
days nor more than 90 days prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date of
the annual meeting is advanced by more than 30 days or delayed by more than 60
days from such anniversary date, notice by the stockholder to be timely must be
so delivered not earlier than the 90th day prior to such annual meeting and not
later than the close of business on the later of the 60th day prior to such
annual meeting or the 10th day following the day on which public announcement
of the date of such meeting is first made. Such stockholder's notice shall set
forth (i) as to each person whom the stockholder proposes to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (ii) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest
in such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; (iii) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is
made (a)
<PAGE> 6
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the name and address of such stockholder, as they appear on the Company's
books, and of such beneficial owner and (b) the class and number of shares of
the Company which are owned beneficially and of record by such stockholder and
such beneficial owner.
Notwithstanding anything in the second sentence of this
Section 2 to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Company is increased and there is no
public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Company at least 70 days
prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive offices of the Company
not later than the close of business on the 10th day following the day on which
such public announcement is first made by the Company.
3. Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Company's notice of meeting. Nominations of persons for election to the Board
of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Company's notice of meeting (A) by
or at the direction of
<PAGE> 7
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the Board of Directors or (B) provided that the Board of Directors has
determined that directors shall be elected at such special meeting, by any
stockholder of the Company who is a stockholder of record at the time of giving
of notice provided for in this Article I-A, who shall be entitled to vote at
the meeting and who complies with the notice procedures set forth in this
Article I-A. In the event the Company calls a special meeting of stockholders
for the purpose of electing one or more directors to the Board, any such
stockholder may nominate a person or persons (as the case may be), for election
to such position(s) as specified in the Company's notice of meeting, if the
stockholder's notice required by Section 2 of this Article I-A shall be
delivered to the Secretary at the principal executive offices of the Company
not earlier than the 90th day prior to such special meeting and not later than
the close of business on the later of the 60th day prior to such special
meeting or the 10th day following the day on which public announcement is first
made of the date of the special meeting and of the nominees proposed by the
Board of Directors to be elected at such meeting.
4. Only such persons who are nominated in accordance with the
procedures set forth in this Article I-A shall be eligible to serve as
directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Article I-A. The Chairman of the meeting of
stockholders shall have the power and duty to determine whether a nomination or
any business proposed to be brought before the
<PAGE> 8
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meeting was made in accordance with the procedures set forth in this Article
I-A and, if any proposed nomination or business is not in compliance with this
Article I-A, to declare that such defective nominations or proposal shall be
disregarded.
5. For purposes of this Article I-A, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Company with the Securities and Exchange Commission pursuant to
Sections 13, 14 or 15(d) of the Exchange Act.
6. Notwithstanding the foregoing provisions of this Article I-A,
a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Article I-A. Nothing in this Article I-A shall be
deemed to affect any rights of stockholders to request inclusion of proposals
in the Company's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
<PAGE> 9
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ARTICLE II
BOARD OF DIRECTORS
1. The business and affairs of the corporation shall be managed
under the direction of the Board of Directors. Unless and until changed as
provided in this Section 1 of this Article II, the number of directors
constituting the Board of Directors shall be fourteen (14). The Board of
Directors shall have power from time to time and at any time, by vote of a
majority of the total number of directors which the corporation would have if
there were no vacancies on the Board, to increase or reduce the number of
directors constituting the Board of Directors to such number (subject to any
limits contained in the certificate of incorporation) as the Board of Directors
shall determine, but in no event to less than twelve (12) or more than
twenty-five (25). Subject to the express terms and conditions of the
certificate of incorporation and these By-Laws, the directors shall have the
usual and customary powers and duties of directors of a corporation; also any
and all powers given and permitted by law; and also power to exercise any and
all powers of the corporation, and to do any and all acts without any prior
action taken or consent given by the stockholders, unless required by law, or
the certificate of incorporation, or by these By-Laws; the directors may
exercise all powers, and do all acts and things which are not, by statute or by
the certificate of incorporation or these By-Laws, expressly directed or
required to be exercised or done by the stockholders.
<PAGE> 10
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2. Without prejudice to the general powers conferred by the last
preceding section, and the other powers conferred by the certificate of
incorporation and by these By-Laws, it is hereby expressly declared that the
Board of Directors shall have the following powers, that is to say:
FIRST: From time to time to make and change rules and regulations,
not inconsistent with these By-Laws, for the management of the
Company's business and affairs.
SECOND: To purchase or otherwise acquire for the Company and
property, rights or privileges which the Company is authorized to
acquire, at such price and on such terms and conditions, and for such
consideration, as they shall, from time to time, see fit.
THIRD: At their discretion to pay for any property or rights acquired
by the Company, either wholly or partly, in money or in stocks, bonds,
debentures or other securities of the Company.
FOURTH: To appoint and at their discretion remove or suspend such
subordinate officers, agents or servants, permanently or temporarily,
as they may, from time to time, think fit, and to determine their
duties, and fix, and, from time to time, change their salaries or
emoluments, and to require security in such instance and in such
amounts as they think fit.
FIFTH: To confer by resolution upon any elected or appointed officer
of the Company the power to choose, remove or suspend subordinate
officers, agents or servants.
SIXTH: To appoint any person or persons to accept and hold in trust
for the Company any property belonging to the Company, or in which it
is interested, or for any other purpose, and to execute and do all
such duties and things as may be requisite in relation to any such
trust.
SEVENTH: To determine who shall be authorized on the Company's behalf,
to sign bills, notes, receipts, acceptances, endorsements, checks,
releases, contracts and documents.
<PAGE> 11
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EIGHTH: From time to time to provide for the management of the
affairs of the Company, at home or abroad, in such manner as they see
fit, and in particular, from time to time, to delegate any of the
powers of the Board of Directors in the course of the current business
of the Company, to any special or standing committee or to any officer
or agent, and to appoint any persons to be the agents of the Company,
with such powers (including the power to sub-delegate), and upon such
terms, as may be thought fit.
NINTH: To appoint an Executive Committee of three or more directors
and such other persons as may be added thereto by specific resolution
of the Board, who may meet at stated times, or on notice to all by any
of their own number; who shall generally perform such duties and
exercise such powers as may be directed or delegated by the Board of
Directors from time to time. The Board may delegate to such Committee
authority to exercise the powers of the Board while the Board is not
in session, except as otherwise provided by law. The Executive
Committee shall keep regular minutes of its proceedings and report the
same to the Board when required.
3. Each director shall serve for the term for which he shall be
elected and until his successor shall be chosen and shall accept his election,
but any director may resign at any time.
4. The directors may hold their meetings and may have an office
and keep the books of the Company at such place or places as the Board from
time to time may determine.
5. A regular meeting of the Board of Directors shall be held each
year, either immediately following adjournment of the Annual Meeting of
Stockholders or at such other time as may be fixed by the Chairman of the Board
or the President but on a
<PAGE> 12
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date no later than 60 days following the adjournment of the Annual Meeting of
Stockholders, for the purpose of electing officers, members of the Executive
Committee, members of the other committees of the Board, and to organize the
Board for the ensuing year. Regular meetings of the Board of Directors shall
also be held monthly at such time and place as may be fixed by the Chairman of
the Board, or the President. Notice shall be given to each director of the
date of each regular meeting by the Secretary in the same manner as provided in
Article II, Section 7, of these By-Laws for notice of special meetings of
directors.
6. Special meetings of the Board shall be held whenever called by
the Chairman, or by the President, or by the Secretary upon receiving the
written request of a majority of the directors of the Board then in office. If
so specified in the notice thereof, any and all business may be transacted by a
special meeting.
7. The Secretary shall give notice to each director of each
special meeting by mailing the same, at least two days before the meeting, or
by telegraphing or telephoning not later than the day before the meeting. If
every director shall be present at any meeting any business may be transacted
without previous notice.
8. A majority of the entire Board of Directors shall constitute a
quorum for the transaction of business, except where otherwise provided by
statute or by the
<PAGE> 13
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certificate of incorporation or by these By-Laws, and a majority of those
present at the time and place of any regular or special meeting may adjourn the
same from time to time without notice.
9. Any one or more members of the Board may participate in a
meeting of the Board by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall constitute
presence in person at a meeting.
ARTICLE III
COMMITTEES
1. The Board may appoint such committees, as it may deem
advisable. Committees so appointed shall have such powers and duties as may be
specified in the resolution of appointment.
2. Each committee shall keep regular minutes of its proceedings
and report the same to the Board when required.
3. Any one or more members of any such committee may participate
in a meeting of such committee by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear
<PAGE> 14
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each other at the same time. Participation by such means shall constitute
presence in person at a meeting.
4. Any action required or permitted to be taken at any meeting of
any committee may be taken without a meeting, if all members of the committee
consent in writing to the adoption of a resolution authorizing the action and
if the resolution and the written consent thereto are filed with the
proceedings of the committee.
ARTICLE IV
OFFICERS
1. The elective officers of the Corporation other than directors
shall be a Chairman of the Board of Directors, a President, one or more
Vice-Presidents, a Secretary and a Treasurer. Any two of the aforesaid offices
may be filled by the same person. For purposes of these By-Laws the office of
Vice-President also may include one or more Executive Vice-Presidents and one
or more Senior Vice-Presidents. The term of office of each of said officers
shall continue until the next annual election of directors and the selection of
his successor by the Board of Directors. Any officer may, at any time, with or
without cause, be suspended or removed from office by the affirmative vote of a
majority of the entire Board at a meeting thereof. The Chairman of the Board
and the President shall be chosen from among the directors.
<PAGE> 15
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2. The Chairman of the Board when present shall preside at all
meetings of the Board of Directors and at all meetings of the stockholders. He
shall perform all duties incident to the office of the Chairman of the Board.
The Chairman also shall be the Chief Executive Officer of the Corporation and
shall be responsible for the general and active supervision and direction of
the business, policies and activities of the Corporation, subject to the
control of the Board of Directors. He may execute on behalf of the Corporation
all authorized deeds, bonds, mortgages, contracts, documents and papers and may
affix thereto the corporate seal when required. He shall have power to sign
debentures and certificates of stock of the Corporation.
3. The President shall be the Chief Operating Officer of the
Corporation and shall have general responsibility for directing, administering
and coordinating the operational phases of the Corporation's business, subject
to the control of the Chairman and Chief Executive Officer. He shall have such
duties as the Board may from time to time determine or as may be prescribed by
these By-Laws. He shall be responsible for seeing that the orders and
resolutions of the Board are carried into effect. He may execute on behalf of
the Corporation all authorized deeds, bonds, mortgages, contracts, documents
and papers and may affix thereto the corporate seal when required. He shall
have power to sign debentures and certificates of stock of the Corporation.
<PAGE> 16
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If the office of the Chairman of the Board shall be vacant, or
if the person holding that office shall be absent, the President shall preside
at meetings of stockholders and of the Board of Directors.
4. In the absence or inability to act of both the Chairman and
the President, the Board may designate any senior corporate officer to perform
the duties of temporary Chairman which shall include presiding at meetings of
stockholders and of the Board of Directors.
5. The Board may elect or appoint one or more Vice-Presidents.
Each Vice-President shall have such powers and shall perform such duties as may
be assigned to him by the Board or by the President. In case of the absence or
disability of the President the duties of that office shall be performed by
whomever the Board shall determine by resolution.
6. The Secretary shall be sworn to the faithful discharge of his
duties; he shall attend all meetings of the directors and stockholders, and
shall record all the proceedings of such meetings in a book to be kept for that
purpose, and shall perform like duties for standing committees when required.
He shall have charge of the giving of notice of meetings of stockholders and
directors, and perform all the duties assigned to him by the Board of
Directors, or usual for the Secretary of a Corporation
<PAGE> 17
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to perform. He, or the Treasurer shall, with the Chairman or President sign
all debentures and stock certificates of the Company.
7. The Treasurer shall keep or cause to be kept full and true
books of account and records of all receipts and disbursements, property,
assets and liabilities of the Corporation, in books belonging to the Company,
and shall deposit all moneys, securities, and valuables of the Corporation in
the name of and to the credit of the Corporation, in such depositories as shall
be designated by the Board of Directors. He shall disburse funds of the
Company as ordered by the Board, taking proper vouchers therefor and shall
render to the President and the Board of Directors, at regular meetings or
whenever required, an account of all financial transactions of the Company. He
shall also have power to sign debentures and certificates of stock of the
Company, checks, notes, bills of exchange or other negotiable instruments for
and in the name of the Company. He shall perform all other duties incident to
the position of Treasurer, subject to the control of the Board.
8. The Board of Directors shall have power to appoint one or more
Assistant Treasurers, Assistant Secretaries, Controller or Assistant
Controllers who shall have such powers and perform such duties as may be
designated by the Board.
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9. The amount of salaries, wages, or other compensation to be
paid to the officers, employees and agents of the Company shall be determined
from time to time by the Board or by an Executive Officer or Committee to whom
this work shall be delegated. No officer shall be incapacitated to receive a
regular salary or fixed compensation by reason of being a director of the
Corporation.
ARTICLE IV-A
1. Bank Accounts, Deposits, Checks, Drafts and Orders Issued in the
Company's Name. Any two of the following officers: the Chairman, President,
any Vice-President, and the Treasurer, Secretary or Controller may from time to
time (1) open and keep in the name and on behalf of the Company, with such
banks, trust companies or other depositories as they may designate, general and
special bank accounts for the funds of the Company, and (2) terminate any such
bank accounts. Any such action by two of the officers as specified above shall
be made by an instrument in writing signed by such two officers and filed with
the Secretary. A copy of such instrument, certified by the Secretary or an
Assistant Secretary, shall be evidence to all concerned that the designations
or terminations therein contained are duly authorized on behalf of the Company
at the time of the certification.
All funds and securities of the Company shall be deposited in
such banks, trust companies or other depositories as are designated by the
Board of Directors or
<PAGE> 19
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by the aforesaid officers in the manner hereinabove provided, and for the
purpose of such deposits, the Chairman, President, any Vice-President, the
Secretary, the Controller, the Treasurer or an Assistant Treasurer, and each of
them, or any other person or persons authorized by the Board of Directors, may
endorse, assign and deliver checks, notes, drafts, and other orders for the
payment of money which are payable to the Company.
All checks, drafts, or orders for the payment of money, drawn
in the name of the Company, may be signed by the Chairman, President, any
Vice-President, the Secretary, the Treasurer or any Assistant Treasurer, or by
any other officer or any employee of the Company who shall from time to time be
designated to sign checks, drafts, or orders on all accounts or on any specific
account of the Company by an "instrument of designation" signed by any two of
the following officers: The Chairman, President, any Vice-President, and the
Treasurer, and filed with the Secretary. The Secretary or any Assistant
Secretary shall make certified copies of such instruments of designation and
such certified copies shall be evidence to all concerned of the authority of
the persons designated therein at the time of the certification. An instrument
of designation may provide for (1) the facsimile signature of any person
authorized to sign by such instrument or by this Section, or (2) the revocation
of authority of any person (other than an officer named in this Section) to
sign checks, drafts or orders drawn in the name of the Company.
<PAGE> 20
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ARTICLE IV-B
INDEMNIFICATION
1. Any person made or threatened to be made a party to any action
or proceeding, whether civil or criminal, by reason of the fact that such
person or such person's testator or intestate is or was a director, officer or
employee of the Corporation or serves or served any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise in
any capacity at the request of the Corporation shall be indemnified by the
Corporation, and the Corporation may advance such person's related expenses, to
the full extent permitted by law.
For purposes of this section, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and
employees, so that any person who is or was a director, officer or employee of
such constituent corporation, or is or was serving at the request of such
constituent corporation any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity at the request
of the Corporation, shall stand in the same position under the provisions of
this section with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its separate
existence had continued.
<PAGE> 21
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ARTICLE V
CAPITAL STOCK
1. The instruments of debentures, certificate of shares of the
preferred, preference and common capital stock of the Company shall be in such
form as shall be approved by the Board of Directors. The certificates shall be
signed by the Chairman of the Board or the President and also by the Secretary
or the Treasurer. The seal of the Corporation shall be affixed to all
certificates. The signatures of the officers upon a certificate may be
facsimiles if the certificate is countersigned by a transfer agent or
registered by a registrar other than the Corporation itself or its employee.
2. All certificates shall be consecutively numbered, and the
names of the owners, the number of shares and the date of issue, shall be
entered in the Company's books.
3. The Company or its duly authorized stock transfer agent shall
keep a book to be known as the stock book, containing the names, alphabetically
arranged, of all persons who are stockholders of the Corporation, showing their
places of residence, the number of shares of preferred, preference and common
stock held by each respectively, and the time when each became the owner
thereof, also entries showing from and to whom such shares shall be
transferred, and the number and
<PAGE> 22
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denomination of all revenue stamps used to evidence the payment of the stock
transfer tax as required by the laws of the State of New York, which books
shall be open daily, during usual business hours, for inspection by any person
who shall have been a stockholder of record in such Corporation for a least
six months immediately preceding his demand; or by any person holding or
thereunto in writing authorized by the holders of at least five per centum of
any class of its outstanding shares, upon at least five days written demand.
Persons so entitled to inspect stock books may make extracts therefrom.
4. Shares shall be transferred only on the books of the
Corporation by the holder thereof in person or by his attorney upon the
surrender and cancellation of certificates for a like number of shares, and
upon tender of stock transfer stamps or the equivalent in money sufficient to
satisfy all legal requirements.
5. The Board may make such rules and regulations as it may deem
expedient concerning the issue, transfer and registration of certificates of
stock of the Company.
6. Certificates for shares of stock or for debentures in the
Corporation may be issued in lieu of certificates alleged to have been lost,
stolen, destroyed, mutilated, or abandoned, upon the receipt of (1) such
evidence of loss, theft, destruction or
<PAGE> 23
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mutilation and a bond of indemnity in such amount, upon such terms and with
such surety, if any, as the Board of Directors may require in each specific
case, or (2) a request by an appropriate governmental agency or representative
for the reissuance of a stock certificate claimed to be abandoned or escheated
in accordance with the abandoned property or similar law of the state, or (3)
in accordance with general resolutions.
ARTICLE VI
SEAL
1. The Board shall provide a suitable seal, containing the name
of the Corporation, the year of its creation, and the words "Corporate Seal,
N.Y." or other appropriate words, which seal shall be in charge of the
Secretary, to be used as directed by the Board.
ARTICLE VII
FISCAL YEAR
1. The fiscal year of the Corporation shall begin the first
business day in January.
<PAGE> 24
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ARTICLE VIII
NOTICE AND WAIVER OF NOTICE
1. Any notice required to be given by these By-Laws may be given
by mailing the same addressed to the person entitled thereto at his address as
shown on the Company's books, and such notice shall be deemed to be given at
the time of such mailing.
2. Any stockholder, director or officer may waive any notice
required to be given by these By-Laws.
ARTICLE IX
AMENDMENTS
1. Subject to the terms and conditions of the certificate of
incorporation, the Board of Directors shall have power to make, amend, and
repeal the By-Laws of the corporation, by a vote of the majority of all the
directors present at any regular or special meeting of the Board, provided a
quorum is in attendance and provided further that notice of intention to make,
amend or repeal the By-Laws in whole or in part at such meeting shall have been
previously given to each member of the Board.
<PAGE> 1
McGRAW-HILL, INC.
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1987 Key Employee Stock Incentive Plan
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<PAGE> 2
McGRAW-HILL, INC.
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1987 Key Employee Stock Incentive Plan
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<TABLE>
<CAPTION>
SECTION CONTENTS PAGE
------- ------------------------------ ----
<S> <C> <C>
1. Purpose; Definitions 1
2. Administration 4
3. Stock Subject to Plan 6
4. Eligibility 7
5. Stock Options 8
6. Stock Appreciation Rights 13
7. Restricted Stock 15
8. Deferred Stock 18
9. Other Stock-Based Awards 20
10. Change in Control Provisions 22
11. Amendments and Termination 24
12. Unfunded Status of Plan 25
13. General Provisions 26
14. Effective Date of Plan 28
15. Term of Plan 29
</TABLE>
<PAGE> 3
McGRAW-HILL, INC.
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1987 Key Employee Stock Incentive Plan
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SECTION 1. PURPOSE; DEFINITIONS.
The purpose of this McGraw-Hill, Inc. 1987 Key Employee Stock Incentive
Plan (the "Plan") is to enable McGraw-Hill, Inc. (the "Company") to offer key
employees of the Company long term performance-based stock incentives and/or
other equity interests in the Company, thereby attracting, retaining and
rewarding such key employees, and strengthening the mutuality of interests
between key employees and the Company's shareholders.
For purposes of the Plan, the following terms shall be defined as set
forth below:
a. "Board" means the Board of Directors of McGraw-Hill, Inc.
b. "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
c. "Committee" means the Management Compensation Committee of the
Board. If at any time no Committee shall be in office, then the
functions of the Committee specified in the Plan shall be
exercised by the Board or by a committee of Board members
consisting of Disinterested Persons.
d. "Company" means McGraw-Hill, Inc., a corporation organized under
the laws of the State of New York, or any successor corporation,
and includes all domestic and foreign corporations, partnerships
and other legal entities in which at least 40% of the voting
securities or ownership interests are owned directly or
indirectly by McGraw-Hill, Inc.
e. "Deferred Stock" means an award made pursuant to Section 8 below
of the right to receive Stock at the end of a specified deferral
period.
f. "Disability" means disability as determined under procedures
stablished by the Committee for purposes of this Plan.
g. "Disinterested Person" shall have the meaning set forth in Rule
16b-3(d)(3) as promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of
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<PAGE> 4
1934, or any successor definition adopted by the Commission.
h. "Early Retirement" means retirement, with the approval of the
Committee for purposes of one or more award(s) hereunder, from
active employment with the Company prior to age 65, provided that
the Committee may establish rules and procedures pursuant to
which the Committee's approval shall be deemed to have been
given.
i. "Fair Market Value" for purposes of this Plan, unless otherwise
required by any applicable provision of the Code or any
regulations issued thereunder, shall mean, as of any given date,
the mean between the highest and lowest prices at which the Stock
is actually traded on such date as reflected in the New York
Stock Exchange Composite Transactions, or, if there is no sale of
the Stock on such date, the mean between the bid and asked prices
on such Exchange at the close of the market on such date or, if
there is no bid and asked activity on such date, such value as
may be determined by the Committee in good faith.
j. "Incentive Stock Option" means any Stock Option intended to be
and designated as an "Incentive Stock Option" within the meaning
of Section 422A of the Code.
k. "Non-Qualified Stock Option" means any Stock Option that is not
an Incentive Stock Option.
l. "Normal Retirement" means retirement from active employment with
the Company on or after age 65.
m. "Other Stock-Based Award" means an award under Section 9 below
that is valued in whole or in part by reference to, or is
otherwise based on, Stock.
n. "Plan" means this McGraw-Hill, Inc. 1987 Key Employee Stock
Incentive Plan, as hereinafter amended from time to time.
o. "Restricted Stock" means an award of shares of Stock that is
subject to restrictions under Section 7 below.
p. "Retirement" means Normal or Early Retirement.
q. "Stock" means the Common Stock, $1.00 par value per share, of the
Company.
-2-
<PAGE> 5
r. "Stock Appreciation Right" means the right pursuant to an award
granted under Section 6 below to surrender to the Company all
(or a portion) of a Stock Option in exchange for an amount equal
to the difference between (i) the Fair Market Value, as of the
date such Stock Option (or such portion thereof) is surrendered,
of the shares of Stock covered by such Stock Option (or such
portion thereof), and (ii) the aggregate exercise price of such
Stock Option (or such portion thereof).
s. "Stock Option" or "Option" means any option to purchase shares of
Stock (including Restricted Stock and Deferred Stock, if the
Committee so determines) granted pursuant to Section 5 below.
t. "Cause" shall mean the employee's serious, willful misconduct in
but not limited to, conviction for a felony or perpetration of a
common law fraud).
In addition, the terms "Change in Control" and "Change in Control Price"
shall have meanings set forth, respectively, in Sections 10(b) and (c) below.
-3-
<PAGE> 6
Section 2. ADMINISTRATION.
The Plan shall be administered by the Committee.
The Committee shall have full authority to grant,
pursuant to the terms of the Plan, to officers and other key employees eligible
under Section 4: (i) Stock Options, (ii) Stock Appreciation Rights, (iii)
Restricted Stock, (iv) Deferred Stock, and/or (v) Other Stock-Based Awards.
In particular, the Committee shall have the
authority:
(i) to select the officers and other key
employees of the Company to whom Stock
Options, Stock Appreciation Rights,
Restricted Stock, Deferred Stock and/or Other
Stock-Based Awards may from time to time be
granted hereunder;
(ii) to determine whether and to what extent
Incentive Stock Options, Non-Qualified Stock
Options, Stock Appreciation Rights,
Restricted Stock, Deferred Stock and/or Other
Stock-Based Awards, or any combination
thereof, are to be granted hereunder to one
or more eligible employees;
(iii) to determine the number of shares to be
covered by each such award granted hereunder;
(iv) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of
any award granted hereunder (including, but
not limited to, the share price, any
restriction or limitation, or any vesting
acceleration or forfeiture waiver regarding
any Stock Option or other award and/or the
shares of Stock relating thereto, based on
such factors as the Committee shall
determine, in its sole discretion);
(v) to determine whether, to what extent and
under what circumstances grants of Options
and/or other awards under this Plan are to
operate on a tandem basis and/or in
conjunction with or apart from other cash
awards made by the Company outside of this
Plan;
(vi) to determine whether and under what
circumstances a Stock Option may be settled
in cash, Deferred Stock, and/or Restricted
Stock under Section 5(k); and
(vii) to determine whether, to what extent and
under what circumstances Stock and other
amounts payable with respect to an award
under this Plan shall be deferred either
automatically or at the election of the
participant.
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<PAGE> 7
Subject to Section 11 hereof, the Committee shall
have the authority to adopt, alter and repeal such administrative rules,
guidelines and practices governing the Plan as it shall, from time to time,
deem advisable; to interpret the terms and provisions of the Plan and any award
issued under the Plan (and any agreements relating thereto); and to otherwise
supervise the administration of the Plan.
Subject to Section 11 hereof, all decisions made by
the Committee pursuant to the provisions of the Plan shall be made in the
Committee's sole discretion and shall be final and binding on all persons,
including the Company and Plan participants.
-5-
<PAGE> 8
SECTION 3. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and
available for distribution under the Plan shall be 2,300,000 shares. Such
shares may consist, in whole or in part, of authorized and unissued shares or
treasury shares.
Subject to Section 6(b)(iv) below, if any shares of
Stock that have been optioned cease to be subject to a Stock Option, or if any
such shares of Stock that are subject to any Restricted Stock or Deferred Stock
award or Other Stock-Based Award granted hereunder are forfeited or any such
award otherwise terminates without a payment being made to the participant in
the form of Stock, such shares shall again be available for distribution in
connection with future grants and awards under the Plan.
In the event of any merger, reorganization,
consolidation, recapitalization, dividend (other than a dividend or its
equivalent which is credited to a Plan participant or a regular cash dividend),
Stock split, or other change in corporate structure affecting the Stock, such
substitution or adjustment shall be made in the aggregate number of shares
reserved for issuance under the Plan, in the number and option price of shares
subject to outstanding Options granted under the Plan, and in the number of
shares subject to other outstanding awards (including but not limited to awards
of Restricted Stock, Deferred Stock and Other Stock-Based Awards) granted under
the Plan as may be determined to be appropriate by the Committee, in its sole
discretion, provided that the number of shares subject to any award shall
always be a whole number. Such adjusted option price shall also be used to
determine the amount payable by the Company upon the exercise of any Stock
Appreciation Right associated with any Stock Option.
No optionee will be granted Stock Options or Stock
Appreciation Rights under both the Plan and the Company's 1993 Key Employee
Stock Incentive plan to receive more than 230,000 shares of Stock in the
aggregate over the term of the Plan and the term of the 1993 Key Employee Stock
Incentive Plan. With respect to the Plan, however, the aforesaid limitation
shall apply only to Options or Rights not heretofore issued and therefore still
available for issuance. The foregoing limitation set forth in this paragraph
is intended to satisfy certain requirements applicable to Stock Options and
Stock Appreciation Rights to qualify as performance-based compensation within
the meaning of Section 162(k) of the Code. In the event that Code regulations
are issued which eliminate the requirement for such limitation to qualify Stock
Options and Stock Appreciation Rights as performance-based compensation, then
this paragraph of Section 3 shall no longer be operative.
-6-
<PAGE> 9
SECTION 4. ELIGIBILITY.
Officers and other key employees of the Company (but
excluding members of the Committee and any person who serves only as a
director) who are responsible for or contribute to the management, growth
and/or profitability of the business of the Company are eligible to be granted
options and awards under the Plan. Eligibility under the Plan shall be
determined by the Committee.
-7-
<PAGE> 10
SECTION 5. STOCK OPTIONS.
Stock Options may be granted alone or in addition to
other awards granted under the Plan. Any Stock Option granted under the Plan
shall be in such form as the Committee may from time to time approve.
Stock Options granted under the Plan may be of two
types: (i) Incentive Stock Options and (ii) Non-Qualified Stock Options.
The Committee shall have the authority to grant to
any optionee Incentive Stock Options, Non-Qualified Stock Options, or both
types of Stock Options (in each case with or without Stock Appreciation
Rights). To the extent that any Stock Option does not qualify as an Incentive
Stock Option, it shall constitute a separate Non-Qualified Stock Option.
Anything in the Plan to the contrary
notwithstanding, no term of this Plan relating to Incentive Stock Options shall
be interpreted, amended or altered, nor shall any discretion or authority
granted under the Plan be so exercised, so as to disqualify the Plan under
Section 422A of the Code, or, without the consent of the optionee(s) affected,
to disqualify any Incentive Stock Option under such Section 422A.
Options granted under the Plan shall be subject to
the following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as the Committee shall
deem desirable:
(a) OPTION PRICE. The option price per share
of Stock purchasable under a Stock Option shall be determined by the Committee
at the time of grant but shall be not less than 100% of the Fair Market Value
of the Stock at grant.
(b) OPTION TERM. The term of each Stock Option
shall be fixed by the Committee, but no Incentive Stock Option shall be
exercisable more than ten years after the date the Option is granted, and no
Non-Qualified Stock Option shall be exercisable more than ten years and one day
after the date the Option is granted.
(c) EXERCISABILITY. Stock Options shall be
exercisable at such time or times and subject to such terms and conditions as
shall be determined by the Committee at or after grant provided, however, that,
except as provided in Sections 5(f) and (g) and Section 10, unless otherwise
determined by the Committee at or after grant, no Stock Option shall be
exercisable prior to the first anniversary date of the granting of the Option.
If the Committee provides, in its discretion, that any Stock Option is
exercisable only in installments, the Committee may waive such installment
exercise provisions at any time at or after grant in whole or in part,
-8-
<PAGE> 11
based on such factors as the Committee shall determine, in its sole discretion.
(d) METHOD OF EXERCISE. Subject to whatever
installment exercise and waiting period provisions apply under Section 5(c),
Stock Options may be exercised in whole or in part at any time during the
option period, by giving written notice of exercise to the Company specifying
the number of shares to be purchased.
Such notice shall be accompanied by payment in full
of the purchase price in such form as the Committee may accept. If and to the
extent determined by the Committee in its sole discretion at or after grant,
payment in full or in part may also be made in the form of unrestricted Stock
duly owned by the optionee (and for which the optionee has good title free and
clear of any liens and encumbrances) based, in each case, on the Fair Market
Value of the Stock on the last trading date preceding payment, as determined by
the Committee.
No shares of Stock shall be issued until payment, as
provided herein, therefore has been made. An optionee shall generally have the
rights to dividends or other rights of a shareholder with respect to shares
subject to the Option when the optionee has given written notice of exercise,
has paid for such shares as provided herein, and, if requested, has given the
representation described in Section 13(a).
(e) NON-TRANSFERABILITY OF OPTIONS. No Stock
Option shall be transferable by the optionee otherwise than by will or by the
laws of descent and distribution, and all Stock Options shall be exercisable,
during the optionee's lifetime, only by the optionee.
(f) TERMINATION BY DEATH. Subject to Section
5(j), if an optionee's employment by the Company terminates by reason of death,
any Stock Option held by such optionee, unless otherwise determined by the
Committee at grant, shall be fully vested and may thereafter be exercised by
the legal representative of the estate or by the legatee of the optionee under
the will of the optionee, for a period of one year (or such other period as the
Committee may specify at grant) from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter.
(g) TERMINATION BY REASON OF DISABILITY.
Subject to Section 5(j), if an optionee's employment by the Company terminates
by reason of Disability, any Stock Option held by such optionee, unless
otherwise determined by the Committee at grant, shall be fully vested and may
thereafter be exercised by the optionee for a period of three years (or such
other period as the Committee may specify at grant) from the date of such
termination of employment or until the expiration of the stated term of such
Stock Option, whichever period is the shorter; provided, however, that, if the
optionee dies
-9-
<PAGE> 12
within such three-year period (or such other period as the Committee shall
specify at grant), any unexercised Stock Option held by such optionee shall
thereafter be exercisable to the extent to which it was exercisable at the time
of death for a period of twelve months from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter. In the event of termination of employment by reason of Disability, if
an Incentive Stock Option is exercised after the expiration of the exercise
periods that apply for purposes of Section 422A of the Code, such Stock Option
will thereafter be treated as a Non-Qualified Stock Option.
(h) TERMINATION BY REASON OF RETIREMENT.
Subject to Section 5(j), if an optionee's employment by the Company terminates
by reason of Normal Retirement, any Stock Option held by such optionee, unless
otherwise determined by the Committee at grant, shall be fully vested and may
thereafter be exercised by the optionee for a period of three years (or such
other period as the Committee may specify at grant) from the date of such
termination of employment or the expiration of the stated term of such Stock
Option, whichever period is the shorter; provided, however, that, if the
optionee dies within such three-year period, any unexercised Stock Option held
by such optionee shall thereafter be exercisable, to the extent to which it was
exercisable at the time of death, for a period of twelve months from the date
of such death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter. Unless the Committee otherwise determines at
the time of grant, if an optionee's employment with the Company terminates by
reason of Early Retirement, any Stock Option held by such optionee may
thereafter be exercised by the optionee to the extent it was exercisable at the
date of retirement for a period of thirty-six (36) months (or such other period
as the Committee may specify at grant) from the date of such termination of
employment or the expiration of the stated term of such Stock Option, whichever
period is shorter; provided, however, if the optionee dies within such
thirty-six (36) month period, any unexercised Stock Option held by such
optionee shall thereafter be exercisable, to the extent to which it was
exercisable at the time of death, for a period of twelve months from the date
of such death or until the expiration of the stated term of such Stock Option,
whichever period is shorter. If and only if the Committee so approves at the
time of Early Retirement, if an optionee's employment with the Company
terminates by reason of Early Retirement, any Stock Option held by the optionee
shall be fully vested and may thereafter be exercised by the optionee as
provided above in connection with termination of employment by reason of Normal
Retirement. In the event of termination of employment by reason of Retirement,
if an Incentive Stock Option is exercised after the expiration of the exercise
periods that apply for purposes of Section 422A of the Code, the option will
thereafter be treated as a Non-Qualified Stock Option.
-10-
<PAGE> 13
(i) OTHER TERMINATION. Unless otherwise
determined by the Committee at the time of grant, if an optionee's employment
terminates for any reason other than Death, Disability, Retirement or for
Cause, any Stock Option held by such optionee, unless otherwise determined by
the Committee at grant, may thereafter be exercised by the optionee to the
extent it was exercisable at the date of termination for a period of six months
(or such other period as the Committee may specify at grant) from the date of
such termination of employment or until the expiration of the stated term of
such Stock Option, whichever period is the shorter; provided, however, if the
optionee dies within such six-month period (or such other period as the
Committee shall specify at grant), any unexercised Stock Option held by such
optionee shall thereafter be exercisable to the extent that it was exercisable
at the date of termination for a period of twelve months from the time of such
death, or until the expiration of the stated term of such Stock Option,
whichever period is the shorter. If an optionee's employment with the Company
is involuntarily terminated by the Company for Cause, the Stock Option shall
thereupon terminate and shall not be exercisable thereafter.
(j) INCENTIVE STOCK OPTION LIMITATIONS. To the
extent required for "incentive stock option" status under Section 422A(b)(7) of
the Code, this Plan shall be deemed to provide that the aggregate Fair Market
Value (determined as of the time of grant) of the Stock with respect to which
Incentive Stock Options granted after 1986 are exercisable for the first time
by the optionee during any calendar year under the Plan and/or any other stock
option plan of the Company or any subsidiary or parent corporation (within the
meaning of Section 425 of the Code) after 1986 shall not exceed $100,000. If
Section 422A is hereafter amended to delete the requirement now in Section
422A(b)(7) that the plan text expressly provide for the $100,000 limitation set
forth in Section 422A(b)(7), then this first paragraph of Section 5(j) shall no
longer be operative.
To the extent (if any) permitted under
Section 422A of the Code, or the applicable regulations thereunder or any
applicable Internal Revenue Service pronouncement, if (i) a participant's
employment with the Company is terminated by reason of death, Disability or
Retirement and (ii) the portion of any Incentive Stock Option that is otherwise
exercisable during the post-termination period specified under Section 5(f),
(g) or (h), applied without regard to the $100,000 limitation currently
contained in Section 422A(b)(7) of the Code, is greater than the portion of
such option that is immediately exercisable as an "incentive stock option"
during such post-termination period under Section 422A, such excess shall be
treated as a Non-Qualified Stock Option. If the exercise of an Incentive Stock
Option is accelerated by reason of a Change In Control, any portion of such
option that is not exercisable as an Incentive Stock Option by reason of the
$100,000 limitation contained in Section 422A(b)(7) of the Code shall be
treated as a Non-Qualified Stock Option.
-11-
<PAGE> 14
(k) BUYOUT AND SETTLEMENT PROVISIONS. The
Committee may at any time offer to buy out an option previously granted, based
on such terms and conditions as the Committee shall establish and communicate
to the optionee at the time that such offer is made.
In addition, if the option agreement so
provides at grant or is amended after grant and prior to exercise to so provide
(with the optionee's consent), the Committee may require that all or part of
the shares to be issued with respect to the spread value of an exercised Option
take the form of Deferred or Restricted Stock, which shall be valued on the
date of exercise on the basis of the Fair Market Value of such Deferred or
Restricted Stock determined without regard to the deferral limitations and/or
forfeiture restrictions involved.
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<PAGE> 15
SECTION 6. STOCK APPRECIATION RIGHTS.
(a) GRANT AND EXERCISE. Stock Appreciation
Rights may be granted in conjunction with all or part of any Stock Option
granted under the Plan. In the case of a Non-Qualified Stock Option, such
rights may be granted either at or after the time of the grant of such Stock
Option. In the case of an Incentive Stock Option, such rights may be granted
only at the time of the grant of such Stock Option.
A Stock Appreciation Right or applicable
portion thereof granted with respect to a given Stock Option shall terminate
and no longer be exercisable upon the termination or exercise of the related
Stock Option, except that, unless otherwise determined by the Committee, in its
sole discretion, at the time of grant, a Stock Appreciation Right granted with
respect to less than the full number of shares covered by a related Stock
Option shall not be reduced until the number of shares covered by an exercise
or termination of the related Stock Option exceeds the number of shares not
covered by the Stock Appreciation Right.
A Stock Appreciation Right may be exercised
by an optionee, in accordance with Section 6(b), by surrendering the applicable
portion of the related Stock Option. Upon such exercise and surrender, the
optionee shall be entitled to receive an amount determined in the manner
prescribed in Section 6(b). Stock Options which have been so surrendered, in
whole or in part, shall no longer be exercisable to the extent the related
Stock Appreciation Rights have been exercised.
(b) TERMS AND CONDITIONS. Stock Appreciation
Rights shall be subject to such terms and conditions, not inconsistent with the
provisions of the Plan, as shall be determined from time to time by the
Committee, including the following:
(i) Stock Appreciation Rights shall be
exercisable only at such time or times
and to the extent that the Stock
Options to which they relate shall be
exercisable in accordance with the
provisions of Section 5 and this
Section 6 of the Plan; provided,
however, that any Stock Appreciation
Right granted subsequent to the grant
of the related Stock Option shall not
be exercisable during the first six
months of its term, except that this
special limitation shall not apply in
the event of death or Disability of
the optionee prior to the expiration
of the six-month period.
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<PAGE> 16
(ii) Upon the exercise of a Stock
Appreciation Right, an optionee shall
be entitled to receive up to, but not
more than, an amount in cash and/or
shares of Stock equal in value to the
excess of the Fair Market Value of one
share of Stock over the option price
per share specified in the related
Stock Option multiplied by the number
of shares in respect of which the
Stock Appreciation Right shall have
been exercised, with the Committee
having the right to determine the form
of payment, subject however to Section
6(b)(v) below.
(iii) Stock Appreciation Rights shall be
transferable only when and to the
extent that the underlying Stock
Option would be transferable under
Section 5(e) of the Plan.
(iv) Upon the exercise of a Stock
Appreciation Right, the Stock Option
or part thereof to which such Stock
Appreciation Right is related shall be
deemed to have been exercised for the
purpose of the limitation set forth in
Section 3 of the Plan on the number of
shares of Stock to be issued under the
Plan, but only to the extent of the
number of shares issued under the
Stock Appreciation Right at the time
of exercise based on the value of the
Stock Appreciation Right at such time.
(v) In its sole discretion, the Committee
may grant "Limited Stock Appreciation
Rights" i.e., Stock Appreciation
Rights that become exercisable only in
the event of a Change in Control,
subject to such terms and conditions
as the Committee may specify at grant.
Said Limited Stock Appreciation Rights
shall be settled solely in cash.
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<PAGE> 17
SECTION 7. RESTRICTED STOCK.
(a) ADMINISTRATION. Shares of Restricted Stock
may be issued either alone or in addition to other awards granted under the
Plan. The Committee shall determine the eligible persons to whom, and the time
or times at which, grants of Restricted Stock will be made, the number of
shares to be awarded, the price (if any) to be paid by the recipient (subject
to Section 7(b)), the time or times within which such awards may be subject to
forfeiture, the vesting schedule and rights to acceleration thereof, and all
other terms and conditions of the awards.
The Committee may condition the grant of
Restricted Stock upon the attainment of specified performance goals or such
other factors as the Committee may determine, in its sole discretion.
The provisions of Restricted Stock awards
need not be the same with respect to each recipient, and such awards to
individual recipients need not be the same in subsequent years.
(b) AWARDS AND CERTIFICATES. The prospective
recipient of a Restricted Stock award shall not have any rights with respect to
such award, unless and until such recipient has executed an agreement
evidencing the award and has delivered a fully executed copy thereof to the
Company, and has otherwise complied with the applicable terms and conditions of
such award. Further, such award shall be subject to the following conditions:
(i) The purchase price for shares of
Restricted Stock shall be equal to or
less than their par value and may be
zero.
(ii) Awards of Restricted Stock must be
accepted within a period of 60 days
(or such shorter period as the
Committee may specify at grant) after
the award date, by executing a
Restricted Stock Award Agreement and
by paying whatever price (if any) is
required under Section 7(b)(i).
(iii) Each participant receiving a
Restricted Stock award shall be issued
a stock certificate in respect of such
shares of Restricted Stock. Such
certificate shall be registered in the
name of such participant, and shall
bear an appropriate legend referring
to the terms, conditions, and
restrictions applicable to such award,
substantially in the following form:
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<PAGE> 18
"The transferability of this
certificate and the shares of stock
represented hereby are subject to the
terms and conditions (including
forfeiture) of the McGraw-Hill, Inc.
1987 Key Employee Stock Incentive Plan
and an Agreement entered into between
the registered owner and McGraw-Hill,
Inc. dated -------------. Copies of
such Plan and Agreement are on file in
the offices of McGraw-Hill, Inc., 1221
Avenue of the Americas, New York, NY
10020."
(iv) The Committee shall require that the
stock certificates evidencing such
shares be held in custody by the
Company until the restrictions thereon
shall have lapsed, and that, as a
condition of any Restricted Stock
award, the participant shall have
delivered a duly signed stock power,
endorsed in blank, relating to the
Stock covered by such award.
(c) RESTRICTIONS AND CONDITIONS. The shares of
Restricted Stock awarded pursuant to this Section 7 shall be subject to the
following restrictions and conditions:
(i) Subject to the provisions of this Plan
and the award agreement, during a
period set by the Committee commencing
with the date of such award (the
"Restriction Period"), the participant
shall not be permitted to sell,
transfer, pledge or assign shares of
Restricted Stock awarded under the
Plan. Within these limits, the
Committee, in its sole discretion, may
provide for the lapse of such
restrictions in installments and may
accelerate or waive such restrictions
in whole or in part, based on service,
performance and/or such other factors
or criteria as the Committee may
determine, in its sole discretion.
(ii) Except as provided in this paragraph
(ii) and Section 7(c)(i), the
participant shall have, with respect
to the shares of Restricted Stock, all
of the rights of a shareholder of the
Company, including the right to vote
the shares, and the right to receive
any dividends. The Committee, in its
sole discretion, as determined at the
time of award, may permit or require
the payment of dividends to be
deferred and, if the Committee so
permits or determines, reinvested,
subject to Section 13(e), in
additional Restricted Stock to the
extent shares are available under
Section 3, or otherwise reinvested.
-16-
<PAGE> 19
(iii) Subject to the applicable provisions
of the award agreement and this
Section 7, upon termination of a
participant's employment with the
Company for any reason during the
Restriction Period, all shares still
subject to restriction will vest or be
forfeited in accordance with the terms
and conditions established by the
Committee at or after grant.
(iv) In the event of hardship or other
special circumstances of a participant
whose employment with the Company is
involuntarily terminated (other than
for Cause), the Committee may, in its
sole discretion, waive in whole or in
part any or all remaining restrictions
with respect to such participant's
shares of Restricted Stock based on
such factors as the Committee may deem
appropriate.
(v) If and when the Restriction Period
expires without a prior forfeiture of
the Restricted Stock subject to such
Restriction Period, the certificates
for such shares shall be delivered to
the participant. All legends shall be
removed from said certificates at the
time of delivery to the participant.
-17-
<PAGE> 20
SECTION 8. DEFERRED STOCK.
(a) ADMINISTRATION. Deferred Stock may be
awarded either alone or in addition to other awards granted under the Plan.
The Committee shall determine the eligible persons to whom and the time or
times at which Deferred Stock shall be awarded, the number of shares of
Deferred Stock to be awarded to any person, the duration of the period (the
"Deferral Period") during which, and the conditions under which, receipt of the
Stock will be deferred, and the other terms and conditions of the award in
addition to those set forth in Section 8(b).
The Committee may condition the grant of
Deferred Stock upon the attainment of specified performance goals or
such other factors or criteria as the Committee shall determine, in its sole
discretion.
The provisions of Deferred Stock awards need not
be the same with respect to each recipient.
(b) TERMS AND CONDITIONS. The shares of
Deferred Stock awarded pursuant to this Section 8 shall be subject to the
following terms and conditions:
(i) Subject to the provisions of this Plan
and the award agreement referred to in
Section 8(b)(vii) below, Deferred
Stock awards may not be sold,
assigned, transferred, pledged or
otherwise encumbered during the
Deferral Period. At the expiration of
the Deferral Period (or the Elective
Deferral Period referred to in Section
8(b)(vi), where applicable), share
certificates shall be delivered to the
participant, or his legal
representative, in a number equal to
the shares covered by the Deferred
Stock award.
(ii) Unless otherwise determined by the
Committee at the time of award,
amounts equal to any dividends
declared during the Deferral Period
with respect to the number of shares
covered by a Deferred Stock award will
be paid to the participant currently,
or deferred and deemed to be
reinvested in additional Deferred
Stock, or otherwise reinvested, all as
determined at the time of the award by
the Committee, in its sole discretion.
(iii) Subject to the provisions of the award
agreement and this Section 8, upon
termination of a participant's
employment with the Company for any
reason during the Deferral Period for
a given award, the Deferred Stock in
question will vest or be forfeited in
accordance with the terms and
conditions established by the
Committee at or after grant.
-18-
<PAGE> 21
(iv) Based on service, performance and/or
such other factors or criteria as the
Committee may determine, the Committee
may, at or after grant, accelerate the
vesting of all or any part of any
Deferred Stock award and/or waive the
deferral limitations for all or any
part of such award.
(v) In the event of hardship or other
special circumstances of a participant
whose employment with the Company is
involuntarily terminated (other than
for Cause), the Committee may, in its
sole discretion, based on such factors
as the Committee may deem appropriate,
waive in whole or in part any or all
of the remaining deferral limitations
imposed hereunder with respect to any
or all of the participant's Deferred
Stock, based on such factors as the
Committee deems appropriate.
(vi) A participant may elect to further
defer receipt of an award (or an
installment of an award) for a
specified period or until a specified
event (the "Elective Deferral
Period"), subject in each case to the
Committee's approval and to such terms
as are determined by the Committee,
all in its sole discretion. Subject
to any exceptions adopted by the
Committee, such election must
generally be made at least one full
calendar year prior to completion of
the Deferral Period for such Deferred
Stock award (or such installment).
(vii) Each award shall be confirmed by, and
subject to the terms of, a Deferred
Stock agreement executed by the
Company and the participant.
-19-
<PAGE> 22
SECTION 9. OTHER STOCK-BASED AWARDS.
(a) ADMINISTRATION. Other awards of Stock and other awards that
are valued in whole or in part by reference to, or are otherwise based on, Stock
("Other Stock-Based Awards"), including, without limitation, performance shares,
and shares valued by reference to subsidiary performance, may be granted either
alone or in addition to or in tandem with Stock Options, Stock Appreciation
Rights, Restricted Stock or Deferred Stock.
Subject to the provisions of the Plan, the Committee shall have
authority to determine the persons to whom and the time or times at which such
awards shall be made, the number of shares of Stock to be awarded pursuant to
such awards, and all other conditions of the awards. The Committee may also
provide for the grant of Stock under such awards upon the completion of a
specified performance period.
The provisions of Other Stock-Based Awards need not be the same
with respect to each recipient.
(b) Terms and Conditions. Other Stock-Based Awards made
pursuant to this Section 9 shall be subject to the following terms and
conditions:
(i) Subject to the provisions of this
Plan and the award agreement
referred to in Section 9(b)(v)
below, shares subject to awards
made under this Section 9 may not
be sold, assigned, transferred,
pledged or otherwise encumbered
prior to the date on which the
shares are issued, or, if later,
the date on which any applicable
restriction, performance or
deferral period lapses.
(ii) Unless otherwise determined by the
Committee at the time of award,
subject to the provisions of this
Plan and the award agreement, the
recipient of an award under this
Section 9 shall be entitled to
receive, currently or on a deferred
basis, dividends or dividend
equivalents with respect to the
number of shares covered by the
award, as determined at the time of
the award by the Committee, in its
sole discretion, and the Committee
may provide that such amounts (if
any) shall be deemed to have been
reinvested in additional Stock or
otherwise reinvested.
(iii) Any award under this Section 9 and
any Stock covered by any such award
shall vest or be forfeited to the
extent so provided in the award
agreement, as determined by the
Committee, in its sole discretion.
-20-
<PAGE> 23
(iv) In the event of the participant's
Retirement, Disability or death, or
in cases of special circumstances,
the Committee may, in its sole
discretion, waive in whole or in
part any or all of the limitations
imposed hereunder (if any) with
respect to any or all of an award
under this Section 9.
(v) Each award under this Section 9
shall be confirmed by, and subject
to the terms of, an agreement or
other instrument by the Company and
by the participant.
(vi) Stock issued on a bonus basis under
this Section 9 may be issued for no
cash consideration; Stock purchased
pursuant to a purchase right
awarded under this Section 9 shall
be priced at at least 50% of the
Fair Market Value of the Stock on
the date of grant.
-21-
<PAGE> 24
SECTION 10. CHANGE IN CONTROL PROVISIONS.
(a) IMPACT OF EVENT. In the event of a "Change
in Control" as defined in Section 10(b), the following acceleration and
valuation provisions shall apply:
(i) Any Stock Appreciation Rights
(including, without limitation, any
Limited Stock Appreciation Rights)
outstanding for at least 6 months
and any Stock Options awarded under
the Plan not previously exercisable
and vested shall become fully
exercisable and vested.
(ii) The restrictions and deferral
limitations applicable to any
Restricted Stock, Deferred Stock
and Other Stock Based Awards, in
each case to the extent not already
vested under the Plan, shall lapse
and such shares and awards shall be
deemed fully vested.
(iii) All outstanding Stock Options,
Stock Appreciation Rights,
Restricted Stock, Deferred Stock
and Other Stock Based Awards, shall
be cashed out on the basis of the
"Change in Control Price" as
defined in Section 10(c) as of the
date such Change in Control is
determined to have occurred.
(b) DEFINITION OF "CHANGE IN CONTROL". For
purposes of this Plan, the term "Change in Control" shall mean any of the
following events:
(i) The acquisition (other than from
the Company) by any person, entity
or "group", within the meaning of
Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934
(the "Exchange Act"), (excluding,
for this purpose, the Company or
its subsidiaries, or any employee
benefit plan of the Company or its
subsidiaries) of beneficial
ownership (within the meaning of
Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of
either the then outstanding shares
of common stock or the combined
voting power of the Company's then
outstanding voting securities
entitled to vote generally in the
election of directors; or
(ii) Individuals who, as of the date
hereof, constitute the Board (as of
the date hereof the "Incumbent
Board") cease for any reason to
constitute at least a majority of
the Board, provided that any person
becoming a director subsequent to
the date hereof whose election, or
nomination for election by the
Company's shareholders, was
approved by a vote of at least a
-22-
<PAGE> 25
majority of the directors then
comprising the Incumbent Board
(other than an election or
nomination of an individual whose
initial assumption of office is in
connection with an actual or
threatened election contest
relating to the election of the
Directors of the Company, as such
terms are used in Rule 14a-11 of
Regulation 14A promulgated under
the Exchange Act) shall be, for
purposes of this Plan, considered
as though such person were a member
of the Incumbent Board; or
(iii) Approval by the stockholders of the
Company of a reorganization,
merger, or consolidation, in each
case, with respect to which persons
who were the stockholders of the
Company immediately prior to such
reorganization, merger or
consolidation do not, immediately
thereafter, own, directly or
indirectly, more than 50% of the
combined voting power entitled to
vote generally in the election of
directors of the reorganized,
merged or consolidated company's
then outstanding voting securities,
or a liquidation or dissolution of
the Company or of the sales of all
or substantially all of the assets
of the Company.
(c) CHANGE IN CONTROL PRICE. For purposes of
this Section 10, "Change in Control Price" means the highest price per share
paid in any transaction reported on the New York Stock Exchange Composite
Index, or paid or offered in any bona fide transaction related to a Change in
Control of the Company at any time during the preceding sixty-day period as
determined by the Committee except that, in the case of Incentive Stock Options
and Stock Appreciation Rights relating to Incentive Stock Options, such price
shall be based only on transactions reported for the date on which the optionee
exercises such Stock Appreciation Rights (or, where applicable, the date on
which a cashout occurs under Section 10(a)(iii)).
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<PAGE> 26
SECTION 11. AMENDMENTS AND TERMINATION.
The Board may amend, alter, or discontinue the Plan,
but no amendment, alteration, or discontinuation shall be made which would
impair the rights of an optionee or participant under a Stock Option, Stock
Appreciation Right, Limited Stock Appreciation Right, Restricted or Deferred
Stock award or Other Stock-Based Award theretofore granted, without the
optionee's or participant's consent, or which, without the approval of the
Company's shareholders, would:
(a) except as expressly provided in this Plan,
increase the total number of shares reserved for the purpose of the Plan;
(b) decrease the option price of any Stock
Option to less than 100% of the Fair Market Value on the date of grant; or
(c) change the employees or class of employees
eligible to participate in the Plan; or
(d) extend the maximum option period under
Section 5(b) of the Plan.
The Committee may amend the terms of any Stock
Option or other award theretofore granted, prospectively or retroactively, but,
subject to Section 3 above, no such amendment or other action by the Committee
shall impair the rights of any holder without the holder's consent. The
Committee may also substitute new Stock Options for previously granted Stock
Options having higher option exercise prices.
Subject to the above provisions, the Board shall
have broad authority to amend the Plan to take into account changes in
applicable securities and tax laws and accounting rules, as well as other
developments.
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<PAGE> 27
SECTION 12. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded"
plan for incentive and deferred compensation. With respect to any payments not
yet made to a participant or optionee by the Company, nothing contained herein
shall give any such participant or optionee any rights that are greater than
those of a general creditor of the Company.
-25-
<PAGE> 28
SECTION 13. GENERAL PROVISIONS.
(a) The Committee may require each person
purchasing shares pursuant to a Stock Option or other award under the Plan to
represent to and agree with the Company in writing that the optionee or
participant is acquiring the shares without a view to distribution thereof.
The certificates for such shares may include any legend which the Committee
deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock delivered under
the Plan shall be subject to such stock-transfer orders and other restrictions
as the Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed, any applicable Federal or state securities law,
and any applicable corporate law, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to
such restrictions.
(b) Nothing contained in this Plan shall
prevent the Board from adopting other or additional compensation arrangements,
subject to shareholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in specific
cases.
(c) The adoption of the Plan shall not confer
upon any employee of the Company any right to continued employment with the
Company as the case may be, nor shall it interfere in any way with the right of
the Company to terminate the employment of any of its employees at any time.
(d) No later than the date as of which an
amount first becomes includible in the gross income of the participant for
Federal income tax purposes with respect to any option or other award under the
Plan, the participant shall pay to the Company, or make arrangements
satisfactory to the Committee regarding the payment of, any Federal, state, or
local taxes of any kind required by law to be withheld or paid with respect to
such amount. Unless otherwise determined by the Committee, tax withholding or
payment obligations may be settled with Stock, including Stock that is part of
the award that gives rise to the withholding requirement. The obligations of
the Company under the Plan shall be conditional on such payment or arrangements
and the Company shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to the participant.
(e) The actual or deemed reinvestment of
dividends or dividend equivalents in additional Restricted Stock (or in
Deferred Stock or other types of Plan awards) at the time of any dividend
payment shall only be permissible if sufficient shares of Stock are available
under Section 3 for such reinvestment (taking into
-26-
<PAGE> 29
account then outstanding Stock Options and other Plan awards).
(f) The Plan and all awards made and actions
taken thereunder shall be governed by and construed in accordance with the laws
of the State of New York.
(g) Any award payment under this Plan shall not
be deemed compensation for purposes of computing benefits under any retirement
plan of the Company and shall not affect any benefits under any other benefit
plan now or subsequently in effect under which the availability or amount of
benefits is related to the level of compensation.
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<PAGE> 30
SECTION 14. EFFECTIVE DATE OF PLAN.
The Plan shall be effective as of December 2, 1987,
subject to the approval of the Plan by the holders of a majority of the shares
of the Company's Stock at the next annual shareholders' meeting in 1988. Any
grants made under the Plan prior to such approval shall be effective when made
(unless otherwise specified by the Committee at the time of grant), but shall
be conditioned on, and subject to, such approval of the Plan by shareholders.
-28-
<PAGE> 31
SECTION 15. TERM OF PLAN.
No Stock Option, Stock Appreciation Right,
Restricted Stock, Deferred Stock or Other Stock-Based Award shall be granted
pursuant to the Plan on or after the tenth anniversary of the date of
shareholder approval, but awards granted prior to such tenth anniversary may
extend beyond that date.
Board Approval: December 2, 1987
As Amended: September 28, 1988
December 7, 1988
December 1, 1993
-29-
<PAGE> 1
McGRAW-HILL, INC.
---------------------------------------------------
1993 Key Employee Stock Incentive Plan
---------------------------------------------------
<PAGE> 2
McGRAW-HILL, INC.
---------------------------------------------------------
1993 Key Employee Stock Incentive Plan
---------------------------------------------------------
<TABLE>
<CAPTION>
SECTION CONTENTS PAGE
------- -------- ----
<S> <C> <C>
1. Purpose; Definitions 1
2. Administration 4
3. Stock Subject to Plan 6
4. Eligibility 7
5. Stock Options 8
6. Stock Appreciation Rights 13
7. Restricted Stock 15
8. Other Stock-Based Awards 18
9. Change in Control Provisions 20
10. Amendments and Termination 22
11. Unfunded Status of Plan 23
12. General Provisions 24
13. Effective Date of Plan 26
14. Term of Plan 27
</TABLE>
<PAGE> 3
McGRAW-HILL, INC.
---------------------------------------------------------
1993 Key Employee Stock Incentive Plan
---------------------------------------------------------
SECTION 1. PURPOSE; DEFINITIONS.
The purpose of this McGraw-Hill, Inc. 1993 Key Employee Stock
Incentive Plan (the "Plan") is to enable McGraw-Hill, Inc. ("McGraw-Hill") to
offer key employees of the Company (as defined below) long term
performance-based stock incentives and/or other equity interests in the
Company, thereby attracting, retaining and rewarding such key employees, and
strengthening the mutuality of interests between key employees and the
Company's shareholders.
For purposes of the Plan, the following terms shall be defined as
set forth below:
a. "Board" means the Board of Directors of McGraw-Hill, Inc.
b. "Cause" shall mean the employee's willful misconduct in respect
of the employee's obligations to the Company or other acts of
willful misconduct by the employee occurring during the course
of the employee's employment (including, but not limited to,
conviction for a felony or perpetration of a common law fraud).
c. "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
d. "Commission" means the Securities and Exchange Commission or any
successor thereto.
e. "Committee" means the Management Compensation Committee of the
Board. If at any time no Committee shall be in office, then the
functions of the Committee specified in the Plan shall be
exercised by the Board or by a committee of Board members
consisting of Disinterested Persons.
f. "Company" means McGraw-Hill, Inc., a corporation organized under
the laws of the State of New York, or any successor corporation,
and includes all domestic and foreign corporations, partnerships
and other legal entities in which at least 40% of the voting
securities or ownership interests are owned directly or
indirectly by McGraw-Hill, Inc.
-1-
<PAGE> 4
g. "Disability" means disability as determined under procedures
established by the Committee for purposes of this Plan.
h. "Disinterested Person" shall have the meaning set forth in Rule
16b-3.
i. "Early Retirement" means retirement, with the approval of the
Committee for purposes of one or more award(s) hereunder, from
active employment with the Company prior to age 65, provided
that the Committee may establish rules and procedures pursuant
to which the Committee's approval shall be deemed to have been
given.
j. "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
k. "Executive Officer" means a person granted an award under this
Plan who is subject to Section 16 of the Exchange Act.
l. "Fair Market Value" for purposes of this Plan, unless otherwise
required by any applicable provision of the Code or any
regulations issued thereunder, shall mean, as of any given date,
the mean between the highest and lowest prices at which the
Stock is actually traded on such date as reflected in the New
York Stock Exchange Composite Transactions, or, if there is no
sale of the Stock on such date, the mean between the bid and
asked prices on such Exchange at the close of the market on such
date or, if there is no bid and asked activity on such date,
such value as may be determined by the Committee in good faith.
m. "Incentive Stock Option" means any Stock Option intended to be
and designated as an "Incentive Stock Option" within the meaning
of Section 422 of the Code.
n. "Non-Qualified Stock Option" means any Stock Option that is not
an Incentive Stock Option.
o. "Normal Retirement" means retirement from active employment with
the Company on or after age 65.
p. "Other Stock-Based Award" means an award under Section 8 below
that is payable in cash or stock and is valued in whole or in
part by reference to, or is otherwise based on, Stock.
q. "Plan" means this McGraw-Hill, Inc. 1993 Key Employee Stock
Incentive Plan, as hereinafter amended from time to time,
including any rules, guidelines or interpretations of the Plan
adopted by the Committee.
-2-
<PAGE> 5
r. "Restricted Stock" means an award of shares of Stock that is
subject to restrictions under Section 7 below.
s. "Retirement" means Normal or Early Retirement.
t. "Rule 16b-3" means Rule 16b-3 under the Exchange Act as in
effect from time to time.
u. "Stock" means the Common Stock, $1.00 par value per share, of
McGraw-Hill.
v. "Stock Appreciation Right" means the right pursuant to an award
granted under Section 6 below to surrender to the Company all
(or a portion) of a Stock Option in exchange for an amount equal
to the difference between (i) the Fair Market Value, as of the
date such Stock Option (or such portion thereof) is surrendered,
of the shares of Stock covered by such Stock Option (or such
portion thereof), and (ii) the aggregate exercise price of such
Stock Option (or such portion thereof).
w. "Stock Option" or "Option" means any option to purchase shares
of Stock granted pursuant to Section 5 below.
In addition, the terms "Change in Control" and "Change in Control Price"
shall have meanings set forth, respectively, in Sections 9(b) and (c) below.
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<PAGE> 6
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Committee.
The Committee shall have full authority to grant, pursuant to the terms
of the Plan, to officers and other key employees eligible under Section 4: (i)
Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock and/or
(iv) Other Stock-Based Awards.
In particular, the Committee shall have the authority:
(i) to select the officers and other key employees of the
Company to whom Stock Options, Stock Appreciation Rights,
Restricted Stock and/or Other Stock-Based Awards may from
time to time be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation
Rights, Restricted Stock and/or Other Stock-Based Awards or
any combination thereof, are to be granted hereunder to one
or more eligible employees;
(iii) to determine the number of shares to be covered by each such
award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder
(including, but not limited to, the share price, any
restriction or limitation, or any vesting acceleration or
forfeiture waiver regarding any Stock Option or other award
and/or the shares of Stock relating thereto, based on such
factors as the Committee shall determine, in its sole
discretion);
(v) to determine whether, to what extent and under what
circumstances grants of Options and/or other awards under
this Plan are to operate on a tandem basis and/or in
conjunction with or apart from other cash awards made by the
Company outside of this Plan; and
(vi) to determine whether, to what extent and under what
circumstances a Stock Option may be settled in cash
under Section 5(k).
-4-
<PAGE> 7
Subject to Section 10 hereof, the Committee shall have the
authority to adopt, alter and repeal such administrative rules, guidelines and
practices governing the Plan as it shall, from time to time, deem advisable; to
interpret the terms and provisions of the Plan and any award issued under the
Plan (and any agreements relating thereto); and to otherwise supervise the
administration of the Plan.
Subject to Section 10 hereof, all decisions made by the Committee
pursuant to the provisions of the Plan shall be made in the Committee's sole
discretion and shall be final and binding on all persons, including the Company
and Plan participants.
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SECTION 3. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 2,300,000 shares. Such shares may
consist, in whole or in part, of authorized and unissued shares or treasury
shares.
The aggregate number of shares of Stock awarded or granted by the
Company under this Plan for Restricted Stock and Other Stock-Based Awards shall
not exceed 49% of the shares of Stock available for awards or grants of Stock
by the Company under the Plan. There shall be no comparable limitation,
however, on the aggregate number of shares of Stock awarded or granted by the
Company under this Plan for Stock Options or Stock Appreciation Rights.
If any shares of Stock that are subject to any Restricted Stock or
Other Stock-Based Award granted hereunder are forfeited or any such award
otherwise terminates without a payment being made to the participant in the
form of Stock, such shares shall again be available for distribution in
connection with future grants and awards under the Plan. If any shares of
Stock that have been optioned cease to be subject to a Stock Option, such
shares shall again be available for distribution in connection with future
grants and awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, dividend (other than a dividend or its equivalent which is
credited to a Plan participant or a regular cash dividend), Stock split, or
other change in corporate structure affecting the Stock, such substitution or
adjustment shall be made in the aggregate number of shares reserved for
issuance under the Plan, in the number and option price of shares subject to
outstanding Options granted under the Plan, and in the number of shares subject
to other outstanding awards (including but not limited to awards of Restricted
Stock and Other Stock-Based Awards) granted under the Plan, as may be
determined to be appropriate by the Committee, in its sole discretion, provided
that the number of shares subject to any award shall always be a whole number.
Such adjusted option price shall also be used to determine the amount payable
by the Company upon the exercise of any Stock Appreciation Right associated
with any Stock Option.
No optionee will be granted Stock Options or Stock Appreciation
Rights under both the Plan and the Company's 1987 Key Employee Stock Incentive
Plan to receive more than 230,000 shares of Stock in the aggregate over the
term of the Plan and the term of the 1987 Key Employee Stock Incentive Plan.
With respect to the 1987 Key Employee Stock Incentive Plan, however, the
aforesaid limitation shall only apply to Options or Rights not heretofore
issued and therefore still available for issuance. The foregoing
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<PAGE> 9
limitation set forth in this paragraph is intended to satisfy certain
requirements applicable to Stock Options and Stock Appreciation Rights to
qualify as performance- based compensation within the meaning of Section 162(k)
of the Code. In the event that Code regulations are issued which eliminate the
requirement for such limitation to qualify Stock Options and Stock Appreciation
Rights as performance-based compensation, then this paragraph of Section 3
shall no longer be operative.
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SECTION 4. ELIGIBILITY.
Officers and other key employees of the Company (but excluding
members of the Committee and any person who serves only as a director of the
Board) who are responsible for or contribute to the management, growth and/or
profitability of the business of the Company are eligible to be granted Options
and/or other awards under the Plan. Eligibility under the Plan shall be
determined solely by the Committee.
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SECTION 5. STOCK OPTIONS.
Stock Options may be granted alone or in addition to other awards
granted under the Plan. Any Stock Option granted under the Plan shall be in
such form as the Committee may from time to time approve.
Stock Options granted under the Plan may be of two types; (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options.
The Committee shall have the authority to grant to any optionee
Incentive Stock Options, Non-Qualified Stock Options or both types of Stock
Options (in each case with or without Stock Appreciation Rights). To the
extent that any Stock Option does not qualify as an Incentive Stock Option, it
shall constitute a separate Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of this
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify the Plan under Section 422 of the Code, or,
without the consent of the optionee(s) affected, to disqualify any Incentive
Stock Option under such Section 422.
Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions,
not inconsistent with the terms of the Plan, as the Committee shall deem
desirable:
(a) OPTION PRICE. The option price per share of Stock
purchasable under a Stock Option shall be determined by the Committee at the
time of grant but shall be not less than 100% of the Fair Market Value of the
Stock at grant.
(b) OPTION TERM. The term of each Stock Option shall be fixed
by the Committee, but no Incentive Stock Option shall be exercisable more than
ten years after the date the Option is granted, and no Non-Qualified Stock
Option shall be exercisable more than ten years and one day after the date the
Option is granted.
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(c) EXERCISABILITY. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined
by the Committee at or after grant provided, however, that, except as provided
in Sections 5(f), (g) and (h) and Section 9, unless otherwise determined by the
Committee at or after grant, no Stock Option shall be exercisable prior to the
first anniversary date of the granting of the Option. If the Committee
provides, in its discretion, that any Stock Option is exercisable only in
installments, the Committee may waive such installment exercise provisions at
any time at or after grant in whole or in part, based on such factors as the
Committee shall determine, in its sole discretion.
(d) METHOD OF EXERCISE. Subject to whatever installment exercise
and waiting period provisions apply under Section 5(c), Stock Options may be
exercised in whole or in part at any time during the option period, by giving
written notice of exercise to the Company specifying the number of shares to be
purchased.
Such notice shall be accompanied by payment in full of the purchase price in
such form as the Committee may accept. If and to the extent determined by the
Committee in its sole discretion at or after grant, payment in full or in part
may also be made in the form of unrestricted Stock duly owned by the optionee
(and for which the optionee has good title free and clear of any liens and
encumbrances) based, in each such case, on the Fair Market Value of the Stock
on the last trading date preceding payment, as determined by the Committee.
No shares of Stock shall be issued until payment, as provided herein,
therefore has been made. An optionee shall generally have the rights to
dividends or other rights of a shareholder with respect to shares subject to
the Option when the optionee has given written notice of exercise, has paid for
such shares as provided herein, and, if requested, has given the representation
described in Section 12(a).
(e) NON-TRANSFERABILITY OF OPTIONS. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution, and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee.
(f) TERMINATION BY DEATH. Subject to Section 5(j), if an
optionee's employment by the Company terminates by reason of death, any Stock
Option held by such optionee, unless otherwise determined by the Committee at
or after grant, shall be fully vested and may thereafter be exercised by the
legal representative of the estate or by the legatee of the optionee under the
will of the optionee, for a period of one year (or such other period as the
Committee may specify at or after grant) from the date of such death or until
the expiration of the stated term of such Stock Option, whichever period is the
shorter.
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<PAGE> 13
(g) TERMINATION BY REASON OF DISABILITY. Subject to Section
5(j), if an optionee's employment by the Company terminates by reason of
Disability, any Stock Option held by such optionee, unless otherwise determined
by the Committee at or after grant, shall be fully vested and may thereafter be
exercised by the optionee for a period of three years (or such other period as
the Committee may specify at or after grant) from the date of such termination
of employment or until the expiration of the stated term of such Stock Option,
whichever period is the shorter; provided, however, that, if the optionee dies
within such three-year period (or such other period as the Committee shall
specify at or after grant), any unexercised Stock Option held by such optionee
shall thereafter be exercisable to the extent to which it was exercisable at
the time of death for a period of twelve months from the date of such death or
until the expiration of the stated term of such Stock Option, whichever period
is the shorter. In the event of termination of employment by reason of
Disability, if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422 of the Code, such
Stock Option will thereafter be treated as a Non-Qualified Stock Option.
(h) TERMINATION BY REASON OF RETIREMENT. Subject to Section
5(j), if an optionee's employment by the Company terminates by reason of Normal
Retirement, any Stock Option held by such optionee, unless otherwise determined
by the Committee at or after grant, shall be fully vested and may thereafter be
exercised by the optionee for a period of three years (or such other period as
the Committee may specify at or after grant) from the date of such termination
of employment or the expiration of the stated term of such Stock Option,
whichever period is the shorter; provided, however, that, if the optionee dies
within such three-year period, any unexercised Stock Option held by such
optionee shall thereafter be exercisable, to the extent to which it was
exercisable at the time of death, for a period of twelve months from the date
of such death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter. Unless the Committee otherwise determines at
or after the time of grant, if an optionee's employment with the Company
terminates by reason of Early Retirement, any Stock Option held by such
optionee may thereafter be exercised by the optionee to the extent it was
exercisable at the date of retirement for a period of thirty-six (36) months
(or such other period as the Committee may specify at or after grant) from the
date of such termination of employment or the expiration of the stated term of
such Stock Option, whichever period is shorter; provided, however, if the
optionee dies within such thirty-six (36) month period, any unexercised Stock
Option held by such optionee shall thereafter
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<PAGE> 14
be exercisable, to the extent to which it was exercisable at the time of death,
for a period of twelve months from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is
shorter. If and only if the Committee so approves at the time of Early
Retirement, if an optionee's employment with the Company terminates by reason
of Early Retirement, any Stock Option held by the optionee shall be fully
vested and may thereafter be exercised by the optionee as provided above in
connection with termination of employment by reason of Normal Retirement. In
the event of termination of employment by reason of Retirement, if an Incentive
Stock Option is exercised after the expiration of the exercise periods that
apply for purposes of Section 422 of the Code, the option will thereafter be
treated as a Non-Qualified Stock Option.
(i) OTHER TERMINATION. Unless otherwise determined by the
Committee at or after the time of grant, if an optionee's employment terminates
for any reason other than Death, Disability, Retirement or for Cause, any Stock
Option held by such optionee, unless otherwise determined by the Committee at
or after grant, may thereafter be exercised by the optionee to the extent it
was exercisable at the date of termination for a period of six months (or such
other period as the Committee may specify at or after grant) from the date of
such termination of employment or until the expiration of the stated term of
such Stock Option, whichever period is the shorter; provided, however, if the
optionee dies within such six-month period (or such other period as the
Committee shall specify at or after grant), any unexercised Stock Option held
by such optionee shall thereafter be exercisable to the extent that it was
exercisable at the date of termination for a period of twelve months from the
time of such death, or until the expiration of the stated term of such Stock
Option, whichever period is the shorter. In the event of termination of
employment, if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422 of the Code, such
Stock Option will thereafter be treated as a Non-Qualified Stock Option. If an
optionee's employment with the Company is involuntarily terminated by the
Company for Cause, the Stock Option shall thereupon terminate and shall not be
exercisable thereafter.
(j) INCENTIVE STOCK OPTION LIMITATIONS. To the extent required
for "incentive stock option" status under Section 422(d) of the Code, the
aggregate Fair Market Value (determined as of the time of grant) of the Stock
with respect to which Incentive Stock Options granted after 1986 are
exercisable for the first time by the optionee during any calendar year under
the Plan and/or any other stock option plan of the Company or any subsidiary or
parent corporation (within the meaning of Section 424 of the Code) shall not
exceed $100,000. If Section 422 is hereafter amended to delete the requirement
now in Section 422(d) with respect to the $100,000 limitation, then this first
paragraph of Section 5(j) shall no longer be operative. If Section 422 is
hereafter amended to adjust the amount of the $100,000 limitation, then the
first sentence of Section 5(j) shall be automatically adjusted to reflect the
new amount.
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<PAGE> 15
To the extent (i) a participant's employment with the Company is
terminated by reason of death, Disability or Retirement and (ii) the portion of
any Incentive Stock Option that is otherwise first exercisable in any calendar
year during the post-termination period specified under Section 5(f), (g) or
(h), applied without regard to the $100,000 limitation contained in Section
422(d) of the Code, is greater than the portion of such option that is
immediately exercisable as an "incentive stock option" in any calendar year
during such post-termination period under Section 422, such excess shall be
treated as a Non-Qualified Stock Option. If the exercise of an Incentive Stock
Option is accelerated by reason of a Change In Control, any portion of such
option that is not exercisable as an Incentive Stock Option by reason of the
$100,000 limitation contained in Section 422(d) of the Code shall be treated as
a Non-Qualified Stock Option.
(k) Buyout and Settlement Provisions. The Committee may at any
time offer to buy out an option previously granted, based on such terms and
conditions as the Committee shall establish and communicate to the optionee at
the time that such offer is made.
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<PAGE> 16
SECTION 6. STOCK APPRECIATION RIGHTS.
(a) GRANT AND EXERCISE. Stock Appreciation Rights may be
granted in conjunction with all or part of any Stock Option granted under the
Plan. In the case of a Non-Qualified Stock Option, such rights may be granted
either at or after the time of the grant of such Stock Option. In the case of
an Incentive Stock Option, such rights may be granted only at the time of the
grant of such Stock Option.
A Stock Appreciation Right or applicable portion thereof
granted with respect to a given Stock Option shall terminate and no longer be
exercisable upon the termination or exercise of the related Stock Option,
except that, unless otherwise determined by the Committee, in its sole
discretion, at the time of grant, a Stock Appreciation Right granted with
respect to less than the full number of shares covered by a related Stock
Option shall not be reduced until the number of shares covered by an exercise
or termination of the related Stock Option exceeds the number of shares not
covered by the Stock Appreciation Right.
A Stock Appreciation Right may be exercised by an optionee,
in accordance with Section 6(b), by surrendering the applicable portion of the
related Stock Option. Upon such exercise and surrender, the optionee shall be
entitled to receive an amount determined in the manner prescribed in Section
6(b). Stock Options which have been so surrendered, in whole or in part, shall
no longer be exercisable to the extent the related Stock Appreciation Rights
have been exercised.
(b) TERMS AND CONDITIONS. Stock Appreciation Rights shall be
subject to such terms and conditions, not inconsistent with the provisions of
the Plan, as shall be determined from time to time by the Committee, including
the following:
(i) Stock Appreciation Rights shall be exercisable only at
such time or times and to the extent that the Stock
Options to which they relate shall be exercisable in
accordance with the provisions of Section 5 and this
Section 6 of the Plan; provided, however, that any
Stock Appreciation Right granted subsequent to the
grant of the related Stock Option shall not be
exercisable during the first six months of its term,
except that this special limitation shall not apply in
the event of death or Disability of the optionee prior
to the expiration of the six-month period.
(ii) Upon the exercise of a Stock Appreciation Right, an
optionee shall be entitled to receive up to, but not
more than, an amount in cash and/or shares of Stock
equal in value to the excess of the Fair Market Value
of one share of Stock over the option
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<PAGE> 17
price per share specified in the related Stock Option
multiplied by the number of shares in respect of which
the Stock Appreciation Right shall have been exercised,
with the Committee having the right to determine the
form of payment, subject however to Section 6(b)(v)
below.
(iii) Stock Appreciation Rights shall be transferable only
when and to the extent that the underlying Stock Option
would be transferable under Section 5(e) of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the
Stock Option or part thereof to which such Stock
Appreciation Right is related shall be deemed to have
been exercised for the purpose of the limitation set
forth in Section 3 of the Plan on the number of shares
of Stock to be issued under the Plan, but only to the
extent of the number of shares issued under the Stock
Appreciation Right at the time of exercise based on the
value of the Stock Appreciation Right at such time.
(v) In its sole discretion, the Committee may grant
"Limited Stock Appreciation Rights" i.e., Stock
Appreciation Rights that become exercisable only in the
event of a Change in Control, subject to such terms and
conditions as the Committee may specify at grant. Said
Limited Stock Appreciation Rights shall be settled
solely in cash.
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<PAGE> 18
SECTION 7. RESTRICTED STOCK.
(a) ADMINISTRATION. Shares of Restricted Stock may be issued
either alone or in addition to other awards granted under the Plan. The
Committee shall determine the eligible persons to whom, and the time or times
at which, grants of Restricted Stock will be made, the number of shares to be
awarded, the price (if any) to be paid by the recipient (subject to Section
7(b)), the time or times within which such awards may be subject to forfeiture,
the vesting schedule and rights to acceleration thereof, and all other terms
and conditions of the awards.
The Committee may condition the grant of Restricted Stock
upon the attainment of specified performance goals or such other factors as the
Committee may determine, in its sole discretion.
The provisions of Restricted Stock awards need not be the
same with respect to each recipient, and such awards to individual recipients
need not be the same in subsequent years.
(b) AWARDS AND CERTIFICATES. The prospective recipient of a
Restricted Stock award shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the award
and has delivered a fully executed copy thereof to the Company, and has
otherwise complied with the applicable terms and conditions of such award.
Further, such award shall be subject to the following conditions:
(i) The purchase price for shares of Restricted Stock shall
be equal to or less than their par value and may be
zero.
(ii) Awards of Restricted Stock must be accepted within a
period of 60 days (or such shorter period as the
Committee may specify at grant) after the award date,
by executing a Restricted Stock Award Agreement and by
paying whatever price (if any) is required under
Section 7(b)(i).
(iii) Each participant receiving a Restricted Stock award
shall be issued a stock certificate in respect of such
shares of Restricted Stock. Such certificate shall be
registered in the name of such participant, and shall
bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such award,
substantially in the following form:
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<PAGE> 19
"The transferability of this certificate and the shares
of stock represented hereby are subject to the terms
and conditions (including forfeiture) of the
McGraw-Hill, Inc. 1993 Key Employee Stock Incentive
Plan and an Agreement entered into between the
registered owner and McGraw-Hill, Inc. dated
----------. Copies of such Plan and Agreement are on
file in the offices of McGraw-Hill, Inc., 1221 Avenue
of the Americas, New York, NY 10020."
(iv) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the
Company until the restrictions thereon shall have
lapsed, and that, as a condition of any Restricted
Stock award, the participant shall have delivered a
duly signed stock power, endorsed in blank, relating to
the Stock covered by such award.
(c) RESTRICTIONS AND CONDITIONS. The shares of Restricted Stock
awarded pursuant to this Section 7 shall be subject to the following
restrictions and conditions:
(i) Subject to the provisions of this Plan and the award
agreement, during a period set by the Committee
commencing with the date of such award (the
"Restriction Period"), the participant shall not be
permitted to sell, transfer, pledge or assign shares of
Restricted Stock awarded under the Plan. Within these
limits, the Committee, in its sole discretion, may
provide for the lapse of such restrictions in
installments and may accelerate or waive such
restrictions in whole or in part, based on service,
performance and/or such other factors or criteria as
the Committee may determine, in its sole discretion.
(ii) Except as provided in Section 7(c)(i), the participant
shall have, with respect to the shares of Restricted
Stock, the right to vote the shares, and the right to
receive any dividend or dividend equivalent payments in
cash with respect to such shares.
(iii) Subject to the applicable provisions of the award
agreement and this Section 7, upon termination of a
participant's employment with the Company for any
reason during the Restriction Period, all shares still
subject to restriction will vest or be forfeited in
accordance with the terms and conditions established by
the Committee at or after grant.
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<PAGE> 20
(iv) In the event of hardship or other special circumstances
of a participant whose employment with the Company is
involuntarily terminated (other than for Cause), the
Committee may, in its sole discretion, waive in whole
or in part any or all remaining restrictions with
respect to such participant's shares of Restricted
Stock based on such factors as the Committee may deem
appropriate.
(v) If and when the Restriction Period expires without a
prior forfeiture of the Restricted Stock subject to
such Restriction Period, the certificates for such
shares shall be delivered to the participant. Subject
to Section 12(a), all legends shall be removed from
said certificates at the time of delivery to the
participant.
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<PAGE> 21
SECTION 8. OTHER STOCK-BASED AWARDS.
(a) ADMINISTRATION. Other awards of Stock and other awards that
are payable in cash or Stock and are valued in whole or in part by reference
to, or are otherwise based in whole or in part on, Stock ("Other Stock-Based
Awards"), including, without limitation, cash or Stock settled performance
shares, cash or Stock settled stock appreciation rights and shares valued by
reference to subsidiary performance, may be granted either alone or in addition
to or in tandem with Stock Options, Stock Appreciation Rights, or Restricted
Stock.
Subject to the provisions of the Plan, the Committee shall
have authority to determine the persons to whom and the time or times at which
such awards shall be made, the number of shares of Stock to be awarded pursuant
to such awards, the cash payment to be made pursuant to any such award, and all
other conditions of the awards. The Committee may also provide for the grant
of Stock under such awards upon the completion of a specified performance
period.
The provisions of Other Stock-Based Awards need not be the
same with respect to each recipient.
(b) TERMS AND CONDITIONS. Other Stock-Based Awards made
pursuant to this Section 8 shall be subject to the following terms and
conditions:
(i) Subject to the provisions of this Plan and the award
agreement referred to in Section 8(b)(v) below, the
participant's rights with respect to the award, including
the shares subject to awards made under this Section 8,
may not be sold, assigned, transferred, pledged or
otherwise encumbered prior to the date on which the shares
are issued, if later, the date on which any applicable
restriction, performance or deferral period lapses.
(ii) Unless otherwise determined by the Committee at the time
of award, subject to the provisions of this Plan and the
award agreement, the recipient of an award under this
Section 8 shall be entitled to receive, currently or on
a deferred basis, dividends or dividend equivalents with
respect to the number of shares or deemed number of
shares covered by the award, as determined at or after the
time of the award by the Committee, in its sole
discretion.
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<PAGE> 22
(iii) Any award under this Section 8, any cash payment covered
by any such award and any Stock covered by any such award
shall vest or be forfeited to the extent so provided in
the award agreement, as determined by the Committee, in
its sole discretion.
(iv) In the event of the participant's Retirement, Disability
or death, or in cases of special circumstances, the
Committee may, in its sole discretion, waive in whole or
in part any or all of the limitations imposed hereunder
(if any) with respect to any or all of an award under
this Section 8.
(v) Each award under this Section 8 shall be confirmed by,
and subject to the terms of, an agreement or other
instrument by the Company and by the participant.
(vi) Stock issued on a bonus basis under this Section 8 may
be issued for no cash consideration.
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SECTION 9. CHANGE IN CONTROL PROVISIONS
(a) IMPACT OF EVENT. In the event of a "Change in Control"
as defined in Section 9(b), the following acceleration and valuation provisions
shall apply:
(i) Any Stock Appreciation Rights (including,
without limitation, any Limited Stock Appreciation
Rights) outstanding for at least 6 months and any
Stock Options awarded under the Plan not previously
exercisable and vested shall become fully exercisable
and vested.
(ii) The restrictions and deferral limitations applicable
to any Restricted Stock and Other Stock Based
Awards, in each case to the extent not already vested
under the Plan, shall lapse and such shares and
awards shall be deemed fully vested.
(iii) All outstanding Stock Options, Stock Appreciation
Rights, Restricted Stock and Other Stock Based
Awards, shall be cashed out on the basis of the
"Change in Control Price" as defined in Section 9(c)
as of the date such Change in Control is determined
to have occurred.
(b) DEFINITION OF "CHANGE IN CONTROL". For purposes of this
Plan, the term "Change in Control" shall mean any of the following events:
(i) The acquisition (other than from the Company) by any
person, entity or "group", within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934 (the "Exchange Act"),
(excluding, for this purpose, the Company or its
subsidiaries, or any employee benefit plan of the
Company or its subsidiaries) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of either the then
outstanding shares of common stock or the combined
voting power of McGraw-Hill's then outstanding
voting securities entitled to vote generally in the
election of directors; or
(ii) Individuals who, as of the date hereof, constitute
the Board (as of the date hereof the "Incumbent
Board") cease for any reason to
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<PAGE> 24
constitute at least a majority of the Board,
provided that any person becoming a director
subsequent to the date hereof whose election, or
nomination for election by McGraw-Hill's
shareholders, was approved by a vote of at least a
majority of the directors then comprising the
Incumbent Board (other than an election or
nomination of an individual whose initial assumption
of office is in connection with an actual or
threatened election contest relating to the election
of the Directors of McGraw-Hill, as such terms are
used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) shall be, for purposes of
this Plan, considered as though such person were a
member of the Incumbent Board; or
(iii) Approval by the stockholders of McGraw-Hill of a
reorganization, merger, or consolidation, in each
case, with respect to which persons who were the
stockholders of McGraw-Hill immediately prior to
such reorganization, merger or consolidation do not,
immediately thereafter, own, directly or indirectly,
more than 50% of the combined voting power entitled
to vote generally in the election of directors of
the reorganized, merged or consolidated company's
then outstanding voting securities, or a liquidation
or dissolution of McGraw-Hill or of the sale of all
or substantially all of the assets of McGraw-Hill.
(c) CHANGE IN CONTROL PRICE. For purposes of this Section 9,
"Change in Control Price" means the highest price per share paid in any
transaction reported on the New York Stock Exchange Composite Index, or paid or
offered in any bona fide transaction related to a Change in Control of
McGraw-Hill at any time during the preceding sixty-day period as determined by
the Committee except that, in the case of Incentive Stock Options and Stock
Appreciation Rights relating to Incentive Stock Options, such price shall be
based only on transactions reported for the date on which the optionee
exercises such Incentive Stock Options or Stock Appreciation Rights (or, where
applicable, the date on which a cashout occurs under Section 9(a)(iii)).
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<PAGE> 25
SECTION 10. AMENDMENTS AND TERMINATION.
The Board may amend, alter, or discontinue the Plan, but no
amendment, alteration, or discontinuation shall be made which would impair the
rights of an optionee or participant under a Stock Option, Stock Appreciation
Right, Limited Stock Appreciation Right, Restricted Stock award or Other
Stock-Based Award theretofore granted, without the optionee's or participant's
consent, or which, without the approval of the Company's shareholders, would
require shareholder approval under Rule 16b-3.
The Committee may amend the terms of any Stock Option or other award
theretofore granted, prospectively or retroactively, but, subject to Section 3
above, no such amendment or other action by the Committee shall impair the
rights of any holder without the holder's consent.
Subject to the above provisions, the Board shall have broad authority
to amend the Plan to take into account changes in applicable securities and tax
laws and accounting rules, as well as other developments.
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<PAGE> 26
SECTION 11. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive
and deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a
general creditor of the Company.
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<PAGE> 27
SECTION 12. GENERAL PROVISIONS.
(a) The Committee may require each person purchasing shares
pursuant to a Stock Option or other award under the Plan to represent to and
agree with the Company in writing that the optionee or participant is acquiring
the shares without a view to distribution thereof. The certificates for such
shares may include any legend which the Committee deems appropriate to reflect
any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan shall
be subject to such stock-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and other
requirements of the Commission, any stock exchange upon which the Stock is then
listed, any applicable Federal or state securities law, and any applicable
corporate law, and the Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to shareholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases.
(c) The adoption of the Plan shall not confer upon any employee
of the Company any right to continued employment with the Company as the case
may be, nor shall it interfere in any way with the right of the Company to
terminate the employment of any of its employees at any time.
(d) No later than the date as of which an amount first becomes
includible in the gross income of the participant for income tax purposes with
respect to any Option or other award under the Plan (including dividends or
dividend equivalents on any non-vested Restricted Stock Award or Other
Stock-Based Award), the participant shall pay to the Company, or make
arrangements satisfactory to the Committee regarding the payment of, any
Federal, FICA, state, or local taxes of any kind required by law to be withheld
or paid with respect to such amount. Unless otherwise determined by the
Committee, tax withholding or payment obligations may be settled with Stock,
including Stock that is part of the award that gives rise to the withholding
requirement. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company shall, to the
extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the participant.
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<PAGE> 28
(e) The Plan and all awards made and actions taken thereunder
shall be governed by and construed in accordance with the laws of the State of
New York.
(f) Any award payment under this Plan shall not be deemed
compensation for purposes of computing benefits under any retirement plan of
the Company and shall not affect any benefits under any other benefit plan now
or subsequently in effect under which the availability or amount of benefits is
related to the level of compensation.
(g) With respect to Executive Officers, transactions under this
Plan are intended to comply with all applicable conditions of Rule 16b-3. To
the extent any provision of this Plan or any action under this Plan fails to so
comply, such provision or action shall, without further action by any person,
be deemed to be automatically amended to the extent necessary to effect
compliance with rule 16b-3 and, if such provision or action cannot be amended
to effect such compliance, such provision or action shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee.
Each award to an Executive Officer under this Plan shall be deemed issued
subject to the foregoing qualification.
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<PAGE> 29
SECTION 13. EFFECTIVE DATE OF PLAN.
The Plan shall be effective as of February 24, 1993 subject to the
approval of the Plan by the holders of a majority of the shares of the
Company's Stock and $1.20 Convertible Preference Stock, $10 par value, voting
together as a single class and not as separate classes, at the 1993 annual
shareholders' meeting scheduled to be held as of April 28, 1993.
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<PAGE> 30
SECTION 14. TERM OF PLAN.
No Stock Option, Stock Appreciation Right, Restricted Stock or Other
Stock-Based Award shall be granted pursuant to the Plan on or after the tenth
anniversary of the date of shareholder approval, but awards granted prior to
such tenth anniversary may extend beyond that date.
February 24, 1993
As amended: December 1, 1993
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<PAGE> 1
McGRAW-HILL, INC.
KEY EXECUTIVE SHORT-TERM INCENTIVE
DEFERRED COMPENSATION PLAN
<PAGE> 2
ARTICLE I
PURPOSE
The purpose of the McGraw-Hill, Inc. Key Executive Short-Term Incentive
Deferred Compensation Plan (hereinafter referred to as the "Plan") is to
provide funds for retirement or other expenses for executive employees (and
their beneficiaries) of McGraw-Hill, Inc. and its subsidiaries. It is intended
that the Plan will aid in retaining and attracting employees by providing such
employees with a means to defer receipt of short-term incentive compensation to
a future date.
<PAGE> 3
ARTICLE II
DEFINITIONS
For the purposes of this Plan, the following words and phrases shall
have the meanings indicated, unless the context clearly indicates otherwise:
Section 2.01 BENEFICIARY. "Beneficiary" means the person, persons or
entity designated by the Participant to receive any benefits payable under the
Plan. Any Participant Beneficiary designation shall be made in a written
instrument filed with the Company and shall become effective only when
received, accepted and acknowledged in writing by the Company.
Section 2.02 BOARD. "Board" means the Board of Directors of
McGraw-Hill, Inc.
Section 2.03 CHANGE OF CONTROL. For purposes of this Plan, the term
"Change of Control" shall mean any of the following:
(i) The acquisition (other than from the Company) by any person,
entity or "group", within the meaning of Section 13(d) (3) or 14(d) (2) of the
Securities Exchange Act of 1934 (the "Exchange Act"), (excluding, for this
purpose, the Company or its subsidiaries, or any employee benefit plan of the
Company or its subsidiaries) of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either the
then outstanding shares of common stock or the combined voting power of the
Company's then outstanding voting securities entitled to vote generally in the
election of directors; or
(ii) During any period of two consecutive years, individuals who at
the beginning of such period constitute the Board (the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board, provided that
any person becoming a director during such period whose election, or nomination
for election by the Company's shareholders, was approved by a vote of at least
a majority of the directors then comprising the Incumbent Board (other than an
election or nomination of an individual whose initial assumption of office is
in connection with an actual or threatened election contest relating to the
election of the Directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act)
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<PAGE> 4
shall be, for purposes of this Plan, considered as though such person were a
member of the Incumbent Board; or
(iii) Approval by the stockholders of the Company of a
reorganization, merger, or consolidation, in each case, with respect to which
persons who were the stockholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own,
directly or indirectly, more than 50% of the combined voting power entitled to
vote generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities, or a liquidation or
dissolution of the Company or of the sale of all or substantially all of the
assets of the Company.
Section 2.04 COMMITTEE. "Committee" means the Management Compensation
Committee of the Board.
Section 2.05 COMPANY. "Company" means McGraw-Hill, Inc., its
successors, any subsidiary or affiliated organizations authorized by the Board
of Directors of McGraw-Hill, Inc. or the Committee to participate in the Plan
and any organization into which or with which the Company may merge or
consolidate or to which all or substantially all of its assets may be
transferred.
Section 2.06 DEFERRED ACCOUNT. "Deferred Account" means the account
maintained on the books of account of the Company for each Participant pursuant
to Article VI. Separate Deferred Accounts shall be maintained for each
Participant. More than one Deferred Account may be maintained for each
Participant as necessary to reflect (a) various interest credits and/or (b)
separate year deferral elections. A Participant's Deferred Account shall be
utilized solely as a device for the measurement and determination of the
amounts to be paid to the Participant pursuant to this Plan. A Participant's
Deferred Account shall not constitute or be treated as a trust fund of any
kind.
Section 2.07 DETERMINATION DATE. "Determination Date" means the date
on which the amount of a Participant's Deferred Account is determined as
provided in Article VI hereof. The last day of each calendar month shall be a
Determination Date.
Section 2.08 DISABILITY. "Disability" or "Disabled Participant" means
eligibility for disability benefits under the terms of the Company's Long-Term
Disability Plan in effect at the time the Participant becomes disabled.
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<PAGE> 5
Section 2.09 INCENTIVE COMPENSATION. "Incentive Compensation" means
any short-term incentive compensation cash award payable by the Company to a
Participant in a Plan Year pursuant to the provisions of the McGraw-Hill, Inc.
1990 Key Executive Short-Term Incentive Compensation Plan.
Section 2.10 PARTICIPANT. "Participant" means any individual who is
designated by the Committee to participate in this Plan and who elects to
participate by filing a Participation Agreement as provided in Article IV.
Section 2.11 PARTICIPATION AGREEMENT. "Participation Agreement" means
the agreement filed by a Participant prior to the beginning of the first period
for which the Participant's Incentive Compensation is to be deferred pursuant
to the Plan and the Participation Agreement. Notwithstanding the foregoing
sentence, the Participation Agreement for the first Plan Year of the Plan may
be filed no later than August 31, 1990. A new Participation Agreement shall be
filed by the Participant for each separate Incentive Compensation deferral
election.
Section 2.12 PLAN ADMINISTRATOR. "Plan Administrator" means the
Executive Vice President, Administration of McGraw-Hill, Inc. or his designee.
Section 2.13 PLAN YEAR. "Plan Year" means a twelve month period
commencing January 1 and ending the following December 31. The first Plan Year
shall commence on January 1, 1990.
Section 2.14 RETIREMENT DATE. "Retirement Date" means the date on
which the Participant actually terminates employment due to retirement on or
after the first day of the month coincident with or next following a
Participant's attainment of age fifty-five (55).
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<PAGE> 6
ARTICLE III
ADMINISTRATION
Section 3.01 PLAN ADMINISTRATOR; COMMITTEE; DUTIES.
This Plan shall be administered by the Plan Administrator. Decisions of the
Plan Administrator shall be reviewable by the Committee. The Committee shall
also have the authority to make, amend, interpret, and enforce all appropriate
rules and regulations for the administration of this Plan and decide or resolve
any and all questions, including interpretations of this Plan, as may arise in
connection with the Plan.
Section 3.02 BINDING EFFECT OF DECISIONS. The decision or action of
the Committee in respect to any question arising out of or in connection with
the administration, interpretation and application of the Plan and the rules
and regulations promulgated hereunder shall be final, conclusive and binding
upon all persons having any interest in the Plan, unless a written appeal is
received by the Committee within sixty days of the disputed action. The appeal
will be reviewed by the Committee and the decision of the Committee shall be
final, conclusive and binding on the Participant and all persons claiming by,
through or under the Participant.
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<PAGE> 7
ARTICLE IV
PARTICIPATION
Section 4.01 PARTICIPATION. Participation in the Plan shall be
limited to executives selected by the Committee who elect to participate in the
Plan by filing a Participation Agreement with the Company. Except as provided
below, a Participation Agreement must be filed prior to December 15th
immediately preceding the Plan Year in which the Participant's participation
under the Agreement will commence, and the election to participate shall be
effective on the first day following receipt by the Company of a properly
completed and executed Participation Agreement. The Participation Agreement
for the first Plan Year of the Plan must be filed no later than August 31,
1990.
Section 4.02 DEFERRAL AMOUNT. A Participant may elect in any
Participation Agreement to defer all or a portion of his Incentive
Compensation.
Section 4.02 (a) With respect to Incentive Compensation deferrals, the
deferral selected in each Participation Agreement shall apply only to the
Participant's Incentive Compensation paid for the Plan Year for which the
respective Participation Agreement is applicable.
Section 4.02 (b) From time to time, the Committee may increase or
decrease the period for which the deferrals are effective by giving reasonable
written notice to the affected Participants. Such changes shall be effective
for all Participation Agreements filed thereafter.
Section 4.02 (c) A Participant's election to defer his Incentive
Compensation shall be irrevocable upon the filing of the respective
Participation Agreement; provided, however, that the deferral under any
Participation Agreement may be terminated or amended as provided in paragraphs
9.01 and 9.02.
Section 4.02 (d) With respect to Incentive Compensation deferrals, to
the extent the Participant participates in the Company's qualified Employee
Retirement Plan (ERP), Employee Retirement Account Plan (ERAP), and Savings
Incentive Plan (SIP), such deferrals will be credited with Company
contributions under non-qualified accounts for the ERP, ERAP and SIP Plans.
Section 4.03 ADDITIONAL PARTICIPATION AGREEMENT. A Participant may
enter into additional Participation Agreements if authorized to do so by the
Committee by filing a Participation Agreement with the Company prior to
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<PAGE> 8
December 15th of any calendar year, stating the amount that the Participant
elects to have deferred for the next Plan Year. Such additional agreements
shall be effective as to Incentive Compensation paid in the Plan Year beginning
after the last day of the Plan Year in which the respective agreement is filed
with the Company.
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<PAGE> 9
ARTICLE V
DEFERRED INCENTIVE COMPENSATION
Section 5.01 ELECTIVE DEFERRED INCENTIVE COMPENSATION. The amount of
Incentive Compensation that a Participant elects to defer in the Participation
Agreement executed by the Participant, with respect to each Plan Year of
participation in the Plan, shall be credited by the Company to the
Participant's Deferred Account. To the extent that the Company is required to
withhold any taxes or other amounts from the employee's deferred wages pursuant
to any state, Federal or local law, such amounts shall be taken out of the
portion of the Participant's Incentive Compensation which is not deferred under
this Plan, or the Participant's base salary.
Section 5.02 VESTING OF DEFERRED ACCOUNT. A Participant shall be
100% vested in his/her Deferred Account at all times.
-8-
<PAGE> 10
ARTICLE VI
DEFERRED ACCOUNT
Section 6.01 DETERMINATION OF ACCOUNT. Each Participant's Deferred
Account, as of each Determination Date, shall consist of the balance of the
Participant's Deferred Account as of the immediately preceding Determination
Date. The Deferred Account of each Participant shall be reduced by the amount
of all distributions, if any, made from such Deferred Account since the
preceding Determination Date.
Section 6.02 INTEREST CREDIT. As of each Determination Date, the
Participant's Deferred Account shall be increased by the amount of interest
earned since the preceding Determination Date. Interest shall be credited at a
rate determined to be in effect for each Plan Year, as determined by the
Committee based on the interest rate payable on the Company's long-term debt
securities. Notwithstanding the foregoing, if a Participant's Deferred Account
is paid in installments, interest shall be credited, (i) for retired
Participants, at the rate determined to be in effect during the Plan Year in
which the Participant retires, and (ii) for all other installment payments, at
the rate determined to be in effect during the Plan Year in which such payments
commence.
Section 6.03 STATEMENT OF ACCOUNTS. The Company shall submit to each
Participant, by July 1 following the close of each Plan Year, a statement in
such form as the Company deems desirable, setting forth the balance to the
credit of such Participant in his Deferred Account as of the last day of the
preceding Plan Year.
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<PAGE> 11
ARTICLE VII
BENEFITS
Section 7.01 TIME OF PAYMENT. A Participant may elect in any
Participation Agreement whether payment of the balance to the credit of his
Deferred Account shall be paid or commence to be paid (i) on a date specified
by the Participant, or (ii) upon the earlier of the Participant's (A)
Retirement Date or (B) termination of employment other than death, disability,
or retirement. In either case, the Participant shall be entitled to the
balance to the credit of his Deferred Account determined under Section 6.01,
which shall be payable under Section 7.04 as of the Determination Date
coincident with or immediately following such date or event. No change in a
Participant's election shall be valid unless it is made in a Participation
Agreement which is filed with the Committee prior to the Plan Year preceding
the Plan Year in which payment of the Participant's Deferred Account would
otherwise have been made or commenced.
Section 7.02 DEATH. If a Participant dies after the commencement of
payments of his Deferred Account, or if a Participant while employed dies prior
to any payments of his Deferred Account, his Beneficiary shall receive a
lump-sum payment equal to his Deferred Account as of the Determination Date
coincident with or immediately following such death.
Section 7.03 DISABILITY. In the event of Disability prior to
retirement or termination of employment, the Disabled Participant, unless he
otherwise elects under this paragraph, shall have payment of his Deferred
Account made or commenced in accordance with the Participation Agreement filed
by the Participant. Before payments commence or are made under the preceding
sentence, a Disabled Participant may elect, subject to Committee approval upon
good cause shown, to have payments (i) made as soon as practicable in a lump
sum, or (ii) commence as soon as practicable in equal annual installments over
a period not in excess of 15 years.
Section 7.04 FORM OF PAYMENT. Upon the happening of the date or event
described in Sections 7.01 or 7.03, the Company shall pay to the Participant
the balance to the credit of his Deferred Account in a lump sum or in equal
annual installments as elected in the Participation Agreement filed by the
Participant. If a Participant elects to receive payments in installments,
payment of the Deferred Account shall be in an amount which amortizes the
Deferred Account balance in equal annual payments of principal and interest
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<PAGE> 12
over a period not to exceed 15 years. For purposes of determining the amount
of the annual payment, the assumed rate of interest shall be the rate under the
terms of Section 6.02. No change in a Participant's election shall be valid
unless it is made in a Participation Agreement which is filed with the
Committee prior to the Plan Year preceding the Plan Year in which payment of
the Participant's Deferred Account would otherwise have been made or commenced.
Section 7.05 LUMP-SUM PAYMENT. Notwithstanding Section 7.04, in its
sole discretion the Committee may direct that the Company make a lump-sum
payment of the balance credited to a Participant's Deferred Account.
Section 7.06 WITHHOLDING OF TAXES. To the extent required by the law
in effect at the time payments are made, the Company shall withhold from
payments made hereunder any taxes required to be withheld from an employee's
wages for the Federal or any state or local government.
Section 7.07 COMMENCEMENT OF PAYMENTS. Commencement of payments under
this Plan shall be made following the earlier of (i) the date specified in the
Participation Agreement filed by the Participant or (ii) receipt of notice by
the Plan Administrator of the event which entitles a Participant (or a
Beneficiary) to payments under this Plan. All payments shall be made as of the
first day of the month.
Section 7.08 PAYMENTS IN CONNECTION WITH CHANGE OF CONTROL.
Notwithstanding anything contained in the Plan to the contrary, in the event of
a Change of Control of the Corporation the company shall immediately pay to
each Participant in a lump sum the then remaining balance in his/her Deferred
Account.
The terms of sections 9.01 and 9.02 shall not be applicable following
a Change of Control of the Corporation.
The reasonable legal fees incurred by any Participant to enforce
his/her valid rights hereunder shall be paid for by the Company to the
Participant in addition to sums otherwise due hereunder, whether or not the
Participant is successful in enforcing his/her rights or whether or not the
matter is settled.
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<PAGE> 13
ARTICLE VIII
BENEFICIARY DESIGNATION
Section 8.01 BENEFICIARY DESIGNATION. Each Participant shall have the
right, at any time, to designate any person, persons or entity as his
Beneficiary or Beneficiaries (both principal as well as contingent) to whom
payment under this Plan shall be paid in the event of his death prior to
complete distribution to the Participant of the benefits due him under the
Plan.
Section 8.02 AMENDMENTS. Any Beneficiary designation may be changed
by a Participant by the written filing of such change on a form prescribed by
the Company. The filing of a new Beneficiary designation form will cancel all
Beneficiary designations previously filed.
Section 8.03 NO BENEFICIARY DESIGNATION. If a Participant fails to
designate a Beneficiary as provided above, or if all designated Beneficiaries
predecease the Participant, then any amounts to be paid to the Participant's
Beneficiary shall be paid to the Participant's estate.
Section 8.04 EFFECT OF PAYMENT. The payment to the deemed Beneficiary
shall completely discharge the Company's obligations under this Plan with
respect to the Participant.
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<PAGE> 14
ARTICLE IX
AMENDMENT AND TERMINATION OF PLAN
Section 9.01 AMENDMENT. The Board or the Committee may at any time
amend the Plan in whole or in part, provided, however, that no amendment shall
be effective to decrease or restrict any Deferred Account at the time of such
amendment.
Section 9.02 COMPANY'S RIGHT TO TERMINATE. The Board or the Committee
may at any time terminate the Plan with respect to new elections to defer if,
in its judgment, the continuance of the Plan, the tax, accounting, or other
effects thereof, or potential payments thereunder would not be in the best
interests of the Company. The Board or the Committee may also terminate the
Plan in its entirety at any time, and upon any such termination, the Company
shall immediately pay to each Participant in a lump sum the then remaining
balance in his Deferred Account.
-13-
<PAGE> 15
ARTICLE X
MISCELLANEOUS
Section 10.01 UNSECURED GENERAL CREDITOR. Participants and their
Beneficiaries shall have no legal or equitable rights, interest or claims in
any property or assets of the Company. Any and all of the Company's assets
shall be, and remain, the general, unpledged, unrestricted assets of the
Company. The Company's obligation under the Plan shall be merely that of an
unfunded and unsecured promise of the Company to pay money in the future.
Section 10.02 NONASSIGNABILITY. Neither a Participant nor any other
person shall have any right to commute, sell, assign, transfer, pledge,
anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in
advance of actual receipt the amounts, if any, payable hereunder, or any part
thereof, which are, and all rights to which are, expressly declared to be
unassignable and non-transferable. No part of the amounts payable shall, prior
to actual payment, be subject to seizure or sequestration for the payment of
any debts, judgments, alimony or separate maintenance owed by a Participant or
any other person, nor be transferable by operation of law in the event of a
Participant's or any other person's bankruptcy or insolvency.
Section 10.03 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions
of this Plan shall not be deemed to constitute a contract of employment between
the Company and the Participant, and the Participant (or his Beneficiary) shall
have no rights against the Company except as may otherwise be specifically
provided herein. Moreover, nothing in this Plan shall be deemed to give a
Participant the right to be retained in the service of the Company or to
interfere with the right of the Company to discipline or discharge him at any
time.
Section 10.04 PROTECTIVE PROVISIONS. A Participant will cooperate
with the Company by furnishing any and all information requested by the
Company, in order to facilitate the payment of benefits hereunder, and by
taking such physical examinations as the Company may deem necessary and taking
such other action as may be requested by the Company.
As amended: October 27, 1993
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<PAGE> 1
McGRAW-HILL, INC.
DIRECTOR DEFERRED COMPENSATION PLAN
<PAGE> 2
ARTICLE I
PURPOSE
The purpose of the McGraw-Hill, Inc. Director Deferred Compensation Plan
(hereinafter referred to as the "Plan") is to provide funds for retirement or
death for Directors (and their beneficiaries) of McGraw-Hill, Inc. It is
intended that the Plan will aid in retaining and attracting Directors by
providing a means to supplement their standard of living at retirement.
-1-
<PAGE> 3
ARTICLE II
DEFINITIONS
For the purposes of this Plan, the following words and phrases shall
have the meanings indicated, unless the context clearly indicates otherwise:
Section 2.01 BENEFICIARY. "Beneficiary" means the person, persons or
entity designated by the Participant to receive any benefits payable under the
Plan. Any Participant Beneficiary designation shall be made in a written
instrument filed with the Company and shall become effective only when
received, accepted and acknowledged in writing by the Company.
Section 2.02 BOARD. "Board" means the Board of Directors of
McGraw-Hill, Inc.
Section 2.03 BOARD MEETING FEES. "Board Meeting Fees" means the
compensation paid to members of the Board for attendance at meetings of the
Board and Committees thereof.
Section 2.04 CHANGE OF CONTROL. For purposes of this Plan, the term
"Change of Control" shall mean any of the following events:
(i) The acquisition (other than from the Company) by any person, entity
or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934 (the "Exchange Act"), (excluding, for this
purpose, the Company or its subsidiaries, or any employee benefit plan of the
Company or its subsidiaries) of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either the
then outstanding shares of common stock or the combined voting power of the
Company's then outstanding voting securities entitled to vote generally in the
election of directors; or
(ii) Individuals who, as of the date hereof, constitute the Board (as
of the date hereof the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board, provided that any person becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than an election or
nomination of an individual whose initial assumption of office is in connection
with an actual
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<PAGE> 4
or threatened election contest relating to the election of the Directors of the
Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) shall be, for purposes of this Plan, considered as
though such person were a member of the Incumbent Board; or
(iii) Approval by the stockholders of the Company of a reorganization,
merger, or consolidation, in each case, with respect to which persons who were
the stockholders of the Company immediately prior to such reorganization,
merger or consolidation do not, immediately thereafter, own, directly or
indirectly, more than 50% of the combined voting power entitled to vote
generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities, or a liquidation or
dissolution of the Company or of the sale of all or substantially all of the
assets of the Company.
Section 2.05 COMMITTEE. "Committee" means the Management Compensation
Committee of the Board.
Section 2.06 COMPANY. "Company" means McGraw- Hill, Inc., its
successors, and any organization into which or with which the Company may merge
or consolidate or to which all or substantially all of its assets may be
transferred.
Section 2.07 DEFERRAL BENEFIT. "Deferral Benefit" means the benefit as
calculated in Article VII payable to a Participant commencing at his death,
disability, on April 1 immediately following the Director attaining age 70, or,
if permitted by the Committee, some other date as specified in the
Participant's Deferral Election Agreement.
Section 2.08 DEFERRAL ELECTION AGREEMENT. "Deferral Election Agreement"
means a deferral agreement, on such form as may be prescribed by the Committee,
signed by the Participant and an officer of the Company.
Section 2.09 DEFERRED BENEFIT ACCOUNT. "Deferred Benefit Account"
means the accounts maintained on the books of account of the Company for each
Participant pursuant to Article VI. Separate Deferred Benefit Accounts shall
be maintained for each Participant. More than one Deferred Benefit Account may
be maintained for each Participant. A Participant's Deferred Benefit Accounts
shall be utilized solely as a device for the measurement and determination of
the amounts to be paid to the Participant pursuant to this Plan. A
Participant's Deferred Benefit Account shall not constitute or be treated as a
trust fund of any kind.
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<PAGE> 5
Section 2.10 DETERMINATION DATE. "Determination Date" means the date
on which the amount of a Participant's Deferred Benefit Account is determined
as provided in Article VI hereof. The last day of each calendar month shall be
a Determination Date.
Section 2.11 DIRECTOR COMPENSATION. "Director Compensation" means
Retainer and Board Meeting Fees paid by the Company to its members of the Board
of Directors.
Section 2.12 DISABILITY. "Disability" or "Disabled Participant" means
that a physician selected by the Company has concluded that the Participant is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or to be of long- continued and indefinite duration.
Section 2.13(a) MOODY'S BOND INDEX. "Moody's Bond Index" means the
average annual composite yield on Moody's Seasoned Corporate Bond Yield Index
for the preceding five years as determined from Moody's Bond Record published
by Moody's Investors Services, Inc. (or any successor thereto), or, if such
yield is no longer published, a substantially similar average selected by the
Committee. For example:
<TABLE>
<CAPTION>
ANNUAL 1985 MOODY'S
YEAR AVERAGE BOND INDEX
---- ------- ------------
<S> <C> <C>
1984 13.49%
1983 12.78%
1982 14.94%
1981 15.06%
1980 12.75%
-------
69.02% / 5 = 13.80%
</TABLE>
Section 2.13(b) AVERAGE ANNUAL MOODY'S RATE. "Average Annual Moody's
Rate" means the average annual composite yield on Moody's Seasoned Corporate
Bond Yield Index for the preceding year as determined from Moody's Bond Record
published by Moody's Investors Services, Inc. (or any successor thereto), or,
if such yield is no longer published, a substantially similar average selected
by the Committee.
-4-
<PAGE> 6
Section 2.14 PARTICIPANT. "Participant" means any Director who elects
to participate in this Plan by filing a Deferral Election Agreement as provided
in Article IV.
Section 2.15 PLAN ADMINISTRATOR. "Plan Administrator" means the Senior
Vice President, Human Resources for McGraw-Hill, Inc.
Section 2.16 PLAN YEAR. "Plan Year" means a twelve month period
commencing January 1 and ending the following December 31.
Section 2.17 PROJECTED RETIREMENT DATE. "Projected Retirement Date"
means April 1 immediately following the Participant attaining age 70, or, if
permitted by the Committee, some other date as specified in the Participant's
Deferral Election Agreement.
Section 2.18 RETAINER. "Retainer" means the cash portion of the amount
paid to members of the Board as compensation for their services in that
capacity. Retainer shall not include the cash payment payable to members of
the Board in respect of dividends paid by the Company pursuant to subparagraph
6(b) of the 1993 McGraw-Hill Stock Payment Plan for Directors.
-5-
<PAGE> 7
ARTICLE III
ADMINISTRATION
Section 3.01 PLAN ADMINISTRATOR; COMMITTEE; DUTIES: This Plan shall be
administered by the Plan Administrator. Decisions of the Plan Administrator
shall be reviewable by the Committee. The Committee shall also have the
authority to make, amend, interpret, and enforce all appropriate rules and
regulations for the administration of this Plan and decide or resolve any and
all questions including interpretations of this Plan, as may arise in
connection with the Plan.
Section 3.02 BINDING EFFECT OF DECISIONS. The decision or action of
the Committee in respect to any question arising out of or in connection with
the administration, interpretation and application of the Plan and the rules
and regulations promulgated hereunder shall be final, conclusive and binding
upon all persons having any interest in the Plan, unless a written appeal is
received by the Committee within sixty days of the disputed action. The appeal
will be reviewed by the Committee and the decision of the Committee shall be
final, conclusive and binding on the Participant and all persons claiming by,
through or under the Participant.
-6-
<PAGE> 8
ARTICLE IV
PARTICIPATION
Section 4.01 PARTICIPATION. Participation in the Plan shall be limited
to Directors who elect to participate in the Plan by filing a Deferral Election
Agreement with the Company.
Section 4.02 DEFERRAL. A Director may elect in any Deferral Election
Agreement to defer all or a portion of his Retainer Fees. He may also elect to
defer all or a portion of his Board Meeting Fees.
Section 4.03 WHEN MADE AND WHEN EFFECTIVE. A Deferral Election
Agreement shall (except as provided below in the case of a new Director) become
effective on the first day of the next Plan Year. A Deferral Election
Agreement shall remain effective for such next Plan Year and for each
subsequent Plan Year, unless such Deferral Election Agreement is revoked in
writing prior to the commencement of a subsequent Plan Year, in which case the
Deferral Election Agreement shall cease to be effective on the first day of the
Plan Year following such revocation. An individual who is not a Director may
enter into a Deferral Election Agreement before he/she becomes a Director, or
within 30 days after becoming a Director, which Agreement shall be effective
with respect to fees earned after the date of such election.
-7-
<PAGE> 9
ARTICLE V
DEFERRED DIRECTOR COMPENSATION
Section 5.01 ELECTIVE DEFERRED DIRECTOR COMPENSATION. The amount of
Compensation that a Director elects to defer in his Deferral Election Agreement
shall be credited by the Company to the Participant's Deferred Benefit Account
at such times as the compensation would have been paid had it not been
deferred. To the extent that the Company is required to withhold any taxes or
other amounts from the Director's deferred compensation pursuant to any state,
federal or local law, such amounts shall be taken out of the portion of the
Director's Compensation which is not deferred under this Plan.
-8-
<PAGE> 10
ARTICLE VI
DEFERRED BENEFIT ACCOUNT
Section 6.01 DETERMINATION OF ACCOUNT. Each Participant's Deferred
Benefit Account, as of each Determination Date, shall have a beginning balance
equal to the Participant's Deferred Benefit Account as of the immediately
preceding Determination Date. The Deferred Benefit Account of each Participant
shall then be increased by any deferred Director Compensation or reduced by the
amount of all distributions, if any, made from such Deferred Benefit Account
since the preceding Determination Date.
Section 6.02(a) For Director Compensation deferred in 1986, as of each
Determination Date, the Participant's Deferred Benefit Account shall be
increased by the amount of interest earned since the preceding Determination
Date. The Deferred Benefit Account shall be maintained and increased by the
monthly equivalent of Moody's Bond Index plus 6% (up to a maximum of 150% of
Moody's Bond Index) until the Participant's Projected Retirement Date.
Subsequent to the Participant's Projected Retirement Date, however, Moody's
Bond Index shall no longer be determined annually and shall be deemed to be the
Moody's Bond Index rate in effect during the year of the Participant's
Projected Retirement Date. In the event that a Participant's service with the
Board ceases prior to his/her Projected Retirement Date, other than for Death
or Disability, the Moody's Bond Index rate shall no longer be determined
annually and shall be determined to be the Moody's Bond Index rate in effect
during the Plan Year in which such cessation of services occurs.
Section 6.02(b) For Director Compensation deferred in excess of the
amount deferred by a Participant in 1986 or for Director Compensation deferred
by a Participant who began deferring subsequent to 1986, as of each
Determination Date, the Participant's Deferred Benefit Account shall be
increased by the amount of the interest earned since the preceding
Determination Date. The Deferred Benefit Account shall be maintained and
increased by the monthly equivalent of the Average Annual Moody's Rate plus 2%
(up to a maximum of 150% of the Average Annual Moody's Rate) until the
Participant's Projected Retirement Date. Subsequent to the Participant's
Projected Retirement Date, however, the Average Annual Moody's Rate shall no
longer be determined annually and shall be deemed to be the Average Annual
Moody's Rate in effect during the year of the Participant's Projected
Retirement Date. In the event that a Participant's service with the Board
ceases prior to his/her Projected Retirement Date, other than for Death or
Disability, the Average Annual Moody's rate shall no longer be determined
annually and shall be determined to be the Average Annual Moody's rate in
effect during the Plan Year in which such cessation of services occurs.
-9-
<PAGE> 11
Section 6.03(a) ALTERNATE RATE. For Director Compensation deferred in
1986, the interest credit rates in Section 6.02(a) may be amended to the rate
of Moody's Bond Index as of the Determination Date in the Company's sole
discretion if marginal corporate tax rates are reduced or if any tax leveraged
investment vehicle being utilized is no longer appropriate. In the event of a
Change of Control, the interest credit rate cannot be changed to the Alternate
Rate.
Section 6.03(b) ALTERNATE RATE. For Director Compensation deferred in
excess of the amount deferred by a Participant in 1986, the interest credit
rates in Section 6.02(b) may be amended to the rate of the Average Annual
Moody's Rate as of the Determination Date in the Company's sole discretion if
marginal corporate tax rates are reduced or if any tax leveraged investment
vehicle being utilized is no longer appropriate. In the event of a Change of
Control, the interest credit rate cannot be changed to the Alternate Rate.
Section 6.04 STATEMENT OF ACCOUNTS. The Company shall submit to each
Participant, within 120 days after the close of each Plan Year, a statement in
such form as the Company deems desirable, setting forth the balance to the
credit of such Participant in his Deferred Benefit Account as of the last day
of the preceding Plan Year.
-10-
<PAGE> 12
ARTICLE VII
BENEFITS
Section 7.01 RETIREMENT BENEFIT. Subject to Section 7.07, a
Participant shall be entitled to a Deferral Benefit equal to the amount of his
Deferred Benefit Account determined under Section 6.01 and payable under
Section 7.04 as of the Determination Date coincidental with or immediately
following his Projected Retirement Date.
Section 7.02 DEATH. If a Participant dies after the commencement of
payments of his Deferral Benefit, or if a Participant dies prior to any
payments of a Deferral Benefit, his Beneficiary shall receive a lump sum
payment equal to his Deferred Benefit Account as of the Determination Date
coincidental with or immediately following such death.
Section 7.03 DISABILITY. In the event of Disability prior to his
Projected Retirement Date, the disabled Participant, unless he otherwise elects
under this paragraph, shall have his payment of his Deferred Benefit Account
made or commenced in accordance with the Parciticpation Agreement filed by the
Participant. Before payments commence or are made under the preceding
sentence, a Disabled Participant may elect, subject to Committee approval upon
good cause shown, to have payments (i) made as soon as practicable in a lump
sum, or (ii) commence as soon as practicable in equal installments over a
period not in excess of 15 years.
Section 7.04 FORM OF BENEFIT PAYMENT. Upon the happening of the date
or event described in Sections 7.01 or 7.03, the Company shall pay to the
Participant the balance to the credit of his/her Deferred Benefit Account in a
lump sum or in equal annual installments as elected in the Deferral Election
Agreement filed by the Participant. If a Participant elects to receive
payments in installments, payment of the Deferred Benefit Account shall be in
an amount which amortizes the Deferred Benefit Account balance in equal annual
payments of principal and interest over a period not to exceed 15 years. For
purposes of determining the amount of the annual payment, the assumed rate of
interest shall be the post-retirement rate under the terms of Section 6.02. No
change in a Participant's election shall be valid unless it is made in a
Deferral Election Agreement which is filed with the Committee prior to the Plan
Year preceding the Plan Year in which payment of the Particpant's Deferred
Benefit Account would otherwise have been made or commenced.
-11-
<PAGE> 13
Section 7.05 LUMP SUM PAYMENT. Notwithstanding Section 7.04, in its
sole discretion the Committee may make a lump sum payment at the time payments
would otherwise commence under the Plan.
Section 7.06 WITHHOLDING; PAYROLL TAXES. To the extent required by the
law in effect at the time payments are made, the Company shall withhold from
payments made hereunder any taxes required to be withheld for the federal or
any state or local government.
Section 7.07 COMMENCEMENT OF PAYMENTS. Commencement of payments under
this Plan shall begin within 60 days following receipt of notice by the Plan
Administrator of an event which entitles a Participant (or a Beneficiary) to
payments under this Plan, or at such earlier date as may be determined by the
Committee. The Company may, in its sole discretion, commence payments under
this Plan within 60 days following a Participant's cessation of services as a
member of the Board prior to his Projected Retirement Date for reasons other
than death or Disability. All payments shall be made as of the first day of
the month.
Section 7.08 PAYMENTS IN CONNECTION WITH CHANGE OF CONTROL.
Notwithstanding anything contained in this Plan to the contrary, in the event
of a Change of Control of the Corporation the Committee shall immediately pay
to each Participant in a lump sum the then remaining balance in his/her
Deferred Benefit Account.
The terms of Sections 9.01 and 9.02 hereof shall not be applicable
following a Change of Control of the Corporation.
The reasonable legal fees incurred by any Participant to enforce his/her
valid rights hereunder shall be paid for by the Company to the Participant in
addition to sums otherwise due hereunder, whether or not the Participant is
successful in enforcing his/her rights or whether or not the matter is settled.
-12-
<PAGE> 14
ARTICLE VIII
BENEFICIARY DESIGNATION
Section 8.01 BENEFICIARY DESIGNATION. Each Participant shall have the
right, at any time, to designate any person or persons as his Beneficiary or
Beneficiaries (both principal as well as contingent) to whom payment under this
Plan shall be paid in the event of his death prior to complete distribution to
Participant of the benefits due him under the Plan.
Section 8.02 AMENDMENTS. Any Beneficiary designation may be changed by
a Participant by the written filing of such change on a form prescribed by the
Company. The filing of a new Beneficiary designation form will cancel all
Beneficiary designations previously filed.
Section 8.03 NO BENEFICIARY DESIGNATION. If a Participant fails to
designate a Beneficiary as provided above, or if all designated Beneficiaries
predecease the Participant, then any amounts to be paid to the Member's
Beneficiary shall be paid to the Member's estate.
Section 8.04 EFFECT OF PAYMENT. The payment to the deemed Beneficiary
shall completely discharge Company's obligations under this Plan.
-13-
<PAGE> 15
ARTICLE IX
AMENDMENT AND TERMINATION OF PLAN
Section 9.01 AMENDMENT. The Board or the Committee may at any time
amend the Plan in whole or in part; provided, however, that no amendment shall
be effective to decrease or restrict any Deferred Benefit Account at the time
of such amendment.
Section 9.02 COMPANY'S RIGHT TO TERMINATE. The Board or the Committee
may at any time terminate the Plan with respect to Director Compensation
payable in the future, if, in its judgment, the continuance of the Plan, the
tax, accounting, or other effects thereof, or potential payments thereunder
would not be in the best interests of the Company. The Board or the Committee
may also terminate the Plan in its entirety at any time, and upon any such
termination, the Company shall immediately pay to each Participant in a lump
sum the then remaining balance in his/her Deferred Benefit Account.
-14-
<PAGE> 16
ARTICLE X
MISCELLANEOUS
Section 10.01 UNSECURED GENERAL CREDITOR. Participants and their
Beneficiaries shall have no legal or equitable rights, interest or claims in
any property or assets of the Company, nor shall they be Beneficiaries of, or
have any rights, claims or interests in any life insurance policies, annuity
contracts or the proceeds therefrom owned or which may be acquired by the
Company ("Policies"). Such Policies or other assets of the Company shall not
be held under any trust for the benefit of Participants or their Beneficiaries
or held in any way as collateral security for the fulfilling of the obligations
of the Company under this Plan. Any and all of the Company's assets and
Policies shall be, and remain, the general, unpledged, unrestricted assets of
Company. Company's obligation under the Plan shall be merely that of an
unfunded and unsecured promise of the Company to pay money in the future.
Section 10.02 NONASSIGNABILITY. Neither a Participant nor any other
person shall have any right to commute, sell, assign, transfer, pledge,
anticipate, mortgage or otherwise encumber, transfer hypothecate or convey in
advance of actual receipt the amounts, if any, payable hereunder, or any part
thereof, which are, and all rights to which are, expressly declared to be
unassignable and non-transferable. No part of the amounts payable shall, prior
to actual payment, be subject to seizure or sequestration for the payment of
any debts, judgments, alimony or separate maintenance owed by a Participant or
any other person, nor be transferable by operation of law in the event of a
Participant's or any other person's bankruptcy or insolvency.
Section 10.03 PROTECTIVE PROVISIONS. A Participant will cooperate with
the Company by furnishing any and all information requested by the Company, in
order to facilitate the payment of benefits hereunder, and by taking such
physical examinations as the Company may deem necessary and taking such other
action as may be requested by the Company.
As amended: February 26, 1986
December 3, 1986
January 28, 1987
September 30, 1987
September 28, 1988
January 31, 1990
September 26, 1990
February 24, 1993
October 27, 1993
-15-
<PAGE> 1
Exhibit (12)
McGRAW-HILL, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C>
Earnings
Earnings from continuing
operations before income
tax expense, cumulative
effect on prior years of
changes in accounting in
1992, and unusual charges
in 1993 and 1989(a)(b)(c) $293,243 $264,877 $255,608 $299,715 $304,046
Fixed charges 75,930 81,724 89,050 97,555 61,849
Capitalized interest (536) (836) (507) (842) (594)
-------- -------- -------- -------- --------
Total Earnings $368,637 $345,765 $344,151 $396,428 $365,301
======== ======== ======== ======== ========
Earnings from continuing
operations before income
tax expense and cumulative
effect on prior years of
changes in accounting in
1992 (b)(c) $ 63,443 $264,877 $255,608 $299,715 $ 84,046
Fixed charges 75,930 81,724 89,050 97,555 61,849
Capitalized interest (536) (836) (507) (842) (594)
-------- -------- -------- -------- --------
Total Earnings $138,837 $345,765 $344,151 $396,428 $145,301
======== ======== ======== ======== ========
Fixed Charges(b)
Interest expense $ 46,998 $ 49,935 $ 59,350 $ 68,651 $ 36,718
Portion of rental payments
deemed to be interest 28,932 31,789 29,700 28,904 25,131
-------- -------- -------- -------- --------
Total Fixed Charges $ 75,930 $ 81,724 $ 89,050 $ 97,555 $ 61,849
======== ======== ======== ======== ========
Ratio of Earnings to Fixed
Charges:
Before unusual charges
and cumulative adjustment 4.9x 4.2x 3.9x 4.1x 5.9x
After unusual charges
but before cumulative
adjustment 1.8x 4.2x 3.9x 4.1x 2.3x
</TABLE>
- ----------
(a) Unusual charges in 1993 totaling $229.8 million before taxes in connection
with the purchase of 50% interest in the Macmillan/McGraw-Hill School
Publishing Company owned by Macmillan for $337.5 million in cash. The
unusual charges conisted of $199.8 million primarily to adjust the
company's original investment to values established in this transaction.
This charge has been allocated primarily to goodwill and other intangibles.
In addition, the company recorded a provision of $30 million relating to
the consolidation of certain functions and systems of Macmillan/McGraw-Hill
and the company's book publishing operations.
-131-
<PAGE> 2
Unusual charges in 1989 total $220 million before taxes. They include the
write-down of goodwill and other intangible assets of certain acquired
units of $82 million, a provision for the shutdown of certain units and the
write- down of other non-performing units and assets of $63 million and a
reserve of $75 million for severance payments associated with staff
reductions and for other items.
(b) For purposes of computing the ratio of earnings to fixed charges, "earnings
from continuing operations before income taxes" excludes undistributed
equity in income of less than 50%-owned companies. "Fixed charges" consist
of (1) interest on debt and capital leases, (2) the portion of the
company's rental expense deemed representative of the interest factor in
rental expense, and (3) the company's proportionate share of such fixed
charges of the Macmillan/McGraw-Hill joint venture through September 30,
1993.
(c) The cumulative adjustment in 1992 reflects the adoption of FAS 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions",
$183.5 million pretax, and FAS 112, "Employers' Accounting for
Postemployment Benefits", $25.3 million pretax.
-132-
<PAGE> 1
(Exhibit 12)
McGraw-Hill, Inc.
Pro Forma Computation of Ratio of Earnings to Fixed Charges
Years Ended December 31, 1993 and 1992
<TABLE>
<CAPTION>
Year Year
Ended 12/31/93 Ended 12/31/92
-------------- --------------
(In thousand of dollars)
<S> <C> <C>
Pro Forma Earnings
Earnings from continuing operations
before income tax expense (Note)..... $313,249 $277,198
Fixed charges........................ 94,251 103,413
Capitalized interest................. (767) (836)
-------- --------
Total Earnings....................... $406,733 $379,775
======== ========
Fixed Charges (Note)
Interest expense..................... $ 62,502 $ 68,501
Portion of rental payments deemed to be
interest...................... 31,749 34,912
-------- --------
Total Fixed Charges........... $ 94,251 $103,413
======== ========
Pro Forma Ratio of Earnings to Fixed Charges 4.3x 3.7x
</TABLE>
Note: For purposes of computing the ratio of earnings to fixed charges,
"earnings from continuing operations before income tax expense" excludes
undistributed Equity in income of less than 50%-owned companies. "Fixed
charges" consist of (1) interest on debt and capital leases and (2) the
portion of the company's rental expense deemed representative of the
interest factor in rental expense.
This pro forma computation of ratio of earnings to fixed charges gives
effect to the acquisition of the additional 50% interest in the
Macmillan/ McGraw-Hill School Publishing Company as if it had occurred
as of January 1, 1992. The Computation excludes the unusual charges
recorded by McGraw-Hill related to the acquisition of the additional 50%
interest in Macmillan/ McGraw-Hill. The underlying pro forma financial
statements for the years ended 1993 and 1992 are based on certain
estimates and assumptions and were prepared utilizing the historical
financial statements of McGraw-Hill, Inc. and the Macmillan/McGraw-Hill
School Publishing Company contained in McGraw-Hill's 1993 and 1992 Forms
10-K and its Form 10-Q for the quarterly period ended September 30,
1993. Pro forma statements of income do not purport to represent what
the company's results of operations would actually have been had the
acquisition in fact occurred at the beginning of the periods indicated
or to project the Company's results of operations for any future date or
period.
-133-
<PAGE> 1
Exhibit 13 Index
<TABLE>
<CAPTION>
PAGE IN
ANNUAL REPORT
<S> <C>
Business (Textual Material) 2, 3, 7 through 22
Management's Discussion and Analysis 24 TO 29 and 32
Ten Year Financial Review 30-31
Consolidated Statement of Income 33
Consolidated Balance Sheet 34-35
Consolidated Statement of Cash Flow 36
Consolidated Statement of Shareholders' Equity 37
Notes to Consolidated Financial Statements 38-44
Report of Management 45
Report of Independent Auditors 45
Supplemental Financial Information 46
</TABLE>
<PAGE> 2
MCGRAW HILL AT A GLANCE
<TABLE>
<S> <C> <C> <C>
====================== Group and Key Markets 1993 Highlights Factors Affecting Future Growth
---------------------------------------------------------------------------------------------------------
EDUCATIONAL AND PROFESSIONAL PUBLISHING
Operating Revenue and ---------------------------------------------------------------------------------------------------------
Operating Profit by COLLEGE GROUP Lower enrollments slackened Flat enrollments until 1995, then
Segment Two-and four-year colleges demand in business and accounting a rise to 16.7 million students in
(Dollars in millions) and universities. courses; Primis texts were sold 2004; used books, text prices,
on 800 college campuses. academic custom publishing.
---------------------------------------------------------------------------------------------------------
LEGAL INFORMATION GROUP Case citation database grew to Need for technology-based
- ---------------------- Legal professionals. 260 million; increased electronic productivity tools and information
1993 OPERATING REVENUE delivery in state-specific formats. in legal specialties.
---------------------------------------------------------------------------------------------------------
PIE CHART MCGRAW-HILL SCHOOL McGraw-Hill acquired other half Next strong adoption schedule in
--------- PUBLISHING COMPANY of Macmillan/McGraw-Hill School 1995; trend toward multi-media
Information Elementary, secondary, Publishing Company joint venture educational publishing; steady
and Media vocational, post-secondary, to become America's largest improvement in el-hi enrollments
Services $831.1 38% testing and professional school publisher. over next few years.
training fields.
Educational ---------------------------------------------------------------------------------------------------------
and PROFESSIONAL PUBLISHING GROUP Difficult economic conditions Demand for electronically
Professional Professionals in engineering, prevailed around the world in 1993, delivered products; focus on
Publishing $667.5 30% science, medicine, healthcare, but Ibero-America and the content areas with highest global
computer technology; business developing countries of the potential--medicine, engineering,
Financial and government; students and Asia-Pacific region performed well. science, computing and business.
Services $696.9 32% educators overseas; consumers
- ---------------------- in home-study courses.
---------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES
1993 OPERATING PROFIT ---------------------------------------------------------------------------------------------------------
FINANCIAL INFORMATION Group formed in 1993 to capitalize Rising use of technology for
PIE CHART SERVICES GROUP on core competencies in related information collection,
--------- Investors, corporations, units to create broader product enhancement and distribution
Information government agencies, offerings on a global basis, more directly and through non-exclusive
and Media financial institutions, operational efficiencies and new relationships; more new products
Services $102.3 29% brokerages, mutual funds, unit marketing opportunities. for institutional investors;
investment trusts; commodity, globalization of financial
Educational securities and foreign markets.
and exchange traders; libraries.
Professional --------------------------------------------------------------------------------------------------------
Publishing $ 49.4 14% STANDARD & POOR'S Continued growth of major debt Impact of interest rates on
RATINGS GROUP markets; expanded global network; new-debt issuance.
Financial Global capital markets. developed new rating services and
Services $200.9 57% recurring revenue streams to
counter transaction-based market
fluctuations.
--------------------------------------------------------------------------------------------------------
INFORMATION AND MEDIA SERVICES
--------------------------------------------------------------------------------------------------------
BROADCASTING GROUP Maintained news leadership in CBS Olympics broadcasting and
Network-affiliated stations in Indianapolis, San Diego and improvement in political
Denver, Indianapolis, San Bakersfield markets; continued advertising in 1994.
Diego and Bakersfield. growth in Denver.
--------------------------------------------------------------------------------------------------------
BUSINESS WEEK GROUP Finished 1993 as America's Effect of corporate profits on
Business professionals and 6th-largest magazine in revenue, ad expenditures; globalization of
advertisers worldwide. according to Publishers business markets.
Information Bureau.
--------------------------------------------------------------------------------------------------------
CONSTRUCTION INFORMATION GROUP Introduced DataLine(2), an F.W. Dodge projects 9% increase
Architects, engineers, expanded and upgraded version of in construction contract value in
contractors; real estate first electronic service on U.S. 1994; Group's key market--income
owners, developers and construction projects; launched properties--should improve
investors; building-products SweetSource, building products modestly.
manufacturers. information on CD-ROM.
--------------------------------------------------------------------------------------------------------
PUBLICATION SERVICES GROUP Launched successful new products Effect of worldwide economy on
Professionals and corporations in key market segments--computer demand for information on
around the world in aviation; networking, electric power and plastics, chemicals, energy;
computers and communications; natural gas; and in consumer timing of upturn in defense and
healthcare; and science and health information. aviation; progress of national
technology markets. healthcare reform; new
technologies in computer and
communications market.
--------------------------------------------------------------------------------------------------------
TOWER GROUP INTERNATIONAL Upgraded proprietary shipment Transition of logistics
Major North American importers management software; expanded marketplace from transaction-based
and exporters. regional operations. to information-driven; strong
trade growth projected for the
rest of the decade.
2 3
</TABLE>
<PAGE> 3
EXPANDING GLOBALLY. Enhancing capabilities. Inventing the future. Focusing on
customers. These are McGraw-Hill's strategies for growth, and you'll find them
at work in every part of the company.
Our employees are finding opportunities to expand our businesses globally. They
are providing information in innovative ways by using the latest advances in
technology. Our employees are literally inventing the company's future by
developing products and services that fulfill customer needs.
To be where our customers are, to know their information needs, to create and
then deliver the best products and services possible in the forms they want:
Those strategies have been our heritage and are the source of our new growth.
<PAGE> 4
EXPANDING GLOBALLY
McGraw-Hill's best growth prospects are increasingly in countries
outside the U.S., where the information needs of professionals in business,
government, industry and education are growing rapidly. By penetrating local
markets with products that are new or in a variety of languages, McGraw-Hill
has helped its customers participate more fully in the global economy.
Standard & Poor's is a large contributor to McGraw-Hill's global growth. Having
opened offices in Toronto and Mexico City in 1993, S&P Ratings now performs
both domestic and cross-border debt-rating activities for clients in 10 world
capital markets. These clients--taking advantage of S&P's reputation for
analytical expertise and impartiality, long-term relationships with key market
participants and exceptional analytical staff--have come to recognize the value
of an S&P
<PAGE> 5
rating.
McGraw-Hill's electronic products in currency, treasury, commodity and
securities markets have also won many overseas customers. U.S. brokerages have
long benefited from S&P MarketScope's real-time financial information service,
for example. Recognizing a need for similar coverage of Western Europe's
securities markets, S&P launched MarketScope Europe in 1993 to provide
investment professionals there with comprehensive coverage of events that
affect share prices on stock exchanges throughout Europe.
Creating products in local languages is another avenue to global growth. MMS
International is known for its reliable analysis of worldwide debt and currency
markets. It developed its first local-language serv-
9
<PAGE> 6
ice--real-time analysis of the yen currency market in Japanese--in 1992,
and added a currency market service in Chinese in 1993.
Throughout North America, where massive amounts of securities are traded daily
at a breakneck pace, the financial community, literally, goes by the
numbers--Standard & Poor's CUSIP numbers. The Committee on Uniform Security
Identification Procedures--CUSIP for short--is a standardized system for
identifying every stock, bond and publicly traded issue in the United States,
Canada, and, beginning this year, Mexico.
CUSIP's North American directory listed 500,000 issues when it was launched in
the late 1960s. Today, CUSIP products list 3.5 million issues, while CUSIP's
international directory lists another 200,000 issues outside of North America.
Both the North American and international directories are available in many
media, including CD-ROM.
McGraw-Hill is the world's largest publisher of Spanish-language college
textbooks and supplements, and a major provider of Spanish elementary and
high-school texts. In 1993, McGraw-Hill published, for the first time, college
and professional books in Mandarin and Thai. Such versatility helps McGraw-Hill
maintain one of the most sophisticated infrastructures in publishing, with
materials appearing in three dozen languages and operations in 60 cities
throughout 18 countries.
Of
10
<PAGE> 7
McGraw-Hill's three dozen magazines, many either carry International in their
title or are published in a foreign language. The largest, Business Week, has
worldwide English-language circulation of more than one million--some 115,000
in its Business Week International edition. Worldwide, 200 editors and
reporters produce editions in English and three local languages. Nine of its 24
editorial bureaus are outside the U.S. McGraw-Hill's second-largest
publication, BYTE, has a fourth of its 510,000 circulation outside the U.S.
McGraw-Hill's reputation and experience in information publishing make it at
home everywhere in the world. And its ability to meet a variety of information
needs makes a world of difference to every customer.
When medical interns and residents are on the ward alone, and a health question
arises, they often turn to "Harrison's Principles of Internal Medicine," the
"middle of the night" book. Published in nine languages, it has defined the
teaching of medical diagnosis and treatment for more than 50 years, selling 1.5
million copies. Harrison's has spawned several product extensions: a companion
handbook, which is an outline summary of the parent text available in six
languages; a self-assessment and review book keyed to the parent text; and a
CD-ROM version, which will be launched in 1994 and combine the text with an
interactive pharmaceutical-drug database.
<PAGE> 8
ENHANCING CAPABILITIES
At McGraw-Hill, improving products is foremost. The company
continually looks for ways to use technology so customers get information faster
or in more detail; for ways to customize information to meet a specific need;
and for opportunities to use information already collected. By enhancing the
value of products, McGraw-Hill more successfully meets the information needs of
its customers.
Shepard's, for example, has compiled more than 260 million citations that trace
the history of court decisions at the state and federal levels. Traditionally,
citations were published exclusively in books. Today, they are in an electronic
database, which is accessed to develop Shepard's print products and those
created for fax, online and CD-ROM delivery--the ways customers increasingly
prefer. In 1993, Shepard's added a new capability:
<PAGE> 9
collecting U.S. Federal Court of Appeals and Supreme Court decisions
electronically, further speeding the publishing and distribution process.
For years, Datapro's many separate information services on computer systems and
communications were available only in loose-leaf format. Each service equals
about 1,000 pages and fills one or more heavy binders. Today, virtually all the
services are published on CD-ROMS--with versions for both U.S. and
international subscribers. The Datapro Computer Systems Analyst CD-ROM, for
example, comprises 11 services, and the Communications Analyst CD-ROM includes
12 services. Each CD-ROM provides succinct analysis, user survey ratings,
product comparisons and test results supplied by McGraw-Hill's National
Software Testing Laboratory.
S&P services also flow directly to subscribers who, more and more, need
real-time information that comes in one convenient product. By integrating
several databases, S&P created S&P Research Reports, which allow customers to
find out virtually everything S&P says about a particular company. Through S&P
Reports On-Demand, every investor with a fax and touch-tone phone now can have
easy access to the same information McGraw-Hill sells Wall Street
13
<PAGE> 10
traders and analysts, including Stock Reports, Industry Reports and Price
Charts.
Since the 1920s, the movers and shakers in the commodities business have turned
to Platt's, the Commodities Division of Standard & Poor's, for comprehensive
news and pricing information. Twenty-four hours a day, seven days a week,
Platt's gathers and disseminates data on petroleum, petrochemicals, tankers,
natural gas and metals. Satellite distribution of Platt's Global Alert began in
1984. In 1993, Platt's introduced the first satellite-delivered information
service for the petrochemical industry, expanded editorial coverage of the
growing metals industry in China and opened a full-time news bureau in Moscow.
In 1994, bureaus will open in Hong Kong and South America.
Students, academics and professionals today require customized information and
McGraw-Hill has products to meet their needs. Primis, McGraw-Hill's electronic
custom publishing system, individualizes textbooks for the education market.
Professors select information from the Primis database, tailor it for classroom
use, add their own materials and then receive copies within days.
Marketers of upscale products and services can reach the readers of Business
Week who live in the country's highest-income ZIP codes by advertising in
Business Week's Elite demographic edition. It's just one of nearly two dozen
demographic, geographic or local-language editions available to advertisers.
14
<PAGE> 11
McGraw-Hill TV stations are also continually improving what they do best,
which includes creating top-rated local news programs. Two of the company's
stations--WRTV in Indianapolis and KGTV in San Diego--prepare news for their
own stations and other outlets in their markets, including local news inserts
for the CNN Headline News channel. Both also produce fax news services for
business subscribers.
McGraw-Hill not only puts a premium on information but also on its ability to
enhance information and ensure timely delivery of quality products. That's a
major reason customers value their relationship with McGraw-Hill.
<PAGE> 12
INVENTING THE FUTURE
The eyes of Texas were upon the McGraw-Hill School Publishing Company and four
of its biggest competitors during 1993. Educators were adopting textbooks for
their statewide school reading program. The publishing companies were after a
share of the $140 million Texas had allocated for reading in grades one through
eight. McGraw-Hill, armed with one of the most progressive reading programs
ever published, claimed about 30% of the state's program. McGraw-Hill fared
best in the state's largest school systems--coming out on top in Dallas,
Austin, Fort Worth and San Antonio.
McGraw-Hill has always excelled in creating information products to
satisfy customer needs--ideally positioning it to invent the future. Today,
editorial expertise, strategic partnerships and quality information supply
shape and energy to McGraw-Hill's product-development process.
McGraw-Hill owns some of the world's most valuable data collections, including
those for construction projects, legal citations, power producers, educational
materials, securities, credit ratings and municipal bonds. By digitizing data
for electronic access and distribution, McGraw-Hill leverages this content for
online services or CD-ROMS. This process has created many innovative
McGraw-Hill products, such as Compustat PC Plus, Primis, Dodge DataLine,
SweetSource and Shepard's Online and CD-ROMS.
Helping customers sift the Dodge database to find specific construction
<PAGE> 13
projects instantly has helped Dodge attract many new customers. A new version
of Dodge's online service, DataLine2, was unveiled in 1993 to expand search
capabilities and enable clients to customize data in new ways. It is the
fastest-growing sales and marketing service in the construction industry.
Partnerships, both within and outside McGraw-Hill, also contribute to new
products. Company-wide teams of employees develop new product ideas and
distribution channels. And employees from different business units regularly
propose and launch new products that take advantage of the strengths of each.
In 1993, the first joint effort between Professional Publishing and S&P Equity
Services extended
17
<PAGE> 14
distribution of the S&P Stock and Bond Guide for the first time to shelves of
America's bookstores. Professional Publishing also produces book versions of
Business Week's best-selling issues, including "The Quality Imperative" from
1991 and an annual mutual fund survey.
McGraw-Hill spurs product development through alliances with partners in key
businesses. In 1993, McGraw-Hill became the largest stockholder in Liberty
Brokerage, the country's second-largest interdealer broker for U.S. Treasury
securities; the move positions McGraw-Hill as a leading provider of
fixed-income securities prices and information to the government
18
<PAGE> 15
securities brokerage business.
Some of the best new products germinate from already existing ones. The S&P
500, for example, has long been the benchmark of investment performance. In
recent years, S&P developed the S&P MidCap 400 and the S&P/Barra indexes for
growth and value. In 1993, S&P introduced an instrument that allows investors
to own a security representing a share of the S&P 500--called S&P Depositary
Receipts, known as SPDRS or Spiders. More than 51 million Spiders were traded
in 1993. McGraw-Hill licenses S&P intellectual property to financial
institutions and collects a fee on each trade involving instruments based on
its indexes.
Developing new products and getting them quickly to market is a McGraw-Hill
tradition, and an important way the company invents its future.
Derived from S&P's invaluable databases and generated on demand by fax or mail,
S&P Research Reports are available to investors on more than 4,800 public
companies. Each report delivers comprehensive and accurate investment research,
financial data and company news that is as current as the last market close.
Analysts' consensus buy/sell/hold recommendations and S&P earnings estimates
are also part of every report. More than 300,000 reports were sold in 1993; the
top three requests were IBM, Merck and Boeing.
<PAGE> 16
FOCUSING ON CUSTOMERS
The customer is the common denominator of McGraw-Hill's strategies
for success as a worldwide information publisher.
A key to the growth of S&P Ratings has been its ability to translate new
financial instruments into new ratings business, which has helped both issuers
and investors around the world. Today, S&P provides ratings on money market
funds, bond funds, project finance, derivative-products companies, the
claims-paying ability of worldwide insurance companies and even private
services like Corporate Assessments and Private Placement Ratings.
Customer focus was behind Tower Group International's joint service agreement
with J.B. Hunt, one of the largest trucking companies in the U.S. The
partnership helps North American companies expedite the movement of inventory
across borders. Tower has also continued expanding its geo-
<PAGE> 17
graphic coverage and increased its logistics and information-management
services to capitalize on opportunities like those presented by the North
American Free Trade Agreement.
Customers--both internal and external--are at the center of a special program
in the Construction Information Group designed to set its products and people
apart from the competition's. Group employees are crafting a vision statement
and business strategies based on the Group's core competencies--those unique
skills and resources that create lasting value for customers.
Any way you say it, read it, or write it, McGraw-Hill is the number-one
publisher of foreign-language college textbooks in North America. In this $55
million market, McGraw-Hill is the market share leader for Spanish, Italian and
German-language programs. Other texts provide instruction in French, Japanese
and Portuguese, and the College Division is at work on a new book for teaching
the Russian language. But the foreign-language publishing program does not rely
on books alone. Audio cassettes, videotapes, software, and videodiscs are used
to supplement texts, and a CD-ROM product is now being developed for
Spanish-language education. In addition, McGraw-Hill's foreign-language unit
produced "Destinos," the first multimedia course for Spanish to be integrated
with a public television series. In the summer of 1994, filming begins on a new
television series--part of a McGraw-Hill program to teach English as a Second
Language to people of all ages.
Listening to customers to guide product-development decisions, McGraw-Hill's
College Division created Overture, a low-
21
<PAGE> 18
cost, low-priced imprint that produced a best-selling new title for 1993,
Brinkley's "The Unfinished Nation: A Concise History of the American Peoples;"
J.J. Kenny, in association with joint-venture partner Liberty Brokerage, began
an evaluation service for a wide range of taxable securities. That market is
expected to rival the one for tax-exempt securities evaluations, in which Kenny
is already a leader.
Using technology to enhance the understanding and delivery of information is
important to McGraw-Hill as well as its customers. That's why Glencoe has
become a leader in interactive education technology. Among Glencoe top
products: the Foundations for Success learning system that teaches basic skills
to adults at a pace comfortable for them; and a multimedia science program that
energizes students, and has increased interest in the subject in schools where
it is used.
Leveraging information from its healthcare publications, Postgraduate Medicine
and The Physician and Sportsmedicine, McGraw-Hill has developed successful new
products that are marketed to healthcare professionals for their own reference
or for the education of their patients. Among them are Patient Notes,
information on many common medical problems available from doctors' offices in
pads (and in five languages) or generated from software; and the McGraw-Hill
Health Letter and Healthkick 4 Kids newsletter.
The future of information management is made up of many elements: a dedication
to quality information and analysis, a diverse and well-trained work force; a
commitment to finding the best ways to deliver information; and a detailed
knowledge of customers. McGraw-Hill employees are working together to achieve
what is best for their customers, wherever they are located. And that,
ultimately, is best for McGraw-Hill.
22
<PAGE> 19
FINANCIAL REVIEW AND ANALYSIS
OPERATING RESULTS
CONSOLIDATED REVIEW
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
- ------------- -------- --------- --------
<S> <C> <C> <C>
Operating Revenue $2,195.5 $2,050.5 $1,943.0
% Increase 7.1 5.5 0.2
-------- -------- --------
Operating Profit $ 352.6 $ 344.3 $ 312.2
% Increase/(Decrease) 2.4 10.3 (14.5)
-------- -------- --------
% Operating Margin 16 17 16
-------- -------- --------
Share of Profit of Macmillan/
McGraw-Hill Joint Venture $ 28.4(a) $ 11.3 $ 27.5
-------- -------- --------
Income before Taxes $ 66.3(b) $ 267.3 $ 258.3
-------- -------- --------
Income before Cumulative
Adjustment $ 11.4 $ 153.2 $ 148.0
-------- -------- --------
Cumulative Effect on Prior
Years of Changes in
Accounting -- $ (124.6) --
-------- -------- --------
Net Income $ 11.4(b) $ 28.6 $ 148.0
======== ======== ========
</TABLE>
(a) Represents McGraw-Hill's 50% share of profits through September 30, 1993.
Macmillan/McGraw-Hill School Publishing Company is consolidated in
McGraw-Hill's fourth quarter results reflecting McGraw-Hill's 100% ownership.
(b) 1993 income before taxes and net income include unusual charges of $229.8
million ($160.8 million net of tax benefits) related to McGraw-Hill's
acquisition of its partner's 50% interest in the Macmillan/McGraw-Hill School
Publishing Company.
REVENUE AND EARNINGS
Operating revenue in 1993 grew to $2,195.5 million, an increase of 7.1%. 1993
net income after unusual charges was $11.4 million, or 23 cents per share.
Income before unusual charges of $229.8 million ($160.8 million after taxes or
$3.27 per share) and before the cumulative effect of 1992 accounting changes
for postretirement and postemployment benefits increased 12.5% to $172.2
million, or $3.50 per share. In 1992, operating revenue increased 5.5% while
income before the cumulative adjustment of $153.2 million, or $3.13 per share,
increased 3.5% over 1991. In 1991, net income was $148.0 million and earnings
per share were $3.03.
McGraw-Hill completed the purchase of the 50% interest in the
Macmillan/McGraw-Hill School Publishing Company owned by Macmillan for $337.5
million on October 4, 1993. The company now owns 100% of Macmillan/McGraw-Hill
and it is consolidated in McGraw-Hill's operations from the date of
acquisition. In connection with the purchase, the company recorded unusual
charges of $229.8 million ($160.8 million net of tax benefits). The charges
consist of $199.8 million to adjust the company's original investment to values
established in this transaction and have been allocated primarily to goodwill
and other intangibles. In addition, the company recorded a provision of $30
million relating to the consolidation of certain functions and systems of
Macmillan/McGraw-Hill and the company's book publishing operations. This
consolidation should be completed by mid-1995 and is expected to generate
annual savings of more than $10 million.
McGraw-Hill's 50% share of the Macmillan/McGraw-Hill School
Publishing Company's profits for 1993 includes only the first three quarters
prior to full ownership. The 1993 share increased to $28.4 million from $11.3
million in 1992. The increase reflects the improved 1993 adoption cycle and the
exclusion of the 1993 fourth quarter loss which is included in McGraw-Hill's
consolidated results. The inclusion of Macmillan/McGraw-Hill in McGraw-Hill's
consolidated results for the fourth quarter increased 1993 revenues for the
company by $90.7 million or 4.4%. Due to the seasonal nature of
Macmillan/McGraw-Hill's business, fourth quarter income was negatively impacted
by an incremental 8 cents per share due to the 100% ownership.
Macmillan/McGraw-Hill is consolidated within McGraw-Hill's results as the
School Publishing market focus group in the Educational and Professional
Publishing segment.
The company's 1992 earnings were impacted by the adoption of
Statement of Financial Accounting Standards (SFAS) No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions, which covers
primarily healthcare and life insurance benefits, and SFAS No. 112, Employers'
Accounting for Postemployment Benefits. The company recorded a charge for the
cumulative effect on prior years of these changes of $124.6 million (net of tax
benefits of $84.2 million) or $2.55 per share. The cumulative adjustment
reduced 1992 net income to $28.6 million or 58 cents per share. The company
also adopted SFAS No. 109, Accounting for Income Taxes, in 1992 but its
implementation did not have a significant impact on 1992 earnings except as it
relates to the recognition of tax benefits on the accounting changes.
Income as a percent of revenue before 1993 unusual charges and the
1992 cumulative adjustment was 7.8% in 1993, slightly above the 1992 ratio of
7.5%. Return on average shareholders' equity declined to 1.3% due to the impact
of the unusual charges.
Operating revenue increased $145 million in 1993, $90.7 million of
which was due to the inclusion of School Publishing for the fourth quarter. The
remaining increase was due to new products and services and price increases.
Operating profit for the three segments increased 2.4% in 1993, with Financial
Services posting a gain of 19.3%. Information and Media Services posted a
decline of 9.6% and Educational and Professional Publishing declined 21.2%.
Excluding the fourth quarter loss for School Publishing, operating profit for
Educational and Professional Publishing was flat compared to 1992. Financial
Services' performance reflects another record year by Standard & Poor's Ratings
Group due to the strong new issue market, expansion abroad and the introduction
of new products and services. The Financial
24
<PAGE> 20
Information Services Group also contributed solid gains. In the Educational and
Professional Publishing segment, continued growth in Spanish language
international markets and gains at Shepard's produced revenue growth of 1.6%.
Continued softness in our College business reduced profits for the segment.
Revenue and profit declines in Information and Media Services reflect soft
advertising markets in the first half that began to rebound later in the year
and continued weakness in the construction information markets.
In 1992, operating profits for the three segments after increased
expense for postretirement benefits increased 10.3%, as Financial Services and
Educational and Professional Publishing posted double-digit gains. The increase
in total operating revenue of $107.5 million came primarily from price
increases and new products and services. Financial Services' performance was
especially noteworthy, as low interest rates spurred major refinancing and new
debt issue volume propelling S&P Ratings Group to a then record performance. In
the Educational and Professional Publishing segment, strong performances by the
international, medical and professional book operations produced a significant
increase in profit. Information and Media Services' revenue increased $10.9
million and operating profits declined $7 million. Weakness in magazine
advertising and in information services for the construction and computer
industries could not be offset by record levels of political advertising in
Broadcasting. McGraw-Hill's 50% share of Macmillan/McGraw-Hill School
Publishing profit fell to $11.3 million, a drop of $16.2 million due to the
joint venture's revenue decline of 5.3% and significant one-time costs.
EXPENSES
Operating expenses in 1993 increased $89.5 million or 8.6% reflecting the
inclusion of School Publishing fourth quarter expenses. Excluding School
Publishing, the company's operating expenses increased 3.8% reflecting volume
increases in some market focus groups and modest inflationary increases in key
expense categories, such as compensation and fringe benefits expenses. In
total, prices for printing, binding, paper and distribution declined slightly
in 1993. Weakness in the printing and paper marketplace and successful
negotiations with suppliers brought price levels down 0.7% below the level of
prices paid in 1992. Total distribution prices rose only 1% in 1993 because of
flat postal rates and the favorable impact of the new second class barcoding
discounts. Selling and general expenses increased $46.8 million or 6.4%,
including the fourth quarter impact of School Publishing. Excluding School
Publishing, selling and general expenses declined 1.3% reflecting cost conrols
in various categories. A significant portion of both operating and selling and
general expenses is compensation, which increased 4.7% to $605 million
excluding the impact of School Publishing. The effect of merit increases and
salary range changes on 1993 compensation cost was about 4.4%. The ratio of
operating, selling and general expenses to total revenue in 1993 was 86.7%
compared to 86.1% in 1992. In 1994, combined printing, binding, paper and
distribution prices are expected to decrease approximately 1%. This is due
primarily to successful negotiations with printing and paper suppliers, aided
in part by the increased leverage gained through the acquisition of the
Macmillan/McGraw-Hill School Publishing Company and expected flat postal
rates. Compensation costs are expected to be up about 4.3% as a result of merit
increases.
Effective in 1993, the company changed its healthcare plan for
future retirees which contributed to a reduction in 1993 expense of $4.4
million after tax or 9 cents per share.
The change in accounting for the cost of postretirement healthcare
and life insurance benefits increased 1992 expense by $12.7 million before
taxes and reduced income before the cumulative adjustment by $7.3 million after
tax or 15 cents per share. The accounting change for postemployment benefits
did not have a significant impact on 1992 expense.
INTEREST EXPENSE
Net interest expense in 1993 was $36.3 million compared to $37.6 million in
1992, a decrease of $1.3 million, because of a decline in interest rates on
commercial paper borrowings, partially offset by increased fourth quarter
borrowings due to the acquisition of the additional 50% of the
Macmillan/McGraw-Hill School Publishing Company. In 1992, net interest expense
decreased $9.4 million because of the decline in interest rates on commercial
paper borrowings and lower borrowing levels.
Interest expense in 1994 will increase reflecting the full year
impact of the borrowings for the Macmillan/McGraw-Hill acquisition.
PROVISION FOR INCOME TAXES
The provision for taxes as a percent of income before taxes was 41.8% in 1993
excluding the impact of unusual charges and related tax benefits of $69
million. The 1993 rate was impacted by a reduction in the state effective tax
rate due to a restructuring of subsidiaries, partially offset by the increase
in the federal tax rate. The rate was 42.7% in 1992.
SEGMENT REVIEW
The company realigned its segments in 1993 to include Broadcasting and Tower
Group International in the renamed Information and Media Services segment.
Tower Group International was formerly included in the Financial Services
segment. Management believes these segments better reflect the company's
present operations and business strategies. Broadcasting and Tower Group
International are now aligned with the company's advertising and information
based busi-
25
<PAGE> 21
nesses, respectively. Prior years have been restated to reflect the change.
INFORMATION AND MEDIA SERVICES
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
- ------------- ------ ------ ------
<S> <C> <C> <C>
Operating Revenue $831.1 $865.6 $854.7
% Increase/(Decrease) (4.0) 1.3 (4.8)
------ ------ ------
Operating Profit $102.3 $113.2 $120.2
% (Decrease) (9.6) (5.8) (29.6)
------ ------ ------
% Operating Margin 12 13 14
====== ====== ======
</TABLE>
The Information and Media Services segment is comprised of five market focus
groups: Construction Information, Business Week, Publication Services
(including Computers and Communications Information, Aviation Week, Healthcare
Publications and Science and Technology), Broadcasting and Tower Group
International.
The Information and Media Services segment's revenues decreased 4%
in 1993 and operating profit dropped $10.9 million or 9.6% to $102.3 million.
In 1992, revenue increased 1.3% and operating profits declined 5.8% to $113.2
million.
The Construction Information Group accounts for 30% of 1993 segment
revenue. The Group's revenue and profits declined further due to the continuing
depressed construction market impacting Dodge, Sweet's and the construction
magazines. Sweet's was negatively impacted by declines in advertising by
building product manufacturers. Overall construction contract award data was up
5% over 1992; however, the non-residential sectors, more relevant to this
business, were down 2%. While traditional product sales suffered, the Group
continues to launch electronic-based products, which are progressing well. In
1994, there are cautious expectations for improvement dependent on both the
economic turnaround and the benefits of our investments in improving the
Group's customer focused strategy. The contract value of total non-residential
building is expected to increase in 1994, and other key areas related to the
business (transportation, environmental and utilities construction) are also
expected to improve. In 1992, the Group's revenue and profit declined,
reflecting the lagging impact on Dodge and Sweet's of the depressed
construction market of previous years.
The Business Week Group's revenue represents 23% of 1993 segment
revenue. The Group's revenue and profit declined due to a decrease of 2.4% in
advertising pages as measured by the Publishers Information Bureau (PIB). This
overall figure, while down, is somewhat misleading since PIB pages were down
12.5% in the first half of 1993 but rebounded in the second half with pages up
7.1%. There were significant declines in advertising pages placed in
international editions. Advertising prospects for 1994 remain dependent upon
the continued strength of domestic corporate profits and an end to economic
recession in Europe and Japan. In 1992, the Group recorded higher revenue and
profits despite a 4% drop in advertising pages due to strong circulation
performance, cost controls and improved revenue per page.
The Publication Services Group accounts for 28% of 1993 segment
revenue. Revenues declined 6% mainly due to shrinking markets and recessionary
pressures. Profits increased significantly, reflecting very effective cost
containment and downsizing. This lower cost structure, combined with fourth
quarter cyclical improvement in the business environment, produced strong
profit performance.
Revenue for the Computers and Communications Information Group was
below 1992 primarily due to fewer advertising pages for the year at BYTE and a
lower subscriber base at Datapro. This year-to-year revenue decline was
partially offset by increased revenues at LAN Times and Open Computing. In
1993, the Group's profit rose sharply due to effective cost management. In
addition, the Group continued its shift to electronic product delivery
primarily via Datapro's CD-ROM product offerings. In 1994, the Group
anticipates some improvement in its markets as systems integrators,
distributors and value added resellers are expected to be strong performers. In
1992, revenue declined moderately and profits dropped substantially reflecting
reduced advertising pages for most of the Group's magazines and a declining
subscriber base at Datapro.
The Aviation Week Group ended a difficult year with significant
growth in profits despite a small decline in revenue. Aviation Week's display
advertising pages rose slightly in 1993 thereby helping to offset declines in
circulation revenues, which reflect the continuing slide in industry
employment. The growth in profits reflects major restructuring efforts
resulting in reduced costs. The market continues to be soft in the United
States and around the world, with little change envisioned in 1994. The
projections are: United States sales in civil aircraft will be down, military
sales also will be off, while the space industry will be essentially flat. The
United States industry employment is projected to decline 5% in 1994 following
a 13% decline in 1993. In 1992, Aviation Week Group revenue and operating
profit dropped significantly. Advertising pages declined as all market sectors
continued to be negatively impacted by the overall economic conditions,
downsizing of defense, upheaval in the airline industry, and slow growth in
space technology.
The Healthcare Publications' revenues and profits declined in 1993
due to severe regulatory and promotional pressures in the pharmaceutical
industry and a dearth of new drug introductions. The Group introduced products
for the patient/consumer, which partially offset declines in the traditional
advertising-supported physician publications, Postgraduate Medicine and The
Physician and Sportsmedicine. Healthcare reform creates uncertainties for
1994. In 1992, the Group turned in a record performance driven by advertising
associated with the fast pace of new drug introductions.
26
<PAGE> 22
Revenues and profits for the Science and Technology Group were down
in 1993 versus 1992 due to the sluggish global economy. During 1993, the Group
continued to redesign its buyers' guides and convert to electronic databases.
Innovative sales and marketing programs were developed to strengthen the
position of all magazines in the Group. A wide range of new products were
launched to serve the energy marketplace including a Power Russian edition and
five new newsletters. In 1994, the Plastics Group should benefit from the
largest United States trade show which is held every three years. In 1992, the
Group reported a modest increase in revenue and a slight drop in profits.
Broadcasting accounts for 12% of 1993 segment revenue. The
Broadcasting Group operates four television stations: VHF stations in Denver,
Indianapolis and San Diego and a UHF station in Bakersfield, California.
Revenue and operating profit were adversely impacted in 1993 by the lack of
political advertising. The continuing recession in Southern California also had
a negative effect on sales in San Diego and Bakersfield. Revenue growth in
Denver, as a result of improved audience share, fueled a substantial increase
in profit at that station. In 1994, an economic upturn and political spending
should benefit this Group. In 1992, revenues and operating profits increased
due to record levels of political advertising and improved audience share in
Denver, partially offset by poorer performance in San Diego due to the impact
on the local economy of cutbacks in the defense industry.
Tower Group International represents 7% of 1993 segment revenue. The
Group's strong revenue growth continued in 1993 due to the full year effect of
the acquisition of Geo. S. Bush & Co. in 1992 and the acquisition of Union
Brokerage Company in 1993. Solid transaction growth was due to strong market
conditions for imports, while exports were hampered by recessions in Europe and
Japan. Profits declined due to competitive pressures which produced price
reductions. In 1994, growth is anticipated in international trade as global
companies turn to foreign markets to source goods and seek new buyers for their
products. Import growth is expected to outpace export growth. Third party
logistics services and logistical information services are emerging revenue
sources. Tower showed strong revenue growth in 1992 with slower profit growth
due to competitive pricing pressures and higher processing costs.
EDUCATIONAL AND PROFESSIONAL PUBLISHING
<TABLE>
<CAPTION>
(in millions) 1993(a) 1992 1991
- ------------- ------ ------ ------
<S> <C> <C> <C>
Operating Revenue $667.5 $567.4 $532.5
% Increase/(Decrease) 17.6 6.6 (0.4)
------ ------ ------
Operating Profit $ 49.4 $ 62.7 $ 48.9
% Increase/(Decrease) (21.2) 28.2 (30.3)
------ ------ ------
% Operating Margin 7 11 9
====== ====== ======
</TABLE>
(a) Includes School Publishing revenues of $90.7 million and operating loss of
$13.8 million for the fourth quarter.
The Educational and Professional Publishing segment consists of four market
focus groups: Professional Publishing (including International Publishing,
Continuing Education Center, Professional Book and Medical Publishing),
College, Legal Information and School Publishing (Macmillan/McGraw-Hill School
Publishing Company). School Publishing is only included in the segment results
for the fourth quarter of 1993, the period that McGraw-Hill owned 100%.
The Educational and Professional Publishing segment revenue increased
17.6% in 1993. The increase in revenue is 1.6% without the impact of School
Publishing. Operating profit declined 21.2% due to the impact of School
Publishing's fourth quarter loss, a traditional loss quarter for school
publishers. Operating profits increased 0.7% excluding the impact of School
Publishing. In 1992, revenues increased 6.6% and operating profits increased
28.2% led by strong performances by the international, medical and professional
book operations.
The Professional Publishing Group accounts for 51% of 1993 segment
revenues, 59% excluding the fourth quarter revenues for School Publishing. The
Professional Publishing Group revenues remained flat with last year, despite
the adverse impact of recession, economic sluggishness and currency devaluation
in several major markets. The International Publishing unit performed well
keeping pace with last year's record setting revenues and profits. Asia and the
Ibero-America sectors turned in strong performances due to the economic growth
of those regions and our aggressive pursuit of those growth opportunities. The
Medical Publishing unit's revenues and profits remained flat due to the
economic climate. The Continuing Education Center increased revenue in spite of
the low level of consumer confidence. However, profits declined due to
increased costs in obtaining new customers. The Professional Book unit's
products in business, computing and engineering performed well, but overall
revenue declined due to the nonrecurring benefit gained by the publication of
"The Encyclopedia of Science & Technology," 7th Edition a year earlier.
Operating profits for the Professional Book Group showed double-digit growth as
efficiencies were gained in all facets of the operations. In 1994, market
conditions should improve slightly overall as the world's economic situation
improves. In 1992, Professional Publishing achieved 8% revenue growth and
profits more than doubled, led by the Ibero-America unit of International,
strong profit growth in Medical Publishing and the strong contribution of "The
Encyclopedia of Science & Technology," 7th Edition.
The College Group accounts for approximately 21% of 1993 segment
revenues, 24% excluding the fourth quarter revenues for School Publishing. For
1993, College revenues were flat reflecting a weaker than expected frontlist
performance. Stronger revenues from Primis and Custom Publishing partially
offset softer than anticipated Accounting and Business frontlist sales.
Operating profits were lower primarily as a result
27
<PAGE> 23
of higher prepublication costs. In 1994, revenue is expected to decline due to
a smaller frontlist. Expense reduction actions should partially offset the
lower revenue. In 1992, College revenues increased modestly but operating
profits were lower primarily as a result of increased postretirement expenses.
The Legal Group (Shepard's) accounts for approximately 14% of 1993
segment revenues, 17% excluding the fourth quarter revenues for School
Publishing. Shepard's revenue grew significantly in 1993 as a direct result of
the publication of five new major citator revisions, continued strong
performance by new citator CD-ROM products, and the release of the Group's
first primary law publication, "California Civil Practice Statutes and Rules."
Profits grew at a rate less than revenue because Shepard's incurred certain
one-time costs due to the growth in the topical publishing business. Shepard's
projects an increase in overall legal information spending in the range of 2-3%
in 1994. In 1992, the Group's revenue also grew significantly due to citator
revisions, new editions of highly successful legal treatises, and strong sales
from its new "Express Citations" product line. Profits in 1992 were flat due to
planned expenditures in sales, marketing and editorial resources, plus the
investment in a new integrated business system and Citation database.
School Publishing is included in the segment results for the fourth
quarter only, reflecting McGraw-Hill's acquisition of the additional 50%
interest in early October. School Publishing accounts for 14% of 1993 segment
revenues. Revenues for the quarter increased 11.8% from the prior year while
the operating loss improved significantly reflecting reduced goodwill
amortization, primarily due to the 1993 unusual charges, and operating costs
partially offset by increased prepublication cost amortization.
FINANCIAL SERVICES
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
- ------------- ------ ------ ------
<S> <C> <C> <C>
Operating Revenue $696.9 $617.5 $555.8
% Increase 12.8 11.1 9.9
------ ------ ------
Operating Profit $200.9 $168.4 $143.1
% Increase 19.3 17.7 15.4
------ ------ ------
% Operating Margin 29 27 26
====== ====== ======
</TABLE>
The Financial Services segment consists of two market focus groups: Standard &
Poor's Ratings Group and Financial Information Services Group, which comprises
S&P Information, J.J. Kenny, and DRI/McGraw-Hill.
Financial Services revenue increased 12.8% and operating profit rose
19.3% to $200.9 million in 1993. In 1992, the segment's revenue grew 11.1% and
operating profit rose 17.7%.
The S&P Ratings Group experienced record revenue and earnings as a
result of record new issues and refinancing activity in both Corporate and
Municipal bond markets. Continued worldwide expansion and implementation of new
initiatives also contributed to 1993's performance. Publishing Services, a
smaller but growing unit of the Group, had excellent revenue and profit growth
due to new electronic products. The forecasted decline in new issue and bond
volumes from 1993 levels will influence 1994 financial performance. S&P Ratings
also posted strong growth in 1992 due largely to increased new issue volume in
the U.S. as a result of low interest rates.
The Financial Information Services Group was formed in 1993 through
the integration of the S&P Information Group, J.J. Kenny and DRI/McGraw-Hill.
The Group achieved revenue growth but profits declined due to a poor
performance at DRI. Initial public offerings and the continued decline in
interest rates fueled the equity markets, producing revenues from trading
activities and information products sold to financial institutions. Low
interest rates, coupled with the federal government's deficit reduction
program, added strength to the municipal markets, improving trading and other
revenue at J.J. Kenny. The new administration and slower than anticipated
economic growth had a negative impact on DRI/McGraw-Hill, which had
disappointing financial results as revenue from consulting decreased
significantly from last year. New product development, growth in international
markets and the continued demand for accurate and timely information products
and services should benefit the Financial Information Services Group in 1994.
The Group had good revenue and profit growth in 1992, reflecting positive
market conditions, lower interest rates and new index products.
28
<PAGE> 24
MACMILLAN/MCGRAW-HILL SCHOOL PUBLISHING COMPANY
<TABLE>
<CAPTION>
(in millions) 1993(a) 1992 1991
- ------------- ------ ------ ------
<S> <C> <C> <C>
Operating Revenue $526.7 $504.9 $533.2
------ ------ ------
Operating Profit $ 68.4 $ 36.9 $ 69.0
------ ------ ------
% Operating Margin 13 7 13
------ ------ ------
Net Profit before Partners'
Income Taxes $ 54.2 $ 19.1 $ 51.5
------ ------ ------
McGraw-Hill's Share of Profit $ 28.4 $ 11.3 $ 27.5
====== ====== ======
</TABLE>
(a) 1993 results reflected above are for the nine months ended September 30,
1993, the period McGraw-Hill owned 50%. Fourth quarter results are included in
the Educational and Professional Publishing segment.
On October 4, 1993, the company purchased the 50% interest in the
Macmillan/McGraw-Hill School Publishing Company owned by Macmillan, Inc., a
subsidiary of Maxwell Communication, Inc., for $337.5 million in cash. The
company and Macmillan had each owned 50% of Macmillan/McGraw-Hill through
wholly-owned subsidiaries. Macmillan/McGraw-Hill operated as a joint venture
partnership which was formed in 1989 to combine the company's and Macmillan's
elementary, secondary and vocational education and test publishing businesses.
McGraw-Hill's 50% share of the Macmillan/McGraw-Hill School
Publishing Company's profits for 1993 includes only the first three quarters
prior to full ownership. The 1993 share increased to $28.4 million from $11.3
million in 1992. The increase reflects the improved 1993 adoption cycle and the
exclusion of the 1993 fourth quarter loss which is included in McGraw-Hill's
consolidated results.
Macmillan/McGraw-Hill is comprised of four divisions: School,
publisher of textbooks and instructional materials for elementary (grades K-8)
schools; Glencoe, secondary school (grades 7-12) publisher; California Testing
Bureau (CTB), producer of publications and provider of scoring for standardized
achievement tests, customized testing and specialized educational software
products; and Science Research Associates (SRA), developer of supplementary
elementary and secondary instructional materials.
For the full year 1993, Macmillan/McGraw-Hill revenue grew 22.3% to
$617.4 million. Operating profit increased 48.0% to $54.6 million. The revenue
growth resulted from the successful introduction of several new elementary and
high school programs and a favorable state adoption year. The new elementary
reading program exceeded expectations in Texas, the largest state adoption in
1993. Operating profit in 1993 also improved due to the absence of charges
recorded in 1992 for consolidation of certain facilities and operations. In
1994, revenue is expected to decline due to an unfavorable adoption cycle.
Operating profit is expected to be maintained at the 1993 level as a result of
cost reduction measures, including the impact of the unusual charges. The
adoption cycle will be favorable in 1995 and remains positive through 1997.
In 1992, McGraw-Hill's share of the joint venture's profit was $11.3
million, a drop of $16.2 million from 1991. The joint venture's total revenue
was $504.9 million, a decline of 5.3% from the preceding year, as a result of
unfavorable elementary adoptions in major states, reduced funding and budgetary
constraints. Profit was also impacted by one-time charges for relocating the
venture's headquarters, centralizing accounting and administrative functions,
consolidating certain warehousing facilities and merging customer service
operations. Consequently, operating profit dropped $32.1 million or 46.5%.
FINANCIAL CONDITION
<TABLE>
<CAPTION>
(in millions) 1993 1992
- ------------- ------ ------
<S> <C> <C>
Working Capital $ 62.9 $ (19.6)(a)
------ -------
Total Debt $928.7 $ 483.0
------ -------
Accounts Receivable (before reserves) $791.4 $ 669.5
% Increase 18 2
------ -------
Inventories $215.2 $ 98.6(a)
% Increase/(Decrease) 118 (8)
------ -------
Purchases of Property and Equipment $ 49.8 $ 55.9
% Increase/(Decrease) (11) 9
====== =======
</TABLE>
(a) Amounts restated to reflect reclassification of prepublication costs of
$89.9 million from inventory to a separate non-current category to conform with
current industry practice.
The December 31, 1993 balance sheet includes the assets and liabilities of the
Macmillan/McGraw-Hill School Publishing Company, reflecting McGraw-Hill's 100%
ownership. As a result, total assets increased from $2.5 billion at the end of
1992 to $3.1 billion at the end of 1993.
The company continues to maintain a strong financial position. Cash
flow from operations increased $162 million to $466 million in 1993, which was
sufficient to cover dividends and outlays for the purchase of property and
equipment, and reduce commercial paper borrowings, excluding borrowings for the
acquisition of Macmillan/McGraw-Hill. A significant amount of the increase in
1993 operating cash flow relates to collections of the Macmillan/McGraw-Hill
accounts receivables that were acquired in the acquisition.
Working capital at the end of 1993 of $62.9 million was $82.5
million above the restated level at the end of 1992 reflecting the
consolidation of Macmillan/McGraw-Hill.
In 1993, total debt increased $445.7 million, including $337.5
million for the purchase of Macmillan's interest in Macmillan/McGraw-Hill and
$334.4 million of debt assumed with the acquisition. Shortly after the
acquisition, McGraw-Hill prepaid $120 million of Macmillan/McGraw-Hill notes
payable and replaced that debt with commercial paper borrowings. In 1992, total
debt decreased $85.2 million, primarily due to a reduction in commercial paper
borrowings of $77.6 million.
Continued on page 32
29
<PAGE> 25
TEN-YEAR FINANCIAL REVIEW
<TABLE>
<CAPTION>
(in thousands,
except per-share items) 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
- ----------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS BY SEGMENT
AND INCOME STATISTICS
OPERATING REVENUE (Note a)
Information and Media Services $831,076 $865,573 $854,754 $898,273 $872,983 $836,734 $801,352 $741,891 $714,080 $707,935
Educational and Professional
Publishing 667,444 567,363 532,438 534,724 483,666 437,590 408,252 327,903 318,853 302,191
Financial Services 696,933 617,555 555,820 505,641 432,314 399,242 390,131 357,998 327,422 266,296
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total operating revenue 2,195,453 2,050,491 1,943,012 1,938,638 1,788,963 1,673,566 1,599,735 1,427,792 1,360,355 1,276,422
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
OPERATING PROFIT (Notes a and d)
Information and Media Services 102,344 113,198 120,242 170,788 192,254 175,384 176,564 166,679 158,219 173,498
Educational and Professional
Publishing 49,374 62,746 48,928 70,196 44,107 48,185 30,464 37,109 34,328 33,010
Financial Services 200,865 168,394 143,056 123,999 85,081 81,765 81,557 81,558 72,088 54,965
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL OPERATING PROFIT 352,583 344,338 312,226 364,983 321,442 305,334 288,585 285,346 264,635 261,473
Share of profit of Macmillan/
McGraw-Hill School Publishing
Company (Notes b and d) 28,376 11,280 27,483 21,601 13,688 2,349 11,585 30,037 29,461 28,162
Unusual charges (Notes c and d) (229,800) -- -- -- (220,000) (149,564) -- -- -- --
Gain on sale of interest in
Nikkei/McGraw-Hill (Note e) -- -- -- -- -- 221,783 -- -- -- --
General corporate (expense)/
income (Notes d and f) (48,538) (50,774) (34,415) (28,370) 6,546 5,005 3,418 (23,519) (17,609) (18,720)
Interest (expense)/income--net (36,342) (37,557) (46,987) (55,627) (35,038) (5,290) (4,506) 3,915 7,840 10,669
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
INCOME BEFORE TAXES ON INCOME 66,279 267,287 258,307 302,587 86,638 379,617 299,082 295,779 284,327 281,584
Provision for taxes on income 54,838 114,132 110,297 130,112 46,847 194,112 134,288 141,770 136,923 137,413
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
INCOME BEFORE CUMULATIVE
ADJUSTMENT 11,441 153,155 148,010 172,475 39,791 185,505 164,794 154,009 147,404 144,171
Cumulative effect on prior years
of changes in accounting
(Note g) -- (124,587) -- -- 8,000 -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET INCOME $11,441 $28,568 $148,010 $172,475 $47,791 $185,505 $164,794 $154,009 $147,404 $144,171
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
EARNINGS PER SHARE
Income before cumulative
adjustment $0.23 $3.13 $3.03 $3.53 $0.82 $3.83 $3.27 $3.04 $2.92 $2.86
Cumulative adjustment (Note g) -- (2.55) -- -- 0.16 -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net income $0.23 $0.58 $3.03 $3.53 $0.98 $3.83 $3.27 $3.04 $2.92 $2.86
Shares used to calculate
earnings per share 49,189 48,889 48,821 48,819 48,725 48,475 50,410 50,651 50,541 50,410
Dividends per share of
common stock $2.28 $2.24 $2.20 $2.16 $2.00 $1.84 $1.68 $1.52 $1.40 $1.24
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
OPERATING STATISTICS
Return on average shareholders'
equity (Note h) 1.3% 17.2% 15.2% 18.8% 5.3% 21.2% 19.5% 18.8% 20.0% 21.9%
Income before taxes as a percent
of revenue 3.0 13.0 13.3 15.6 4.8 22.7 18.7 20.7 20.9 22.1
Income before cumulative
adjustment as a percent
of revenue 0.5 7.5 7.6 8.9 2.7 11.1 10.3 10.8 10.8 11.3
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
BALANCE SHEET STATISTICS
Working capital (Note i) $62,887 $(19,596) $29,543 $44,193 $22,743 $(72,023) $(66,214) $65,641 $163,236 $125,472
Inventories (Note i) 215,228 98,613 107,658 114,660 104,391 95,549 74,782 73,826 71,944 70,669
Purchases of property and
equipment 49,808 55,922 51,223 95,834 58,016 41,176 50,777 42,081 48,538 47,202
Total assets 3,084,163 2,508,140 2,515,544 2,534,708 2,208,249 1,729,562 1,619,935 1,446,588 1,257,735 1,160,538
Total debt 928,710 482,991 568,159 622,372 503,434 148,434 186,476 56,403 5,932 4,484
Shareholders' equity 823,008 908,760 998,975 954,260 880,154 922,803 825,265 861,418 776,674 697,931
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
NUMBER OF EMPLOYEES 15,661 13,393 13,539 13,868 13,741 13,891 13,879 13,257 13,027 13,338
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
(a) In 1993, the company realigned its segments by combining the Broadcasting
segment and Tower Group International operations with the Information and
Publication Services businesses into one segment, Information and Media
Services. Revenue and operating profit by segment for prior years have been
restated to reflect the change.
(b) Reflects McGraw-Hill's share of profit of Macmillan/McGraw-Hill School
Publishing Company through September 30, 1993. Macmillan/McGraw-Hill results
are consolidated effective October 1, 1993 in the Educational and Professional
Publishing segment.
(c) 1993 amount reflects unusual charges in connection with the acquisition of
the additional 50% interest in Macmillan/McGraw-Hill.
(d) 1989 and 1988 amounts exclude unusual charges of $220 million and $149.6
million, respectively, as follows:
<TABLE>
<CAPTION>
1989 1988
-------- --------
<S> <C> <C>
Information and Media Services $ 15,554 $ 29,009
Educational and Professional Publishing 33,140 20,534
Financial Services 94,899 67,155
-------- --------
Total operating segments 143,593 116,698
Macmillan/McGraw-Hill joint venture units -- 7,866
Corporate expense 76,407 25,000
-------- --------
Total company $220,000 $149,564
======== ========
</TABLE>
(e) In May 1988, the company sold its 49% interest in Nikkei/McGraw-Hill, Inc.,
a magazine publishing operation in Japan, for $283.1 million. The gain on sale
was $221.8 million ($109.8 million after taxes).
(f) General corporate income for 1989 includes gains on dispositions of
businesses totaling $48.8 million, 1988 includes gains on dispositions of $26.5
million and 1987 includes gains from the settlement of a portion of the
company's pension obligation of $20.1 million.
(g) The cumulative adjustment in 1992 reflects the adoption of the provisions
of Statement of Financial Accounting Standards (SFAS) No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions, and SFAS
No. 112, Employers' Accounting for Postemployment Benefits. See Notes 14 and
15. In 1989, the company recognized the cumulative effect of a change in
accounting for income taxes under SFAS 96.
(h) Return on average shareholders' equity for 1992 is based on income before
cumulative adjustment and average shareholders' equity after reflecting the
cumulative adjustment in the beginning balance.
(i) Amounts restated for 1984-1992 to reflect reclassification of
prepublication costs from inventory to a non-current asset.
30 31
<PAGE> 26
McGraw-Hill, Inc.'s commercial paper borrowings at December 31,
1993 were $667.7 million. This debt is supported by a $500 million revolving
credit agreement with a group of banks terminating in November 1997, and $500
million has been classified as long-term. The company has four other revolving
credit agreements that terminate in 1994 totaling $350 million.
The company has $250 million of 9.43% senior notes due in the year
2000. Under a shelf registration which became effective with the Securities and
Exchange Commission in mid-1990, the company can issue an additional $250
million of debt securities. The company is considering the issuance of
additional debt under this registration in 1994 to replace a portion of its
commercial paper borrowings with longer term securities.
Accounts receivable (before reserves) increased $121.9 million as a
result of the inclusion of Macmillan/McGraw-Hill receivables totalling $117
million. The year-to-year rise in revenue was offset by successful collection
efforts. Excluding the impact of School Publishing, number of days sales
outstanding as represented by accounts receivable, a key indicator of
collection efficiency, was 72 days at year-end which is a one day improvement
compared to last year. During the course of the year, days sales outstanding
averaged a 3-day improvement over 1992. This demonstrates that receivables
continue to be managed effectively despite difficult economic conditions.
Collection efforts in the fourth quarter on School Publishing receivables from
the peak selling season have been very successful.
Finished goods and work-in-process inventories increased $116.6
million, primarily due to the inclusion of $119.1 million for
Macmillan/McGraw-Hill. A decline of 3.2% for McGraw-Hill excluding School
Publishing reflects effective inventory controls at College and Professional
Publishing, partially offset by growth in inventory volumes in Mexico, a key
growth market.
Purchases of property and equipment totaled $49.8 million in 1993,
$55.9 million in 1992 and $51.2 million in 1991. In 1993, there were
significant expenditures for computer equipment to upgrade the information
processing capabilities of a number of market focus groups. In 1992, there were
significant expenditures for computer equipment and for the purchase of a
building outside Denver. Purchases of property and equipment in 1994 are
expected to increase reflecting the full year impact of School Publishing as
well as purchases related to the integration of School Publishing with
McGraw-Hill's publishing operations.
In 1994, the company expects that cash flow from operations will be
sufficient to cover dividends and capital expenditures and reduce debt further.
The quarterly common stock dividend was increased by one cent in the first
quarter of 1994 to 58 cents per share.
32
<PAGE> 27
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Years ended December 31 (in thousands, except per-share items) 1993 1992 1991
- -------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
OPERATING REVENUE $2,195,453 $2,050,491 $1,943,012
---------- ---------- ----------
EXPENSES:
Operating 1,128,581 1,039,071 978,424
Selling and general 774,160 727,314 695,014
---------- ---------- ----------
TOTAL EXPENSES 1,902,741 1,766,385 1,673,438
Share of profit of Macmillan/McGraw-Hill School
Publishing Company (Note 4) 28,376 11,280 27,483
Unusual charges related to acquisition of additional 50%
of Macmillan/McGraw-Hill School Publishing Company (Note 4) (229,800) -- --
Other income--net 11,333 9,458 8,237
---------- ---------- ----------
INCOME FROM OPERATIONS 102,621 304,844 305,294
Interest expense--net (36,342) (37,557) (46,987)
---------- ---------- ----------
INCOME BEFORE TAXES ON INCOME 66,279 267,287 258,307
Provision for taxes on income (Note 5) 54,838 114,132 110,297
---------- ---------- ----------
INCOME BEFORE CUMULATIVE ADJUSTMENT 11,441 153,155 148,010
Cumulative effect on prior years of changes in accounting
for postretirement and postemployment benefits (Notes 14 and 15) -- (124,587) --
---------- ---------- ----------
NET INCOME $ 11,441 $ 28,568 $ 148,010
---------- ---------- ----------
EARNINGS PER COMMON SHARE (Note 6)
Income before cumulative adjustment $ .23 $ 3.13 $ 3.03
Cumulative adjustment -- (2.55) --
---------- ---------- ----------
Net income $ .23 $ .58 $ 3.03
Average number of common shares outstanding during year 49,189 48,889 48,821
========== ========== ==========
</TABLE>
See accompanying notes.
33
<PAGE> 28
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31 (in thousands) 1993 1992
- -------------------------- ---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents (Note 7) $ 47,953 $ 13,228
Accounts receivable (net of allowance for doubtful accounts:
1993--$79,461; 1992--$80,768) 711,919 588,743
Receivable from broker-dealers and dealer banks (Note 1) 19,136 28,825
Inventories:
Finished goods 166,584 67,479
Work-in-process 29,259 11,743
Paper and other materials 19,385 19,391
---------- ----------
Total inventories 215,228 98,613
Prepaid income taxes 92,912 42,622
Prepaid and other current assets 44,634 49,077
---------- ----------
Total current assets 1,131,782 821,108
---------- ----------
PREPUBLICATION COSTS (net of accumulated amortization:
1993--$282,052; 1992--$157,890) (Note 1) 285,445 89,911
INVESTMENTS AND OTHER ASSETS
Investment in Macmillan/McGraw-Hill School Publishing Company--at equity (Note 4) -- 511,155
Investment in Rock-McGraw, Inc.--at equity (Note 8) 53,077 50,757
Prepaid pension expense 87,655 77,742
Other 159,861 119,198
---------- ----------
Total investments and other assets 300,593 758,852
---------- ----------
PROPERTY AND EQUIPMENT--AT COST
Land 13,544 10,501
Buildings and leasehold improvements 286,605 240,341
Equipment and furniture 453,303 418,733
---------- ----------
Total property and equipment 753,452 669,575
Less--accumulated depreciation 408,126 384,925
---------- ----------
Net property and equipment 345,326 284,650
---------- ----------
GOODWILL AND OTHER INTANGIBLE ASSETS--AT COST
(net of accumulated amortization and write-downs: 1993--$308,548;
1992--$213,004) (Notes 1, 2 and 4) 1,021,017 553,619
---------- ----------
$3,084,163 $2,508,140
========== ==========
</TABLE>
See accompanying notes.
34
<PAGE> 29
<TABLE>
<CAPTION>
December 31 (in thousands) 1993 1992
- -------------------------- ---------- ----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable (Note 9) $ 170,780 $ 124,206
Accounts payable 178,466 130,951
Payable to broker-dealers and dealer banks (Note 1) 18,695 25,787
Accrued royalties 57,508 37,514
Accrued compensation and contributions to retirement plans 124,648 91,568
Income taxes currently payable 42,783 38,548
Unearned revenue 248,036 220,652
Other current liabilities 227,979 171,478
---------- ----------
Total current liabilities 1,068,895 840,704
---------- ----------
OTHER LIABILITIES
Long-term debt (Note 9) 757,567 358,705
Deferred income taxes 119,548 109,703
Accrued postretirement healthcare and other benefits 190,985 186,263
Other non-current liabilities 124,160 104,005
---------- ----------
Total other liabilities 1,192,260 758,676
---------- ----------
Total liabilities 2,261,155 1,599,380
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 8 and 10)
---------- ----------
SHAREHOLDERS' EQUITY (Notes 11 and 12)
$1.20 preference stock 16 16
Common stock 51,459 51,459
Additional paid-in capital 63,512 59,404
Retained income 834,250 934,642
Foreign currency translation adjustments (28,577) (21,751)
---------- ----------
920,660 1,023,770
Less--common stock in treasury--at cost 87,687 99,448
unearned compensation on restricted stock 9,965 15,562
---------- ----------
Total shareholders' equity 823,008 908,760
---------- ----------
$3,084,163 $2,508,140
========== ==========
</TABLE>
35
<PAGE> 30
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31 (in thousands) 1993 1992 1991
- -------------------------------------- --------- ---------- ----------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 11,441 $ 28,568 $ 148,010
Adjustments to reconcile net income to cash provided by operating activities:
Unusual charges related to acquisition of additional 50%
of Macmillan/McGraw-Hill School Publishing Company (Note 4) 229,800 -- --
Cumulative effect of changes in accounting (Notes 14 and 15) -- 124,587 --
Depreciation 54,941 51,325 48,884
Amortization of goodwill and intangibles 27,939 22,994 23,235
Amortization of prepublication costs 56,739 44,900 37,681
Provision for losses on accounts receivable 60,401 64,067 61,972
Undistributed share of profit of Macmillan/McGraw-Hill
joint venture (Note 4) (26,318) (2,030) (3,483)
Undistributed earnings of other affiliates (3,072) (2,515) (2,332)
Other 4,306 6,557 7,227
Change in assets and liabilities net of effect of acquisitions and dispositions:
Decrease/(increase) in accounts receivable 79,403 (66,313) (70,448)
Decrease in inventories 11,258 1,139 8,478
Decrease/(increase) in prepaid and other current assets 6,909 1,627 (1,126)
Increase/(decrease) in accounts payable and accrued expenses 7,822 20,642 (213)
Increase in unearned revenue 17,376 20,906 12,159
(Decrease)/increase in other current liabilities (15,636) 12,816 (3,187)
Increase/(decrease) in interest and income taxes currently payable 4,746 (2,565) 604
(Decrease)/increase in prepaid/deferred income taxes (39,141) 32,857 54,046
Net change in other assets and liabilities (23,358) (55,991) (62,754)
--------- ---------- ----------
Cash provided by operating activities 465,556 303,571 258,753
--------- ---------- ----------
INVESTING ACTIVITIES
Purchase of property and equipment (49,808) (55,922) (51,223)
Investment in prepublication costs (74,489) (52,485) (50,130)
Acquisition of businesses and equity interests (Notes 2 and 4) (323,913) (17,242) (14,854)
Disposition of businesses -- 6,547 5,300
Disposition of property and equipment 492 920 11,079
Other -- 3,432 3,161
--------- ---------- ----------
Cash used for investing activities (447,718) (114,750) (96,667)
--------- ---------- ----------
FINANCING ACTIVITIES
Dividends paid to shareholders (111,833) (109,386) (107,272)
Debt for acquisition of Macmillan/McGraw-Hill 337,500 -- --
Repayment of commercial paper and other short-term debt--net (105,611) (81,669) (59,184)
(Repayment of)/additions to long-term debt--net (120,390) (2,434) 197
Exercise of stock options 19,047 4,718 2,526
Other (558) (1,591) (2,129)
--------- ---------- ----------
Cash provided by/(used for) financing activities 18,155 (190,362) (165,862)
--------- ---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,268) (1,860) (206)
--------- ---------- ----------
Net change in cash and equivalents 34,725 (3,401) (3,982)
Cash and equivalents at beginning of year 13,228 16,629 20,611
--------- ---------- ----------
CASH AND EQUIVALENTS AT END OF YEAR $ 47,953 $ 13,228 $ 16,629
========= ========== ==========
</TABLE>
See accompanying notes.
36
<PAGE> 31
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Less--
Foreign unearned
Years ended December 31, 1993, $1.20 Additional currency Less--common stock compensation
1992 and 1991 preference Common paid-in Retained translation in treasury--at cost on restricted
(in thousands, except shares) $10 par $1 par capital income adjustments Shares Amount stock Total
- ------------------------------ ---------- ------ ---------- -------- ----------- ---------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1991 $ 17 $51,454 $58,338 $ 974,722 $ (5,977) 2,526,633 $107,937 $16,357 $954,260
Net income -- -- -- 148,010 -- -- -- -- 148,010
Dividends -- -- -- (107,272) -- -- -- -- (107,272)
Exercise of stock options -- -- 10 -- -- (57,477) (2,516) -- 2,526
Issuance of restricted stock -- -- 894 -- -- (102,660) (4,489) 5,383 --
Restricted stock expense
and forfeitures -- -- (363) -- -- 27,744 1,212 (3,688) 2,113
Foreign currency translation
adjustments--net -- -- -- -- 144 -- -- -- 144
Other -- 1 25 -- -- 15,375 832 -- (806)
---- ------- ------- --------- --------- --------- -------- ------- --------
BALANCE AT DECEMBER 31, 1991 17 51,455 58,904 1,015,460 (5,833) 2,409,615 102,976 18,052 998,975
Net income -- -- -- 28,568 -- -- -- -- 28,568
Dividends -- -- -- (109,386) -- -- -- -- (109,386)
Exercise of stock options -- -- 213 -- -- (102,732) (4,505) -- 4,718
Issuance of restricted stock -- -- 1,297 -- -- (95,295) (4,169) 5,466 --
Restricted stock expense
and forfeitures -- -- (1,242) -- -- 95,803 4,189 (7,956) 2,525
Foreign currency translation
adjustments--net -- -- -- -- (15,918) -- -- -- (15,918)
Other (1) 4 232 -- -- 17,593 957 -- (722)
---- ------- ------- --------- --------- --------- -------- ------- --------
BALANCE AT DECEMBER 31, 1992 16 51,459 59,404 934,642 (21,751) 2,324,984 99,448 15,562 908,760
Net income -- -- -- 11,441 -- -- -- -- 11,441
Dividends -- -- -- (111,833) -- -- -- -- (111,833)
Exercise of stock options -- -- 4,348 -- -- (342,205) (14,699) -- 19,047
Issuance of restricted stock -- -- 1,702 -- -- (98,209) (4,298) 6,000 --
Restricted stock expense
and forfeitures -- -- (2,004) -- -- 150,265 6,570 (11,597) 3,023
Foreign currency translation
adjustments--net -- -- -- -- (6,826) -- -- -- (6,826)
Other -- -- 62 -- -- 10,622 666 -- (604)
---- ------- ------- --------- --------- --------- -------- ------- --------
BALANCE AT DECEMBER 31, 1993 $ 16 $51,459 $63,512 $ 834,250 $ (28,577) 2,045,457 $ 87,687 $ 9,965 $823,008
==== ======= ======= ========= ========= ========= ======== ======= ========
</TABLE>
See accompanying notes.
37
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of all subsidiaries and the company's share of earnings or losses of
joint ventures and affiliated companies under the equity method of accounting.
All significant intercompany accounts and transactions have been eliminated.
INVENTORIES. Inventories are stated at the lower of cost (principally first-in,
first-out) or market.
PREPUBLICATION COSTS. Prepublication costs, principally outside preparation and
plate costs, are amortized from the year of copyright over their estimated
useful lives using either the sum-of-the-years-digits or the straight-line
method. Prepublication costs of $89.9 million, included in inventory in 1992,
have been reclassified to a separate non-current category to conform with
current industry practice.
GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill and other intangible assets
which arose from acquisitions either consummated or initiated prior to November
1, 1970 are not amortized unless there has been a reduction in the value of the
related assets. Goodwill and other intangible assets arising subsequent to
November 1, 1970 of $1.2 billion at December 31, 1993, and $593 million at
December 31, 1992, are being amortized over periods of up to 40 years.
RECEIVABLE FROM/PAYABLE TO BROKER-DEALERS AND DEALER BANKS. A subsidiary of
J.J. Kenny Co. acts as an undisclosed agent in the purchase and sale of
municipal securities for broker-dealers and dealer banks and the company had
matched purchase and sale commitments of $424.4 million at December 31, 1993,
and $460.1 million at December 31, 1992. Only those transactions not closed at
the settlement date are reflected in the balance sheet as receivables and
payables.
FOREIGN CURRENCY TRANSLATION. Assets and liabilities are translated using
current exchange rates, except certain accounts of units whose functional
currency is the U.S. dollar, and translation adjustments are accumulated in a
separate component of shareholders' equity. Inventory and property and
equipment accounts of units whose functional currency is the U.S. dollar are
translated using historical exchange rates and translation adjustments are
charged and credited to income.
REVENUE. Tuition revenue from home-study courses is recorded when the contract
is accepted. At the same time, provisions for cancellation and uncollectible
accounts, and estimated costs to service the contracts, are recorded.
Units whose revenues are principally from subscription income and
service contracts record revenue as earned. Units whose revenues are
principally from advertising generally record subscription income as received.
Costs related to subscriptions generally are expensed as incurred.
DEPRECIATION. The costs of property and equipment are depreciated using the
straight-line method based upon the following estimated useful lives:
Buildings and leasehold improvements--15 to 40 years
Equipment and furniture--3 to 20 years
ACCOUNTING CHANGES. In 1992, the company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, SFAS No. 112, Employers'
Accounting for Postemployment Benefits, and SFAS No. 109, Accounting for Income
Taxes, as of January 1, 1992 (see Notes 14, 15 and 5, respectively).
RECLASSIFICATION. Certain prior year amounts have been reclassified for
comparability purposes.
2. ACQUISITIONS
In 1993, the company acquired a 26.89% interest in Liberty Brokerage, Inc. and
made six other small acquisitions, which were all accounted for as purchases,
at a total cost of $23.1 million in cash. See Note 4 for a discussion of the
Macmillan/McGraw-Hill School Publishing Company acquisition.
In 1992, the company made four small acquisitions at a total cost of
$10.6 million in cash and made earnout payments totaling $6.1 million based upon
the achievement of earnings goals by businesses acquired in prior years.
In 1991, the company made four small acquisitions at a total cost of
$14.9 million in cash and a note for $3.5 million.
The effect of these acquisitions on the results of operations for the
years presented was not material.
3. SEGMENT REPORTING AND GEOGRAPHIC INFORMATION
A description of each of the company's three segments and their products,
services and markets served is included on the inside back cover of this Annual
Report. In 1993, the company realigned its segments to combine the Broadcasting
and Information and Publication Services segments and Tower Group International
into one segment, Information and Media Services. Tower Group International was
formerly included in the Financial Services segment. Prior year results have
been restated to reflect the change.
Management believes these segments better reflect its present
operations and business strategies. Broadcasting and Tower Group International
are now aligned with the company's advertising and information based
businesses, respectively.
Operating profit by segment and geographic area is total operating
revenue less expenses which are deemed to be related to the unit's operating
revenue. Identifiable assets by segment and geographic area are those assets
that are used in the operation of that unit. Corporate assets consist
principally
38
<PAGE> 33
of cash and equivalents, investment in Rock-McGraw, Inc., prepaid pension
expense and income taxes and leasehold improvements relating to subleased
areas.
Foreign revenue and profits are from book publishing and financial
and information services operations in 22 countries. Transfers of books between
geographic areas are recorded at cost plus a mark-up and intercompany revenue
and profits are eliminated.
A summary of information about the company's operations by segment
and geographic area follows:
<TABLE>
<CAPTION>
Purchases of
Operating Operating Assets at Depreciation property and
SEGMENT REPORTING (in thousands) revenue profit December 31 expense equipment
- -------------------------------- ---------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1993
Information and Media Services $ 831,076 $ 102,344 $ 591,034 $20,569 $15,360
Educational and Professional Publishing 667,444 49,374 1,619,932 12,681 12,995
Financial Services 696,933 200,865 542,774 20,302 21,321
---------- ---------- ---------- ------- -------
Total operating segments 2,195,453 352,583 2,753,740 53,552 49,676
Macmillan/McGraw-Hill joint venture -- 28,376 -- -- --
Unusual charges related to acquisition
of additional 50% of Macmillan/
McGraw-Hill School Publishing Company -- (229,800) -- -- --
Corporate -- (48,538) 330,423 1,389 132
Interest expense--net -- (36,342) -- -- --
---------- ---------- ---------- ------- -------
Total company $2,195,453 $ 66,279* $3,084,163 $54,941 $49,808
---------- ---------- ---------- ------- -------
1992
Information and Media Services $ 865,573 $ 113,198 $ 634,876 $20,940 $14,474
Educational and Professional Publishing 567,363 62,746 628,316 9,620 10,173
Financial Services 617,555 168,394 508,919 19,367 31,125
---------- ---------- ---------- ------- -------
Total operating segments 2,050,491 344,338 1,772,111 49,927 55,772
Macmillan/McGraw-Hill joint venture -- 11,280 511,155 -- --
Corporate -- (50,774) 224,874 1,398 150
Interest expense--net -- (37,557) -- -- --
---------- ---------- ---------- ------- -------
Total company $2,050,491 $ 267,287* $2,508,140 $51,325 $55,922
---------- ---------- ---------- ------- -------
1991
Information and Media Services $ 854,754 $ 120,242 $ 661,225 $21,220 $18,889
Educational and Professional Publishing 532,438 48,928 654,830 10,806 17,809
Financial Services 555,820 143,056 482,438 15,884 14,525
---------- ---------- ---------- ------- -------
Total operating segments 1,943,012 312,226 1,798,493 47,910 51,223
Macmillan/McGraw-Hill joint venture -- 27,483 509,498 -- --
Corporate -- (34,415) 207,553 974 --
Interest expense--net -- (46,987) -- -- --
---------- ---------- ---------- ------- -------
Total company $1,943,012 $ 258,307* $2,515,544 $48,884 $51,223
---------- ---------- ---------- ------- -------
1993
United States $1,886,425 $ 316,830 $2,769,691
Foreign 309,028 35,753 314,472
---------- ---------- ----------
1992
United States $1,737,442 $ 309,649 $2,239,095
Foreign 313,049 34,689 269,045
---------- ---------- ----------
1991
United States $1,662,092 $ 283,133 $2,228,009
Foreign 280,920 29,093 287,535
========== ========== ==========
</TABLE>
* Income before taxes on income.
4. MACMILLAN/MCGRAW-HILL SCHOOL PUBLISHING COMPANY
On October 4, 1993, the company purchased the 50% interest in the
Macmillan/McGraw-Hill School Publishing Company owned by Macmillan, a
subsidiary of Maxwell Communication, Inc., for $337.5 million in cash.
Macmillan/McGraw-Hill had been formed as a joint venture in 1989 to combine the
company's and Macmillan's elementary, secondary, vocational education and test
publishing businesses. The company now owns 100% of Macmillan/McGraw-Hill and
it is consolidated in McGraw-Hill's operations from the date of acquisition of
the additional 50% interest. Prior to the acquisition of the additional 50%
interest, the company accounted for its 50% interest under the equity method.
The acquisition has been accounted for as a purchase and, accordingly, the
purchase price has been allocated to 50% of Macmillan/McGraw-Hill's assets and
liabilities based on their estimated fair values at September 30. The excess of
the purchase price over the estimated fair value of the net tangible assets
acquired has been recorded as identifiable intangibles ($148.6 million) and
goodwill ($94.4 million), which will be amortized over 20 to 35 years and 23 to
38 years, respectively.
In conjunction with the acquisition, the company recorded in the
third quarter a non-recurring charge of $199.8 million ($143.2 million net of
tax benefits or $2.91 per share) primar-
39
<PAGE> 34
ily to adjust the company's original investment to values established in this
transaction. This charge has been allocated primarily to goodwill and
intangibles. In addition, the company recorded a provision of $30 million
($17.6 million net of tax benefits or $.36 per share) relating to the
consolidation of certain functions and systems of Macmillan/McGraw-Hill and the
company's book publishing operations.
The following unaudited pro forma summary presents the consolidated
results of operations of the company for 1993 and 1992, as if the acquisition
of the additional 50% of Macmillan/McGraw-Hill had occurred at the beginning of
1992, after giving effect to certain adjustments, including amortization of
goodwill and other intangibles, increased interest expense from debt issued to
fund the acquisition and related income tax effects. The summary excludes the
total non-recurring charge of $160.8 million after taxes, but includes its
effect on amortization. The 1992 net income and earnings per share are before
the cumulative adjustment for accounting changes.
<TABLE>
Years ended December 31 (in millions, except per-share data) 1993 1992
- ------------------------------------------------------------ -------- --------
<S> <C> <C>
Operating revenue $2,722.2 $2,555.4
Net income 184.0 160.5
Earnings per common share 3.74 3.28
======== ========
</TABLE>
These pro forma results are not necessarily indicative of those that would have
occurred had the acquisition taken place at the beginning of 1992.
A summarized income statement for the Macmillan/McGraw-Hill School
Publishing Company for the nine months ended September 30, 1993 and for each of
the years ended December 31, 1992 and 1991 and a summarized balance sheet at
December 31, 1992 follows:
<TABLE>
<CAPTION>
(UNAUDITED)
9 MONTHS ENDED 12 months ended
SEPTEMBER 30, December 31,
(in millions) 1993 1992 1991
- ------------- -------------- -------- ---------------
<S> <C> <C> <C>
OPERATING REVENUE $ 526.7 $ 504.9 $ 533.2
EXPENSES:
Operating 230.9 212.8 201.3
Selling and general 197.4 215.2 220.8
Amortization of goodwill
and intangibles 30.0 40.0 42.1
-------- -------- --------
TOTAL EXPENSES 458.3 468.0 464.2
-------- -------- --------
OPERATING PROFIT 68.4 36.9 69.0
Interest expense (14.2) (17.8) (17.5)
-------- -------- --------
NET PROFIT BEFORE PARTNERS'
INCOME TAXES $ 54.2 $ 19.1 $ 51.5
-------- -------- --------
ASSETS
Current assets $ 256.7
Other assets, principally goodwill
and other intangibles 1,184.8
--------
TOTAL ASSETS $1,441.5
--------
LIABILITIES
Current liabilities $ 235.2
Long-term debt 120.0
--------
TOTAL LIABILITIES 355.2
PARTNERS' EQUITY 1,086.3
--------
TOTAL LIABILITIES AND PARTNERS' EQUITY $1,441.5
========
</TABLE>
The 1992 results include $12.3 million of restructuring charges to centralize
its accounting and fulfillment activities and move its SRA school and corporate
offices.
During 1993, 1992 and 1991, the company received earnings
distributions from the joint venture of $2.1 million, $9.3 million, and $24
million, respectively.
5. TAXES ON INCOME
The company changed its accounting for income taxes in 1992 to comply with the
requirements of Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes. This change did not have a significant effect on
1992 earnings except as it relates to the recognition of tax benefits on
postretirement and postemployment obligations.
Income before taxes on income resulted from domestic operations
(including foreign branches) and foreign subsidiaries' operations as follows:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
- ------------- ----- ------ ------
<S> <C> <C> <C>
Domestic operations $38.7 $240.3 $243.1
Foreign operations 27.6 27.0 15.2
----- ------ ------
Total income before taxes $66.3 $267.3 $258.3
===== ====== ======
</TABLE>
A reconciliation of income tax expense before cumulative adjustment computed at
the U.S. federal statutory tax rate of 35% (34% for 1992 and 1991) to the
provision for taxes follows:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
- ------------- ------- ------- -------
<S> <C> <C> <C>
Income tax expense at statutory rate $ 23.2 $ 90.9 $ 87.8
Unusual charges 22.2 -- --
Goodwill amortization 8.7 9.8 10.2
Effect of state and local income taxes 7.0 22.6 18.7
Other--net (6.3) (9.2) (6.4)
------- ------- ------
Provision for taxes $ 54.8 $ 114.1 $110.3
======= ======= ======
</TABLE>
The principal temporary differences between the accounting for income and
expenses for financial reporting and income tax purposes as of December 31
follow:
<TABLE>
<CAPTION>
(in millions) 1993 1992
- ------------- ------- -------
<S> <C> <C>
Fixed assets and intangible assets $ 115.4 $ 39.3
Prepaid pension and other expenses 54.8 48.3
Unearned revenue 31.3 29.2
Reserves and accruals (105.3) (64.5)
Postretirement and postemployment benefits (94.5) (89.6)
Joint venture related items -- 84.4
Other--net 24.9 20.0
------- -------
Deferred tax liability--net $ 26.6 $ 67.1
======= =======
</TABLE>
40
<PAGE> 35
The provision for taxes on income consists of the following:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
- ------------- ------ ------ ------
<S> <C> <C> <C>
Federal:
Current $ 62.8 $ 43.3 $ 39.1
Deferred (25.8) 27.5 37.3
------ ------ ------
Total federal 37.0 70.8 76.4
------ ------ ------
Foreign:
Current 5.4 9.8 5.5
Deferred 1.6 (.7) --
------ ------ ------
Total foreign 7.0 9.1 5.5
------ ------ ------
State and Local:
Current 22.6 28.6 19.5
Deferred (11.8) 5.6 8.9
------ ------ ------
Total state and local 10.8 34.2 28.4
------ ------ ------
Total provision for taxes $ 54.8 $114.1 $110.3
====== ====== ======
</TABLE>
The company has not recorded deferred income taxes applicable to undistributed
earnings of foreign subsidiaries that are indefinitely reinvested in foreign
operations. Undistributed earnings amounted to approximately $55 million at
December 31, 1993, excluding amounts which, if remitted, generally would not
result in any additional U.S. income taxes because of available foreign tax
credits. If the earnings of such foreign subsidiaries were not indefinitely
reinvested, a deferred tax liability of approximately $15 million would have
been required.
6. EARNINGS PER COMMON SHARE
Earnings per common share and common share equivalents are based on the average
number of such shares outstanding during the year. Common share equivalents
consist of $1.20 preference stock, stock options and restricted performance
incentive shares. The number of shares issuable upon exercise of stock options
has been reduced by the number of common shares assumed to have been purchased
with the proceeds from the exercise of the options. The number of restricted
performance shares issued has been reduced by the number of shares assumed to
have been repurchased using unearned compensation as exercise proceeds.
7. STATEMENT OF CASH FLOWS
Highly liquid investments with maturities of three months or less at the time
of purchase are considered to be cash equivalents.
A summary of the supplemental cash flows information follows:
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
- -------------- -------- -------- --------
<S> <C> <C> <C>
Interest and income taxes paid:
Interest $ 33,767 $ 38,352 $ 48,974
-------- -------- --------
Income taxes (net of refunds) 78,448 78,235 56,263
-------- -------- --------
Non-cash investing and financing activities:
Liabilities assumed in conjunction
with acquisition of businesses:
Fair value of assets acquired 835,569* 31,034 31,967
Cash paid (net of cash acquired) 323,913 16,742 14,854
-------- -------- --------
Liabilities assumed $511,656 $ 14,292 $ 17,113
======== ======== ========
</TABLE>
* Net of McGraw-Hill's investment in Macmillan/McGraw-Hill School Publishing
Company.
8. INVESTMENT IN ROCK-MCGRAW, INC.
Rock-McGraw owns the company's headquarters building in New York City. It is
owned 45% by the company and 55% by Rockefeller Group, Inc.
The company currently occupies a significant portion of the rentable
space. The lease is for 30 years ending in the year 2002 and includes renewal
options for two additional 15-year periods. The company is paying Rock-McGraw
gross annual rentals of $16.0 million (including various escalation payments)
for the occupied space. In addition, the company is committed for annual
rentals of $18.8 million for space which it has sublet. Over the lease term,
the company is recovering a portion of the rentals through its share of
earnings of Rock-McGraw.
A summary of significant financial information for Rock-McGraw
follows:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
- ------------- ------ ------ ------
<S> <C> <C> <C>
Revenue $ 52.4 $ 47.7 $ 51.1
------ ------ ------
Net income 5.3 4.7 6.5
------ ------ ------
Depreciation expense (straight-line) 5.2 4.0 3.6
------ ------ ------
Total assets 178.5 170.9 164.4
------ ------ ------
Mortgage payable 34.8 38.5 42.2
------ ------ ------
Total liabilities $ 60.7 $ 58.3 $ 56.5
====== ====== ======
</TABLE>
The building is financed by an 8 1/8%, 25-year mortgage repayable in quarterly
installments of $.9 million plus interest with the balance of $18.3 million due
at maturity in 1998.
9. DEBT
At December 31, 1993, the company had short-term borrowings of $670.8 million,
of which $667.7 million represented domestic commercial paper borrowings at an
average interest rate of 3.3% maturing at various dates during 1994. The
commercial paper borrowings are supported by the revolving credit agreements
described below, and $500 million has been classified as long-term.
The company has several revolving credit agreements with a group of
banks. One is for $500 million terminating on November 6, 1997, and the others
are for $350 million terminating during 1994. Interest rates on amounts
borrowed vary depending upon the source and are based on any one of the
Eurodollar, Certificate of Deposit or prime rates, at the company's option.
These credit agreements contain various warranties and covenants that must be
complied with on a continuing basis. These agreements require a commitment fee
on the unused portion of the credit line. At December 31, 1993, there were no
borrowings under these agreements.
On June 27, 1990, the company issued $250 million of 9.43% senior
notes due September 1, 2000. The notes are unsecured and unsubordinated
obligations of the company and are not redeemable by the company prior to the
maturity date.
At December 31, 1992, the company had short-term borrowings of
$224.2 million, of which $218.5 million represented domestic commercial paper
borrowings at an average interest rate of 3.4% maturing at various dates during
1993.
41
<PAGE> 36
The commercial paper borrowings were supported by revolving credit agreements
and $100 million of the commercial paper borrowings was classified as
long-term.
A summary of long-term debt at December 31 follows:
<TABLE>
<CAPTION>
(in thousands) 1993 1992
- -------------- -------- --------
<S> <C> <C>
9.43% senior notes due 2000 $250,000 $250,000
Commercial paper supported
by bank revolving
credit agreement 500,000 100,000
Other 7,930 8,785
-------- --------
757,930 358,785
Less: portion included
in other current liabilities 363 80
-------- --------
Total long-term debt $757,567 $358,705
======== ========
</TABLE>
The carrying amount of the company's commercial paper borrowings approximates
fair value. The fair value of the company's 9.43% senior notes and other
long-term debt at December 31, 1993 and 1992 totaling $257.9 million and $258.8
million, respectively, based on current borrowing rates for debt with similar
terms and maturities is estimated to be $308 million and $295 million,
respectively.
10. RENTAL EXPENSE AND LEASE OBLIGATIONS
Rental expense for property and equipment under all operating lease agreements
was as follows:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
- ------------- ------ ------ ------
<S> <C> <C> <C>
Gross rental expense $100.3 $109.0 $107.0
Less: sublease revenue 22.0 23.0 28.3
------ ------ ------
Net rental expense $ 78.3 $ 86.0 $ 78.7
====== ====== ======
</TABLE>
The company is committed under lease arrangements covering property, computer
systems and office equipment. Certain of the lease arrangements, including the
lease for the company's headquarters building, contain escalation clauses
covering increased costs for real estate taxes and operating services.
Minimum rental commitments under existing noncancellable leases with
a remaining term of more than one year, including the company's headquarters
building referred to in Note 8, are shown in the following table. The annual
rental commitments for real estate through the year 2002 have been reduced by
approximately $19 million of revenue from existing noncancellable subleases.
<TABLE>
<CAPTION>
(in millions)
- -------------
<S> <C>
1994 $ 64.5
1995 54.9
1996 47.8
1997 40.9
1998 35.7
1999 and beyond 157.3
------
Total $401.1
======
</TABLE>
11. CAPITAL STOCK
One hundred and fifty million shares of common stock, par value $1 per share,
are authorized: 51,458,836 are issued. The $1.20 convertible preference stock,
$10 par value, authorized 891,256 shares, outstanding 1,599 shares, may be
converted into common stock at the option of the shareholder at the rate of one
share of preference stock for 3.3 shares of common stock.
The number of common shares issuable for the exercise of stock
options was 2,054,087 at December 31, 1993, 2,312,503 at December 31, 1992 and
2,512,230 at December 31, 1991. At December 31, 1993, 20,000 common shares were
reserved for issuance under the 1993 Directors' Stock Payment Plan.
Two million shares of preferred stock, par value $1 per share are
authorized; none have been issued. 600,000 shares have been reserved for
issuance under a Preferred Share Purchase Rights Plan adopted by the company's
Board of Directors on October 25, 1989. Under the Plan, one right for each
share of common stock outstanding was granted to shareholders of record on
November 6, 1989. Each right entitles shareholders to buy a 1/100th interest in
a share of a series of preferred stock at an exercise price of $275 per right.
The rights will not be exercisable or transferable until a party either
acquires beneficial ownership of 20% or more of the company's common shares or
announces a tender offer for 20% or more of the common shares. In the event the
company is a party to a merger, reverse merger or other business combination,
each right will entitle its holder to purchase, at the exercise price of the
right, a number of shares of common stock of the surviving company having a
market value of two times the exercise price of the right. The Plan also gives
the Board of Directors the option to exchange one share of common stock of the
company for each right (not owned by the acquirer) after an acquirer holds 20%
but less than 50% of the outstanding shares of common stock. The rights are
redeemable at one cent per right until a party acquires 20% or more of the
company's common shares and expire November 6, 1999.
12. STOCK PLAN AWARDS
Under the 1983 Stock Option Plan, options for 1,200,000 shares of common stock
may be granted at not less than fair market value at the date of grant. Both
incentive stock options and non-qualified stock options may be granted. Options
are generally exercisable in two equal installments after each 12 months of
employment and expire within ten years. Stock appreciation rights may also be
granted to any employee granted stock options. Upon the exercise of stock
appreciation rights, the employee surrenders the unexercised related option and
receives a cash payment equal to the excess of the fair market value at the
time of exercise over the price of the related option.
Under the 1987 Key Employee Stock Incentive Plan, awards of
2,300,000 shares of common stock may be granted. The shares may be granted as
incentive stock options, non-qualified stock options, stock appreciation
rights, restricted stock awards, deferred stock, or other stock-based awards.
Under the 1993 Key Employee Stock Incentive Plan, which was approved
by the shareholders in April 1993, awards of 2,300,000 shares of common stock
may be granted. The
42
<PAGE> 37
shares may be granted as incentive stock options, non-qualified stock options,
stock appreciation rights, restricted stock awards, or other stock-based
awards.
Under the 1993 Directors' Stock Payment Plan, which was approved by
the shareholders in April 1993, 20,000 shares of common stock may be granted.
These shares were reserved for issuance at December 31, 1993. The Plan requires
that 20% of eligible Directors' annual retainer be paid in common stock
beginning in 1994. Recipients of stock under this Plan are not required to
provide consideration to the company other than rendering service and have the
right to vote the shares and the right to receive dividends. The term of the
Plan is 10 years.
Restricted stock performance awards have been granted under the 1987
Plan. These restricted stock awards will vest only if the company achieves
certain financial goals over three-year performance periods. Other restricted
stock awards have total vesting periods of up to seven years with vesting
beginning on the first or third anniversary of the awards. Recipients of
restricted stock awards are not required to provide consideration to the
company other than rendering service and have the right to vote the shares and
the right to receive dividends.
The changes in the number of common shares issuable under
outstanding options, the number of shares reserved for issuance and the price
range of options for 1993 were as follows:
<TABLE>
<CAPTION>
1987 Plan 1983 Plan
---------- ----------
<S> <C> <C>
Outstanding at beginning of year 945,371 464,282
Options granted 273,100 148,900
Less:
Options exercised 219,147 123,058
Options cancelled and expired 51,543 37,980
--------- ---------
Outstanding at end of year 947,781 452,144
--------- ---------
Exercisable at end of year 520,525 302,338
--------- ---------
Shares of common stock reserved for
issuance at beginning of year 1,676,203 636,300
--------- ---------
Shares of common stock reserved for
issuance at end of year 1,601,943 452,144
--------- ---------
Price range of options outstanding $52.44 $37.00
at end of year to $64.19 to $67.38
--------- ---------
Price range of options $52.44 $37.00
exercised during year to $64.00 to $67.38
========= =========
</TABLE>
A total of 98,209 restricted shares were issued in 1993 under the 1987 Plan at
an average market value of $61.11 per share. In 1992, a total of 95,295
restricted shares were issued at an average market value of $57.37 per share.
The awards are recorded at the market value of the shares at the time the
shares are awarded. Initially, the total market value of the shares is treated
as unearned compensation and is charged to expense over the respective vesting
periods. For performance incentive shares, adjustments are also made to expense
for changes in market value and achievement of financial goals. Unearned
compensation charged to expense was $3.0 million for 1993, $3.0 million for
1992 and $2.1 million for 1991. Restricted shares outstanding at the end of the
year were 271,120 shares for 1993, 357,219 shares for 1992, and 397,637 shares
for 1991.
13. RETIREMENT PLANS
The company and its subsidiaries have a number of defined benefit pension plans
and defined contribution plans covering substantially all employees. The
company's primary pension plan is a noncontributory plan under which benefits
are based on employee career employment compensation. The company also has a
voluntary deferred compensation plan under which the company matches employee
contributions up to certain levels of compensation and an Employee Retirement
Account Plan under which the company contributes a percentage of eligible
employees' compensation to the employees' accounts.
For purposes of determining annual pension cost, prior service costs
and the net asset at January 1, 1986 are being amortized straight-line over the
average remaining service period of employees expected to receive benefits. The
assumed return on plan assets of 9 1/2% is based on a calculated market-related
value of assets, which recognizes changes in market value over five years.
A summary of pension cost for the company's domestic defined benefit
plans follows:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
- ------------- -------- -------- --------
<S> <C> <C> <C>
Service cost $ 11.5 $ 10.6 $ 9.8
Interest cost 25.0 21.7 20.6
Return on assets:
Actual (gain)/loss (45.9) (24.7) (105.1)
Deferred 5.9 (12.1) 71.8
-------- -------- --------
Recognized (40.0) (36.8) (33.3)
Amortization of net asset at 1/1/86 (6.1) (6.1) (6.2)
Amortization of prior service cost 1.1 -- --
-------- -------- --------
Net negative pension cost $ (8.5) $ (10.6) $ (9.1)
-------- -------- --------
Assumed rates--January 1:
Discount rate (interest cost) 7 3/4% 7 3/4% 8 1/2%
Compensation increase factor 6 6 6
Return on assets 9 1/2 9 1/2 9 1/2
======== ======== ========
</TABLE>
The company also has an unfunded supplemental benefits plan to provide senior
management with supplemental retirement, disability and death benefits.
Supplemental retirement benefits are based on final monthly earnings. Pension
cost was $2.2 million for 1993, $1.9 million for 1992, and $1.9 million for
1991. The accumulated benefit obligation as of December 31, 1993 was $14.4
million including vested benefits of $13.3 million and the projected benefit
obligation was $16.8 million.
Total retirement plans cost was $25.7 million for 1993, $19.6
million for 1992 and $19.2 million for 1991.
43
<PAGE> 38
The funded status of the domestic defined benefit plans as of December 31
follows:
<TABLE>
<CAPTION>
(in millions) 1993 1992
- ------------- -------- --------
<S> <C> <C>
Actuarial present value of pension benefits:
Vested benefits $ (322.1) $ (293.5)
Non-vested benefits (14.6) (12.7)
-------- --------
Accumulated benefit obligation (336.7) (306.2)
Additional amount related to projected
compensation increases (22.9) (20.6)
-------- --------
Projected benefit obligation (359.6) (326.8)
Plan assets at market value--primarily
listed stocks and U.S. government obligations 485.7 459.3
-------- --------
Excess of assets over projected benefit obligation 126.1 132.5
Unrecognized net asset at 1/1/86 (16.7) (23.0)
Unrecognized prior service cost 8.3 11.2
Unrecognized net gain (40.6) (52.4)
-------- --------
Prepaid pension cost at December 31 $ 77.1 $ 68.3
-------- --------
Assumed rates--December 31:
Discount rate 7 1/4% 7 3/4%
Compensation increase factor 6 6
======== ========
</TABLE>
The company has several foreign pension plans which do not determine the
accumulated benefits or net assets available for benefits as disclosed above.
The amounts involved are not material and are therefore not included.
14. POSTRETIREMENT HEALTHCARE AND OTHER BENEFITS
The company and its domestic subsidiaries provide certain medical, dental and
life insurance benefits for retired employees and eligible dependents. The
medical and dental plans are contributory while the life insurance plan is
noncontributory. The company currently does not fund any of these plans.
Effective January 1, 1992, the company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions and elected to
immediately recognize the transition obligation. The company recorded a charge
of $109.5 million, net of income taxes of $74 million, or $2.24 per share, as
the cumulative effect of a change in accounting as of the date of adoption. The
change increased 1992 postretirement benefits cost by $7.3 million, net of
income taxes of $5.4 million, or $.15 per share. SFAS No. 106 requires that the
cost of these benefits, which are primarily for healthcare, be recognized
during the employees' service period with the company. The company's previous
practice was to recognize the expense for these benefits as claims or premiums
were paid.
Postretirement benefits cost was $12.6 million in 1993, $20.2
million in 1992 and $6.2 million in 1991. A summary of the components of the
cost in 1993 and 1992 follows:
<TABLE>
<CAPTION>
(in millions) 1993 1992
- ------------- ------ ------
<S> <C> <C>
Service cost $ 2.4 $ 5.5
Interest cost 12.8 14.7
Prior service cost (2.6) --
----- -----
Postretirement benefits cost $12.6 $20.2
===== =====
</TABLE>
A summary of the components of the unfunded postretirement benefit obligation
as of December 31 follows:
<TABLE>
<CAPTION>
(in millions) 1993 1992
- ------------- -------- --------
<S> <C> <C>
Retirees $ (111.2) $ (123.5)
Fully eligible plan participants (13.4) (26.1)
Other active plan participants (19.1) (42.5)
-------- --------
Total accumulated postretirement
benefit obligation (143.7) (192.1)
Unrecognized net gain (30.1) (4.2)
Unrecognized prior service cost (27.2) --
-------- --------
Accrued postretirement benefit obligation $ (201.0) $ (196.3)
======== ========
</TABLE>
The assumed weighted average healthcare cost trend rate ranges from 12.2% in
1994 decreasing ratably to 5.5% in 2002 and remains at that level thereafter.
Increasing the assumed healthcare cost trend rate by one percentage point in
each future year would increase the accumulated postretirement benefit
obligation at December 31, 1993 by $11.4 million and 1993 benefit expense by
$1.2 million. The weighted average discount rate used to measure expense was 8%
in 1993 and 1992; the rate used to measure the accumulated postretirement
benefit obligation was 7.5% in 1993 and 8% in 1992.
Effective in 1993, the company changed its healthcare plan for
future retirees which contributed to a reduction in 1993 expense of $4.4
million after tax or $.09 per share. These changes reduced the accumulated
postretirement benefit obligation by approximately $30 million, which is being
amortized over the remaining eligibility period of the active plan
participants.
15. POSTEMPLOYMENT BENEFITS
Effective January 1, 1992, the company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 112, Employers' Accounting for
Postemployment Benefits, and accrued certain separation benefits and
disability-related liabilities. The company recorded a charge of $15.1 million,
net of income taxes of $10.2 million, or $.31 per share as the cumulative
effect of a change in accounting as of the date of adoption. The adoption of
SFAS No. 112 did not have a significant effect on 1993 or 1992 expense.
44
<PAGE> 39
REPORT OF MANAGEMENT
TO THE SHAREHOLDERS OF McGRAW-HILL, INC.
The financial statements in this report were prepared by the management of
McGraw-Hill, Inc., which is responsible for their integrity and objectivity.
These statements, prepared in conformity with generally accepted
accounting principles, and including amounts based on management's best
estimates and judgments, present fairly McGraw-Hill's financial condition and
the results of the company's operations. Other financial information given in
this report is consistent with these statements.
McGraw-Hill's management maintains a system of internal accounting
controls designed to provide reasonable assurance that the financial records
accurately reflect the company's operations and that the company's assets are
protected against loss. Consistent with the concept of reasonable assurance,
the company recognizes that the relative costs of these controls should not
exceed the expected benefits in maintaining these controls. It further assures
the quality of the financial records in several ways: a program of internal
audits, the careful selection and training of management personnel, maintaining
an organizational structure that provides an appropriate division of financial
responsibilities, and communicating financial and other relevant policies
throughout the corporation. The financial statements in this report have been
audited by Ernst & Young, independent auditors, in accordance with generally
accepted auditing standards. The independent auditors were retained to express
an opinion on the financial statements, which appears in the next column.
McGraw-Hill's Board of Directors, through its Audit Committee,
composed entirely of outside directors, is responsible for reviewing and
monitoring the company's financial reporting and accounting practices. The
Audit Committee meets periodically with management, the company's internal
auditors and the independent auditors to ensure that each group is carrying out
its respective responsibilities. In addition, the independent auditors have
full and free access to the Audit Committee and meet with it with no
representatives from management present.
/s/ JOSEPH L. DIONNE
Joseph L. Dionne
Chairman and Chief Executive Officer
/s/ ROBERT J. BAHASH
Robert J. Bahash
Executive Vice President and Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
AND SHAREHOLDERS OF McGRAW-HILL, INC.
We have audited the accompanying consolidated balance sheets of McGraw-Hill,
Inc. as of December 31, 1993 and 1992, and the related consolidated statements
of income, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1993. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The 1992 and 1991
financial statements of the Macmillan/McGraw-Hill School Publishing Company (in
which the company had a 50% interest in 1992 and 1991) were audited by other
auditors whose report has been furnished to us; insofar as our opinion on the
consolidated financial statements for those years relates to the data included
for the Macmillan/McGraw-Hill School Publishing Company, it is based solely on
their report.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors
(for the periods referred to above), the consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of McGraw-Hill, Inc. at December 31, 1993 and 1992, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As described in Note 1 to the consolidated financial statements, in
1992 the company changed its method of accounting for income taxes,
postretirement benefits other than pensions and postemployment benefits.
/s/ ERNST & YOUNG
ERNST & YOUNG
New York, New York
February 2, 1994
45
<PAGE> 40
SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(in thousands, except per-share items) First quarter Second quarter Third quarter Fourth quarter Total year
- ------------------------------------------- ------------- -------------- ------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
1993
Operating revenue $466,947 $490,907 $554,969 $682,630 $2,195,453
Income/(loss) before taxes (Note a) 26,614 71,748 (108,804) 76,721 66,279
Net income/(loss) (Note a) 15,250 43,177 (91,868) 44,882 11,441
Earnings per share 0.31 0.88 (1.87) 0.91 0.23
-------- -------- -------- -------- ----------
1992
Operating revenue $454,808 $484,275 $532,724 $578,684 $2,050,491
Income before taxes 21,579 64,214 103,497 77,997 267,287
Income before cumulative adjustment 12,365 36,794 59,304 44,692 153,155
Cumulative effect of changes
in accounting (Note b) (124,587) -- -- -- (124,587)
-------- -------- -------- -------- ----------
Net income/(loss) (112,222) 36,794 59,304 44,692 28,568
Earning per share:
Income before cumulative adjustment .25 .75 1.22 .91 3.13
Cumulative adjustment (2.55) -- -- -- (2.55)
-------- -------- -------- -------- ----------
Net income/(loss) (2.30) .75 1.22 .91 .58
-------- -------- -------- -------- ----------
1991
Operating revenue $428,451 $456,923 $489,520 $568,118 $1,943,012
Income before taxes 22,196 60,861 96,089 79,161 258,307
Net income 12,718 34,874 55,059 45,359 148,010
Earnings per share .26 .71 1.13 .93 3.03
======== ======== ======== ======== ==========
</TABLE>
(a) The third quarter of 1993 includes unusual charges related to the
acquisition of the additional 50% of Macmillan/McGraw-Hill School Publishing
Company of $229.8 million ($160.8 million after taxes, or $3.27 per share). See
Note 4.
(b) The first quarter 1992 cumulative adjustment is comprised of
after-tax charges for changes in accounting for postretirement benefits of
$109.5 million or $2.24 per share and postemployment benefits of $15.1 million
or $.31 per share. See Notes 14 and 15.
HIGH AND LOW SALES PRICES OF MCGRAW-HILL COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE*
1993 1992 1991
------ ------ ------
First quarter $63 7/8-56 1/2 $63 3/8-56 1/2 $59 3/4-49 3/4
Second quarter 64 3/8-55 1/4 66 1/2-57 1/2 64 3/4-58
Third quarter 69 7/8-58 3/8 59 3/8-53 61 3/4-50 3/4
Fourth quarter 75 1/4-65 3/4 63 1/4-57 1/2 58 1/4-50 1/8
-------------- -------------- --------------
Year 75 1/4-55 1/4 66 1/2-53 64 3/4-49 3/4
============== ============== ==============
* The New York Stock Exchange is the principal market on which the company's
shares are traded.
46
<PAGE> 1
Exhibit (21)
McGRAW-HILL, INC.
Subsidiaries of Registrant
Listed below are all subsidiaries of Registrant, except certain inactive
subsidiaries and certain other McGraw-Hill subsidiaries which are not included
in the listing because considered in the aggregate they do not constitute a
significant subsidiary as of the end of the year covered by this Report.
<TABLE>
<CAPTION>
State or Percentage
Jurisdiction of Voting
of Securities
Incorporation Owned
------------- ----------
<S> <C> <C>
McGraw-Hill, Inc. New York Registrant
CM Research, Inc. New York 100
Capitol Radio Engineering
Institute, Inc. Delaware 100
*National Radio Institute Delaware 100
Columbia Acquisition Corporation Delaware 100
*Columbia Administration Software
Publishing Corporation British Columbia 100
*Columbia Computing Services, Ltd. Canada 100
*Columbia Computing Services, Inc. Delaware 100
Computer and Communications
Information Group, Inc. New Jersey 100
DRI Europe, Inc. Delaware 100
Editorial McGraw-Hill/Interamericana
del Caribe, Inc. New York 100
International Advertising/
McGraw-Hill, Inc. Delaware 100
J.J. Kenny Company, Inc. New York 100
*J.J. Kenny Drake, Inc. New York 100
*Kenny Information Systems, Inc. New York 100
*Kenny Services, Inc. New York 100
Liberty Brokerage Investment Corp. Delaware 26.89
Macmillan/McGraw-Hill Joint Venture
Holding Corporation Delaware 100
*CRWTH Computer Courseware, Inc. California 100
*Computer Systems Research, Inc. Connecticut 100
McGraw-Hill Broadcasting
Company, Inc. New York 100
McGraw-Hill Capital, Inc. New York 100
*International Valuation
Services, Inc. Delaware 40
McGraw-Hill Financial
Publications, Inc. Delaware 100
McGraw-Hill International
Enterprises, Inc. New York 100
McGraw-Hill News Bureaus, Inc. New York 100
McGraw-Hill Publications Overseas
Corporation New York 100
MMS International Nevada 100
Money Market Directories, Inc. New York 100
Rock-McGraw, Inc. New York 45
Shepard's/McGraw-Hill, Inc. Delaware 100
</TABLE>
-134-
<PAGE> 2
<TABLE>
<CAPTION>
State or Percentage
Jurisdiction of Voting
of Securities
Incorporation Owned
------------- ---------
<S> <C> <C>
S&P ComStock, Inc. New York 100
Standard & Poor's International
Ratings, Ltd. New York 100
Standard & Poor's Ltd. Delaware 100
Standard & Poor's Securities, Inc. Delaware 100
Tower Group International, Inc. New York 100
Calificadora de Valores,
S.A. de C.V. Mexico 100
Editora McGraw-Hill de
Portugal, Ltda. Portugal 100
Editorial Interamericana, S.A. Colombia 100
Editoriales Pedagogicas
Associadas, S.A. Guatemala 100
McGraw-Hill Book Company Australia
Pty. Limited Australia 100
*McGraw-Hill Book Company
New Zealand, Pty. Limited New Zealand 100
*Standard & Poor's (Australia)
Pty. Ltd. Australia 100
McGraw-Hill Book Company (GmbH) Germany 100
McGraw-Hill Book Kabushiki Kaisha Japan 100
McGraw-Hill Data Services -
Ireland, Ltd. Ireland 100
McGraw-Hill Holdings (U.K.) Limited Great Britain 100
*Insurance Solvency International,
Limited Great Britain 100
*McGraw-Hill International
(U.K.) Limited Great Britain 100
McGraw-Hill Information Systems
Company of Canada Limited Ontario, Canada 100
McGraw-Hill/Interamericana
de Chile Limitada Chile 100
McGraw-Hill/Interamericana
de Espana, S.A. Spain 100
*Iberating, S.A. Spain 25
McGraw-Hill/Interamericana de Mexico,
S.A. de C.V. Mexico 100
*Ediciones Pedagogicas, S.A. de C.V. Mexico 100
McGraw-Hill/Interamericana de Venezuela
S.A. Venezuela 100
McGraw-Hill/Interamericana, S.A. Panama 100
*Editora McGraw-Hill de Espana S.A. Panama 100
McGraw-Hill Libri Italia Italy 100
McGraw-Hill Ryerson Limited Ontario, Canada 70
Medical China Publishing Limited Hong Kong 25
MHFSCO, Ltd. United States
Virgin Islands 100
Nueva Editorial Interamericana,
S.A. de C.V. Mexico 100
Nordisk Rating AB Sweden 100
Science Research Associates, Pty.,
Ltd. Australia 100
</TABLE>
-135-
<PAGE> 3
<TABLE>
<CAPTION>
State or Percentage
Jurisdiction of Voting
of Securities
Incorporation Owned
------------- ----------
<S> <C> <C>
Science Research Associates, Limited United Kingdom 100
Standard & Poor's - ADEF France 50
Standard & Poor's International, S.A. Belgium 100
Tata McGraw-Hill Publishing Company
Private Limited India 40
382281 Ontario Ltd. Ontario, Canada 100
</TABLE>
*Subsidiary of a subsidiary.
-136-
<PAGE> 1
Exhibit (23)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
on Form 10-K of McGraw-Hill, Inc. of our report dated February 2, 1994,
included in the 1993 Annual Report to Shareholders of McGraw-Hill, Inc.
Our audits also included the consolidated financial statement schedules of
McGraw-Hill, Inc. listed in Item 14 (a). These schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, the consolidated financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
on Form S-3 (No. 33-33667) pertaining to the Debt Securities of McGraw-Hill,
Inc. and in the Registration Statements on Form S-8 pertaining to the 1983
Stock Option Plan for Officers and Key Employees (No. 2-84058), the 1987 Key
Employee Stock Incentive Plan (No. 33-22344), the 1993 Key Employee Stock
Incentive Plan (No. 33-49743), the 1993 Stock Payment Plan for Directors (No.
33-49741), and The Savings Incentive Plan of McGraw- Hill, Inc. and Its
Subsidiaries, The Employee Retirement Account Plan of McGraw-Hill, Inc. and
Its Subsidiaries, The Savings Incentive Plan of Standard & Poor's Corporation
and Its Participating Subsidiaries, The Employee Retirement Account Plan of
Standard & Poor's Corporation and Its Participating Subsidiaries, Employees'
Investment Plan of McGraw-Hill Broadcasting Company, Inc. and Its Subsidiaries
(No. 33-50856) and in the related prospectuses of our report dated February 2,
1994 with respect to the consolidated financial statements incorporated therein
by reference, and our report included above with respect to the consolidated
financial statement schedules included in this Annual Report (Form 10-K) of
McGraw- Hill, Inc.
/s/ ERNST & YOUNG
ERNST & YOUNG
New York, New York
March 29, 1994
-137-
<PAGE> 1
McGRAW-HILL, INC.
SCHEDULE VIII - RESERVE FOR DOUBTFUL ACCOUNTS
Years ended December 31, 1993, 1992 and 1991
(Thousands of dollars)
<TABLE>
<CAPTION>
Balance at Additions Balance
beginning charged at end
Year of year to income Deductions Other of year
- ---- ---------- --------- ---------- ------ -------
(A)
<S> <C> <C> <C> <C> <C>
1993 $80,768 $60,401 $65,534 $3,826 (B) $79,461
1992 74,157 64,067 57,516 60 (C) 80,768
1991 64,328 61,972 52,209 66 (D) 74,157
</TABLE>
(A) Accounts written off, less recoveries.
Reserves acquired in connection with the purchase of:
(B) Macmillan/McGraw-Hill School Publishing Co.
(C) Geo. S. Bush & Co., Inc.
(D) W.N. Proctor Co., Inc. and Castelazo & Associates.
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<PAGE> 2
McGRAW-HILL, INC.
SCHEDULE IX - SHORT-TERM BORROWINGS
Years ended December 31, 1993, 1992 and 1991
(Thousands of dollars)
<TABLE>
<CAPTION>
(B)
(A) Weighted
Maximum Average average
amount amount interest
Category of Balance Weighted outstand- outstand- rate
aggregate at end average ing dur- ing dur- during
short-term of interest ing the ing the the
Year borrowing period rate period period period
- ---- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1993 Commercial
Paper $167,700 3.3% $406,000 $121,767 3.3%
Foreign
Currency
Bank Loans 3,080 5.1 3,777 3,256 6.1
--------
$170,780
========
1992 Commercial
Paper (c) $120,460 3.4% $146,000 $ 99,300 4.2%
Foreign
Currency
Bank Loans 3,746 7.7 8,447 5,807 9.5
--------
$124,206
========
1991 Commercial
Paper $121,100 5.0% $138,600 $ 90,700 6.3%
Foreign
Currency
Bank Loans 5,818 9.9 16,200 10,800 10.5
--------
$126,918
========
</TABLE>
(A) The average amount outstanding during the period was computed by
dividing the sum of the average monthly outstanding principal
amounts by 12.
(B) The weighted average interest rate during the period was computed
by dividing actual interest expense by average short-term
debt outstanding.
(C) Includes $1,960 of Domestic Bank Loans.
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<PAGE> 3
SCHEDULE X - SUPPLEMENTARY
INCOME STATEMENT INFORMATION
Years ended December 31, 1993, 1992 and 1991
(Thousands of dollars)
<TABLE>
<CAPTION>
Item 1993 1992 1991
---- ---- ---- ----
<S> <C> <C> <C>
Royalties $68,695 $64,950 $60,395
======= ======= =======
Advertising $51,488 $48,828 $49,952
======= ======= =======
</TABLE>
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