<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, 1994
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 __________
McGRAW-HILL, INC.
----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 13-1026995
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(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:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
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<S> <C>
Common stock - $1 par value New York Stock Exchange
Pacific Stock Exchange
</TABLE>
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 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. X
---
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, 1995, was $3,439,082,214.
The number of shares of common stock of the registrant outstanding as
of February 28, 1995 was 49,772,763 shares.
Part I, Part II and Part IV incorporate information by reference from
the Annual Report to Shareholders for the year ended December 31, 1994. Part III
incorporates information by reference from the definitive proxy statement mailed
to shareholders March 20, 1995 for the annual meeting of shareholders to be held
on April 26, 1995.
<PAGE> 2
TABLE OF CONTENTS
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PART I
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<TABLE>
<CAPTION>
Item Page
- ---- ----
<S> <C>
1. Business........................................................................................ 1
2. Properties...................................................................................... 2 - 4
3. Legal proceedings............................................................................... 4
4. Submission of matters to a vote of security holders ............................................ 4
Executive officers of the registrant............................................................... 5
PART II
-----------
5. Market for the registrant's common stock and related
stockholder matters............................................................................. 6
6. Selected financial data......................................................................... 6
7. Management's discussion and analysis of financial
condition and results of operations............................................................. 6
8. Consolidated financial statements and supplementary
data .......................................................................................... 6
9. Changes in and disagreements with accountants on accounting
and financial disclosure........................................................................ 6
PART III
-----------
10. Directors and executive officers of the registrant. ............................................ 7
11. Executive compensation.......................................................................... 7
12. Security ownership of certain beneficial owners
and management.................................................................................. 7
13. Certain relationships and related transactions.................................................. 7
PART IV
------------
14. Exhibits, financial statement schedules, and
reports on Form 8-K............................................................................. 8 - 11
Signatures......................................................................................... 12 - 14
Exhibits........................................................................................ 15 - 66
Consent of Independent Auditors - Ernst & Young LLP................................................ 67
Financial Data Schedule............................................................................ 68
Supplementary schedule............................................................................. 69
</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 15,339 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 8 through 11, 16 through 19 and 24 through 26 (textual material) of
the Registrant's 1994 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, 1994 and the identifiable
assets of each segment at the end of each year, are included in Exhibit (13), on
page 43 and page 44 in the Registrant's 1994 Annual Report to Shareholders and
is hereby incorporated by reference.
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<PAGE> 4
Item 2. Properties
- ------- ----------
The Registrant leases office facilities at 370 locations, 290 are in the United
States. In addition, the Registrant owns real property at 26 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 1,635 See explanation below
Hightstown, NJ owned See explanation below
Office and Data Ctr. 490
Warehouse 412
New York, NY leased 504 Financial Services
owned 346 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 Vacant
leased 122 Various Operating Units
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> 5
<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 270 CTB/McGraw-Hill School
Blacklick (Gahanna), OH owned
Book Dist. Ctr. 558 Various Operating Units
Office 73
Westerville, OH owned 59 Glencoe
New York, NY leased 64 Professional Publishing
Grove City, OH
Warehouse leased 160 School
Dallas, TX leased
Assembly Plant 148 School
Warehouse 72
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 941,000 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
694,000 square feet of space for periods up to 25 years.
-3-
<PAGE> 6
The largest complex owned by the Registrant is located in Hightstown, NJ which
houses the offices for accounting operations, data processing services, order
fulfillment, other service departments and a warehouse. The Registrant is in the
process of consolidating its domestic book distribution operations by
consolidating the distribution operations in Blue Ridge Summit, PA and
Hightstown, NJ to Westerville 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 Registrant's security holders during the
last quarter of the period covered by this Report.
-4-
<PAGE> 7
Executive Officers of Registrant
--------------------------------
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Joseph L. Dionne 61 Chairman and Chief Executive Officer
Harold McGraw III 46 President and Chief Operating Officer
Robert J. Bahash 49 Executive Vice President and
Chief Financial Officer
Michael K. Hehir 47 Executive Vice President, New Ventures
Robert N. Landes 64 Executive Vice President,
Secretary and General Counsel
Thomas J. Sullivan 59 Executive Vice President, Administration
Frank J. Kaufman 50 Senior Vice President, Taxes
Barbara A. Munder 49 Senior Vice President and Executive
Assistant to the Chairman
Frank D. Penglase 54 Senior Vice President, Treasury Operations
Thomas J. Kilkenny 36 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 director of the Registrant's Corporate Audit Department since October
1, 1991. Previously he was with Ernst & Young LLP from 1980 through 1991.
-5-
<PAGE> 8
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, 1995 was 5,606.
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Dividends per share of common stock:
$.58 per quarter in 1994
$.57 per quarter in 1993 $2.32 $2.28
</TABLE>
Information concerning other matters is incorporated herein by reference from
Exhibit (13), from page 50 of the 1994 Annual Report to Shareholders.
Item 6. Selected Financial Data
- ------- -----------------------
Incorporated herein by reference from Exhibit (13), from the 1994 Annual Report
to Shareholders, page 34 and page 35.
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations
---------------------
Incorporated herein by reference from Exhibit (13), from the 1994 Annual Report
to Shareholders, pages 28 to 33 and page 36.
Item 8. Consolidated Financial Statements and Supplementary Data
- ------- --------------------------------------------------------
Incorporated herein by reference from Exhibit (13), from the 1994 Annual Report
to Shareholders, pages 37 to 48 and page 50.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------- ---------------------------------------------------------------
Financial Disclosure
--------------------
None
-6-
<PAGE> 9
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 20, 1995 for the annual
meeting of shareholders to be held on April 26, 1995.
Item 11. Executive Compensation
- -------- ----------------------
Incorporated herein by reference from the Registrant's definitive proxy
statement dated March 20, 1995 for the annual meeting of shareholders to be held
on April 26, 1995.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -------- --------------------------------------------------------------
Incorporated herein by reference from the Registrant's definitive proxy
statement dated March 20, 1995 for the annual meeting of shareholders to be held
April 26, 1995.
Item 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
Incorporated herein by reference from the Registrant's definitive proxy
statement dated March 20, 1995 for the annual meeting of shareholders to be held
April 26, 1995.
-7-
<PAGE> 10
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......................................... 49
Consolidated balance sheet at
December 31, 1994 and 1993........................................ 38-39
Consolidated statement of income
for each of the three years in
the period ended December 31, 1994................................ 37
Consolidated statement of cash flows
for each of the three years in the
period ended December 31, 1994.................................... 40
Consolidated statement of shareholders'
equity for each of the three years in
the period ended December 31, 1994................................ 41
Notes to consolidated financial
statements........................................................ 42-48
Quarterly financial information........................................ 50
Consent of Independent Auditors............................................ 67
Consolidated schedule for each of the three years in the period ended
December 31, 1994:
II - Reserve for doubtful accounts..................................... 69
</TABLE>
-8-
<PAGE> 11
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, 1994 are hereby
incorporated by reference in Exhibit (13). With the exception of the pages
listed in the above index, the 1994 Annual Report to Shareholders is not to be
deemed filed as part of Item 14 (a)(1).
(a) (3) Exhibits.
(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.
-9-
<PAGE> 12
(10)* Registrant's 1987 Key Employee Stock Incentive Plan,
incorporated by reference from Registrant's Form 10-K for the
year ended December 31, 1993.
(10)* Registrant's 1993 Key Employee Stock Incentive Plan,
incorporated by reference from Registrant's Form 10-K for the
year ended December 31, 1993.
(10)* Registrant's 1995 Key Executive Short Term Incentive
Compensation 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, incorporated by reference from Registrant's
Form 10-K for the year ended December 31, 1993.
(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) Second Amendment to Credit Agreement dated as of November 7,
1994 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, 1994.
(10) Partnership Interest Purchase Agreement, dated as of October
4, 1993, with respect to the partnership interest of Macmillan
School Publishing, Inc. in 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.
(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-
<PAGE> 13
(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, incorporated
by reference from Registrant's Form 10-K for the year ended
December 31, 1993.
(12) Computation of ratio of earnings to fixed charges.
(13) Registrant's 1994 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 LLP, Independent Auditors.
(27) Financial Data Schedule.
(99) Supplemental Schedule.
(b) Reports on Form 8-K.
A report on Form 8-K was filed on November 15, 1994. Item 5
and Item 7 (Exhibit 10) were reported in said report on Form
8-K.
- ----------------
* These exhibits relate to management contracts or compensatory plan
arrangements.
-11-
<PAGE> 14
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 24, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on March 24, 1995 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 fourteen 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
-12-
<PAGE> 15
/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 0. Lawson-Johnston
Director
/s/ Linda Koch Lorimer
-------------------------------------------
Linda Koch Lorimer
Director
-13-
<PAGE> 16
/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 0. Way
Director
-14-
<PAGE> 17
EXHIBIT INDEX
(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.
<PAGE> 18
(10)* Registrant's 1987 Key Employee Stock Incentive Plan,
incorporated by reference from Registrant's Form 10-K for the
year ended December 31, 1993.
(10)* Registrant's 1993 Key Employee Stock Incentive Plan,
incorporated by reference from Registrant's Form 10-K for the
year ended December 31, 1993.
(10)* Registrant's 1995 Key Executive Short Term Incentive
Compensation 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, incorporated by reference from Registrant's
Form 10-K for the year ended December 31, 1993.
(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) Second Amendment to Credit Agreement dated as of November 7,
1994 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, 1994.
(10) Partnership Interest Purchase Agreement, dated as of October
4, 1993, with respect to the partnership interest of Macmillan
School Publishing, Inc. in 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.
(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.
<PAGE> 19
(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, incorporated
by reference from Registrant's Form 10-K for the year ended
December 31, 1993.
(12) Computation of ratio of earnings to fixed charges.
(13) Registrant's 1994 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 LLP, Independent Auditors.
(27) Financial Data Schedule.
(99) Supplemental Schedule.
- ----------------
* These exhibits relate to management contracts or compensatory plan
arrangements.
<PAGE> 1
Exhibit (3)
McGRAW HILL, INC.
BY-LAWS
(As amended April 27, 1994)
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
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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.
<PAGE> 18
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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
2. 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
Exhibit (10)
McGRAW-HILL, INC.
1995 KEY EXECUTIVE SHORT-TERM INCENTIVE
COMPENSATION PLAN
<PAGE> 2
McGRAW-HILL, INC.
1995 KEY EXECUTIVE SHORT-TERM INCENTIVE COMPENSATION PLAN
SECTION CONTENTS PAGE
------- -------- ----
1. Purpose 1
2. Definitions 2
3. Effective Date 4
4. Administration 5
5. Eligibility 6
6. Target Award 7
7. Performance Objectives 8
8. Notice of Award 10
9. Award Determination 11
10. Payment of Awards 13
11. Termination of Employment 14
12. Transfer 15
13. Amendment, Suspension or Termination 16
of Plan
14. Non-Assignment of Rights 17
15. Costs of Plan 18
16. Change of Control 19
<PAGE> 3
Section 1. PURPOSE
The 1995 Key Executive Short-Term Incentive Compensation Plan is intended to
increase the profitability of McGraw-Hill by providing the opportunity for key
executives to earn incentive payments for outstanding achievement and
performance. It is the purpose of the Plan to motivate executives to the
attainment of demanding goals by providing recognition and rewards in the form
of cash incentive awards. The Plan has the further purpose of fulfilling the
Corporation's objective of offering a fully competitive total compensation
package to its key McGraw-Hill employees, thus enabling McGraw-Hill to attract
and retain executives of the highest caliber and ability.
- 1 -
<PAGE> 4
Section 2. DEFINITIONS
The following terms used in the Plan are defined as follows:
AWARD YEAR - the calendar year of the Corporation during which Performance
Objectives must be achieved by the Participant.
BOARD OF DIRECTORS - the Corporation's Board of Directors.
CEO - the Chief Executive Officer of the Corporation.
COMMITTEE - the Management Compensation Committee of the Board of Directors.
CORPORATION - McGraw-Hill, Inc. and its subsidiaries.
DISABILITY - "Disability" means eligibility for disability benefits under the
terms of McGraw-Hill's Long-Term Disability Plan in effect at the time the
Participant becomes disabled.
EARLY RETIREMENT - means termination of employment under a retirement Plan of
McGraw-Hill provided that a participant is age 55 or older with at least 10
years of service and eligible to receive upon termination a McGraw-Hill pension
benefit.
- 2 -
<PAGE> 5
MANAGEMENT - The CEO and such other member of McGraw-Hill's management as the
CEO may from time to time designate to take action with respect to the Plan.
McGRAW-HILL - McGraw-Hill, Inc. and its subsidiaries.
NORMAL RETIREMENT - means termination of employment from the Company on or
after age 65.
PARTICIPANT - a key executive of McGraw-Hill who receives a Target Award under
the Plan.
PERFORMANCE OBJECTIVES - significant business or individual objectives to be
achieved by the Participant during the Award Year and upon which the percentage
of payment of the Target Award shall be based.
PLAN - the McGraw-Hill 1995 Key Executive Short-Term Incentive Compensation
Plan.
RETIREMENT - means Normal or Early Retirement.
TARGET AWARD - the cash payment that shall be made to the Participant if the
Participant's Performance Objectives are achieved during the applicable Award
Year.
- 3 -
<PAGE> 6
Section 3. EFFECTIVE DATE
Subject to compliance with all applicable legal requirements, the Plan shall be
effective as of January 1, 1995, and the 1995 calendar year shall be the first
Award Year of the Plan. The Plan was approved by the Board of Directors on
November 30, 1994. No future Target Award shall be granted subsequent to the
1999 Award Year unless the Plan is extended by the Board of Directors.
- 4 -
<PAGE> 7
Section 4. ADMINISTRATION
The Committee shall be responsible for the implementation and administration of
the Plan. No Committee member shall be eligible for a Target Award under the
Plan while serving as a Committee member. The Committee's functions shall
include, but not be limited to: (a) interpretation of the Plan (which
interpretation shall be final and binding, unless otherwise determined by the
Board of Directors) and establishment of the rules and regulations governing
Plan administration; (b) selection of Participants; (c) determination of Target
Awards; (d) approval of Performance Objectives; (e) determination of the degree
of the attainment of the Performance Objectives; (f) determination of the size
of individual awards and payments to Participants. In reaching its decisions,
the Committee shall consider recommendations made by Management. The Committee
may, in discharging its responsibilities under the Plan, delegate such duties
to officers or other employees of McGraw-Hill as it deems appropriate. In
addition, the Committee is authorized to use the services of the Corporation's
Corporate Audit Department and/or independent auditors to determine the level
of achievement of Performance Objectives.
- 5 -
<PAGE> 8
Section 5. ELIGIBILITY
The Committee shall select Participants based on recommendations of Management.
Selection as a Participant shall be limited to those key full-time employees of
McGraw-Hill who, by virtue of their positions, have a demonstrable impact on
either the profitability of a major business unit of McGraw-Hill, or upon the
overall profitability of McGraw-Hill. No Committee member shall be eligible to
be a Participant while serving as a Committee member, but a director of the
Corporation who is also a full-time employee, but not a member of the
Committee, shall be eligible to be a Participant. No Participant or employee
of McGraw-Hill shall have any right to be awarded any Target Award or actual
payment under the Plan.
- 6 -
<PAGE> 9
Section 6. TARGET AWARD
The amount of the Target Award for each Participant shall be determined by the
Committee at or near the start of the applicable Award Year based upon
Management's recommendation.
- 7 -
<PAGE> 10
Section 7. PERFORMANCE OBJECTIVES
Performance Objectives for each Participant shall be established as provided in
this section at demanding levels so that their achievement reflects commendable
performance by the Participant. The Performance Objectives may consist of
Financial Objectives, Individual Objectives or a combination of Financial and
Individual Objectives. Financial and Individual Objectives are defined as
follows:
(a) FINANCIAL OBJECTIVES - Financial Objectives shall be
expressed in terms of the most significant performance indicators for the
particular business unit being considered, or McGraw-Hill as a whole, and shall
be established at the start of each Award Year by Management, subject to review
and approval by the Committee. At the same time, a "range" of achievement for
financial objectives ranging from "zero" to "target" (100% of Target Award
relating to Financial Objectives) to "maximum" (150% of Target Award relating
to Financial Objectives) shall be established. The Committee shall have the
authority to alter or adjust Financial Objectives during the course of an Award
Year, or to alter or adjust the financial results otherwise reported or
achieved by the Corporation during such Award Year, if it is deemed appropriate
to do so.
- 8 -
<PAGE> 11
(b) INDIVIDUAL OBJECTIVES - Individual Objectives, if
appropriate for a participant, shall be expressed in terms of significant
qualitative or quantitative individual goals to be achieved during the Award
Year. Individual Objectives usually shall be established jointly by the
Participant and the Participant's immediate superior, subject to approval by
the CEO, or his delegate. Any Individual Objectives for the CEO shall be
established by the Committee; Individual Objectives for all Participants in
Grades 25 and above shall be reviewed by the Committee or its delegate for
consistency with overall Corporate goals and individual equity. A
Participant's Individual Objectives may be altered or amended during an Award
Year, if necessary, to properly reflect changed business conditions and
priorities, subject to approval by the CEO or his delegate.
- 9 -
<PAGE> 12
Section 8. NOTICE OF AWARD
Except as may otherwise be determined by the Committee, a Participant shall be
notified in writing on or near the start of the Award Year of the amount of the
Participant's Target Award.
- 10 -
<PAGE> 13
Section 9. AWARD DETERMINATION
As soon as practicable following the completion of each Award Year, the level
of achievement of Performance Objectives for each Participant and the amount of
the Award payment shall be determined by Management. The Award payments for
Participants in Grade 25 and above are subject to review and approval by the
Committee. The level of achievement of the Performance Objectives shall be
determined in the following manner:
(a) FINANCIAL OBJECTIVES - For performance at or below the
"zero" level of achievement, there shall be no payment. Performance between
the "zero" level of achievement and the "target" level shall result in a
payment in accordance with the established range of achievement payment
schedule. Performance between the "target" and the "maximum" level of
achievement (150% of target) shall result in a payment in accordance with the
established range of achievement payment schedule.
(b) ADJUSTMENTS IN FINANCIAL CALCULATIONS - The Committee in
its sole discretion has the authority to effect adjustments from time to time
in connection with determining the degree of achievement of the Financial
Objectives for McGraw-Hill or a business unit of McGraw-Hill for the applicable
year in question, and to make any other determinations, as it deems equitable,
fair or advisable for the purpose of ascertaining the amount of any payments
under this Plan.
- 11 -
<PAGE> 14
(c) INDIVIDUAL OBJECTIVES - The attainment of Individual
Objectives shall be determined by the Participant's superior, subject to review
by Management and for Participants in Grade 25 and above by the Committee for
consistent and equitable evaluations and judgments. The Committee shall decide
the degree to which the CEO has attained his Individual Objectives, if any.
(d) ACTUAL AWARDS - The sum of the award based on achievement
of Financial Objectives and, if applicable, Individual Objectives.
(e) MAXIMUM AWARDS - Where one or more objectives (but not
necessarily all) have been clearly and demonstrably exceeded, a Participant may
be paid an amount in excess of the portion of the award related to such
objectives. The maximum award may not exceed 150% of the Target Award except
in unusual circumstances approved by the Committee.
- 12 -
<PAGE> 15
Section 10. PAYMENT OF AWARDS
Award payments shall be made, less required tax and applicable benefits
withholdings, as soon as practicable after the determination and final approval
of such payments as provided in Section 9.
- 13 -
<PAGE> 16
Section 11. TERMINATION OF EMPLOYMENT
If a Participant's employment with McGraw-Hill terminates during an Award Year
because of death, Disability or Retirement or with the approval of the
Committee where severance is paid, the Participant (or the Participant's
designated beneficiary or estate in the absence of a surviving designated
beneficiary) shall receive a pro rata Award payment based on the portion of the
Award Year the Participant was employed by McGraw-Hill in an eligible position
while the Target Award was outstanding and the degree to which during such
Award Year the Performance Objectives were judged to have been achieved. A
Participant whose employment with McGraw-Hill terminates during an Award Year
for any other reason shall not be eligible for any payment of an Award for such
Award Year. Neither the Plan nor any action taken hereunder shall be construed
as giving any Participant any right to be retained in the employ of
McGraw-Hill. A leave of absence, approved by the Committee, shall not be
deemed to be a termination of employment for purposes of this Plan, and may
warrant a full or pro rata award as determined by the Committee.
Following the completion of an Award Year, no Award shall be payable to any
Participant who voluntarily resigns his/her employment prior to the payment
date for such Award. For purposes of the preceding sentence, death, Disability
or Retirement shall not be deemed a voluntary resignation.
- 14 -
<PAGE> 17
Section 12. TRANSFER
If a Participant is transferred within McGraw-Hill during an Award Year to a
position that is not considered as eligible for participation in the Plan, the
Committee may, in its sole and absolute discretion, authorize a pro rata Award
Payment based on the number of full months during which the Participant was in
an eligible position while the Target Award was outstanding and the degree to
which during such Award Year the Performance Objectives were achieved.
- 15 -
<PAGE> 18
Section 13. AMENDMENT, SUSPENSION OR TERMINATION OF PLAN
The Board of Directors may at any time based upon a recommendation of the
Committee, amend, suspend, or terminate the Plan.
- 16 -
<PAGE> 19
Section 14. NON-ASSIGNMENT OF RIGHTS.
A Participant's Target Award may not be assigned or transferred, and is not
subject to attachment, garnishment, execution, or other creditor's processes.
In the event of a Participant's death, the payment of the Award as provided in
the Plan, if any, shall be made to the Participant's designated beneficiary, or
estate in the absence of a surviving beneficiary.
- 17 -
<PAGE> 20
Section 15. COSTS OF PLAN
The expenses incurred in administering the Plan, including any Committee fees,
charges by the Corporation's independent auditors, or other costs, shall be
borne by the Corporation.
- 18 -
<PAGE> 21
Section 16. CHANGE OF CONTROL
In the event of a Change of Control of the Corporation, then immediately after
such event becomes effective (the "Effective Date"), the Corporation shall pay
to each Participant the pro rata amount of said Participant's Target Award for
said Award Year, determined solely by the ratio which the number of calendar
quarters during which the award had been outstanding (including the calendar
quarter in which the Change of Control occurred) bears to four (4).
For purposes of this Plan, the term "Change of Control" shall mean any of the
following events:
(i) The acquisition (other than from the
Corporation) 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,
McGraw-Hill, or its subsidiaries, or any employee benefit plan of
McGraw-Hill) 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 Corporation's then outstanding voting
- 19 -
<PAGE> 22
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
Corporation'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 Corporation, 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
Corporation of a reorganization, merger, or consolidation, in each
case, with respect to which persons who were the stockholders of
the Corporation immediately
- 20 -
<PAGE> 23
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 Corporation or of the sale of all or
substantially all of the assets of the Corporation.
The reasonable legal fees incurred by any
Participant to enforce his/her valid rights hereunder shall be paid
for by the Corporation to the Participant in addition to sums
otherwise due under this Plan, whether or not the Participant is
successful in enforcing his/her rights or whether or not the matter
is settled.
November 30, 1994
- 21 -
<PAGE> 1
Exhibit (12)
McGRAW-HILL, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(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
(a)(b)(c) $341,816 $293,243 $264,877 $255,608 $299,715
Fixed charges 85,897 75,930 81,724 89,050 97,555
Capitalized interest (353) (536) (836) (507) (842)
-------- -------- -------- -------- --------
Total Earnings $427,360 $368,637 $345,765 $344,151 $396,428
======== ======== ======== ======== ========
Earnings from continuing operations
before income tax expense and cumulative
effect on prior years of changes in
accounting in 1992 (b)(c) $341,816 $ 63,443 $264,877 $255,608 $299,715
Fixed charges 85,897 75,930 81,724 89,050 97,555
Capitalized interest (353) (536) (836) (507) (842)
-------- -------- -------- -------- --------
Total Earnings $427,360 $138,837 $345,765 $344,151 $396,428
======== ======== ======== ======== ========
Fixed Charges(b)
Interest expense $ 55,650 $ 46,998 $ 49,935 $ 59,350 $ 68,651
Portion of rental payments
deemed to be interest 30,247 28,932 31,789 29,700 28,904
-------- -------- -------- -------- --------
Total Fixed Charges $ 85,897 $ 75,930 $ 81,724 $ 89,050 $ 97,555
======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges:
Before unusual charges and
cumulative adjustment 5.0x 4.9x 4.2x 3.9x 4.1x
After unusual charges
but before cumulative adjustment 5.0x 1.8x 4.2x 3.9x 4.1x
- --------------
</TABLE>
(a) Unusual charges in 1993 totaled $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 consisted of $199.8 million primarily to adjust the
company's original investment to values established in the purchase
transaction. The charge was allocated primarily to goodwill and
intangibles. The company also recorded a provision of $30 million relating
to the consolidation of certain functions of Macmillan/McGraw-Hill
and the company's book publishing operations.
-62-
<PAGE> 2
(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. Effective October 1, 1993, School Publishing results are consolidated
in the company's results.
(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.
-63-
<PAGE> 1
EXHIBIT 13
<TABLE>
<CAPTION>
PAGE IN
ANNUAL REPORT
---------------
<S> <C>
Business (Textual Material) 8 through 11, 16 through 19
and 24 through 26
Management's Disussion and Analysis 28 to 33 and 36
Eleven Year Financing Review 34 and 35
Consolidated Statement of Income 37
Consolidated Balance Sheet 38 and 39
Consolidated Statement of Cash Flow 40
Consolidated Statement of Shareholders' Equity 41
Notes to Consolidated Financial Statements 42 to 48
Reports of Management 49
Report of Independent Auditors 49
Supplemental Financial Information 50
</TABLE>
<PAGE> 2
EDUCATIONAL & PROFESSIONAL PUBLISHING
While textbooks and other printed materials still dominate the educational and
professional publishing markets, they are increasingly sharing the stage with
new technologies and media, including CD-ROM, online and laser disk. Outside
the U.S., the surging economic growth of many developing nations is spurring
demand for educational and technical information products.
The leader in many of the markets it serves, McGraw-Hill's Educational and
Professional Publishing Group moved aggressively to protect and build its
franchises by improving operating efficiencies, exploiting cross-company
synergies and strengthening the quality of its products.
SCHOOL PUBLISHING
Whenever America's 50 million kindergarten, elementary and high school students
open their textbooks, one in four of those textbooks bears the McGraw-Hill
imprint. Whenever those same students take standardized tests, one in three of
those tests is published by McGraw-Hill. And whenever school administrators log
onto their PC-based administrative systems, one in five of those systems uses
McGraw-Hill software products.
School Publishing is the nation's largest school textbook, test and
administrative software publisher. In a market estimated at $2.5 billion in
sales in 1994, the company ranks first in both elementary and high school
publishing, with the broadest range of products.
SCHOOL PUBLISHING OPERATION CONTINUES INTEGRATION
School Publishing took a number of steps in 1994 to strengthen its market
position. Chief among these was implementing plans to consolidate its
operations with McGraw-Hill's book publishing units following McGraw-Hill's
attaining full ownership of the former Macmillian/McGraw-Hill School Publishing
Company in October 1993.
The integration focuses on all aspects of distribution and accounting
operations. Four distribution centers are being consolidated into two, where
state-of-the-art systems will reduce the cycle time and increase the
productivity of handling, fulfilling and shipping operations. Accounting
functions were moved to a single site. In addition to cutting costs, the
integration will improve customer service by speeding the delivery of orders.
CAPTURING GROWTH OPPORTUNITIES
As School Publishing took steps to control expenses, it also looked to build
sales. This business scored considerable success in 1994 with textbook adoptions
in Indiana, Texas, Tennessee and South Carolina. Its market leadership, broad
range of product offerings and increased efficiency will pay additional
dividends in coming years, when school purchases are expected to increase by
more than 10% annually over 1994 levels. This includes purchases by large state
school systems, such as those in Texas, California and Florida, in disciplines
where McGraw-Hill is particularly strong.
In addition to textbooks, there is a growing demand for multimedia
educational tools. While school spending on instructional materials is expected
to stay relatively constant on a per capita basis, paralleling the expected 2%
annual increase in school enrollment, the way those dollars are spent is
changing. For example, the number of CD-ROM drives in classrooms today is
growing by 500,000 every year.
Today, the market for stand-alone software that can be used in school as well
as at home is growing by over 20% per year, and is expected to reach $360
million in annual retail sales within the next few years. School Publishing
plans to focus more directly on capturing this market, which is now dominated by
software companies.
MORE MULTIMEDIA EDUCATION PRODUCTS INTRODUCED
McGraw-Hill is capitalizing on the growing demand for multimedia learning
products. The company now produces such products in most high school subjects.
In 1994, it furthered its leadership by producing and marketing several
innovative offerings, including The Multimedia Literature program for grades 3
to 6. Developed in 1994 and introduced in early 1995, the CD-ROM product extends
the A New View reading program to involve students and teachers in an
interactive learning environment. Multimedia Literature integrates technology
and textbook curricula, but it can also be used on a stand-alone basis in
schools and homes.
Another example of this trend is a program with ABC News Interactive that
combines School Publishing's leadership with ABC News' video programming
expertise. The venture involves producing multimedia programs which include
original and archival ABC News video and graphics, coupled with McGraw-Hill's
text, teacher guides, class activities and teacher resource material.
<PAGE> 3
TESTING AND SUPPLEMENTARY EDUCATION PRODUCTS EXPANDED
CTB/McGraw-Hill, which produces one-third of the nation's standardized education
tests, is responding to changes in the testing market. The Goals 2000
legislation and numerous state initiatives to raise academic standards have
created demand for new kinds of assessment instruments. CTB is developing new
tests in print and electronic forms that will enable schools to measure student
achievement in a changing academic environment.
SRA/McGraw-Hill, which publishes supplementary elementary and secondary
school instruction materials, focused intently on broadening its product base in
1994. A number of products are currently under development, including early
childhood, reading, science and math materials, as well as several multimedia,
CD-ROM learning products.
PROFESSIONAL PUBLISHING
In addition to its leading position in the U. S. school market, McGraw-Hill also
leads in serving educational and professional audiences throughout the world.
Through its Professional Publishing Group, McGraw-Hill serves a global community
in business, medicine, engineering, science and computing. The group is also
responsible for the development of the school and college markets in Asia, Latin
America, Europe and Canada.
SERVING THE GLOBAL NEED FOR KNOWLEDGE
To effectively serve its broad customer base, McGraw-Hill has developed a global
network of 23 publishing centers providing products in l6 languages. With its
long history in the emerging markets of Asia and Latin America, the company has
achieved prominence unequalled by other publishers.
The combination of expanding economic development, strong demographics and
educational investment in these markets represents excellent long-term
opportunities for McGraw-Hill. The company is already recognized as one of the
largest college publishers in the Spanish language, the largest Spanish-language
medical publisher, the leading computer publisher in Spanish through its
affiliation with Microsoft Press and a very significant force in school and
vocational publishing throughout Latin America and Spain. McGraw-Hill is
providing its products in several Asian languages, most notably Mandarin Chinese
and Thai.
LEVERAGING NEW TECHNOLOGIES
McGraw-Hill, well known as a leader in professional information, is at the
forefront of employing new technologies to better serve customers. In 1994, it
became the first major publisher to make its full catalog available on the
Internet. It also utilized a variety of online services to both market and
distribute its products. This area has produced hundreds of book computer disk
packages. Also in 1994, McGraw-Hill's Multimedia Encyclopedia of Science and
Technology was released in conjunction with the Science Navigator on CD-ROM.
This group also released the DRI/McGraw-Hill Encyclopedia of World Economics on
CD-ROM. In addition to its electronic products, the Osborne/ McGraw-Hill unit
published the year's leading references to the Internet. McGraw-Hill is
recognized as a leading publisher in computer and communications technology.
COLLEGE PUBLISHING
1994 was a year of restructuring for the College division. The group revamped
its management and marketing operations and its product list. Staff was cut 8%
and suppliers were consolidated.
The division--which is the U.S.'s third largest college publisher--is focused
on finding new ways to grow the business.
The sales force was expanded by over 22% in 1994, and a new editorial
direction focused on specific college disciplines was installed across the
board.
As it moves forward, College faces increasing change in the market it serves.
While college enrollments are flat, sales of college educational material are
projected to grow by about 4% per year. The mix of spending on instructional
materials is changing. Students are buying fewer texts and the use of
alternative instructional packages is increasing.
College's strategy is to concentrate its resources in areas where it can
achieve or hold market leadership. Currently, it ranks first in publishing
college foreign-language programs, and its accounting and economic texts sold
well during the year. The division is actively exploring arrangements that would
allow it to strengthen some product lines and replace weaker ones.
<PAGE> 4
The College division is already a significant player in the field of custom-
publishing, a fast-growing part of the industry that directly responds to
changing market demands. Texts created from its Primis database (an online
collection of information from which educators can "build" electronically their
own customized course materials), are now used on over 1,000 college campuses.
In 1994, Primis and the division's traditional custom-publishing operation were
combined to enhance efforts in this area.
LEGAL PUBLISHING
To protect its traditional franchise and broaden its sources of revenue,
Shepard's legal-publishing operation strengthened its core product line in 1994,
developing new products aimed at specific segments of the market.
One of its major achievements was updating and releasing the 24-volume United
States Citations, which contains legal citations that trace the history of court
decisions at the federal level. As with an increasing number of Shepard's
offerings, the new edition was also produced in a CD-ROM format.
Shepard's continued to expand into primary law publishing (which involves
compiling and producing the actual laws rather than citations, court cases and
other supporting information). It produced Desktop Codes, a series of volumes on
family law in California; this electronic product has a potential market of
14,000 lawyers in the nation's largest state. Similar efforts are under way for
other highly populated states.
<PAGE> 5
FINANCIAL SERVICES
The collapse of barriers to the worldwide flow of information, greater
access to technology, the globalization of capital markets and the rise of new
financing and investment vehicles provide significant opportunities for
McGraw-Hill's financial services businesses. In 1994, despite difficult equity
and bond markets, these businesses performed well. This was accomplished by
diversification and by strengthening and expanding products and services into
domestic and international markets.
FINANCIAL INFORMATION SERVICES GROUP
The Financial Information Services Group ("FISG") began 1994 as a newly formed
organization that combined under one roof nine separate units. By year-end, the
Group was reorganized away from its "vertical" product-line orientation into a
single cohesive business with four principal operating areas: Equity Services,
which includes S&P equities research, index products and price information, S&P
Compustat corporate financial data and the S&P Securities soft-dollar brokerage
unit; Financial Data Services, which provides real-time news and price
information on global equity, debt, currency and commodity markets; Municipal
Securities Services, which combines J.J. Kenny municipal securities print and
online pricing, news, interdealer brokerage, information and evaluation
services; and DRI/McGraw-Hill, the global economic advisory, forecasting and
consulting service.
With revenues and profits growing in 1994, FISG's strategy for the future is
to leverage its strengths and resources in providing information to capital
market participants. That information covers virtually all types of financial
instruments (including U.S. treasury, corporate and municipal debt, equities,
mutual funds and unit investment trusts, indices, commodities and foreign
exchange) in a variety of markets (North and South America, Europe and Asia),
via different formats (real-time and online electronic delivery, print
publications, multimedia).
GROWTH THROUGH OPEN DISTRIBUTION OF INFORMATION
As part of this strategy, FISG moved toward open distribution of its
information to the finanical markets. Prior to 1994, certain FISG information
was not distributed on a broad basis through information vendor's "screens,"
which are computer terminals used by financial industry participants to monitor
or research market conditions for trading and investment activities. By
implementing an open distribution strategy, whereby agreements with all the
major financial information vendors are being signed, FISG has increased the
universe to which it can distribute information and analysis to over 300,000
screens.
NEW PRODUCTS FILL NEW MARKET NEEDS
The development of new applications that build on existing strengths also
contributed to FISG's growth in 1994. One example is the launch of the S&P
SmallCap 600 Index, a product that serves as a benchmark for the performance of
the fast-growing small capitalization equity market. The new index product
leverages S&P's reputation in the equity markets and complements the broad array
of S&P indices that represent the overall equity market. The products are
licensed to securities and futures exchanges, and the Group receives a royalty
when futures or options based on them trade.
Just as FISG's strategic focus helped it to marshal the expertise and
resources to develop and introduce new products and services, it also brought
greater operating efficiencies and cost savings. Staff was reduced in several
areas, as redundant operations were eliminated. Nowhere was the drive to improve
efficiency more notable than at DRI/ McGraw-Hill, which was downsized and
refocused.
FISG's business development strategy and efforts come at a time when it faces
significant growth opportunities in many of the markets it serves. The
globalization of capital markets is increasing the demand for accurate,
up-to-the-minute information and analysis on a broadening array of instruments,
asset classes and companies.
CONTINUED STRONG INTERNATIONAL GROWTH
With international sales contributing 20% of revenue, FISG is already active in
overseas markets. The Group, however, moved in 1994 to expand and solidify its
international products and services.
For example, the CUSIP Service Bureau, administered by S&P under a long-term
contract with the American Bankers Association, expanded ties with the official
identifier for Mexican stocks and bonds. MMS International, the Group's
real-time global information and analysis service for debt, currency and equity
markets, launched a Latin American service during the year. This reflects the
reintegration of many Latin American countries and companies into the global
capital markets, and their desire to raise funds to finance business and
operating activities.
Asia is an area of prime potential, and several FISG units expanded and
strengthened their activities in the region. MMS International announced plans
to open an office in Shanghai, its first in mainland China, which complements
its existing Asian operations in Tokyo, Hong Kong and Singapore. In Japan, it
launched a Japanese-language product which provides subscribers with next-day
translations of North American and European market activity on their screens.
Platt's, FISG's round-the-clock commodity information service, introduced
Chinawire, the first daily publication, fax and telex service covering that
country's expanding energy market. Another market trend from which FISG
benefits is the move toward managed assets. The increase in mutual funds,
separate accounts, unit trusts and other managed assets has been dramatic over
the past decade. As this industry has grown, however, the competitive,
regulatory and administrative burdens that asset management companies face have
also increased. Thus, many such companies are looking to outsource their
information and evaluation services to independent organizations. FISG's Kenny
S&P Evaluation Service is clearly the leader in providing pricing services for
tax-exempt and taxable securities, and its business has grown substantially
over the last three years.
S&P RATINGS GROUP
S&P Ratings' solid growth in the international and structured finance ratings
business, plus its increasingly successful diversification strategy, helped it
to offset a weak new issue market for corporate and municipal debt in 1994--a
year in which such debt financings declined by 35%.
Rating U.S. debt issues remains S&P's core business. As it now rates very
close to the entire domestic corporate and municipal bond markets, S&P's further
growth in the field is dependent on cyclical economic factors, chiefly the level
of interest rates. During periods of low interest rates, financing (and rating)
activity booms; during periods of rising rates--such as in 1994--financing
activity declines.
To diversify and grow its revenue sources, and to create recurring revenue
streams through annual fee-based services, S&P Ratings has moved into areas
where it can leverage its outstanding reputation in the industry and its
long-standing expertise in analyzing and evaluating risk. Over the last several
years, the group has broadened its international activities, introduced product
extensions of existing services and developed and marketed new risk-evaluation
services.
S&P DECENTRALIZES TO BOLSTER INTERNATIONAL GROWTH
The demand for capital by governments and companies in developing markets
continues to increase. Many of these debt issuers, however, are not well-known
in the major financial centers. As S&P Ratings helps to increase the universe of
funds available to invest in debt financings, demand for ratings by cross-border
issuers continues to grow. In 1994, for example, the group rated the newly
issued debt of Uruguay, Slovakia and Malta. Sovereign debt ratings are key
leading indicators of the potential for their countries' private sector
financing activities in the international capital markets.
To capture this international business potential, S&P is decentralizing its
ratings operations, following the concept that analytical services are best
performed as close as possible to the countries and companies being rated. This
increases S&P Ratings analysts' understanding of local market and business
developments, as well as of the performance and financial condition of rated
entities. It also facilitates business development by enhancing S&P's image
among potential customers.
S&P Ratings continued with its globalization and decentralization strategy in
1994, opening its 10th international office, in Hong Kong. S&P Ratings'
international network now numbers over 200 staff in Frankfurt, London, Madrid,
Stockholm, Mexico City, Toronto, Tokyo, Melbourne, Paris and Hong Kong.
NEW MARKETS FOR RATINGS SERVICES
While corporate and municipal bond offerings were at low levels, other ratings
areas experienced dynamic growth in 1994. Ratings of structured financings
increased sharply during the year, reflecting a 20% increase in new issue volume
in that asset class.
Ratings of derivatives products companies also increased during the year.
While the derivatives industry has weathered some highly publicized and
controversial developments, clients' demands for and uses of these innovative
financial instruments continue to multiply. In response, the number of financial
institutions engaged in trading derivatives has increased; many institutions
have created separately capitalized, stand-alone subsidiaries through which
their derivatives activities are conducted. The credit quality of these
companies is often a source of competitive advantage (or disadvantage) in the
marketplace, and the ratings of derivatives products companies fill an
increasingly important market need. In a related move, S&P Ratings provided
counterparty risk ratings for some 400 companies engaged in securities trading
activities as principals or brokers.
Providing expanded risk evaluations for bond funds was another key area of
growth in 1994. Underlying this growth is the increase in managed assets (as
opposed to individual holdings of securities), and the increased volatility of
those assets. For example, S&P now alerts investors in bond funds, exotic/hybrid
securities and derivatives by adding an `r' symbol (for market risk) following
its well-known credit rating symbols.
Corporate credit ratings (which involve evaluating companies, many of them
non-U.S., that do not have debt outstanding, but are interested in benchmarking
themselves) was a new area of growth for S&P Ratings in 1994.
Outside the capital markets area, S&P Ratings expanded its risk evaluations
of the claims-paying-ability (CPA) of insurance companies. In only a few years,
S&P has provided CPAs for one-third of its target market of 1,200 U.S. insurers
and 450 non-U.S. insurers.
<PAGE> 6
INFORMATION AND MEDIA SERVICES
In 1994, increased advertising expenditures helped pull the magazine industry
out of a several years-long slump. In this improving environment. McGraw-Hill's
Information and Media Services businesses continued to focus sharply on
improving their editorial products, introducing new products and controlling
expenses. Broadcasting and international trade information businesses recorded
exceptional growth in 1994.
BUSINESS WEEK
Business Week celebrated its 65th anniversary in 1994 with a tribute from its
industry peers: it was awarded the National Magazine Award for General
Excellence, the highest honor a magazine can win. The publication's editorial
excellence has helped make it a global leader, with worldwide circulation of
over 1 million, and a readership of over 6.7 million per week.
To advance this leadership, the magazine implemented several changes: new
features were added, international news coverage was expanded, special issues
were published and its design and logo were updated. Business Week also
significantly strenthened its business side, bolstering its strategic planning,
business development, marketing, circulation and research areas.
Business Week's ad pages improved modestly in 1994, with a 4% increase
overall, but outperformed the magazine industry as a whole.
The sluggish advertising environment over the past few years has served as a
powerful impetus to identify new growth opportunities. An immediate priority
is to increase circulation outside the U.S. Non-U.S. circulation now accounts
for 12% of total subscriptions and is targeted for 10% annual growth in the
next few years.
To increase Business Week's appeal to international readers, the
international edition has been refocused with 50% of its editorial product now
customized for non-U.S. readers. To expand its presence in Asia, Business Week
again sponsored an executive conference for Asian CEOs in Taiwan. The Taipei
conference is one of many hosted by Business Week every year: one is held in
Europe and another in South America, in addition to a series in the U.S.
Capitalizing on the information revolution on which it regularly reports, in
1994 Business Week launched McGraw-Hill's first interactive consumer online
product through the American Online network. Business Week Online includes the
entire editorial content of both the U.S. and international publications; it
also features regular electronic conferences with the magazine's editors and
staff.
PUBLICATION SERVICES
In 1994, Publications Services' focus on reinvigorating and broadening the
scope of its strong franchises in selected markets paid off. The business serves
over 1 million subscribers in the computer and communications, aviation,
plastics, chemicals, energy and healthcare markets worldwide.
To realize its goal of being the leading provider of information, education
and marketing services to its target markets, Publication Services is increasing
database-driven information products and services which capitalize on the
well-known brand names of its advertising-driven magazines and services. The
central elements of the strategy are global expansion and continuous development
of new products and services which are delivered in the customers' chosen
format.
A few examples illustrate Publication Services' new focus. Aviation Week (in
partnership with McGraw-Hill's SRA unit) produced Liftoff!, a multimedia
educational series, which included a television program that aired on the Arts
and Entertainment Network. A number of Publication Services businesses organized
industry conferences and exhibitions worldwide. Healthcare publications expanded
their sponsored newsletters.
Publication Services also continued its international growth in 1994 with the
expansion of its editorial and testing licensing agreements. BYTE, for example,
is now published in 14 languages in 144 countries, following the launch of
Arabic- and Bulgarian-language editions.
CONSTRUCTION INFORMATION
Just as Publication Services is changing the way it delivers information to the
markets it serves, so too is McGraw-Hill's Construction Information Group. CIG
is the market leader in providing construction information to architects,
engineers, contractors, developers, building product manufacturers, governments
and trade associations.
The construction market is slowly recovering after a several-year downturn,
which should bode well for CIG. CIG is developing new ways to deliver
information and enhance its customers' ability to access that information. One
example is its F.W. Dodge business, which delivers detailed information on over
500,000 construction projects to more than 50,000 customers per year. Several
years ago, Dodge began providing this information electronically and demand for
the online service grew dramatically in 1994. To foster continued growth in
electronic usage, Dodge is introducing several online product enhancements in
1995 that will make it easier for customers to access its information on a more
targeted basis.
CIG's second business, Sweet's, is also shifting towards multiple means of
distributing data. The leader in its field, Sweet's produces annual catalogs,
containing product information from over 2,000 building product manufacturers,
for distribution via mail to over 100,000 potential customers. The business
introduced a CD-ROM version of its product, called SweetSource, in 1993, and
during 1994 succeeded in attracting advertisers who had never before advertised
in the print version.
CIG's remaining operation includes Architectural Record, Engineering News-
Record and 15 regional and local publications. These editorial products were
strategically refocused in 1994. Production and distribution operations were
consolidated, and an electronic database of editorial products was created. The
unit also sought to tap into growing international demand for construction
information. In 1994 it launched Construccion del Norte in Mexico, one of the
leading publications in its market.
BROADCASTING
McGraw-Hill's television stations in Denver, Indianapolis, San Diego and
Bakersfield, California, benefited in 1994 from the general rebound in the
broadcast industry's advertising sales--fueled by increases in political and
automotive advertising. The stations also worked to strengthen their strong
positioning in the local markets they serve.
In Denver, for example, McGraw-Hill's KMGH-TV station will switch its
affiliation to the ABC network. This change will allow KMGH to capitalize on
ABC's programming, which complements the demographic characteristics of the
Denver market. The company's stations in San Diego and Indianapolis extended
their affiliate agreements with ABC.
TOWER GROUP INTERNATIONAL
Tower Group, the leading provider of such international trade logistics
management services as customs brokerage and freight forwarding, continued to
expand in 1994.
International trade continues to increase, with exports from and imports to
the U.S. growing at over 6% annually. As trade increases, more companies
appreciate the efficiency and value of outside service providers, who are
expected to triple their share of this trade by the year 2000.
To capitalize on this growth, Tower Group initiated a number of changes
during 1994. It signed an exclusive agreement with Hong Kong-based TransGlobal
Logistics for international freight forwarding services in China, the Far East
and India. It also purchased TransGlobal's offices in New York, Miami, Chicago,
Los Angeles and San Francisco. Tower Group also signed an exclusive agreement
with TradeRef, a Canadian software designer, to market its leading tariff and
trade information program in North America.
Tower Group enhanced several key products, including TowerNet, the PC-based
import management software program for trade shipments.
<PAGE> 7
FINANCIAL REVIEW AND ANALYSIS
<TABLE>
<CAPTION>
OPERATING RESULTS
CONSOLIDATED REVIEW
(in millions) 1994 1993 1992
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenue $2,760.9 $2,195.5 $2,050.5
% Increase 25.8 7.1 5.5
- ----------------------------------------------------------------------
Operating Profit $ 451.3 $ 352.6 $ 344.3
% Increase 28.0 2.4 10.3
- ----------------------------------------------------------------------
% Operating Margin 16 16 17
- ----------------------------------------------------------------------
Share of Profit of Macmillan/
McGraw-Hill Joint Venture (a) -- $ 28.4 $ 11.3
- ----------------------------------------------------------------------
Income before Taxes $ 345.4 $ 66.3(b) $ 267.3
- ----------------------------------------------------------------------
Income before Cumulative
Adjustment $ 203.1 $ 11.4 $ 153.2
- ----------------------------------------------------------------------
Cumulative Effect on Prior
Years of Changes in
Accounting -- -- $(124.6)
- ----------------------------------------------------------------------
Net Income $ 203.1 $ 11.4(b) $ 28.6
======================================================================
</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
1993 fourth quarter and 1994 full year 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 1994 grew to $2,760.9 million, an increase of 25.8%. Net
income was $203.1 million, or $4.10 per share, as compared to $11.4 million, or
23 cents per share in 1993, after unusual charges of $229.8 million ($160.8
million after taxes or $3.27 per share). Excluding last year's unusual charges,
1994 net income and earnings per share increased 17.9% and 17.1%, respectively.
In 1993, operating revenue increased 7.1% while income, excluding unusual
charges and before 1992's cumulative adjustment of $153.2 million or $3.13 per
share, increased 12.5%. In 1992, net income after the cumulative adjustment was
$28.6 million, or 58 cents per share.
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 included in McGraw-Hill's operations from the date of acquisition.
McGraw-Hill's 1994 results reflect the first full year of its 100% ownership in
the former joint venture. 1994 revenues for School Publishing were $538 million.
The former joint venture is consolidated in McGraw-Hill's results as the School
Publishing market focus group in the Educational and Professional Publishing
segment. 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 inclusion of School Publishing in McGraw-Hill's consolidated
results in 1993's fourth quarter increased revenues for the company by $90.7
million or 4.4%. Due to the seasonal nature of School Publishing's business,
1993 fourth quarter income was negatively impacted by an incremental 8 cents per
share due to the 100% ownership.
In connection with the acquisition of Macmillan/McGraw-Hill, the company
recorded unusual charges of $229.8 million ($160.8 million net of tax benefits).
The charges consisted of $199.8 million to adjust the company's original
investment to values established in the purchase transaction and were allocated
primarily to goodwill and intangibles. In addition, the company recorded a
provision of $30 million related to the consolidation of certain functions 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. The savings realized in 1994 were not
significant as consolidation efforts were underway.
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 earnings except as it relates to the recognition of tax
benefits on postretirement and postemployment obligations.
Income as a percent of revenue was 7.4% in 1994, slightly below the 1993
ratio of 7.8% before unusual charges. Return on average shareholders' equity was
23.4% in 1994; 1993 return on average shareholders' equity was 1.3% due to the
unusual charges.
Operating revenue increased $565.4 million in 1994, $459.4 million of which
represents the inclusion of School Publishing for the first nine months of 1994.
The remaining increase reflects expansion in international publishing, financial
services and broadcasting. Operating profit for the three segments increased
28.0% in 1994, with Educational and Professional Publishing increasing $76.4
million, or 154.7%.
<PAGE> 8
28 29
Operating profit for this segment, excluding School Publishing, declined 6% due
mainly to the shutdown of the Canadian legal information business, and
competitive pressures in the home-study market. Financial Services' operating
profit improved 8.1% and Information and Media Services posted an increase of
5.9%. Financial Services' performance reflects another record year in revenue by
Standard & Poor's Ratings Group, with a slight decline in profits reflecting
planned investments in new products and services and continued global expansion.
The Financial Information Services Group contributed solid revenue growth and
significant gains in operating profit. Revenue and profits improved at
Information and Media Services, led by Broadcasting, with gains at Tower Group
International and the computers and communications unit of Publication Services,
offset by a decline in the Construction Information Group.
In 1993, operating revenue increased $145 million, $90.7 million of which
was due to the inclusion of School Publishing for the fourth quarter. 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 reflected 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 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 the College business reduced
profits for the segment. Revenue and profit declines in Information and Media
Services reflected soft advertising markets in the first half that began to
rebound later in the year and continued weakness in the construction information
markets.
EXPENSES
Operating expenses in 1994 increased $230.4 million or 21.8% largely reflecting
the inclusion of School Publishing expenses for the entire year as compared to
only the fourth quarter in 1993. Excluding School Publishing for the first nine
months of the year, the company's operating expenses increased 7.8% reflecting
volume increases in some market focus groups and modest inflationary increases
in key expense categories, such as compensation. In 1994, combined printing,
binding, paper and distribution prices decreased over 2%. This was due primarily
to successful negotiations with printing, paper, and distribution suppliers,
aided in part by the increased leverage gained through the acquisition of the
Macmillan/McGraw-Hill School Publishing Company. Selling and general expenses
increased $161.7 million or 22.9%. Most of this increase was due to the
inclusion of School Publishing for the first nine months of 1994. A significant
portion of both operating and selling and general expenses is compensation,
which increased approximately 20% to $761.5 million, largely reflecting the
inclusion of School Publishing for the first nine months of the year. The effect
of merit increases on 1994 compensation cost was approximately 4.3%.
Depreciation and amortization expense, including amortization of goodwill,
intangible assets and prepublication costs, increased $90.4 million, or 64.8% in
1994. This increase is almost entirely due to the amortization of goodwill and
intangible assets and prepublication costs for School Publishing for the first
nine months of 1994. The ratio of operating, selling and general, and
amortization and depreciation expenses to total revenue in 1994 was 86.4%
compared to 86.7% in 1993. In 1995, negotiations with printing, paper, and
distribution suppliers will help to lessen the impact of rising postal and paper
prices on McGraw-Hill. Despite significant postal and paper increases, overall
manufacturing costs should be held to an increase of approximately 8%.
Compensation costs are expected to be up slightly over 4% as a result of merit
increases.
INTEREST EXPENSE
Net interest expense in 1994 was $51.7 million compared to $36.3 million in
1993, an increase of $15.4 million due to the full year impact of the 1993
borrowings to finance the acquisition of the additional 50% of the
Macmillan/McGraw-Hill School Publishing Company and increases in interest rates
on commercial paper borrowings, partially offset by reduced borrowing levels
from the beginning of 1994. The average commercial paper rate was 4.2% in 1994
and 3.3% in 1993 reflecting the increasing rates in 1994, ending the year at
approximately 5.9%. In 1993, net interest expense decreased $1.3 million because
of the decline in interest rates on commercial paper borrowings partially offset
by increased fourth quarter borrowings for the Macmillan/McGraw-Hill School
Publishing acquisition.
PROVISION FOR INCOME TAXES
The provision for taxes as a percent of income before taxes was 41.2% in 1994
compared to 41.8% in 1993, excluding the impact of the unusual charges and
related tax benefits of $69 million. The reduction in the rate reflects the
impact on the state tax rate of the integration of the operations of the former
Macmillan/McGraw-Hill School Publishing Company.
<PAGE> 9
30
FINANCIAL REVIEW AND ANALYSIS
<TABLE>
<CAPTION>
SEGMENT REVIEW
EDUCATIONAL AND PROFESSIONAL
PUBLISHING
(in millions) 1994 1993 1992
- ---------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenue $1,162.2 $667.5 $567.4
% Increase 74.1 17.6 6.6
- ---------------------------------------------------------------
Operating Profit $ 125.8 $ 49.4 $ 62.7
% Increase/(Decrease) 154.7 (21.2) 28.2
- ---------------------------------------------------------------
% Operating Margin 11 7 11
===============================================================
</TABLE>
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. School Publishing is included in the
segment results beginning in the fourth quarter of 1993, when McGraw-Hill
acquired 100% ownership.
The Educational and Professional Publishing segment revenue increased
$494.7 million, or 74.1%, in 1994. $459.4 million of the increase represents the
inclusion of School Publishing for the entire year as opposed to only the fourth
quarter in 1993. In 1993, revenue increased 17.6%; the increase was 1.6% without
the inclusion of School Publishing revenue of $90.7 million in the fourth
quarter. 1994 operating profit more than doubled to $125.8 million reflecting
the inclusion of School Publishing for the entire year and improvement in
College. 1993 operating profit declined 21.2% due to the impact of School
Publishing's fourth quarter loss of $13.8 million, a traditional loss quarter
for school publishers. 1993 operating profits increased 0.7% excluding the
impact of School Publishing.
The Professional Publishing Group accounts for 33% of 1994 segment
revenues. For 1994, Professional Publishing achieved a 10% increase in revenue,
but profits declined primarily due to the company's $3.7 million share of a
write-down by its Canadian subsidiary, McGraw-Hill Ryerson, for discontinuing
CanCite, a legal information service providing citations and case law in Canada.
Excluding the CanCite write-down and the Group's loss from its small
discontinued Japanese operation, the International Publishing unit again posted
increases in revenue and profits due primarily to the performance of the Asia
Pacific and Ibero-America sectors as a result of the aggressive pursuit of
regional growth opportunities. The Medical Publishing unit achieved revenue and
profit growth aided by the release of the English version of the 13th edition of
"Harrison's Principles of Internal Medicine" and continued focus on operational
efficiencies. The McGraw-Hill Continuing Education Center revenue remained flat
with last year, while profits decreased largely due to increased costs in
obtaining and maintaining customers.
In 1995, overall market conditions should improve slightly for the
Professional Publishing Group as the world's economic situation continues to
improve. The Asia Pacific sector is strategically positioned to take advantage
of the growth opportunities in that region. However, the devaluation and
volatility of the Mexican peso and its impact throughout Latin America, which
had no significant impact on 1994 operating results, will slow growth in the
Ibero-America sector in 1995. In 1993, Professional Publishing revenues were
flat with the prior year despite the adverse impact of recession, economic
sluggishness and currency devaluation in several major markets. Operating
profits improved from international publishing, particularly Ibero-America, and
domestic professional book operations offset by a decline in home-study
operations.
The College Group accounts for approximately 12% of 1994 segment revenues.
In 1994 College revenues increased 2.4% over 1993, exceeding the industry
performance of 1.5% as reported by the American Association of Publishers. The
sales improvement was largely driven by double-digit growth in Primis Custom
Publishing, and strong performances in economics and foreign language.
Double-digit profit improvement resulted from the favorable sales performance
and expense reductions. Market conditions will remain largely unchanged in 1995
as flat enrollments, used books, and student price sensitivity minimize sales
growth potential. Despite these conditions, College is looking to continue to
improve operating performance in 1995 through continued growth by Primis Custom
Publishing, a larger 1995 front list, and an increase in the sales force. In
addition, 1995 will reflect the full year impact of 1994 expense reductions. For
1993, College revenues were flat reflecting a weaker than expected front list
performance and operating profits were lower primarily as a result of higher
prepublication costs.
The Legal Information Group (Shepard's) accounts for approximately 9% of
1994 segment revenues. Shepard's revenues grew significantly as a direct result
of the publication of its single largest citation revision, the United States
Citations; the continued strong performance of existing and new citator CD-ROM
products; and the ongoing growth from new primary law topical code products
first published in 1993. Overall profits grew at a rate less than revenue as
Shepard's continues to invest in new product development and new sales
initiatives within both its Citation and Topical Business Units. Shepard's
projects an increase in overall legal industry information spending over the
next three years. The market is in a state of
<PAGE> 10
30 31
transition from print to electronic-based research products and Shepard's has
been accelerating its new product development efforts particularly towards
technology-based products. These factors, and operating expense controls, should
produce growth at Shepard's in 1995. In 1993, Shepard's revenue grew
significantly as a direct result of the publication of five new major citator
revisions while profits grew at a rate less than revenue due to certain one-time
costs reflecting the growth of the topical publishing business.
The School Publishing Group is comprised of five divisions: School, publisher
of textbooks and instructional materials for elementary (grades K-8) schools;
Glencoe, secondary school (grades 7-12) and postsecondary publisher; California
Testing Bureau (CTB), producer of publications and provider of scoring for
standardized achievement tests, customized testing and specialized educational
software products; McGraw-Hill School Systems, provider of school administrative
systems; and Science Research Associates (SRA), developer of supplementary
elementary and secondary instructional materials.
School Publishing was included in 1993 segment results only for the fourth
quarter due to the acquisition of the Macmillan/McGraw-Hill School Publishing
Company on October 4, 1993. 1994 segment results reflect the first full year of
McGraw-Hill's 100% ownership of the former joint venture. School Publishing
accounts for 46% of 1994 segment revenues. School Publishing had a 13% reduction
in revenue in 1994 compared to the full year 1993 due to the off-year in the
elementary and secondary adoption cycles. In those states with adoptions, both
School and Glencoe performed well. The most notable adoptions were for School's
music and Glencoe's math programs. In 1994, School Publishing maintained its
position as the largest U.S. school publisher. School Publishing had a full year
increase in operating profit due to cost reduction measures, including reduced
goodwill amortization resulting from last year's unusual charges and
consolidation efforts begun in 1992. In 1995, the state adoption cycle improves.
The Texas music (School) and early childhood (SRA) adoptions are significant as
well as the various high school mathematics (Glencoe) adoptions. Overall, the
industry anticipates a double-digit increase in revenue. The adoption cycle will
hit another peak in 1997. In 1995, School Publishing will benefit from cost
savings realized from the consolidation of certain functions with the company's
other book publishing operations.
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. McGraw- Hill's 50%
share of the Macmillan/McGraw-Hill School Publishing Company's profits for 1993
include 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.
FINANCIAL SERVICES
<TABLE>
<CAPTION>
(in millions) 1994 1993 1992
- ------------------------------------------------------
<S> <C> <C> <C>
Operating Revenue $745.5 $696.9 $617.5
% Increase 7.0 12.8 11.1
- ------------------------------------------------------
Operating Profit $217.2 $200.9 $168.4
% Increase 8.1 19.3 17.7
- ------------------------------------------------------
% Operating Margin 29 29 27
======================================================
</TABLE>
The Financial Services segment consists of two market focus groups: Standard &
Poor's Ratings Group and Financial Information Services Group, which comprises
Financial Data Services (MMS International, Platt's, S&P ComStock and S&P
MarketScope-Europe); Equity Services (S&P Equity Investor Services, S&P
Compustat and S&P Securities); Municipal Securities Services (J.J. Kenny Drake,
Kenny S&P Evaluation Services, Kenny S&P Information Services and CUSIP Service
Bureau) and DRI/McGraw-Hill.
Financial Services revenue increased 7.0% and operating profit rose 8.1% to
$217.2 million in 1994. In 1993, the segment's revenue grew 12.8% and operating
profit rose 19.3%.
The Standard & Poor's Ratings Group revenue increased in 1994, despite a 35%
decline in Corporate and Municipal Bond issuance. The International, Insurance
and Structured Finance units posted excellent financial performance offsetting
the downturn in core markets. Bond Fund Risk ratings were introduced in 1994,
measuring other risk factors in addition to credit risk. Other new products and
product extensions also produced solid growth. Worldwide expansion has continued
in 1994 with the purchase of 100% of Iberating (Spanish Rating Agency) in which
the company previously owned 25% and the opening of a Hong Kong office which
will be operational in January 1995. 1994 profits declined slightly reflecting
investments for expansion and new products and services. The Ratings Group
anticipates moderate growth in 1995. International, Structured Finance and
Insurance anticipate growth while the core units, which are extremely dependent
on U.S. Capital Markets, are expected to maintain 1994 levels. In 1993, S&P
Ratings posted then record revenue and record earnings largely due to an
all-time high in 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.
The Financial Information Services Group experienced significant revenue and
profit growth despite less than robust market conditions. The overall
performance of both the domestic bond and equity markets was depressed as a
result
<PAGE> 11
of the Federal Reserve's decision to raise interest rates six times in 1994. The
Group significantly improved revenues and profits as a result of strong demand
for financial information products overseas and through cost management efforts
at DRI/McGraw-Hill. Internationally, MMS International, S&P ComStock, and
Platt's benefited from the growth in crossborder capital market investment and
the resulting increase in demand for market information and analysis. In the
U.S., general interest rate uncertainty coupled with a significant decline in
new securities issuance adversely impacted trading revenues at J.J. Kenny and
S&P Securities. Revenue performance for the Group's U.S. equity information
businesses, Equity Investor Services and S&P Compustat, was strong relative to
the decline in brokerage industry profits and resultant cost cutting efforts by
major clients. U.S. equity market performance is expected to be mixed in 1995
and higher interest rates will reduce new issuance volume growth in the bond
markets. The strength of the Group's broad array of products and services, and
continued favorable conditions in the international markets, should benefit the
Financial Information Services Group in 1995. In 1993, the Group achieved
revenue growth, but profits declined due to a poor performance at
DRI/McGraw-Hill.
INFORMATION AND MEDIA SERVICES
<TABLE>
<CAPTION>
(in millions) 1994 1993 1992
- -----------------------------------------------------------
<S> <C> <C> <C>
Operating Revenue $853.2 $831.1 $865.6
% Increase/(Decrease) 2.7 (4.0) 1.3
- -----------------------------------------------------------
Operating Profit $108.3 $102.3 $113.2
% Increase/(Decrease) 5.9 (9.6) (5.8)
- -----------------------------------------------------------
% Operating Margin 13 12 13
===========================================================
</TABLE>
The Information and Media Services segment is comprised of five market focus
groups: Business Week, Publication Services (including Computers and
Communications Information, Aviation Week, Healthcare Publications and Science
and Technology), Construction Information, Broadcasting and Tower Group
International.
The Information and Media Services segment's revenues increased 2.7% in 1994
and operating profit increased $6.0 million or 5.9% to $108.3 million. In 1993,
revenue decreased 4.0% and operating profits declined 9.6% to $102.3 million.
The Business Week Group's revenue represents 22% of 1994 segment revenue.
Revenues declined slightly as a strong first half advertising performance was
tempered by a weak second half in the domestic market while a reverse trend was
experienced in the international marketplace. North American advertising pages,
as measured by the Publishers Information Bureau, were up 4%. Profits were
negatively impacted by the revenue decline, increased promotional expenses and
an increased focus on the Asian market. 1995 advertising prospects are dependent
on continued increases in the North American advertising market and strength in
internationally sourced pages. In 1993, the Group's revenue and profits declined
reflecting a decrease in advertising pages as a rebound in the second half of
the year partially offset a decline in the first half.
The Publication Services Group accounts for 27% of 1994 segment revenue.
Revenue for the Group grew 1.2% due to increased global advertising and
newsletter revenue. Profits increased significantly as a result of the revenue
increase and continuing cost containment programs.
Revenue for the Computers and Communications Information Group grew versus
1993 as a result of strong performances for LAN Times, Data Communications and
National Software Testing Laboratories. Profits for the Group rose sharply year
to year reflecting the growth in revenue and the impact of cost containment
programs. In 1995, the Group will focus on increasing international revenue,
introducing additional non-advertising related services, and continuing the
migration of Datapro's product information delivery from print to electronic
media. In 1993, revenue declined but profits rose as fewer advertising pages at
BYTE and a lower subscriber base for Datapro were offset by effective cost
management.
The Aviation Week Group's revenue in 1994 declined slightly versus 1993 as
the gains registered by its newsletter and conference products were offset by a
declining circulation base. Profits for the Group grew primarily as a result of
solid expense management throughout the year. In 1995, the Aviation Week Group
expects to maintain a dominant role in this market with revenue growth
opportunities for the Group coming from expansion of ancillary and international
products and services. In 1993, the Aviation Week Group reflected significant
profit growth despite a small decline in revenue.
The Healthcare Publications' revenues and profits were lower in 1994 as
contrasted with 1993 due to a decline in overall advertising pages in a soft
marketplace. In 1995, the publications will increase their focus on healthcare's
financial ramifications, including additional non-advertising based product
offerings addressing the informational needs of managed healthcare
organizations, hospitals, and healthcare manufacturers. In 1993, Healthcare
Publications' revenues and profits declined due to severe regulatory and
promotional pressures in the pharmaceutical industry.
The Science and Technology Group had revenue and profit growth in 1994 due to
a strong market share increase for the Plastics publications and the
introduction of several new conferences and newsletters in the Energy Group. In
1995, the Group will continue to focus on introducing new conferences,
<PAGE> 12
32 33
vertical targeted publications, technical references and electronic services. In
1993, revenue and profits were down due to the sluggish global economy.
The Construction Information Group accounts for 29% of 1994 segment revenue.
Results were disappointing with revenue and profits declining in 1994 versus
1993 as sales lagged behind a modest recovery in the construction market, where
overall construction contract award data was up 6% versus the previous year,
with the key non-residential sector reporting a 10% increase. Sweet's was
negatively impacted by declines in advertising by building product
manufacturers. However, electronic-based products showed strong growth in 1994.
In 1995, the contract value of total non-residential building is expected to
continue its rise, fostering an environment conducive to the Group's programs to
increase revenue. Electronic based products should contribute significantly in
1995 as existing products are enhanced and new electronic products are
introduced to the market. In 1993, the Group's revenue and profit declined, due
to the continuing depressed construction market impacting Dodge, Sweet's and the
Construction magazines.
Broadcasting accounts for 14% of 1994 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
grew substantially in 1994 to record levels. Political advertising played an
important role in that growth. Non-political sales, fueled by exceptionally
strong automotive advertising, were also very strong. Denver showed the greatest
revenue and profit growth in the Group. The California recession continued to
dampen sales growth in Bakersfield and San Diego, until late in the year when
San Diego began to rebound. An improving economy in San Diego, new long-term ABC
affiliation agreements in Indianapolis and San Diego, and the switch of Denver's
affiliation from CBS to ABC, should mitigate some of the loss of political
advertising in 1995. In 1993, revenue and operating profit were negatively
impacted by the lack of political advertising and the continuing recession in
California.
Tower Group International represents 8% of 1994 segment revenue. Tower Group
experienced significant revenue growth in 1994 from increased import activity
which was fueled by the strong performance of the U.S. economy and growth in
Tower's logistics and management services. Export services benefited from the
recovering markets in Europe. The Group expanded its core services and
strengthened its import logistics services in key U.S. trade gateways.
Investments were made in non-transaction products and services. Profitability
improved significantly, substantially overcoming the impact of these investments
and formidable competitive pressures. In 1995, the Tower Group anticipates
strong import growth and a continuation of the development of its import
logistics services from the Far East. Tower showed strong revenue growth in 1993
with slower profit growth due to competitive pricing pressures.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
(in millions) 1994 1993
- ------------------------------------------------------------------
<S> <C> <C>
Working Capital $116.1 $ 62.9
- ------------------------------------------------------------------
Total Debt $762.8 $928.7
- ------------------------------------------------------------------
Accounts Receivable (before reserves) $836.7 $791.4
% Increase 6 18
- ------------------------------------------------------------------
Inventories $213.3 $215.2
% Increase/(Decrease) (1) 118
- ------------------------------------------------------------------
Investment in Prepublication Costs $118.4 $ 74.5
% Increase 59 42
- ------------------------------------------------------------------
Purchases of Property and Equipment $ 77.1 $ 49.8
% Increase/(Decrease) 55 (11)
==================================================================
</TABLE>
The company continues to maintain a strong financial position. Cash flow from
operations was $414 million in 1994, which was sufficient to cover dividends and
outlays for the purchase of property and equipment, investment in publishing
programs and reduce commercial paper borrowings. Cash flow from operations
declined $52 million, reflecting the full year ownership of School Publishing in
1994 compared to only the fourth quarter in 1993. 1993's cash flow benefitted
significantly from fourth quarter collections of School Publishing receivables,
reflecting the seasonality of the School Publishing business and timing of the
acquisition by the company. Cash expenditures in 1994 related to the
consolidation of book publishing operations, primarily for severance costs and
lease terminations, had a minimal impact on the company's liquidity.
Working capital at the end of 1994 of $116.1 million was $53.2 million above
the level at the end of 1993 reflecting primarily reduced debt levels.
The acquisition of the Macmillan/McGraw-Hill School Publishing Company in
1993 has increased the seasonality of the company's businesses. The first
quarter is the least significant to the company, accounting for 20% of revenues
and only 7% of income in 1994. In the last half of the year, the company
recognized 56% of revenues and close to 70% of income. This seasonality in
revenue also impacts cash flow. While the company had a significant decrease in
debt in 1994, most of this decline occurred in the fourth quarter, reflecting
cash collections from customers in the education markets.
In 1994, total debt decreased $166 million reflecting a reduction in
commercial paper borrowings resulting from the company's cash flow of $127
million and a reduction in the year to year cash balance of $39 million,
reflecting the timing of cash collections relative to commercial paper
maturities. Total debt as a percent of total capital improved to 45.5% at the
end of 1994 from 53.0% at the end of 1993. 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
Continued on page 36
<PAGE> 13
ELEVEN-YEAR FINANCIAL REVIEW
<TABLE>
<CAPTION>
(in thousands, except per-share data) 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING RESULTS BY SEGMENT AND INCOME STATISTICS
OPERATING REVENUE
Educational and Professional Publishing $1,162,157 $ 667,444 $ 567,363 $ 532,438
Financial Services 745,480 696,933 617,555 555,820
Information and Media Services 853,232 831,076 865,573 854,754
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING REVENUE 2,760,869 2,195,453 2,050,491 1,943,012
- -------------------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT (Note c)
Educational and Professional Publishing 125,765 49,374 62,746 48,928
Financial Services 217,212 200,865 168,394 143,056
Information and Media Services 108,343 102,344 113,198 120,242
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING PROFIT 451,320 352,583 344,338 312,226
Share of profit of Macmillan/McGraw-Hill
School Publishing Company (Notes a and c) -- 28,376 11,280 27,483
Unusual charges (Notes b and c) -- (229,800) -- --
Gain on sale of interest in Nikkei/McGraw-Hill (Note d) -- -- -- --
General corporate (expense)/income (Notes c and e) (54,134) (48,538) (50,774) (34,415)
Interest (expense)/income -- net (51,746) (36,342) (37,557) (46,987)
- -------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES ON INCOME 345,440 66,279 267,287 258,307
Provision for taxes on income 142,321 54,838 114,132 110,297
- -------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE ADJUSTMENT 203,119 11,441 153,155 148,010
Cumulative effect on prior years of changes in accounting (Note f) -- -- (124,587) --
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 203,119 $ 11,441 $ 28,568 $ 148,010
- -------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Income before cumulative adjustment $ 4.10 $ 0.23 $ 3.13 $ 3.03
Cumulative adjustment (Note f) -- -- (2.55) --
- -------------------------------------------------------------------------------------------------------------------------------
Net income $ 4.10 $ 0.23 $ 0.58 $ 3.03
Shares used to calculate earnings per share 49,499 49,189 48,889 48,821
Dividends per share of common stock $ 2.32 $ 2.28 $ 2.24 $ 2.20
- -------------------------------------------------------------------------------------------------------------------------------
OPERATING STATISTICS
Return on average shareholders' equity 23.4% 1.3% 3.0% 15.2%
Income before taxes as a percent of revenue 12.5 3.0 13.0 13.3
Income before cumulative adjustment as a percent of revenue 7.4 0.5 7.5 7.6
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Working capital $ 116,102 $ 62,887 $ (19,596) $ 29,543
Total assets 3,008,533 3,084,163 2,508,140 2,515,544
Total debt 762,805 928,710 482,991 568,159
Shareholders' equity 913,052 823,008 908,760 998,975
- -------------------------------------------------------------------------------------------------------------------------------
NUMBER OF EMPLOYEES 15,339 15,661 13,393 13,539
===============================================================================================================================
</TABLE>
(a) 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.
(b) 1993 amount reflects unusual charges in connection with the acquisition of
the additional 50% interest in Macmillan/McGraw-Hill.
(c) 1989 and 1988 operating profit excludes unusual charges of $220 million and
$149.6 million, respectively, as follows:
<TABLE>
<CAPTION>
1989 1988
- ---------------------------------------------------------------------
<S> <C> <C>
Educational and Professional Publishing $ 33,140 $ 20,534
Financial Services 94,899 67,155
Information and Media Services 15,554 29,009
- ---------------------------------------------------------------------
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>
<PAGE> 14
34 35
<TABLE>
<CAPTION>
(in thousands, except per-share data) 1990 1989 1988 1987
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING RESULTS BY SEGMENT AND INCOME STATISTICS
OPERATING REVENUE
Educational and Professional Publishing $ 534,724 $ 483,666 $ 437,590 $ 408,252
Financial Services 505,641 432,314 399,242 390,131
Information and Media Services 898,273 872,983 836,734 801,352
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING REVENUE 1,938,638 1,788,963 1,673,566 1,599,735
- -------------------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT (Note c)
Educational and Professional Publishing 70,196 44,107 48,185 30,464
Financial Services 123,999 85,081 81,765 81,557
Information and Media Services 170,788 192,254 175,384 176,564
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING PROFIT 364,983 321,442 305,334 288,585
Share of profit of Macmillan/McGraw-Hill
School Publishing Company (Notes a and c) 21,601 13,688 2,349 11,585
Unusual charges (Notes b and c) -- (220,000) (149,564) --
Gain on sale of interest in Nikkei/McGraw-Hill (Note d) -- -- 221,783 --
General corporate (expense)/income (Notes c and e) (28,370) 6,546 5,005 3,418
Interest (expense)/income -- net (55,627) (35,038) (5,290) (4,506)
- -------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES ON INCOME 302,587 86,638 379,617 299,082
Provision for taxes on income 130,112 46,847 194,112 134,288
- -------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE ADJUSTMENT 172,475 39,791 185,505 164,794
Cumulative effect on prior years of changes in accounting (Note f) -- 8,000 -- --
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 172,475 $ 47,791 $ 185,505 $ 164,794
- -------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Income before cumulative adjustment $ 3.53 $ 0.82 $ 3.83 $ 3.27
Cumulative adjustment (Note f) -- 0.16 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net income $ 3.53 $ 0.98 $ 3.83 $ 3.27
Shares used to calculate earnings per share 48,819 48,725 48,475 50,410
Dividends per share of common stock $ 2.16 $ 2.00 $ 1.84 $ 1.68
- -------------------------------------------------------------------------------------------------------------------------------
OPERATING STATISTICS
Return on average shareholders' equity 18.8% 5.3% 21.2% 19.5%
Income before taxes as a percent of revenue 15.6 4.8 22.7 18.7
Income before cumulative adjustment as a percent of revenue 8.9 2.7 11.1 10.3
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Working capital $ 44,193 $ 22,743 $ (72,023) $ (66,214)
Total assets 2,534,708 2,208,249 1,729,562 1,619,935
Total debt 622,372 503,434 148,434 186,476
Shareholders' equity 954,260 880,154 922,803 825,265
- -------------------------------------------------------------------------------------------------------------------------------
NUMBER OF EMPLOYEES 13,868 13,741 13,891 13,879
===============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
(in thousands, except per-share data) 1986 1985 1984
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING RESULTS BY SEGMENT AND INCOME STATISTICS
OPERATING REVENUE
Educational and Professional Publishing $ 327,903 $ 318,853 $ 302,191
Financial Services 357,998 327,422 266,296
Information and Media Services 741,891 714,080 707,935
- ----------------------------------------------------------------------------------------------------------------
TOTAL OPERATING REVENUE 1,427,792 1,360,355 1,276,422
- ----------------------------------------------------------------------------------------------------------------
OPERATING PROFIT (Note c)
Educational and Professional Publishing 37,109 34,328 33,010
Financial Services 81,558 72,088 54,965
Information and Media Services 166,679 158,219 173,498
- ----------------------------------------------------------------------------------------------------------------
TOTAL OPERATING PROFIT 285,346 264,635 261,473
Share of profit of Macmillan/McGraw-Hill
School Publishing Company (Notes a and c) 30,037 29,461 28,162
Unusual charges (Notes b and c) -- -- --
Gain on sale of interest in Nikkei/McGraw-Hill (Note d) -- -- --
General corporate (expense)/income (Notes c and e) (23,519) (17,609) (18,720)
Interest (expense)/income -- net 3,915 7,840 10,669
- ----------------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES ON INCOME 295,779 284,327 281,584
Provision for taxes on income 141,770 136,923 137,413
- ----------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE ADJUSTMENT 154,009 147,404 144,171
Cumulative effect on prior years of changes in accounting (Note f) -- -- --
- ----------------------------------------------------------------------------------------------------------------
NET INCOME $ 154,009 $ 147,404 $ 144,171
- ----------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Income before cumulative adjustment $ 3.04 $ 2.92 $ 2.86
Cumulative adjustment (Note f) -- -- --
- ----------------------------------------------------------------------------------------------------------------
Net income $ 3.04 $ 2.92 $ 2.86
Shares used to calculate earnings per share 50,651 50,541 50,410
Dividends per share of common stock $ 1.52 $ 1.40 $ 1.24
- ----------------------------------------------------------------------------------------------------------------
OPERATING STATISTICS
Return on average shareholders' equity 18.8% 20.0% 21.9%
Income before taxes as a percent of revenue 20.7 20.9 22.1
Income before cumulative adjustment as a percent of revenue 10.8 10.8 11.3
- ----------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Working capital $ 65,641 $ 163,236 $ 125,472
Total assets 1,446,588 1,257,735 1,160,538
Total debt 56,403 5,932 4,484
Shareholders' equity 861,418 776,674 697,931
- ----------------------------------------------------------------------------------------------------------------
NUMBER OF EMPLOYEES 13,257 13,027 13,338
================================================================================================================
</TABLE>
(d) 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).
(e) 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.
(f) 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 Note 1. In 1989, the
company recognized the cumulative effect of a change in accounting for income
taxes under SFAS No. 96.
<PAGE> 15
Macmillan/McGraw-Hill notes payable and replaced that debt with commercial paper
borrowings.
The company's commercial paper borrowings at December 31, 1994 were $499
million. This debt is supported by an $800 million revolving credit agreement
with a group of banks terminating in November 1999, and $400 million has been
classified as long-term.
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 consolidated statement of income of debt securities. The new debt could
be used to replace a portion of the commercial paper borrowings with longer term
securities, when and if interest rates are attractive and markets are favorable.
Accounts receivable (before reserves) increased $45.3 million or 5.7%
primarily as result of increased revenue. This year to year increase was
effectively controlled through timely collections. A portion of the increase was
in the international market where terms of sales and repayment are traditionally
longer. Number of days sales outstanding, a key indicator of collection
efficiency, was 73 days at year end which is a one day increase from 1993.
During the course of the year, days sales outstanding averaged 75 days which is
even with results achieved in 1993. This demonstrates that receivables continue
to be managed effectively despite the growth in international business.
Finished goods and work-in-process inventories decreased $7.9 million, or 4%,
despite higher revenues, due to tighter inventory management and control. Raw
materials, primarily paper, increased $5.9 million to mitigate rising paper
prices.
Capital expenditures for the purchase of property and equipment totaled $77.1
million in 1994, $49.8 million in 1993 and $55.9 million in 1992. In 1994, there
were significant expenditures for the purchase of a building which houses some
of the company's Financial Information Services' units in New York, leasehold
improvements and equipment purchases for the move of the School Publishing
operations in New York and computer equipment for the market focus groups. The
year to year increase also reflects the 1994 full year impact of School
Publishing capital expenditures. Purchases of property and equipment in 1995 are
expected to approximate the level in 1994.
Net prepublication costs decreased to $270.5 million at December 31, 1994 as
amortization expense exceeded 1994 spending. Prepublication investment totaled
$118.4 million in 1994, an increase of $44 million over 1993, reflecting
ownership of School Publishing for a full year in 1994. 1995 prepublication
investment will increase significantly, reflecting investment for 1996 and
primarily 1997 adoption years as well as College and Professional Publishing
titles.
In 1995, the company expects that cash flow from operations will be
sufficient to cover dividends, outlays for the purchase of property and
equipment, investment in publishing programs and further reduce debt. The
quarterly common stock dividend was increased by two cents in the first quarter
of 1995 to 60 cents per share.
<PAGE> 16
36 37
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Years ended December 31 (in thousands, except per-share data) 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUE $2,760,869 $2,195,453 $2,050,491
- ----------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Operating 1,286,252 1,055,845 977,166
Selling and general 868,932 707,277 670,000
Depreciation and amortization 230,026 139,619 119,219
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 2,385,210 1,902,741 1,766,385
Share of profit of Macmillan/McGraw-Hill School Publishing Company (Note 2) -- 28,376 11,280
Unusual charges related to acquisition of additional 50% of
Macmillan/McGraw-Hill School Publishing Company (Note 2) -- (229,800) --
Other income -- net 21,527 11,333 9,458
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 397,186 102,621 304,844
Interest expense -- net 51,746 36,342 37,557
- ----------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES ON INCOME 345,440 66,279 267,287
Provision for taxes on income (Note 4) 142,321 54,838 114,132
- ----------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE ADJUSTMENT 203,119 11,441 153,155
Cumulative effect on prior years of changes in accounting for
postretirement and postemployment benefits (Note 1) -- -- (124,587)
- ----------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 203,119 $ 11,441 $ 28,568
- ----------------------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE (NOTE 1)
Income before cumulative adjustment $ 4.10 $ 0.23 $ 3.13
Cumulative adjustment -- -- (2.55)
- ----------------------------------------------------------------------------------------------------------------------------
Net income $ 4.10 $ 0.23 $ 0.58
Average number of common shares outstanding during year 49,499 49,189 48,889
============================================================================================================================
</TABLE>
See accompanying notes.
<PAGE> 17
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31 (in thousands, except share data) 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents (Note 1) $ 8,056 $ 47,953
Accounts receivable (net of allowance for doubtful accounts:
1994 -- $78,732; 1993 -- $79,461) 757,949 711,919
Receivable from broker-dealers and dealer banks (Note 1) 23,047 19,136
Inventories:
Finished goods 140,168 166,584
Work-in-process 47,795 29,259
Paper and other materials 25,290 19,385
- ----------------------------------------------------------------------------------------------------
Total inventories 213,253 215,228
Prepaid income taxes 70,556 92,912
Prepaid and other current assets 51,226 44,634
- ----------------------------------------------------------------------------------------------------
Total current assets 1,124,087 1,131,782
- ----------------------------------------------------------------------------------------------------
PREPUBLICATION COSTS (NET OF ACCUMULATED AMORTIZATION:
1994 -- $346,172; 1993 -- $282,052) (Note 1) 270,506 285,445
INVESTMENTS AND OTHER ASSETS
Investment in Rock-Mcgraw, Inc. -- at equity (Note 5) 57,652 53,077
Prepaid pension expense 95,110 87,655
Other 142,502 159,861
- ----------------------------------------------------------------------------------------------------
Total investments and other assets 295,264 300,593
- ----------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT -- AT COST
Land 19,295 13,544
Buildings and leasehold improvements 291,554 286,605
Equipment and furniture 477,822 453,303
- ----------------------------------------------------------------------------------------------------
Total property and equipment 788,671 753,452
Less -- accumulated depreciation 442,889 408,126
- ----------------------------------------------------------------------------------------------------
Net property and equipment 345,782 345,326
- ----------------------------------------------------------------------------------------------------
GOODWILL AND OTHER INTANGIBLE ASSETS -- AT COST
(net of accumulated amortization:
1994 -- $336,523; 1993 -- $308,548) (Notes 1 and 2) 972,894 1,021,017
- ----------------------------------------------------------------------------------------------------
$3,008,533 $3,084,163
====================================================================================================
</TABLE>
See accompanying notes.
<PAGE> 18
38 39
<TABLE>
<CAPTION>
1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable (Note 6) $ 105,288 $ 171,143
Accounts payable 176,314 178,466
Payable to broker-dealers and dealer banks (Note 1) 21,909 18,695
Accrued royalties 58,707 57,508
Accrued compensation and contributions to retirement plans 118,465 124,648
Income taxes currently payable 54,300 42,783
Unearned revenue 239,715 248,036
Other current liabilities 233,287 227,616
- --------------------------------------------------------------------------------------------------
Total current liabilities 1,007,985 1,068,895
- --------------------------------------------------------------------------------------------------
OTHER LIABILITIES
Long-term debt (Note 6) 657,517 757,567
Deferred income taxes 129,750 119,548
Accrued postretirement healthcare and other benefits 191,650 190,985
Other non-current liabilities 108,579 124,160
- --------------------------------------------------------------------------------------------------
Total other liabilities 1,087,496 1,192,260
- --------------------------------------------------------------------------------------------------
Total liabilities 2,095,481 2,261,155
- --------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 5 AND 7)
- --------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (NOTES 8 AND 9)
$1.20 preference stock, $10 par value: authorized -- 891,256 shares;
outstanding -- 1,514 shares in 1994 and 1,599 in 1993 15 16
Common stock, $1 par value: authorized -- 150,000,000 shares;
issued -- 51,459,116 shares in 1994 and 51,458,836 in 1993 51,459 51,459
Additional paid-in capital 69,314 63,512
Retained income 923,052 834,250
Foreign currency translation adjustments (45,224) (28,577)
- --------------------------------------------------------------------------------------------------
998,616 920,660
Less -- common stock in treasury -- at cost
(1,787,007 shares in 1994 and 2,045,457 in 1993) 76,987 87,687
unearned compensation on restricted stock 8,577 9,965
- --------------------------------------------------------------------------------------------------
Total shareholders' equity 913,052 823,008
- --------------------------------------------------------------------------------------------------
$3,008,533 $3,084,163
==================================================================================================
</TABLE>
<PAGE> 19
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31 (in thousands) 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 203,119 $ 11,441 $ 28,568
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation 64,281 54,941 51,325
Amortization of goodwill and intangibles 37,489 27,939 22,994
Amortization of prepublication costs 128,256 56,739 44,900
Provision for losses on accounts receivable 67,508 60,401 64,067
Unusual charges related to acquisition of additional 50% of
Macmillan/McGraw-Hill School Publishing Company (Note 2) -- 229,800 --
Undistributed share of profit of Macmillan/McGraw-Hill joint venture(Note 2) -- (26,318) (2,030)
Cumulative effect of changes in accounting (Note 1) -- -- 124,587
Other 3,862 1,234 4,042
Change in assets and liabilities net of effect of acquisitions and dispositions:
(Increase)/decrease in accounts receivable (120,286) 79,403 (66,313)
(Increase)/decrease in inventories (7,026) 11,258 1,139
(Increase)/decrease in prepaid and other current assets (6,549) 6,909 1,627
(Decrease)/increase in accounts payable and accrued expenses (3,290) 7,822 20,642
(Decrease)/increase in unearned revenue (9,088) 17,376 20,906
Increase/(decrease) in other current liabilities 6,082 (15,636) 12,816
Increase/(decrease) in interest and income taxes currently payable 12,293 4,746 (2,565)
Increase/(decrease) in prepaid/deferred income taxes 39,048 (39,141) 32,857
Net change in other assets and liabilities (1,780) (23,358) (55,991)
- ---------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 413,919 465,556 303,571
- ---------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Investment in prepublication costs (118,377) (74,489) (52,485)
Purchase of property and equipment (77,068) (49,808) (55,922)
Acquisition of businesses and equity interests (Note 2) (1,219) (323,913) (17,242)
Disposition of property and equipment 12,262 492 920
Other 3,355 -- 9,979
- ---------------------------------------------------------------------------------------------------------------------
Cash used for investing activities (181,047) (447,718) (114,750)
- ---------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Dividends paid to shareholders (114,317) (111,833) (109,386)
Debt for acquisition of Macmillan/McGraw-Hill -- 337,500 --
Repayment of commercial paper and other short-term debt -- net (165,785) (105,611) (81,669)
Repayment of long-term debt -- net (317) (120,390) (2,434)
Exercise of stock options 13,983 19,047 4,718
Other (1,450) (558) (1,591)
- ---------------------------------------------------------------------------------------------------------------------
Cash (used for)/provided by financing activities (267,886) 18,155 (190,362)
- ---------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (4,883) (1,268) (1,860)
- ---------------------------------------------------------------------------------------------------------------------
Net change in cash and equivalents (39,897) 34,725 (3,401)
Cash and equivalents at beginning of year 47,953 13,228 16,629
- ---------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF YEAR $ 8,056 $ 47,953 $ 13,228
=====================================================================================================================
</TABLE>
See accompanying notes.
<PAGE> 20
40 41
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Less --
Foreign Less -- unearned
$1.20 Additional currency common stock compensation
(in thousands, except preference Common paid-in Retained translation in treasury on restricted
per-share data) $10 par $1 par capital income adjustments at cost stock
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1992 $17 $51,455 $58,904 $1,015,460 $ (5,833) $102,976 $18,052
Net income -- -- -- 28,568 -- -- --
Dividends ($2.24 per share) -- -- -- (109,386) -- -- --
Exercise of stock options -- -- 213 -- -- (4,505) --
Restricted stock -- -- 55 -- -- 20 (2,490)
Foreign currency translation
adjustments -- net -- -- -- -- (15,918) -- --
Other (1) 4 232 -- -- 957 --
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1992 16 51,459 59,404 934,642 (21,751) 99,448 15,562
Net income -- -- -- 11,441 -- -- --
Dividends ($2.28 per share) -- -- -- (111,833) -- -- --
Exercise of stock options -- -- 4,348 -- -- (14,699) --
Restricted stock -- -- (302) -- -- 2,272 (5,597)
Foreign currency translation
adjustments -- net -- -- -- -- (6,826) -- --
Other -- -- 62 -- -- 666 --
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 16 51,459 63,512 834,250 (28,577) 87,687 9,965
Net income -- -- -- 203,119 -- -- --
Dividends ($2.32 per share) -- -- -- (114,317) -- -- --
Exercise of stock options -- -- 3,513 -- -- (10,470) --
Restricted stock -- -- 2,093 -- -- (1,569) (1,388)
Foreign currency translation
adjustments -- net -- -- -- -- (16,647) -- --
Other (1) -- 196 -- -- 1,339 --
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 $15 $51,459 $69,314 $ 923,052 $(45,224) $ 76,987 $ 8,577
=========================================================================================================================
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
(in thousands, except
per-share data) Total
- -----------------------------------------
<S> <C>
BALANCE AT JANUARY 1, 1992 $ 998,975
Net income 28,568
Dividends ($2.24 per share) (109,386)
Exercise of stock options 4,718
Restricted stock 2,525
Foreign currency translation
adjustments -- net (15,918)
Other (722)
- -----------------------------------------
BALANCE AT DECEMBER 31, 1992 908,760
Net income 11,441
Dividends ($2.28 per share) (111,833)
Exercise of stock options 19,047
Restricted stock 3,023
Foreign currency translation
adjustments -- net (6,826)
Other (604)
- -----------------------------------------
BALANCE AT DECEMBER 31, 1993 823,008
Net income 203,119
Dividends ($2.32 per share) (114,317)
Exercise of stock options 13,983
Restricted stock 5,050
Foreign currency translation
adjustments -- net (16,647)
Other (1,144)
- -----------------------------------------
BALANCE AT DECEMBER 31, 1994 $ 913,052
=========================================
</TABLE>
See accompanying notes.
<PAGE> 21
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.
CASH EQUIVALENTS. Cash equivalents consist of highly liquid investments with
maturities of three months or less at the time of purchase.
INVENTORIES. Inventories are stated at the lower of cost (principally first-in,
first-out) or market.
PREPUBLICATION COSTS. Prepublication costs, principally outside preparation
costs, are amortized from the year of publication over their estimated useful
lives, primarily 3 to 5 years, using either the sum-of-the-years-digits or the
straight-line method.
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, 1994 and 1993, are being
amortized over periods of up to 40 years. The company periodically reviews its
goodwill to determine if any impairment exists based upon projected,
undiscounted net cash flows of the related business unit.
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 $311.1 million and $424.4 million at December
31, 1994 and 1993, respectively. 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 10 years
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.
ACCOUNTING CHANGES. 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 which
requires that the cost of such retirement benefits 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.
The company elected to immediately recognize the transition obligation and
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 costs by
$7.3 million, net of income taxes of $5.4 million, or $.15 per share.
Effective January 1, 1992, the company also adopted the provisions of SFAS
No. 112, Employers' Accounting for Postemployment Benefits. The company accrued
certain separation benefits and disability-related liabilities resulting in 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 1992 expense.
The company also changed its accounting for income taxes in 1992 to comply
with the requirements of SFAS No. 109, Accounting for Income Taxes. This change
did not have a
<PAGE> 22
42 43
significant effect on 1992 earnings except as it relates to the recognition of
tax benefits on postretirement and postemployment obligations.
RECLASSIFICATION. Certain prior year amounts have been reclassified for
comparability purposes.
2. ACQUISITIONS
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 was accounted for as a purchase and,
accordingly, the purchase price was allocated to 50% of Macmillan/McGraw-Hill's
assets and liabilities based on their estimated fair values at September 30,
1993. The excess of the purchase price over the estimated fair value of the net
tangible assets acquired was recorded as identifiable intangibles ($148.6
million) and goodwill ($94.4 million), and is being amortized over 20 to 35
years and 23 to 38 years, respectively.
In conjunction with the acquisition, the company recorded in the third
quarter of 1993 a non-recurring charge of $199.8 million ($143.2 million net of
tax benefits or $2.91 per share) primarily to adjust the company's original
investment to values established in this transaction. This charge was 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)
related to the consolidation of certain functions 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>
<CAPTION>
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 the year
ended December 31, 1992 follows:
<TABLE>
<CAPTION>
(unaudited)
9 months 12 months
ended ended
September 30, December 31,
(in millions) 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C>
Operating revenue $526.7 $504.9
Expenses:
Operating 230.9 212.8
Selling and general 197.4 215.2
Amortization of goodwill
and intangibles 30.0 40.0
- -------------------------------------------------------------------------------
Total expenses 458.3 468.0
- -------------------------------------------------------------------------------
Operating profit 68.4 36.9
Interest expense 14.2 17.8
- -------------------------------------------------------------------------------
Net profit before partners'
income taxes $ 54.2 $ 19.1
===============================================================================
</TABLE>
OTHER ACQUISITIONS. The company has made several other acquisitions and equity
investments at a total cost of $1.2 million in 1994, $23.1 million in 1993 and
$10.6 million in 1992. In 1992 the company also made earnout payments totaling
$6.1 million based upon the achievement of earnings goals by businesses
acquired in prior years. The effect of these acquisitions on the results of
operations for the years presented was not material.
NON-CASH INVESTING ACTIVITIES. Liabilities assumed in conjunction with the
acquisition of businesses are as follows:
<TABLE>
<CAPTION>
(in thousands) 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Fair value of assets acquired $1,520 $ 835,569* $31,034
Cash paid (net of cash acquired) 1,219 323,913 16,742
- -------------------------------------------------------------------------------
Liabilities assumed $ 301 $ 511,656 $14,292
===============================================================================
</TABLE>
* Net of McGraw-Hill's investment in Macmillan/McGraw-Hill School Publishing
Company.
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.
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
<PAGE> 23
of cash and equivalents, investment in Rock-McGraw, Inc., prepaid pension
expense and income taxes and leasehold improvements related to subleased areas.
Foreign revenue and profits are from book publishing and financial and
information services operations in 24 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:
SEGMENT REPORTING
<TABLE>
<CAPTION>
Operating Operating Assets at Depreciation and Capital
(in thousands) revenue profit December 31 amortization+ expenditures++
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994
Educational and Professional Publishing $1,162,157 $ 125,765 $1,611,302 $171,249 $144,414
Financial Services 745,480 217,212 553,240 29,027 34,613
Information and Media Services 853,232 108,343 564,530 28,550 15,358
- ---------------------------------------------------------------------------------------------------------------------------------
Total operating segments 2,760,869 451,320 2,729,072 228,826 194,385
Corporate -- (54,134) 279,461 1,200 1,060
Interest expense -- net -- (51,746) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total company $2,760,869 $ 345,440* $3,008,533 $230,026 $195,445
- ---------------------------------------------------------------------------------------------------------------------------------
1993
Educational and Professional Publishing $ 667,444 $ 49,374 $1,619,932 $ 78,794 $ 87,473
Financial Services 696,933 200,865 542,774 28,027 21,321
Information and Media Services 831,076 102,344 591,034 31,409 15,371
- ---------------------------------------------------------------------------------------------------------------------------------
Total operating segments 2,195,453 352,583 2,753,740 138,230 124,165
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 $139,619 $124,297
- ---------------------------------------------------------------------------------------------------------------------------------
1992
Educational and Professional Publishing $ 567,363 $ 62,746 $ 628,316 $ 58,948 $ 61,450
Financial Services 617,555 168,394 508,919 26,942 31,125
Information and Media Services 865,573 113,198 634,876 31,931 15,682
- ---------------------------------------------------------------------------------------------------------------------------------
Total operating segments 2,050,491 344,338 1,772,111 117,821 108,257
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 $119,219 $108,407
- ---------------------------------------------------------------------------------------------------------------------------------
1994
United States $2,402,976 $ 408,846 $2,683,759
Foreign 357,893 42,474 324,774
- --------------------------------------------------------------------------------------------
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
============================================================================================
</TABLE>
* Income before taxes on income.
+ Includes amortization of goodwill and intangible assets and prepublication
costs.
++ Includes purchases of property and equipment and investments in
prepublication costs.
<PAGE> 24
44 45
4. TAXES ON INCOME
Income before taxes on income resulted from domestic operations (including
foreign branches) and foreign subsidiaries' operations as follows:
<TABLE>
<CAPTION>
(in millions) 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic operations $319.3 $38.7 $240.3
Foreign operations 26.1 27.6 27.0
- -------------------------------------------------------------------------------
Total income before taxes $345.4 $66.3 $267.3
===============================================================================
</TABLE>
A reconciliation of the U.S. statutory tax rate to the company's effective tax
rate for financial reporting purposes follows:
<TABLE>
<CAPTION>
1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. statutory rate 35.0% 35.0% 34.0%
Unusual charges -- 33.5 --
Goodwill amortization 1.9 13.1 3.7
Effect of state and local income taxes 6.1 10.6 8.4
Other -- net (1.8) (9.5) (3.4)
- -------------------------------------------------------------------------------
Effective tax rate 41.2% 82.7%* 42.7%
===============================================================================
</TABLE>
* Excluding unusual charges, the 1993 effective tax rate was 41.8%.
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) 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
Fixed assets and intangible assets $ 117.6 $ 115.4
Prepaid pension and other
expenses 61.5 54.8
Unearned revenue 33.0 31.3
Reserves and accruals (106.1) (105.3)
Postretirement and
postemployment benefits (92.4) (94.5)
Other -- net 45.6 24.9
- -------------------------------------------------------------------------------
Deferred tax liability -- net $ 59.2 $ 26.6
===============================================================================
</TABLE>
The provision for taxes on income consists of the following:
<TABLE>
<CAPTION>
(in millions) 1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $ 75.8 $ 62.8 $ 43.3
Deferred 28.5 (25.8) 27.5
- ------------------------------------------------------------------------------
Total federal 104.3 37.0 70.8
- ------------------------------------------------------------------------------
Foreign:
Current 8.8 5.4 9.8
Deferred (3.2) 1.6 (0.7)
- ------------------------------------------------------------------------------
Total foreign 5.6 7.0 9.1
- ------------------------------------------------------------------------------
State and Local:
Current 20.9 22.6 28.6
Deferred 11.5 (11.8) 5.6
- ------------------------------------------------------------------------------
Total state and local 32.4 10.8 34.2
- ------------------------------------------------------------------------------
Total provision for taxes $142.3 $ 54.8 $114.1
==============================================================================
</TABLE>
The company made income tax payments totaling $83.9 million in 1994, $78.4
million in 1993 and $78.2 million in 1992.
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 $60
million at December 31, 1994, 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 $16 million
would have been required.
5. 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. In 1994, the company paid Rock-McGraw gross
annual rentals of $16.4 million (including various escalation payments) for the
occupied space and $17.5 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) 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 61.8 $ 52.4 $ 47.7
- -------------------------------------------------------------------------------
Net income 10.0 5.3 4.7
- -------------------------------------------------------------------------------
Depreciation expense 6.4 5.2 4.0
- -------------------------------------------------------------------------------
Total assets 198.0 178.5 170.9
- -------------------------------------------------------------------------------
Mortgage payable 31.2 34.8 38.5
- -------------------------------------------------------------------------------
Total liabilities $ 70.1 $ 60.7 $ 58.3
===============================================================================
</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.
6. DEBT
At December 31, 1994, the company had short-term borrowings of $505 million, of
which $499 million represented domestic commercial paper borrowings at an
average interest rate of 5.9% maturing at various dates during 1995. The
commercial paper borrowings are supported by the revolving credit agreement
described below, and $400 million has been classified as long-term.
The company has an $800 million revolving credit agreement with a group of
banks terminating in November 1999. Interest rates on amounts borrowed vary
depending upon the source and are based on any one of the Eurodollar,
Certificate
<PAGE> 25
of Deposit or prime rates, at the company's option. The credit agreement
contains various warranties and covenants that must be complied with on a
continuing basis. The agreement requires a commitment fee on the unused portion
of the credit line. At December 31, 1994, there were no borrowings under the
agreement.
In 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, 1993, the company had short-term borrowings of $671.1
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 were supported by revolving credit
agreements and $500 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) 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
9.43% senior notes due 2000 $250,000 $250,000
Commercial paper supported
by bank revolving credit agreement 400,000 500,000
Other 7,517 7,567
- -------------------------------------------------------------------------------
Total long-term debt $657,517 $757,567
===============================================================================
</TABLE>
The company paid interest on its debt totaling $51.7 million in 1994, $33.8
million in 1993 and $38.4 million in 1992.
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, 1994 and 1993 totaling $257.5 million and
$257.6 million, respectively, based on current borrowing rates for debt with
similar terms and maturities is estimated to be $271 million and $308 million,
respectively.
7. RENTAL EXPENSE AND LEASE OBLIGATIONS
Rental expense for property and equipment under all operating lease agreements
was as follows:
<TABLE>
<CAPTION>
(in millions) 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross rental expense $114.4 $100.3 $109.0
Less: sublease revenue 23.7 22.0 23.0
- -------------------------------------------------------------------------------
Net rental expense $ 90.7 $ 78.3 $ 86.0
===============================================================================
</TABLE>
The company is committed under lease arrangements covering report of management
report of independent auditors 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 noncancelable leases with a
remaining term of more than one year, including the company's headquarters
building referred to in Note 5, are shown in the following table. The annual
rental commitments for real estate through the year 2002 have been reduced by
approximately $20 million of revenue from existing noncancelable subleases.
<TABLE>
<CAPTION>
(in millions)
- -------------------------------------------------------------------------------
<S> <C>
1995 $ 58.6
1996 52.0
1997 42.8
1998 34.2
1999 26.1
2000 and beyond 86.5
- -------------------------------------------------------------------------------
Total $300.2
===============================================================================
</TABLE>
8. CAPITAL STOCK
The $1.20 convertible preference stock 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
1,755,114 at December 31, 1994 and 2,054,087 at December 31, 1993. Under the
Directors' Stock Payment Plan, 19,388 common shares were reserved for issuance
at December 31, 1994 and 20,000 at December 31, 1993.
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.
9. STOCK PLAN AWARDS
The company has three stock option plans: the 1993 and 1987 Key Employee Stock
Incentive Plans and the 1983 Stock Option Plan. The 1983 Plan, which provided
for the granting
<PAGE> 26
46 47
of incentive stock options and nonqualified stock options to purchase 1,200,000
shares of the company's common stock, expired January 25, 1993 except as to
options then outstanding.
The 1993 and 1987 Key Employee Stock Incentive Plans provide for the granting
of incentive stock options, nonqualified stock options, stock appreciation
rights, restricted stock awards, deferred stock (applicable to the 1987 Plan
only), or other stock based awards to purchase a total of 4,600,000 shares of
the company's common stock -- 2,300,000 shares under each plan.
The 1993 Directors' Stock Payment Plan requires that 20% of eligible
Directors' annual retainer be paid in common stock beginning in 1994. Under this
plan, a total of 20,000 shares of stock may be issued. 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 to receive
dividends. The term of the plan is ten 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 various vesting periods. Recipients are not required to
provide consideration to the company other than rendering service and have the
right to vote the shares and to receive dividends.
1994 option activity was as follows:
<TABLE>
<CAPTION>
1987 Plan 1983 Plan
- -------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at beginning of year 947,781 452,144
Options granted 442,725 --
Less:
Options exercised 158,879 84,846
Options canceled and expired 66,128 16,003
- -------------------------------------------------------------------------------
Outstanding at end of year 1,165,499 351,295
- -------------------------------------------------------------------------------
Exercisable at end of year 661,949 292,745
- -------------------------------------------------------------------------------
Shares of common stock reserved for
issuance at beginning of year 1,601,943 452,144
- -------------------------------------------------------------------------------
Shares of common stock reserved for
issuance at end of year 1,403,819 351,295
- -------------------------------------------------------------------------------
Price range of options outstanding
at end of year $52.44 to $44.13 to
$69.75 $67.38
- -------------------------------------------------------------------------------
Price range of options
exercised during year $52.44 to $37.00 to
$69.75 $67.38
===============================================================================
</TABLE>
A total of 117,976 restricted shares were issued at an average market value of
$67.87 in 1994. In 1993, 98,209 restricted shares were issued at an average
market value of $61.11. The awards are recorded at the market value on the date
of grant. 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 $5.2 million for 1994, $3.0 million for 1993 and $3.0
million for 1992. Restricted shares outstanding at the end of the year were
274,947 shares in 1994, 271,120 shares in 1993, and 357,219 shares in 1992.
10. 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 9.5% 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) 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 16.4 $ 11.5 $ 10.6
Interest cost 27.7 25.0 21.7
Return on assets:
Actual return (7.4) (45.9) (24.7)
Deferred (37.5) 5.9 (12.1)
- -------------------------------------------------------------------------------
Recognized (44.9) (40.0) (36.8)
Amortization of net asset at 1/1/86 (6.1) (6.1) (6.1)
Amortization of prior service cost 1.2 1.1 --
- -------------------------------------------------------------------------------
Net negative pension cost $ (5.7) $ (8.5) $(10.6)
- -------------------------------------------------------------------------------
Assumed rates -- January 1:
Discount rate (interest cost) 7 1/4% 7 3/4% 7 3/4%
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 $2.4 million for 1994, $2.2 million for 1993, and $1.9 million for
1992. The accumulated benefit obligation as of December 31, 1994 was $13.6
million including vested benefits of $12.5 million and the projected benefit
obligation was $15.2 million.
Total retirement plans cost was $36.7 million for 1994, $25.7 million for
1993 and $19.6 million for 1992.
<PAGE> 27
The funded status of the domestic defined benefit plans as of December 31
follows:
<TABLE>
<CAPTION>
(in millions) 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of pension benefits:
Vested benefits $(309.2) $(322.1)
Non-vested benefits (13.9) (14.6)
- -------------------------------------------------------------------------------
Accumulated benefit obligation (323.1) (336.7)
Additional amount related to projected
compensation increases (19.6) (22.9)
- -------------------------------------------------------------------------------
Projected benefit obligation (342.7) (359.6)
Plan assets at market value -- primarily listed
stocks and U.S. government obligations 486.1 485.7
- -------------------------------------------------------------------------------
Excess of assets over projected
benefit obligation 143.4 126.1
Unrecognized net asset at 1/1/86 (10.7) (16.7)
Unrecognized prior service cost 8.7 8.3
Unrecognized net gain (56.6) (40.6)
- -------------------------------------------------------------------------------
Prepaid pension cost at December 31 $ 84.8 $ 77.1
- -------------------------------------------------------------------------------
Assumed rates -- December 31:
Discount rate 8 1/2% 7 1/4%
Compensation increase factor 5 1/2 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.
11. 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.
Postretirement benefits cost was $9.3 million in 1994, $12.6 million in 1993
and $20.2 million in 1992. A summary of the components of the cost in 1994, 1993
and 1992 follows:
<TABLE>
<CAPTION>
(in millions) 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 2.2 $ 2.4 $ 5.5
Interest cost 10.6 12.8 14.7
Net amortization and deferral (3.5) (2.6) --
- -------------------------------------------------------------------------------
Postretirement benefits cost $ 9.3 $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) 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
Retirees $(100.9) $(111.2)
Fully eligible plan participants (12.8) (13.4)
Other active plan participants (18.8) (19.1)
- -------------------------------------------------------------------------------
Total accumulated postretirement
benefit obligation (132.5) (143.7)
Unrecognized net gain (44.5) (30.1)
Unrecognized prior service cost (24.7) (27.2)
- -------------------------------------------------------------------------------
Accrued postretirement benefit obligation $(201.7) $(201.0)
===============================================================================
</TABLE>
The assumed weighted average healthcare cost trend rate ranges from 11.0% in
1995 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, 1994 by $10.5 million and 1994 benefit expense by
$1.1 million. The weighted average discount rate used to measure expense was
7.5% in 1994 and 8% in 1993; the rate used to measure the accumulated
postretirement benefit obligation was 8.5% in 1994 and 7.5% in 1993.
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.
<PAGE> 28
48 49
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 LLP, 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, 1994 and 1993, and the related consolidated statements
of income, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1994. 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 financial
statements of the Macmillan/McGraw-Hill School Publishing Company (in which the
company had a 50% interest in 1992) were audited by other auditors whose report
has been furnished to us; insofar as our opinion on the consolidated financial
statements for 1992 relates to the data included for 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 period 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, 1994 and 1993, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1994, 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 LLP
New York, New York
February 2, 1995
<PAGE> 29
SUPPLEMENTAL FINANCIAL INFORMATION
Quarterly Financial Information (unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth Total
(in thousands, except per-share data) quarter quarter quarter quarter year
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994
Operating revenue $559,774 $648,279 $855,517 $697,299 $2,760,869
Income before taxes 25,454 81,702 153,338 84,946 345,440
Net income 14,967 48,041 90,162 49,949 203,119
Earnings per share 0.30 0.97 1.82 1.01 4.10
- ------------------------------------------------------------------------------------------------------------------------------
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
Earnings per share:
Income before cumulative adjustment 0.25 0.75 1.22 0.91 3.13
Cumulative adjustment (2.55) -- -- -- (2.55)
-------- -------- -------- -------- ----------
Net income/(loss) (2.30) 0.75 1.22 0.91 0.58
==============================================================================================================================
</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 2.
(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 Note 1.
HIGH AND LOW SALES PRICES OF MCGRAW-HILL COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE*
<TABLE>
<CAPTION>
1994 1993 1992
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
First quarter $73 - 64 1/2 $63 7/8 - 56 1/2 $63 3/8 - 56 1/2
Second quarter 69 7/8 - 62 1/2 64 3/8 - 55 1/4 66 1/2 - 57 1/2
Third quarter 77 1/4 - 66 3/8 69 7/8 - 58 3/8 59 3/8 - 53
Fourth quarter 74 3/4 - 63 7/8 75 1/4 - 65 3/4 63 1/4 - 57 1/2
- -------------------------------------------------------------------------------------
Year 77 1/4 - 62 1/2 75 1/4 - 55 1/4 66 1/2 - 53
=====================================================================================
</TABLE>
* The New York Stock Exchange is the principal market on which the company's
shares are traded.
<PAGE> 1
Exhibit (21)
McGRAW-HILL, INC.
Subsidiaries of Registrant
- --------------------------
Listed below are all the subsidiaries of Registrant, except certain inactive
subsidiaries and certain other McGraw-Hill's 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 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 Services, Inc. New York 100
Liberty Brokerage Investment Corp. Delaware 25
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
S&P ComStock, Inc. New York 100
Standard & Poor's International
Ratings, Ltd. New York 100
</TABLE>
-64-
<PAGE> 2
<TABLE>
<CAPTION>
State or Percentage
Jurisdiction of Voting
of Securities
Incorporation Owned
------------- ----------
<S> <C> <C>
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
Columbia Administration Software
Publishing Corporation British Columbia 100
Columbia Computing Services, Ltd. Canada 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 Data Services -
Ireland, Ltd. Ireland 100
McGraw-Hill Holdings (U.K.) 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
*Standard & Poor's Espana, S.A. Spain 100
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
</TABLE>
-65-
<PAGE> 3
<TABLE>
<CAPTION>
State or Percentage
Jurisdiction of Voting
of Securities
Incorporation Owned
------------- ----------
<S> <C> <C>
Nueva Editorial Interamericana,
S.A. de C.V. Mexico 100
Nordisk Rating AB Sweden 100
Science Research Associates, Pty., Ltd. Australia 100
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
</TABLE>
*Subsidiary of a subsidiary.
-66-
<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, 1995, included in the 1994
Annual Report to Shareholders of McGraw-Hill, Inc.
Our audits also included the consolidated financial statement schedule of
McGraw-Hill, Inc. listed in Item 14 (a). This schedule is 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 schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents 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, 1995 with respect to
the consolidated financial statements incorporated therein by reference, and our
report included above with respect to the consolidated financial statement
schedule included in this Annual Report (Form 10-K) of McGraw-Hill, Inc.
/s/ ERNST & YOUNG LLP
New York, New York
March 23, 1995
-67-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 8,056
<SECURITIES> 0
<RECEIVABLES> 836,681
<ALLOWANCES> 78,732
<INVENTORY> 213,253
<CURRENT-ASSETS> 1,124,087
<PP&E> 788,671
<DEPRECIATION> 442,889
<TOTAL-ASSETS> 3,008,533
<CURRENT-LIABILITIES> 1,007,985
<BONDS> 0
<COMMON> 51,459
15
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,008,533
<SALES> 2,760,869
<TOTAL-REVENUES> 2,760,869
<CGS> 2,385,210
<TOTAL-COSTS> 2,385,210
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 67,508
<INTEREST-EXPENSE> 51,746
<INCOME-PRETAX> 345,440
<INCOME-TAX> 142,321
<INCOME-CONTINUING> 203,119
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 203,119
<EPS-PRIMARY> 4.10
<EPS-DILUTED> 4.10
</TABLE>
<PAGE> 1
Exhibit 99
McGRAW-HILL, INC.
SCHEDULE II - RESERVE FOR DOUBTFUL ACCOUNTS
Years ended December 31, 1994, 1993 and 1992
(Thousands of dollars)
<TABLE>
<CAPTION>
Balance at Additions Balance
beginning charged at end
Year of year to income Deductions Other of year
- ---- ---------- ---------- ---------- ----- -------
<S> <C> <C> <C> <C> <C>
(A)
1994 $79,461 $67,508 $68,237 $ - $78,732
1993 80,768 60,401 65,534 3,826 (B) 79,461
1992 74,157 64,067 57,516 60 (C) 80,768
</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.
-69-
