<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, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ---------------to-----------------
Commission File Number 1-1023
THE McGRAW-HILL COMPANIES, INC.
----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 13-1026995
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1221 AVENUE OF THE AMERICAS, NEW YORK, N.Y. 10020
- ------------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 512-2000
------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common stock - $1 par value New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
----------------
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
---
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of February 29, 1996, was $4,366,913,290.
The number of shares of common stock of the registrant outstanding as
of February 29, 1996 was 50,288,399 shares (100,576,798 shares after the
two-for-one stock split approved by the company's Board of Directors on January
31, 1996).
Part I, Part II and Part IV incorporate information by reference from
the Annual Report to Shareholders for the year ended December 31, 1995. Part III
incorporates information by reference from the definitive proxy statement mailed
to shareholders March 21, 1996 for the annual meeting of shareholders to be held
on April 24, 1996.
<PAGE> 2
TABLE OF CONTENTS
-----------------
PART I
-------
<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 - 99
Consent of Independent Auditors - Ernst & Young LLP................................................ 100
Financial Data Schedule............................................................................ 101
Supplementary schedule............................................................................. 102
</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 15,004 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 4 through 24 (textual material) of the Registrant's 1995 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, 1995 and the identifiable
assets of each segment at the end of each year, are included in Exhibit (13), on
page 42 in the Registrant's 1995 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 393 locations, 294 are in the United
States. In addition, the Registrant owns real property at 25 locations; 22 are
in the United States. The principal facilities of the Registrant are as follows:
<TABLE>
<CAPTION>
Owned Square
or Feet
Domestic Leased (thousands) Business Unit
- -------- ------ ----------- -------------
<S> <C> <C> <C>
New York, NY leased 1,635 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 Financial Services
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 Vacant
Peterborough, NH owned 51 Byte
Chicago, IL leased 68 Various Operating Units
Redondo Beach, CA leased 50 Tower
</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
Systems
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.
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<PAGE> 6
The largest complex owned by the Registrant is located in Hightstown, NJ which
houses the offices for accounting operations, data processing services, other
service departments and a warehouse. The Registrant has consolidated its
domestic book distribution operations by consolidating the distribution
operations in Blue Ridge Summit, PA and Hightstown, NJ to Westerville and
Blacklick, OH. The warehouse in Hightstown, NJ is leased to a tenant. The
warehouse in Blue Ridge Summit, PA is vacant.
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.
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<PAGE> 7
Executive Officers of Registrant
--------------------------------
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Joseph L. Dionne 62 Chairman and Chief Executive Officer
Harold McGraw III 47 President and Chief Operating Officer
Robert J. Bahash 50 Executive Vice President and
Chief Financial Officer
Robert E. Evanson 59 Executive Vice President,
Corporate Development
Robert N. Landes 65 Senior Executive
Vice President and Secretary
Thomas J. Sullivan 60 Executive Vice President, Administration
Frank J. Kaufman 51 Senior Vice President, Taxes
Barbara B. Maddock 45 Senior Vice President, Human Resources
Barbara A. Munder 50 Senior Vice President, Corporate Affairs
Frank D. Penglase 55 Senior Vice President, Treasury Operations
Kenneth M. Vittor 46 Senior Vice President and General Counsel
Thomas J. Kilkenny 37 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 Robert E.
Evanson, Thomas J. Kilkenny and Barbara B. Maddock.
Mr. Evanson, prior to his becoming an officer of the Registrant on February 22,
1995, was executive vice president, finance and operations for the Registrant's
Educational and Professional Publishing Group since October 1993. Previously, he
was executive vice president and chief financial officer of the
Macmillan/McGraw- Hill School Publishing Company from July 1992 to October 1993,
and held various executive positions at Harcourt Brace Jovanovich, Inc. from
1985 to 1992.
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.
Ms. Maddock, prior to her becoming an officer of the Registrant on August 1,
1994, was Senior Vice President, Human Resources for Cigna Healthcare from July
1993 through July 1994. Previously, she was with Philip Morris Companies, Inc.
where she held a number of Human Resources positions from 1980 through 1993.
Mr. Landes retired as an officer of the Registrant on December 31, 1995.
-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
29, 1996 was 5,717.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Dividends per share of common stock:
$.30 per quarter in 1995 $1.20
$.29 per quarter in 1994 $1.16
</TABLE>
Note: The dividends per share of common stock reflect a 2-for-1 stock split
approved by the Board of Directors on January 31, 1996. All prior periods have
been restated to reflect the split.
Information concerning other matters is incorporated herein by reference from
Exhibit (13), from page 48 of the 1995 Annual Report to Shareholders.
Item 6. Selected Financial Data
- ------- -----------------------
Incorporated herein by reference from Exhibit (13), from the 1995 Annual Report
to Shareholders, page 32 and page 33.
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations
---------------------
Incorporated herein by reference from Exhibit (13), from the 1995 Annual Report
to Shareholders, pages 26 to 31 and page 34.
Item 8. Consolidated Financial Statements and Supplementary Data
- ------- --------------------------------------------------------
Incorporated herein by reference from Exhibit (13), from the 1995 Annual Report
to Shareholders, pages 35 to 46 and page 48.
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 21, 1996 for the annual
meeting of shareholders to be held on April 24, 1996.
Item 11. Executive Compensation
- -------- ----------------------
Incorporated herein by reference from the Registrant's definitive proxy
statement dated March 21, 1996 for the annual meeting of shareholders to be held
on April 24, 1996.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -------- --------------------------------------------------------------
Incorporated herein by reference from the Registrant's definitive proxy
statement dated March 21, 1996 for the annual meeting of shareholders to be held
April 24, 1996.
Item 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
Incorporated herein by reference from the Registrant's definitive proxy
statement dated March 21, 1996 for the annual meeting of shareholders to be held
April 24, 1996.
-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.
------------------------------
The McGraw-Hill Companies
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......................................... 47
Consolidated balance sheet at
December 31, 1995 and 1994........................................ 36-37
Consolidated statement of income
for each of the three years in
the period ended December 31, 1995................................ 35
Consolidated statement of cash flows
for each of the three years in the
period ended December 31, 1995.................................... 38
Consolidated statement of shareholders'
equity for each of the three years in
the period ended December 31, 1995................................ 39
Notes to consolidated financial
statements........................................................ 40-46
Quarterly financial information........................................ 48
Consent of Independent Auditors............................................ 100
Consolidated schedule for each of the three years in the period ended
December 31, 1995:
II - Reserve for doubtful accounts..................................... 102
</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, 1995 are hereby
incorporated by reference in Exhibit (13). With the exception of the pages
listed in the above index, the 1995 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.
(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.
(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.
-9-
<PAGE> 12
(10)* Registrant's 1995 Key Executive Short Term Incentive Compensation Plan,
incorporated by reference from Registrant's Form 10-K for the year
ended December 31, l994.
(10)* Registrant's Key Executive Short-Term Incentive Deferred Compensation
Plan.
(10)* Registrant's Executive Deferred Compensation Plan, incorporated by
reference from Registrant's Form SE filed March 28, 1991 in connection
with Registrant's Form 10-K for the year ended December 31, 1990.
(10)* Registrant's Senior Executive Severance Plan, incorporated by reference
from Registrant's Form SE filed March 29, 1989 in connection with
Registrant's Form 10-K for the year ended December 31, 1988.
(10) Credit Agreement dated as of November 12, 1991 among the Registrant,
the Banks' signatory thereto, and Bankers Trust Company, as Agent
incorporated by reference from Registrant's Form SE filed November 18,
1991 in connection with Registrant's Form 8-K dated November 19, 1991.
(10) First Amendment to Credit Agreement dated as of November 8, 1993 among
the Registrant, the Banks' signatory thereto, and Bankers Trust
Company, as agent, incorporated by reference from Registrant's Form 8-K
dated November 15, 1993.
(10) 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)* 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.
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<PAGE> 13
(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 1995 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.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Registrant during the last
quarter of 1995.
----------------
* 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.
The McGraw-Hill Companies, Inc.
- -------------------------------
Registrant
By: /s/ Kenneth M. Vittor
------------------------------------------
Kenneth M. Vittor
Senior Vice President and General Counsel
March 26, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on March 26, 1996 on behalf of Registrant by the following
persons who signed in the capacities as set forth below under their respective
names. Registrant's board of directors is comprised of fifteen members and the
signatures set forth below of individual board members, constitute at least a
majority of such board.
/s/ Joseph L. Dionne
------------------------------------------
Joseph L. Dionne
Chairman and Chief Executive Officer
Director
/s/ Harold McGraw III
------------------------------------------
Harold McGraw III
President and Chief Operating Officer
Director
/s/ Robert J. Bahash
------------------------------------------
Robert J. Bahash
Executive Vice President and
Chief Financial Officer
-12-
<PAGE> 15
/s/ Thomas J. Kilkenny
------------------------------------------
Thomas J. Kilkenny
Vice President and Controller
/s/ Pedro Aspe
------------------------------------------
Pedro Aspe
Director
/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 0. Lawson-Johnston
-------------------------------------------
Peter 0. Lawson-Johnston
Director
/s/ Linda Koch Lorimer
-------------------------------------------
Linda Koch Lorimer
Director
-13-
<PAGE> 16
/s/ Robert P. McGraw
--------------------------------------------
Robert P. 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 0. Way
---------------------------------------------
Alva 0. Way
Director
-14-
<PAGE> 17
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
(3) Articles of Incorporation of Registrant.
(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.
(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,
incorporated by reference from Registrant's Form 10-K for the year
ended December 31, l994.
(10)* Registrant's Key Executive Short-Term Incentive Deferred Compensation
Plan.
(10)* Registrant's Executive Deferred Compensation Plan, incorporated by
reference from Registrant's Form SE filed March 28, 1991 in connection
with Registrant's Form 10-K for the year ended December 31, 1990.
(10)* Registrant's Senior Executive Severance Plan, incorporated by reference
from Registrant's Form SE filed March 29, 1989 in connection with
Registrant's Form 10-K for the year ended December 31, 1988.
(10) Credit Agreement dated as of November 12, 1991 among the Registrant,
the Banks' signatory thereto, and Bankers Trust Company, as Agent
incorporated by reference from Registrant's Form SE filed November 18,
1991 in connection with Registrant's Form 8-K dated November 19, 1991.
(10) First Amendment to Credit Agreement dated as of November 8, 1993 among
the Registrant, the Banks' signatory thereto, and Bankers Trust
Company, as agent, incorporated by reference from Registrant's Form 8-K
dated November 15, 1993.
(10) 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)* 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-
(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 1995 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.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Registrant during the last
quarter of 1995.
----------------
* These exhibits relate to management contracts or compensatory
plan arrangements.
<PAGE> 1
Exhibit (3)
RESTATED CERTIFICATE
OF
INCORPORATION
OF
McGRAW-HILL, INC.
-----------------------
Under Section 807 of the Business Corporation Law
-----------------------
Pursuant to the provisions of Section 807 of the Business Corporation Law,
the undersigned hereby certify:
1.The name of the Corporation is McGraw-Hill, Inc. The name under which
the Corporation was formed is McGraw-Hill Publishing Company, Inc., which name
was changed to McGraw-Hill, Inc. on January 2, 1964.
2.The Certificate of Incorporation of the Corporation was filed by the
Department of State on the 29th of December, 1925.
3.The text of the Certificate of Incorporation of the Corporation, as
heretofore amended, is hereby restated without further amendment or change to
read as herein set forth in full:
ARTICLE I.
The corporate name shall be: McGRAW-HILL, INC.
ARTICLE II.
The purposes for which the Corporation is to be formed are:
To manufacture, print, publish, bind, conduct, circulate, sell, distribute,
deliver and otherwise deal in and with magazines, periodicals, journals, and
other publications and books of any and every description whatsoever, and
generally to carry on the business of magazines, periodicals, journal. and book
proprietors and publishers and that of general publishers and printers, to
undertake and carry on all kinds of business relative to the dissemination of
information of every nature and kind; to carry on the stationery business and
any other merchandising business, book printing, book manufacturing, book
binding and book selling, designing, engraving, lithographing, etching, wood
typing, stereotyping, electroplating and photographing, and the making and
printing of illustrations and letter press of every nature and kind, by and with
every process whatsoever now existing or at any time hereafter to be discovered,
incidental to and necessary for a general publishing business and for such
purpose to purchase or lease or otherwise acquire, build, construct, maintain
and operate and in any way to utilize building structures, manufactories,
machinery, storehouses and warehouses, and any and all other personal property,
rights and privileges necessary or convenient in connection with any of the
purposes herein mentioned, and to mortgage, improve and otherwise
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<PAGE> 2
deal in and with the same without limit as to the amount, and to carry on the
above business or any other business directly or indirectly connected therewith,
and in carrying on its business for the purpose of attaining or furthering any
of its obligations, express or implied, to do any and all acts and things, to
carry on any business and to exercise any and all powers which a natural person
could do and exercise, provided such business is not of the nature which can be
carried on only by Corporations organized under the Banking, the Insurance, the
Educational and the Transportation Corporation Laws.
To enter into, make, perform and carry out contracts of every kind which a
corporation organized under the Stock Corporation Law may enter into with any
person, firm, association or corporation.
To issue bonds, debentures, or obligations of the company from time to
time, for any of the objects or purposes of the company and to secure the same
by mortgage, pledge, deed of trust or otherwise as may be allowed by the laws of
New York.
To acquire, hold, use, sell, assign, lease, grant licenses in respect of,
mortgage, or otherwise dispose of Letters Patent of the United States, or any
foreign country, patents, patent rights, licenses and privileges, inventions,
improvements and processes, trademarks and trade names relating to or useful in
connection with any business of the Corporation, but always subject to statute.
To purchase, acquire, hold and dispose of the shares of its capital stock
in the manner and to the extent permitted by laws of New York.
To conduct and transact business in any of the states, territories,
colonies or dependencies of the United States, and in any and all foreign
countries; to have one or more offices therein and therein to hold, purchase,
mortgage, and convey real and personal property, without limit as to amount, but
always subject to local laws.
To purchase, acquire, hold, sell, assign, transfer, mortgage, pledge and
otherwise dispose of the shares of capital stock, bonds, debentures or other
evidences of indebtedness of any corporation, domestic or foreign, and while the
holder thereof, to exercise all the rights and privileges of ownership,
including the right to vote thereon, and to issue in exchange therefor its own
stock, bonds and other obligations.
The foregoing clauses shall be construed both as objects and powers, and it
is hereby expressly provided that the foregoing enumeration of specific powers
shall not be held to limit or restrict in any manner the powers of the
Corporation.
In general, to carry on any other lawful business of the same general
nature in connection with the foregoing whether manufacturing or otherwise, and
to have and to exercise all the powers conferred by the laws of New York upon
corporations formed under the act hereinafter referred to.
ARTICLE III.
The aggregate number of shares which the Corporation shall have authority
to issue shall be 82,891,256 shares, 891,256 shares of which shall have a par
value of $10 per share and 82,000,000 shares of which shall have a par value of
$1 per share. All of these shares are to be classified and the designations,
number of shares in each class and the par value of the shares shall be as
follows: $1.20 Convertible Preference Stock, 891,256 shares of the par value of
$10 per share; Series Preferred Stock, 2,000,000 shares of the par value of $1
per share; and Common Stock, 80,000,000 shares of the par value of $1 per share.
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<PAGE> 3
A statement of the designations, preferences, privileges and voting powers
of the shares of each class and the restrictions and qualifications thereof is
as set forth below. All references to Convertible Preferred Stock apply to the
$1.20 Convertible Preference Stock.
A.
CONVERTIBLE PREFERRED STOCK
Dividends. The holders of Convertible Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors, out of funds legally
available for the payment of dividends, cumulative cash dividends from the last
day of the month of March, June, September or December next preceding the date
on which such stock is issued, at the rate of $1.20 per share per annum in the
case of the $1.20 Convertible Preference Stock, and no more, payable quarterly
on the first day of the months of January, April, July and October in the case
of the $1.20 Convertible Preference Stock, but in no event shall such dividends
accrue for any period prior to January 1, 1966 in the case of the $1.20
Convertible Preference Stock. In no event, so long as any Convertible Preferred
Stock shall remain outstanding, shall any dividend whatsoever, other than a
dividend payable in shares of junior stock, be declared or paid upon, nor shall
any distribution be made upon, any junior stock, nor shall any shares of junior
stock be purchased or redeemed by the Corporation otherwise than in connection
with a refunding of junior stock through the issue of other junior stock, nor
shall any moneys be paid to or made available for a sinking fund for the
purchase or redemption of any junior stock, unless in each instance dividends on
all outstanding shares of the Convertible Preferred Stock for all past dividend
periods shall have been paid and the dividend on all outstanding shares of the
Convertible Preferred Stock for the then current quarterly dividend period shall
have been paid or declared and sufficient funds are available for the payment
thereof. Subject to the foregoing, dividends may be paid upon junior stock as
and when declared by the Board of Directors out of any funds of the Corporation
legally available therefor.
Redemption. The Corporation, at the option of the Board of Directors, at
any time after January 1, 1972 in the case of the $1.20 Convertible Preference
Stock, may redeem, in whole, or from time to time in part, the Convertible
Preferred Stock, upon notice given as hereinafter provided, by paying for each
share in cash the sum of Forty Dollars ($40) in the case of the $1.20
Convertible Preference Stock, plus in each case an amount equal to dividends
accrued thereon to the date fixed for redemption. In case of the redemption of
less than all of the outstanding shares of Convertible Preferred Stock, the
shares to be redeemed shall be selected by lot or pro rata in such manner as the
Board of Directors shall determine from among the outstanding shares of
Convertible Preferred Stock. Not less than thirty (30) days' prior written
notice shall be given by mail, postage prepaid, to the holders of record of the
Convertible Preferred Stock to be redeemed, such notice to contain a statement
of or reference to the conversion right set forth in the paragraph entitled
'Conversion' and to be addressed to each such shareholder at his post office
address as shown by the records of the Corporation.
If such notice of redemption shall have been duly given, and if on or
before the redemption date specified in such notice the funds necessary for such
redemption shall have been set aside so as to be and continue to be available
therefor, then, notwithstanding that any certificate for shares so called for
redemption shall not have been surrendered for cancellation, from and after such
redemption date, the
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<PAGE> 4
shares so called for redemption shall no longer be deemed outstanding, the
dividends thereon shall cease to accrue, and all rights with respect to shares
so called for redemption, including the rights, if any, to receive notices and
to vote, shall forthwith on such redemption date cease and terminate, except
only the right of the holders thereof to receive the amount payable upon
redemption thereof, without interest; provided, however, that if such notice of
redemption shall have been duly given, and if on or before the redemption date
specified in such notice, there shall have been deposited with a bank or trust
company in the Borough of Manhattan, City and State of New York, having capital,
surplus and undivided profits of at least Five Million Dollars ($5,000,000) in
trust for the account of the holders of the shares so called for redemption
which shall not have been surrendered for conversion pursuant to the paragraph
entitled 'Conversion', the funds necessary for such redemption, then upon the
making of such deposit in trust, the shares with respect to which such deposit
shall have been made shall no longer be deemed to be outstanding, and all rights
with respect to such shares, including the rights, if any, to receive notices
and to vote, shall forthwith cease and terminate, except only the right of the
holders thereof to receive, out of the funds so deposited in trust, from and
after the date of such deposit, the amount payable upon the redemption thereof,
without interest, or to convert their shares up to the close of business on the
third full business day prior to the date fixed for redemption, into Common
Stock pursuant to the paragraph entitled 'Conversion'. Any funds so deposited
which shall not be required for such redemption because of the exercise of any
right of conversion or exchange or otherwise subsequent to the date of such
deposit shall be returned to the Corporation forthwith. Any interest accrued on
any funds so deposited shall belong to the Corporation and be paid to it from
time to time. Any other funds so set aside or deposited by the Corporation and
unclaimed at the end of six years from the date fixed for such redemption shall
be repaid to the Corporation, upon its request, after which repayment the
holders of such shares so called for redemption shall look only to the
Corporation for the payment of the amount payable upon the redemption thereof.
Subject to the provisions hereof the Board of Directors shall have authority to
prescribe the manner in which the Convertible Preferred Stock shall be redeemed
from time to time. All shares of Convertible Preferred Stock so redeemed shall
be permanently retired and shall not under any circumstances be reissued; and
the Corporation may from time to time take such appropriate corporate action as
may be necessary to reduce the authorized Convertible Preferred Stock
accordingly.
Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, and after the holders of the Series Preferred Stock shall have been
paid in full the amounts to which they shall be entitled. or after an amount
sufficient to pay the aggregate amount to which the holders of the Series
Preferred Stock shall be entitled shall have been deposited with a bank or trust
company in the Borough of Manhattan, City and State of New York, having capital,
surplus and undivided profits of at least Five Million Dollars ($5,000,000), in
trust for the account of the holders of the Series Preferred Stock, the
remaining net assets of the Corporation shall be distributed pro rata to the
holders of the $1.20 Convertible Preference Stock and the Common Stock in
proportion to the number of shares of each such class at the time outstanding.
Written notice of such liquidation, dissolution or winding up, stating a payment
date and the place where said sums shall be payable and containing a statement
of or reference to the conversion right set forth in the paragraph entitled
'Conversion', shall be given by mail, postage prepaid, not less than thirty (30)
days prior to the payment date stated therein, to the holders of record of the
Convertible Preferred Stock, such notice to be addressed to each such
shareholder at his post office address as shown by the records of the
Corporation. Neither the consolidation or merger of the Corporation into or with
any other corporation or corporations, nor the sale or transfer by the
Corporation of all or any part of its assets, nor the reduction of the capital
stock of the Corporation, shall be deemed to be a liquidation, dissolution or
winding up of the Corporation within the meaning of any of the provisions of
this paragraph.
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<PAGE> 5
Conversion. (1) Any share or shares of Convertible Preferred Stock may be
converted, at the option of the holder thereof, in the manner hereinafter
provided, into full-paid and non-assessable shares of Common Stock of the
Corporation; provided, however, that (a) as to any share of Convertible
Preferred Stock which shall have been called for redemption, the right of
conversion shall terminate at the close of business on the third full business
day prior to the date fixed for redemption, and (b) on any liquidation of the
Corporation the right of conversion shall terminate at the close of business on
the third full business day before the date fixed for the initial payment of
distributable amounts on the Convertible Preferred Stock.
(2)[Deleted]
(3)The conversion rate with respect to the $1.20 Convertible Preference
Stock shall be .825 of a share of Common Stock for each one share of such $1.20
Convertible Preference Stock surrendered for conversion, subject to adjustment
as hereinafter provided.
(a)In case at any time shares of Common Stock outstanding shall be
combined into a lesser number of shares, whether by reclassification,
recapitalization, reduction of capital stock or otherwise, the conversion
rate shall be propor tionately decreased,
(b)In case the shares of Common Stock at any time outstanding shall,
at any time after December 31, 1965, be subdivided, by reclassification,
recapitalization or otherwise (including the issuance of shares of Common
Stock as a dividend on the Common Stock), into a greater number of shares
without the actual receipt by the Corporation of any consideration for the
additional number of shares so issued, the conversion rate shall be
proportionately increased.
(4) Any conversion rate determined or adjusted as herein provided shall
remain in effect until further adjustment as required herein. Upon each
adjustment of the conversion rate a written instrument signed by an officer of
the Corporation, setting forth such adjustment and the computation and a summary
of the facts upon which it is based, shall forthwith be filed with the principal
transfer agent for the Convertible Preferred Stock of the class or classes
affected and made available for inspection by the shareholders, and any
adjustment so evidenced, made in good faith, shall be binding upon all
shareholders and upon the Corporation. Upon any conversion fractional shares
shall not be issued but any fractions shall be adjusted in cash, unless the
Board of Directors shall determine to adjust them by the issue of fractional
scrip certificates or in some other manner. Upon any conversion, no adjustment
shall be made for dividends on the Convertible Preferred Stock surrendered for
conversion or on the Common Stock delivered The Corporation shall pay all issue
taxes, if any, incurred in respect of the issue of the Common Stock on
conversion, provided, however, that the Corporation shall not be required to pay
any transfer or other taxes incurred by reason of the issuance of such Common
Stock in names other than those in which the Convertible Preferred Stock
surrendered for conversion may stand.
(5) Any conversion of Convertible Preferred Stock into shares of Common
Stock shall be made by the surrender to the Corporation, at the office of any
transfer agent for the Convertible Preferred Stock, of the certificate or
certificates representing the share or shares of Convertible Preferred Stock to
be converted, duly endorsed or assigned (unless such endorsement or assignment
be waived by the Corporation), together with a written request for conversion.
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<PAGE> 6
(6)All shares of Convertible Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to
be outstanding and all rights with respect to such shares, including the
rights, if any, to receive notices and to vote, shall forthwith cease and
terminate except only the right of the holders thereof to receive Common
Stock in exchange therefor. Any shares of Convertible Preferred Stock so
converted shall be permanently retired, shall no longer be deemed
outstanding and shall not under any circumstances be reissued and the
Corporation may from time to time take such appropriate corporate action as
may be necessary to reduce the authorized Convertible Preferred Stock
accordingly.
(7)In case of any reclassification or change of outstanding shares of
Common Stock of the class issuable upon conversion of the shares of
Convertible Preferred Stock, or in case of any consolidation or merger of
the Corporation with or into another corporation, or in case of any sale or
conveyance to another corporation of the property of the Corporation as an
entirety or substantially as an entirety, the holder of each share of
Convertible Preferred Stock then outstanding shall have the right
thereafter to convert such share into the kind and amount of shares of
stock and other securities and property receivable, upon such
reclassification, change, consolidation, merger, sale or conveyance, by a
holder of the number of shares of Common Stock (whole or fractional) of the
Corporation into which such share of Convertible Preferred Stock might have
been converted immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance. In the event of any such
consolidation, merger, sale or conveyance (a) effective provision shall be
made, in the charter of the continuing or successor Corporation or
otherwise, so that in the opinion of the Board of Directors of the
Corporation, the provisions set forth herein for the protection of the
conversion rights of the Convertible Preferred Stock shall thereafter be
applicable, as nearly as reasonably may be, to any such other shares of
stock and other securities and property deliverable upon conversion of the
Convertible Preferred Stock remaining outstanding or other Convertible
Preferred Stock received by the holders in place thereof, and (b) any such
continuing or successor Corporation shall expressly assume the obligation
to deliver, upon the exercise of the conversion privilege, such shares,
securities or property as the holders of shares of the Convertible
Preferred Stock remaining outstanding, or other convertible preferred stock
received by the holders in place thereof, shall be entitled to receive
pursuant to the provisions hereof, and to make provision for the protection
of the conversion right as above provided. In case securities or property
other than Common Stock shall be issuable or deliverable upon conversion as
aforesaid, then all references in this paragraph entitled 'Conversion'
shall be deemed to apply so far as appropriate and as nearly as may be, to
such other securities or property.
(8)A number of shares of authorized Common Stock sufficient to provide
for the conversion of the Convertible Preferred Stock outstanding upon the
basis hereinbefore provided shall at all times be reserved for such
conversion. If the Corporation shall propose to make any change in its
capital structure which would change the number of shares of Common Stock
into which each share of the Convertible Preferred Stock shall be
convertible as herein provided, the Corporation shall at the same time also
make proper provision so that thereafter there shall be a sufficient number
of shares of Common Stock authorized and reserved for conversion of the
outstanding Convertible Preferred Stock on the new basis.
Voting Rights. Each holder of Convertible Preferred Stock shall be entitled
to one vote for each share held and, except as otherwise by law provided or as
provided with respect to any series of the Series Preferred Stocks, the
Convertible Preferred Stock, the shares of any series of the Series Preferred
Stock having general voting rights and the Common Stock of the Corporation shall
vote together as one class.
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<PAGE> 7
Denial of Preemptive Rights. No holder of the Convertible Preferred Stock
shall be entitled, as such, as a matter of right, to subscribe for or to
purchase any part of any new or additional issue of stock of any class
whatsoever or of securities convertible into stock of any class whatsoever,
whether now or hereafter authorized, or whether issued for cash or other
consideration, or by way of dividend. Notwithstanding the foregoing, or the
provisions of Section E of this Article III, in the event that the Corporation
grants to the holders of its Common Stock generally rights to subscribe for or
purchase any stock or securities, the Corporation shall also grant to the
holders of the Convertible Preferred Stock rights to subscribe for or purchase,
on the same terms as such stock or securities are offered to the holders of the
Common Stock, an amount of such stock or securities equal to the amount which
they would be entitled to purchase if the Convertible Preferred Stock had been
converted into Common Stock at the then applicable conversion rate.
B.
SERIES PREFERRED STOCK
1. Board Authority. The Series Preferred Stock may be issued from time to
time as herein provided in one or more series. The designations, relative
rights, preferences and limitations of the Series Preferred Stock, and
particularly of the shares of each series thereof, may, to the extent permitted
by law, be similar to or differ from those of any other series. The Board of
Directors of the Corporation is hereby expressly granted authority, subject to
the provisions of this Article III, to fix from time to time before issuance
thereof the number of shares in each series of such class and all designations,
relative rights, preferences and limitations of the shares in each such series,
including, but without limiting the generality of the foregoing, the following:
(i)The number of shares to constitute such series and the
distinctive designation thereof;
(ii)The dividend rate on the shares of such series, whether or
not dividends on the shares shall be cumulative, and the date or
dates, if any, from which dividends thereon shall be cumulative;
(iii)Whether or not the shares of such series shall be
redeemable, and, if redeemable, the date or dates upon or after which
they shall be redeemable, the amount per share payable thereon in the
case of the redemption thereof, which amount may vary at different
redemption dates or otherwise as permitted by law;
(iv)Whether or not the shares of such series shall be subject to
the operation of a retirement or sinking fund to be applied to the
purchase or redemption of such shares for retirement and, if such
retirement or sinking fund be established, the amount thereof, and the
terms and provisions relative to the operation thereof;
(v)The right, if any, of holders of shares of such series to
convert the same into or exchange the same for Common Stock, and the
terms and conditions of such conversion or exchange, as well as
provisions for adjustment of the conversion rate in such events as the
Board of Directors shall determine;
(vi)The amount per share payable on the shares of such series
upon the voluntary and involuntary liquidation, dissolution or winding
up of the Corporation;
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<PAGE> 8
(vii)Whether the holders of shares of such series shall have
voting power, full or limited, in addition to the voting powers
provided by law, and in case additional voting powers are accorded to
fix the extent thereof; and
(viii)Generally to fix the other rights and privileges and any
qualifications, limitations or restrictions of such rights and
privileges of such series, provided, however, that no such rights,
privileges, qualifications, limitations or restrictions shall be in
conflict with the Certificate of Incorporation of the Corporation or
with the resolution or resolutions adopted by the Board of Directors
providing for the issue of any series of which there are shares then
outstanding.
All shares of Series Preferred Stock of the same series shall be
identical in all respects, except that shares of any one series issued at
different times may differ as to dates, if any, from which dividends
thereon may accumulate. All shares of Series Preferred Stock of all series
shall be of equal rank (ranking equally as to dividends with the $1.20
Convertible Preference Stock) and shall be identical in all respects except
that to the extent not otherwise limited in this Article III any series may
differ from any other series with respect to any one or more of the
designations, relative rights, preferences and limitations described or
referred to in subparagraphs (i) to (viii) inclusive above.
2. Dividends. The holders of shares of the Series Preferred Stock of
each series shall be entitled to receive, when and as declared by the Board
of Directors, out of funds legally available for the payment of dividends,
dividends at the rates fixed by the Board of Directors for such series, and
no more, before any dividends, other than dividends payable in Common
Stock, shall be declared and paid, or set apart for payment, on the Common
Stock with respect to the same dividend period.
All shares of Series Preferred Stock of all series shall be of equal
rank, preference and priority as to dividends irrespective of whether or
not the rates of dividends to which the same shall be entitled shall be the
same and when the stated dividends are not paid in full, the shares of all
series of the Series Preferred Stock shall share ratably in the payment
thereof in accordance with the sums which would be payable on such shares
if all dividends were paid in full, provided, however, that any two or more
series of the Series Preferred Stock may differ from each other as to the
existence and extent of the right to cumulative dividends, as aforesaid.
3. Voting Rights. Except as otherwise specifically provided in the
certificate filed pursuant to law with respect to any series of the Series
Preferred Stock, or as otherwise provided by law, the Series Preferred
Stock shall not have any right to vote for the election of directors or for
any other purpose and the Convertible Preferred Stock and the Common Stock
shall have the exclusive right to vote for the election of directors and
for all other purposes.
4. Liquidation. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, each
series of the Series Preferred Stock shall have preference and priority
over the $1.20 Convertible Preference Stock and the Common Stock for
payment of the amount to which each outstanding series of the Series
Preferred Stock shall be entitled in accordance with the provisions thereof
and each holder of the Series Preferred
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<PAGE> 9
Stock shall be entitled to be paid in full such amounts, or have a sum
sufficient for the payment in full set aside, before any payments shall be made
to the holders of the $1.20 Convertible Preference Stock or the Common Stock.
If, upon liquidation, dissolution or winding up of the Corporation, the assets
of the Corporation or proceeds thereof, distributable among the holders of the
shares of all series of the Series Preferred Stock shall be insufficient to pay
in full the preferential amounts aforesaid, then such assets, or the proceeds
thereof, shall be distributed among such holders ratably in accordance with the
respective amounts which would be payable if all amounts payable thereon were
paid in full. After the payment to the holders of the Series Preferred Stock of
all such amounts to which they are entitled, as above provided, the remaining
assets and funds of the Corporation shall be divided and paid to the holders of
the $1.20 Convertible Preference Stock and the Common Stock. Neither the
consolidation or merger of the Corporation into or with any other corporation or
corporations, nor the sale or transfer by the Corporation of all or any part of
its assets, nor the reduction of the capital stock of the Corporation, shall be
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meaning of any of the provisions of this paragraph.
5. Redemption. In the event that the Series Preferred Stock of any
series shall be made redeemable as provided in clause (iii) of paragraph 1
of this Section B of Article III, the Corporation, at the option of the
Board of Directors, may redeem at any time or times, and from time to time,
all or any part of any one or more series of Series Preferred Stock
outstanding, upon notice and terms as may be specifically provided in the
certificate filed pursuant to law with respect to the series, by paying for
each share the then applicable redemption price fixed by the Board of
Directors plus an amount equal to accrued and unpaid dividends to the date
fixed for redemption.
C.
COMMON STOCK
Dividends.Subject to all of the rights of the Convertible Preferred
Stock and the rights of the Series Preferred Stock, dividends may be paid
upon the Common Stock as and when declared by the Board of Directors out of
any funds legally available for the payment of dividends.
Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary and after the holders of the
Series Preferred Stock shall have been paid in full amounts to which they
respectively shall be entitled, or an amount sufficient to pay the
aggregate amount to which the holders of the Series Preferred Stock shall
be entitled shall have been deposited with a bank or trust company having
its principal office in the Borough of Manhattan, The City of New York, and
having capital, surplus and undivided profits of at least Five Million
Dollars ($5,000,000), as a trust fund for the benefit of the holders of the
Series Preferred Stock, the remaining net assets of the Corporation shall
be distributed pro rata to the holders of the $1.20 Convertible Preference
Stock and the Common stock in proportion to the number of shares of each
such class at the time outstanding.
Voting Rights. Each holder of Common Stock of the Corporation shall be
entitled to one vote for each share held and, except as otherwise by law
provided or as provided with respect to any series of the Series Preferred
Stock, the Convertible Preferred Stock, the shares of any series of Series
Preferred Stock having general voting rights and the Common Stock of the
Corporation shall vote together as one class.
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<PAGE> 10
D.
CERTAIN DEFINITIONS
For the purposes of this Article III the following terms shall be
deemed to have the meanings specified below:
The terms "dividends accrued" and "an amount equal to dividends
accrued," whenever used herein with reference to shares of Convertible
Preferred stock, shall mean an amount per share computed at the annual rate
set forth in the paragraph entitled "Dividends" under "Convertible
Preferred Stock" above, or a quarterly rate equal to one-fourth (1/4) of
such annual rate, from and including the dividend payment date to which the
dividends on such share have been paid, to but not including the date to
which dividends are to be accrued. The amount per share for less than a
full quarterly dividend period shall be computed by (a) assuming that there
are 90 days in such full quarterly dividend period, (b) determining the
number of days from and including the next preceding dividend payment date,
to but not including the date to which the dividend is to be accrued, and
(c) multiplying the applicable quarterly dividend rate by a fraction, the
numerator of which shall be the number of days of the accrual as in (b) and
the denominator of which shall be 90, but in no event shall such accrual be
more than such applicable quarterly dividend rate.
The term "junior stock" shall mean the Common Stock and any other
stock ranking junior to the Convertible Preferred Stock in respect of the
payment of dividends or of payment in liquidation, or both, in accordance
with the subject matter of the context, provided that the $1.20 Convertible
Preference Stock shall not be deemed to be "junior stock" for the purposes
of the paragraph entitled "Dividends" under "Convertible Preferred Stock"
above.
E.
WAIVER OF PREEMPTIVE RIGHTS
No holder of Convertible Preferred Stock, Series Preferred Stock or
Common Stock shall be entitled as of right to purchase or subscribe for any
part of any unissued stock of any class or of any additional Convertible
Preferred Stock, Series Preferred Stock or Common Stock to be issued by
reason of any increase of the authorized capital stock of the Corporation
of any class, or of bonds, certificates of indebtedness, debentures or
other securities convertible into stock of the Corporation, but any such
unissued stock or such additional authorized issue of new stock or of other
securities convertible into stock may be issued and disposed of pursuant to
resolution of the Board of Directors to such persons, firms, corporations
or associations and upon such terms as may be deemed advisable by the Board
of Directors in the exercise of their discretion.
F.
SCRIP
In no case shall fractions of shares of any class be issued by the
Corporation, but in lieu thereof the Corporation may issue fractional Scrip
Certificates, in either bearer or registered form, and in such
denominations as shall be determined by the Board of Directors. Such Scrip
Certificates shall be exchangeable on or before such date as the Board of
Directors may fix, when surrendered with other similar Scrip Certificates
in sufficient aggregate
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amounts, for certificates for full paid and non-assessable shares of the
stock for which such Scrip Certificates are exchangeable, and the amount of
dividends theretofore paid upon such full shares, and new Scrip
Certificates of a like tenor for the remaining fraction of a share, if any.
Such Scrip Certificates shall not entitle any holder thereof to voting
rights, dividend rights or any other right of a shareholder or any rights
other than the rights herein set forth, and no dividend or interest shall
be payable or shall accrue with respect to the Scrip Certificates or the
interests represented thereby. All such Scrip Certificates which are not
surrendered in exchange for shares of stock on or before such date as the
Board of Directors may fix, shall thereafter be void and of no effect
whatever, except that the holders thereof shall be entitled to receive
their pro rata share of the proceeds resulting from the sale of the full
shares of stock for which such Scrip Certificates are exchangeable,
together with their pro rata share of dividends theretofore paid upon such
full shares; such sale (which may be effected either publicly or privately
at the current market price, and as to which the Corporation may be the
purchaser) to be made by the Corporation or by an agent of the Corporation
(which agent may be a transfer agent or registrar of the shares for which
such Scrip Certificates are exchangeable), as agent and on behalf of the
holders of the Scrip Certificates.
ARTICLE IV.
The company may use and apply its surplus earnings or accumulated
profits to the purchase or acquisition of property and to the purchase and
acquisition of its own capital stock from time to time, to such extent and
in such manner, and upon such terms as its Board of Directors shall
determine, and neither the property nor the capital stock so purchased and
acquired shall be regarded as profits for the purpose of declaration or
payment of dividends, unless otherwise determined by a majority of the
Board of Directors.
ARTICLE V.
[Deleted]
ARTICLE VI.
The office of the Corporation is to be located in the Borough of
Manhattan, City, County and State of New York.
ARTICLE VII.
The duration of the Corporation is to be perpetual.
ARTICLE VIII.
A. Number, Election and Terms of Directors. The business and affairs
of the Corporation shall be managed under the direction of its Board of
Directors which, subject to any rights of the holders of any series of
Preferred Stock then outstanding to elect additional directors under
specified circumstances, shall consist of not less than twelve (12) nor
more than twenty-five (25) persons. The exact number of directors within
the minimum and maximum limitations specified in the preceding sentence
shall be determined from time to time by the affirmative vote of (i) a
majority of the Board of Directors, or (ii) the holders of at least 80% of
the voting power of all of the shares of the Corporation entitled to vote
generally in the election of directors, voting together as a single class.
At the 1985 Annual Meeting of Shareholders, the directors shall be divided
into three classes, as nearly equal in number as possible, with the term of
office of the first class to expire at the 1986 Annual Meeting of
Shareholders, the term of office of the second class to expire at the 1987
Annual
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<PAGE> 12
Meeting of Shareholders and the term of office of the third class to expire
at the 1988 Annual Meeting of Shareholders, and with the members of each
class to hold office until their successors have been duly elected and
qualified. At each Annual Meeting of Shareholders following such initial
classification and election, directors elected to succeed those directors
whose terms expire shall be elected for a term of office to expire at the
third succeeding Annual Meeting of Shareholders after their election and
after their successors have been duly elected and qualified.
B. Newly Created Directorships and Vacancies. Subject to the rights of
the holders of any series of Preferred Stock then outstanding, newly
created directorships resulting from any increase in the authorized number
of directors and any vacancies on the Board of Directors resulting from
death, resignation, retirement, disqualification, removal from office or
other cause shall be filled by a majority vote of the directors then in
office (even though less than a quorum of the Board of Directors), and
directors so chosen shall hold office for a term expiring at the next
Annual Meeting of Shareholders and after their successors have been duly
elected and qualified. If the number of directors is increased by the Board
of Directors and the newly created directorship is filled by the Board,
there shall be no classification of the additional directors so chosen
until the next Annual Meeting of Shareholders at which time a majority of
the Board shall designate the class of the director to be elected to fill
such directorship by the shareholders. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
C. Removal. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any director or directors may be removed
from office at any time, but only for cause and only by the affirmative
vote of (i) the holders of at least 80% of the voting power of all of the
shares of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, or (ii) a majority of the
Board of Directors.
D. Special Meetings of Shareholders. Special meetings of Shareholders
of the Corporation may be called only by the Board of Directors pursuant to
a resolution approved by a majority of the Board of Directors, upon not
less than 30 nor more than 50 days' written notice.
E. Amendment, Repeal, Etc. Notwithstanding anything contained in this
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 80% of the voting power of all of the shares of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to amend or repeal, or to
adopt any provision inconsistent with, this Article Eighth.
ARTICLE IX.
A.
VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS
1. Higher Vote for Certain Business Combinations. In addition to any
affirmative vote required by law or this Certificate of Incorporation, and
except as otherwise expressly provided in Section B of this Article Ninth:
(a)any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (i) any Interested
Shareholder (as hereinafter defined) or (ii) any other Corporation
(whether or not itself an Interested Shareholder) which is, or after
such merger or consolidation would be, an Affiliate (as hereinafter
defined) of an Interested Shareholder; or
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<PAGE> 13
(b)any sale, lease, license, exchange, mortgage, pledge, transfer
or other disposition (in one transaction or a series of transactions)
to or with any Interested Shareholder or any Affiliate of any
Interested Shareholder of any assets of the Corporation or any
Subsidiary having an aggregate Fair Market Value (as hereinafter
defined) of $1,000,000 or more; or
(c)the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or a series of transactions) of any securities of
the Corporation or any Subsidiary to any Interested Shareholder or any
Affiliate of any Interested Shareholder having an aggregate Fair
Market Value of $1,000,000 or more; or
(d)the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Shareholder or any Affiliate of any Interested Shareholder;
or
(e)any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any
other transaction (whether or not with or into or otherwise involving
an Interested Shareholder) which has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding
shares of any class of equity or convertible securities of the
Corporation or any Subsidiary which is directly or indirectly owned by
any Interested Shareholder or any Affiliate of any Interested
Shareholder;
shall require the affirmative vote of the holders of at least 80% of the
voting power of the then outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors (the
"Voting Stock"), voting together as a single class (it being understood
that for purposes of this Article Ninth, each share of the Voting Stock
shall have the number of votes granted to it pursuant to Article Third of
this Certificate of Incorporation). Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
2. Definition of "Business Combination". The term "Business
Combination" as used in this Article Ninth shall mean any transaction which
is referred to in any one or more of clauses (a) through (e) of paragraph 1
of this Section A of Article Ninth.
B.
WHEN HIGHER VOTE IS NOT REQUIRED
The provisions of Section A of this Article Ninth shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote as is required by law
and any other provision of this Certificate of Incorporation, if all of the
conditions specified in either of the following paragraphs 1 or 2 are met:
1. Approval by Disinterested Directors. The Business Combination shall
have been approved by a majority of the total number of Disinterested
Directors (as hereinafter defined).
2. Price and Procedural Requirements. All of the following conditions
shall have been met:
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(a)The aggregate amount of the cash and the Fair Market Value as
of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders of
Common Stock in such Business Combination shall be at least equal to
the higher of the following:
(i)(if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Shareholder for any shares of Common
Stock acquired by it (1) within the two-year period immediately
prior to the first public announcement of the proposal of the
Business Combination (the "Announcement Date") or (2) in the
transaction in which it became an Interested Shareholder,
whichever is higher; and
(ii)the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested
Shareholder became an Interested Shareholder (such latter date is
referred to in this Article Ninth as the "Determination Date"),
whichever is higher.
(b)The aggregate amount of the cash and the Fair Market Value as
of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders of
shares of any other class of outstanding Voting Stock (other than
Institutional Voting Stock, as hereinafter defined) shall be at least
equal to the highest of the following (it being intended that the
requirements of this clause (b) shall be required to be met with
respect to every class of outstanding Voting Stock (other than
Institutional Voting Stock), whether or not the Interested Shareholder
has previously acquired any shares of a particular class of Voting
Stock):
(i)(if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Shareholder for any shares of such
class of Voting Stock acquired by it (x) within the two-year
period immediately prior to the Announcement Date or (y) in the
transaction in which it became an Interested Shareholder,
whichever is higher;
(ii)the Fair Market Value per share of such class of Voting Stock
on the Announcement Date or on the Determination Date, whichever
is higher; and
(iii)(if applicable) the highest preferential amount per share to
which the holders of shares of such class of Voting Stock are
entitled in the event of any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary.
(c)The consideration to be received by holders of a particular
class of outstanding Voting Stock (including Common Stock) shall be in
cash or in the same form as the Interested Shareholder has previously
paid for shares of such class of Voting Stock. If the Interested
Shareholder has paid for shares of any class of Voting Stock with
varying forms of consideration, the form of consideration for such
class of Voting Stock shall be either cash or the form used to acquire
the largest number of shares of such class of Voting Stock previously
acquired by it.
(d)After such Interested Shareholder has become an Interested
Shareholder and prior to the consummation of such Business
Combination: (i) except as approved by a majority of the total number
of Disinterested Directors, there shall have been no failure to
declare and pay at the
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<PAGE> 15
regular date therefor any full quarterly dividends (whether or not
cumulative) on the outstanding preferred stock of the Corporation;
(ii) there shall have been (x) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to reflect any
subdivision of the Common Stock) except as approved by a majority of
the total number of Disinterested Directors, and (y) an increase in
such annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which has
the effect of reducing the number of outstanding shares of the Common
Stock, unless the failure so to increase such annual rate is approved
by a majority of the total number of Disinterested Directors; and
(iii) such Interested Shareholder shall have not become the beneficial
owner of any additional shares of Voting Stock except as part of the
transaction which results in such Interested Shareholder becoming an
Interested Shareholder.
(e)After such Interested Shareholder has become an Interested
Shareholder, such Interested Shareholder shall not have received the
benefit, directly or indirectly (except proportionately as a
shareholder), of any loans,advances, guarantees pledges or other
financial assistance or any tax credits or other tax advantages
provided by the Corporation, whether in anticipation of or in
connection with such Business Combination or otherwise.
(f)A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, rules or
regulations) shall be mailed to public shareholders of the Corporation
at least 30 days prior to the consummation of such Business
Combination (whether or not such proxy or information statement is
required to be mailed pursuant to such Act or subsequent provisions).
(g)The holders of all outstanding shares of Voting Stock not
beneficially owned by the Interested Shareholder prior to the
consummation of any Business Combination shall be entitled to receive
in such Business Combination cash or other consideration for their
shares of such Voting Stock in compliance with paragraphs 2(a), (b)
and (c) of this Section B (provided, however, that the failure of any
such holders who are exercising their statutory rights to dissent from
such Business Combination and receive payment of the fair value of
their shares to exchange their shares in such Business Combination
shall not be deemed to have prevented the condition set forth in this
paragraph 2(g) from being satisfied).
C.
CERTAIN DEFINITIONS
For the purposes of this Article Ninth the following terms shall be
deemed to have the meanings specified below:
1. The term "person" shall mean any individual, firm, Corporation or
other entity.
2. The term "Interested Shareholder" shall mean any person (other than
the Corporation or any Subsidiary) who or which:
(a)is the beneficial owner, directly or indirectly, of more than
10% of the voting power of the then outstanding Voting Stock; or
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(b)is an Affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 10% or more of the voting
power of the then outstanding Voting Stock; or
(c)is an assignee of or has otherwise succeeded to any shares of
Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by any
Interested Shareholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities Act
of 1933.
3. A person shall be deemed a "beneficial owner" of any Voting Stock:
(a)which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly; or
(b)which such person or any of its Affiliates or Associates has
(i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or under standing or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise,
or (ii) the right to vote pursuant to any agreement, arrangement or
understanding; or
(c)which is beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or
Associates has any agreement arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
Voting Stock.
4. For the purpose of determining whether a person is an Interested
Shareholder pursuant to paragraph 2 of this Section C of this Article
Ninth, the number of shares of Voting Stock deemed to be outstanding shall
include shares deemed owned through application of paragraph 3 of this
Section C of this Article Ninth but shall not include any other shares of
Voting Stock which may be issuable pursuant to any agreement, arrangement
or understanding, or upon exercise of conversion rights, warrants or
options, or otherwise.
5. The terms "Affiliate" or "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on
November 28, 1984.
6. The term "Subsidiary" shall mean any Corporation of which a
majority of any class of equity security is owned, directly or indirectly,
by the Corporation; provided however, that for the purposes of the
definition of Interested Shareholder set forth in paragraph 2 of this
Section C of this Article Ninth, the term "Subsidiary" shall mean only a
Corporation of which a majority of each class of equity security is owned,
directly or indirectly, by the Corporation.
7. The term "Fair Market Value" shall mean:
(a)in the case of stock, the highest closing sale price during
the 30- day period immediately preceding the date in question of a
share of such stock on the Composite Tape for New York Stock Exchange
Listed Stocks, or, if such stock is not quoted on the Composite Tape,
on the New York Stock Exchange, or, if such stock is not listed on
such Exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934 on which such
stock is listed, or, if such stock is not listed
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<PAGE> 17
on any such exchange, the highest closing bid quotation with respect
to a share of such stock during the 30-day period preceding the date
in question on the National Association of Securities Dealers, Inc.
Automated Quotations System or any system then in use, or if no such
quotations are available, the fair market value on the date in
question of a share of such stock as determined by a majority of the
total number of Disinterested Directors in good faith, in each case
with respect to any class of such stock, appropriately adjusted for
any dividend or distribution in shares of such stock or any stock
split or reclassification of outstanding shares of such stock into a
greater number of shares of such stock or any combination or
reclassification of outstanding shares of such stock into a smaller
number of shares of such stock; and (b) in the case of property other
than cash or stock, the fair market value of such property on the date
in question as determined by a majority of the total number of
Disinterested Directors in good faith.
8. The term "Institutional Voting Stock" shall mean any class of
Voting Stock which was issued to and continues to be held solely by one or
more insurance companies, pension funds, commercial banks, savings banks or
similar financial institutions or institutional investors.
9. In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as used
in clauses (a) and (b) of paragraph 2 of Section B of this Article Ninth
shall include the shares of Common Stock and/or the shares of any other
class of outstanding Voting Stock retained by the holders of such shares.
10. The term "Disinterested Director" shall mean any member of the
Board of Directors of the Corporation who is unaffiliated with the
Interested Shareholder and who was a member of the Board of Directors prior
to the Determination Date, and any successor of a Disinterested Director
who is unaffiliated with the Interested Shareholder and is recommended to
succeed a Disinterested Director by a majority of the total number of
Disinterested Directors then on the Board of Directors.
11. References to "highest per share price" shall in each case with
respect to any class of stock reflect an appropriate adjustment for any
dividend or distribution in shares of such stock or any stock split or
reclassification of outstanding shares of such stock into a greater number
of shares of such stock or any combination or reclassification of
outstanding shares of such stock into a smaller number of shares of such
stock.
D.
POWERS OF THE BOARD OF DIRECTORS
A majority of the Board of Directors of the Corporation shall have the
power and duty to determine for the purposes of this Article Ninth on the
basis of information known to them after reasonable inquiry, whether a
person is an Interested Shareholder. Once the Board of Directors has made a
determination, pursuant to the preceding sentence, that a person is an
Interested Shareholder, a majority of the total number of Directors of the
Corporation who would qualify as Disinterested Directors shall have the
power and duty to interpret all of the terms and provisions of this Article
Ninth, and to determine on the basis of in formation known to them after
reasonable inquiry all facts necessary to ascertain compliance with this
Article Ninth, including, without limitation, (A) the number of shares of
Voting Stock beneficially owned by any person, (B) whether a person
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is an Affiliate or Associate of another, (C) whether the assets which are
the subject of any Business Combination have, or the consideration to be
received for the issuance or transfer of securities by the Corporation or
any Subsidiary in any Business Combination has, an aggregate Fair Market
Value of $1,000,000 or more and (D) whether all of the applicable
conditions set forth in paragraph 2 of Section B of this Article Ninth have
been met with respect to any Business Combination. Any determination
pursuant to this Section D of this Article Ninth made in good faith shall
be binding and conclusive on all parties.
E.
NO EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED SHAREHOLDERS
Nothing contained in this Article Ninth shall be construed to relieve
any Interested Shareholder from any fiduciary obligation imposed by law.
F.
AMENDMENT, REPEAL, ETC.
Notwithstanding any other provisions of this Certificate of
Incorporation or the By-Laws of the Corporation (and notwithstanding the
fact that a lesser percentage may be specified by law, this Certificate of
Incorporation or the ByLaws of the Corporation), the affirmative vote of
the holders of 80% or more of the outstanding Voting Stock, voting together
as a single class, shall be required to amend or repeal, or adopt any
provisions inconsistent with, this Article Ninth of this Certificate of
Incorporation.
ARTICLE X.
The Corporation hereby designates the Secretary of State of the State
of New York as its agent upon whom process in any action or proceeding
against it may be served within the State of New York. The address to which
the Secretary of State shall mail a copy of any process against the
Corporation which may be served upon him pursuant to law is 1221 Avenue of
the Americas, New York, New York.
The restatement of the Certificate of Incorporation was authorized by
vote of the Board of Directors of the Corporation at a meeting of the Board
of Directors held on July 31, 1985.
IN WITNESS WHEREOF, this certificate has been signed this 31st day of
July 31, 1985.
/s/ Robert N. Landes
---------------------------
Robert N. Landes
Executive Vice President
/s/ Kurt D. Steele
---------------------------
Kurt D. Steele
Assistant Secretary
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CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
McGRAW-HILL, INC.
----------------
Under Section 805 of the Business Corporation Law
----------------
Pursuant to the provisions of Sections 502 and 805 of the Business
Corporation Law, the undersigned hereby certify:
1. The name of the Corporation is McGraw-Hill, Inc. The name under
which the Corporation was formed is McGraw-Hill Publishing Company, Inc., which
name was changed to McGraw-Hill, Inc. on January 2, 1964.
2. The Certificate of Incorporation of the Corporation was filed by
the Department of State on the 29th of December, 1925.
3. The [_____________] Certificate of Incorporation of the
Corporation is hereby amended by the addition of the following provision stating
the number, designations, relative rights, preferences and limitations of a
series of Series Preferred Stock of the Corporation, designated as Series A
Preferred Stock, as fixed by the Board of Directors of the Corporation pursuant
to the authority vested in it by the Restated Certificate of Incorporation of
the Corporation:
SERIES A PREFERRED STOCK
1. Designation and Amount. The shares of such series shall be
designated as "Series A Preferred Stock" (the "Series A Preferred Stock") and
the number of shares constituting such series shall be 600,000.
2. Dividends and Distributions.
(i) The holders of shares of Series A Preferred Stock, in preference
to the holders of Common Stock and of any other junior stock, shall be
entitled to receive, when, as and if declared by the Board of Directors out
of funds legally available for the purpose, quarterly dividends payable in
cash on the fifteenth day of March, June, September and December in each
year (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series A
Preferred Stock, in an amount per share (rounded to the nearest cent) equal
to the greater of (a) $25 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind)
of all non-cash dividends or other distributions other than a
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dividend payable in shares of Common Stock of the Corporation or a
subdivision of the outstanding shares of Common Stock (by reclassification
or otherwise), declared on the Common Stock since the immediately preceding
Quarterly Divided Payment Date or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of
a share of Series A Preferred Stock. In the event the Corporation shall at
any time after the date hereof declare or pay any dividend on Common Stock
payable in shares of Common Stock, or effect a subdivision or combination
or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise) into a greater or lesser number of shares of
Common Stock, then in each such case the amount to which holders of shares
of Series A Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(ii) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in subparagraph (i) of this paragraph
2 immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided
that, in the event no dividend or distribution shall have been declared on
the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend of
$25 per share on the Series A Preferred Stock shall nevertheless be payable
on such subsequent Quarterly Dividend Payment Date.
(iii) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares of Series A Preferred
Stock, unless the date of issue of such shares is prior to the record date
for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue of a Quarterly Dividend Payment Date or is a date
after the record date for the determination of holders of shares of Series
A Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends
shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Series A Preferred Stock in an amount less
than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be not more than 60 days prior to
the date fixed for the payment thereof.
3. Voting Rights. The holders of shares of Series A Preferred Stock
shall have the following voting rights:
(i) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to
100 votes on all matters submitted to a vote of the shareholders of the
Corporation. In the event the Corporation shall at any time after the date
hereof declare or pay any dividend on Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of
the outstanding shares of Common Stock (by reclassification or otherwise)
into a greater or lesser number of shares of Common Stock, then in each
such case the number of votes per share to which holders of shares of
Series A Preferred Stock were entitled immediately
-34-
<PAGE> 21
prior to such event shall be adjusted by multiplying such number by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately
prior to such event.
(ii) Except as otherwise provided herein or by law, the holders of
shares of Series A Preferred Stock and the holders of shares of Common
Stock and any other capital Stock of the Corporation having general voting
rights shall vote together as one class on all matters submitted to a vote
of shareholders of the Corporation.
(iii) Except as set forth herein, holders of Series A Preferred Stock
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common
Stock and any other capital stock of the Corporation having general voting
rights as set forth herein) for taking any corporate action.
4. Certain Restrictions.
(i) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in paragraph 2 of this
Section are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
(a) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(b) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution of winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(c) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred
Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such junior stock in exchange for
shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the
Series A Preferred Stock; or
(d) purchase or otherwise acquire for consideration any shares
of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(ii) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares
of stock of the Corporation unless the Corporation could, under
subparagraph (i) of this paragraph 4, purchase or otherwise acquire such
shares at such time and in such manner.
-35-
<PAGE> 22
5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Series Preferred Stock and may be reissued as part of a new series of Series
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (a)
to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock unless,
prior thereto, the holders of shares of Series A Preferred Stock shall have
received $100 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Series A Preferred Stock shall be
entitled to receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount to be
distributed per share to holders of Common Stock, or (b) to the holders of stock
ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except distributions made ratably
on the Series A Preferred Stock and all other such parity stock in proportion to
the total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Corporation shall at
any time after the date hereof declare or pay any dividend on Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise) into a greater or lesser number of shares of Common Stock, then in
each such case the aggregate amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under the proviso
in clause (a) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
7. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed in the amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time after the date hereof declare or
pay any dividend on Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise) into a greater or lesser number of
shares of Common Stock, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Series A
Preferred Stock shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
8. No Redemption. The shares of Series A Preferred Stock shall not
be redeemable.
-36-
<PAGE> 23
9. Amendment. The ____________ Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of
two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
The foregoing amendment to the ____________ Certificate of
Incorporation was authorized by the Board of Directors of the Corporation,
pursuant to the authority vested in it by the Restated Certificate of
Incorporation of the Corporation and Section 502 of the Business Corporation
Law, at a meeting of the Board duly held on the 29th day of January, 1986.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
of Amendment, and do affirm the foregoing as true, this 29th day of January ,
1986.
/s/ Robert N. Landes
--------------------------
Robert N. Landes
Executive Vice President
/s/ Scott L. Bennett
--------------------------
Scott L. Bennett
Assistant Secretary
-37-
<PAGE> 24
CERTIFICATE OF MERGER
OF
CYMA CORPORATION
AND
AARDVARK SOFTWARE, INC.
McGRAW-HILL, INC.
UNDER SECTION 905 OF THE BUSINESS CORPORATION LAW
----------------------------------
It is hereby certified by the corporation named herein as the
surviving corporation as follows:
FIRST: The Board of Directors of the corporation named herein as the
surviving corporation has adopted a Plan of Merger setting forth the terms and
conditions of merging the corporations named herein as the subsidiary
corporations into said surviving corporation.
SECOND: The laws of the jurisdiction of incorporation of the
corporations named herein as the subsidiary corporations permit a merger of the
kind certified herein.
THIRD: The names of the subsidiary corporations to be merged are Cyma
Corporation, which corporation was organized under the laws of the state of
Arizona on August 19, 1980 ("Cyma"), and Aardvark Software, Inc., which
corporation was organized under the laws of the state of Wisconsin on October 1,
1979 ("Aardvark").
FOURTH: The name of the surviving corporation, the certificate of
incorporation of which was filed by the Department of State on December 29, 1925
is McGraw-Hill, Inc. The name under which said corporation was formed was
McGraw-Hill Publishing Company, Inc.
FIFTH: The designation and number of outstanding shares of each class
of the subsidiary corporations and the number of such shares owned by the
surviving corporation, as set forth in the plan of merger are as follows:
-38-
<PAGE> 25
<TABLE>
<CAPTION>
SUBSIDIARY NUMBER OWNED BY
CORPORATION DESIGNATION NUMBER SURVIVING CORPORATION
- ----------- ----------- ------ ---------------------
<S> <C> <C> <C>
Cyma Common Stock 1,334 1,334
Par Value $1.00
Aardvark Common Stock 77,422 77,422
Par Value $.10\
</TABLE>
SIXTH: McGraw-Hill, Inc. in its capacity as the holder of all of the
outstanding shares of Cyma and Aardvark has waived the mailing of and its right
to receive a copy of the Plan of Merger.
SEVENTH: The merger of the subsidiary corporations into the surviving
corporation has been authorized under the laws of the jurisdictions of
incorporation of the subsidiary corporations.
EIGHTH: The effective date of the merger herein certified, insofar as
the provisions of the New York Business Corporation Law govern such effective
date shall be the 28th day of February, 1986.
IN WITNESS WHEREOF, this Certificate of Merger has been signed on the
26th day of March, 1986, and the statements contained herein are affirmed as
true under penalty of perjury.
McGRAW-HILL, INC.
/s/ Robert N. Landes
----------------------------------------
Robert N. Landes, Executive Vice President
/s/ Scott L. Bennett
------------------------------------
Scott L. Bennett, Assistant Secretary
-39-
<PAGE> 26
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF McGRAW-HILL, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
---------------------------------------------------------
It is hereby certified that:
(1) The name of the Corporation is McGRAW-HILL, INC. The name under which
the Corporation was formed was McGraw-Hill Publishing Company, Inc. which name
was changed to McGraw-Hill, Inc. on January 2, 1964.
(2) The Certificate of Incorporation of the Corporation was filed by the
Department of State on December 29, 1925.
(3) Article III of the Certificate of Incorporation of the Corporation is
hereby amended to effect an increase in the number of authorized shares of
Common Stock, par value $1 per share, from 80,000,000 shares to 150,000,000
shares. The first paragraph of Article III of the Certificate of Incorporation
of the Corporation is hereby amended to read as follows:
"ARTICLE III. The aggregate number of shares which the
Corporation shall have authority to issue shall be 152,891,256 shares,
891,256 shares of which shall have a par value of $10 per share and
152,000,000 shares of which shall have a par value of $1 per share.
All of these shares are to be classified and the designations, number
of shares in each class and the par value of the shares shall be as
follows: $1.20 Convertible Preference Stock, 891,256 shares of the par
value of $10 per share; Series Preferred Stock, 2,000,000 shares of
the par value of $1 per share; and Common Stock, 150,000,000 shares of
the par value of $1 per share."
-40-
<PAGE> 27
(4) The Certificate of the Incorporation of the Corporation is hereby
amended with respect to the elimination of directors' liability under certain
circumstances. The Certificate of Incorporation is hereby amended to add a new
Article XI to read in its entirety, as follows:
"ARTICLE ELEVENTH: No director of the Corporation shall be
personally liable to the Corporation or its shareholders for damages
for any breach of duty in such capacity except to the extent that such
elimination or limitation of liability is expressly prohibited by the
Business Corporation Law of the State of New York as currently in
effect or as the same may hereafter be amended. No amendment,
modification or repeal of this Article shall adversely affect any
right or protection of any director that exists at the time of such
amendment, modification or repeal."
(5) This amendment to the Certificate of Incorporation of the Corporation
was properly authorized by vote at a meeting of the board of directors, followed
by vote of the holders of a majority of all outstanding shares entitled to vote
thereon at the Annual Meeting of Shareholders of the Corporation duly held on
April 27, 1988,
IN WITNESS WHEREOF, this Certificate has been signed this 27th day of
April, 1988.
/s/ Robert N. Landes
------------------------
Robert N. Landes,
Executive Vice President
/s/ Scott L. Bennett
------------------------
Scott L. Bennett,
Assistant Secretary
-41-
<PAGE> 28
CERTIFICATE OF MERGER
OF
ELECTRONIC MARKETS AND INFORMATION SYSTEMS, INC.
INTO
McGRAW-HILL, INC.
(Under Section 905 of the Business Corporation Law)
It is hereby certified by the corporation named herein as the surviving
corporation as follows:
FIRST: The Board of Directors of the corporation named herein as the
surviving corporation has adopted a plan of merger setting forth the terms and
conditions of merging the corporation named herein as the subsidiary corporation
into said surviving corporation.
SECOND: The name of the subsidiary corporation to be merged, the
certificate of incorporation of which was filed by the Department of State on
October 5, 1982, is Electronic Markets and Information Systems, Inc.
THIRD: The name of the surviving corporation, the certificate of
incorporation of which was filed by the Department of State on December 29,
1925, is McGraw-Hill, Inc. The name under which said corporation was formed is
McGraw-Hill Publishing Company, Inc.
FOURTH: The designation and number of outstanding shares of each class of
the subsidiary corporation, all of which are owned by the surviving corporation,
as set forth in the Plan of Merger, are as follows:
<TABLE>
<CAPTION>
Designation Number
<S> <C>
Class A Common Stock 600
Class B Common Stock 400
</TABLE>
The effective date of the merger herein certified shall be the 28th day of
February, 1991.
IN WITNESS WHEREOF, we have subscribed this document on the date set
opposite each of our names below and do hereby affirm, under the penalties of
perjury, that the statements contained therein have been examined by us and are
true and correct.
Date: February 27, 1991
/s/ Frank J. Kaufman
- ------------------------------
Frank J. Kaufman
Vice President of the surviving corporation
/s/ Scott L. Bennett
- ------------------------------
Scott L. Bennett
Assistant Secretary of the surviving corporation
-42-
<PAGE> 29
Certificate of Merger
of
Computer Aided Planning, Inc.
and
Construction Data & News Corporation
and
National Software Testing Laboratories, Inc.
and
Leaman-Spear Information Systems, Inc.
and
Tech Valley Publishing
into
McGraw-Hill, Inc.
(Under Section 905 of the Business Corporation Law)
It is hereby certified, upon behalf of each of the constituent corporations
herein named as follows:
FIRST: The Board of Directors of the corporation named herein as the
surviving corporation has adopted a plan of merger setting forth the terms and
conditions of merging the corporations named herein as the subsidiary
corporations into said surviving corporation.
SECOND: The laws of the jurisdiction of incorporation of the corporations
named herein as the subsidiary corporations permit a merger of the kind
certified herein.
THIRD: The name of the domestic constituent corporation, which is to be the
surviving corporation, and which is hereinafter sometimes referred to as the
"surviving corporation", is McGraw-Hill, Inc. and the name under which it was
formed is McGraw-Hill Publishing Company, Inc. The date upon which its
certificate of incorporation was filed by the Department of State is December
29, 1925.
FOURTH: There are five foreign subsidiary corporations, all of which are
being merged into the surviving corporation, and which are hereinafter sometimes
referred to as the "subsidiary corporations."
The name of the first foreign subsidiary corporation is Computer Aided
Planning, Inc. The jurisdiction of its incorporation is Michigan; and the date
of its incorporation therein is October 1, 1984.
The name of the second foreign subsidiary corporation is Construction Data
& News Corporation. The jurisdiction of its incorporation is Oregon; and the
date of its incorporation therein is March 31, 1981.
-43-
<PAGE> 30
The name of the third foreign subsidiary corporation is National Software
Testing Laboratories, Inc. The jurisdiction of its incorporation is
Pennsylvania; and the date of its incorporation therein is July 23, 1984.
The name of the fourth foreign subsidiary corporation is Leaman-Spear
Information Systems, Inc. The jurisdiction of its incorporation is Maryland; and
the date of its incorporation therein is January 18, 1972.
The name of the fifth foreign subsidiary corporation is Tech Valley
Publishing. The jurisdiction of its incorporation is California; and the date of
its incorporation therein is September 2, 1983.
No Application for Authority in the State of New York of the subsidiary
corporations to transact business as a foreign corporation therein was filed by
the Department of State of the State of New York.
FIFTH: The designation and number of outstanding shares of each class of
the subsidiary corporations, all of which are owned by the surviving
corporation, as set forth in the plan of merger, are as follows:
-44-
<PAGE> 31
Computer Aided Planning, Inc.
<TABLE>
<CAPTION>
DESIGNATION NUMBER
<S> <C>
Class A Voting 100,000
Common
Class B Non- 16,445
Voting Common
</TABLE>
Construction Data & News Corporation
<TABLE>
<CAPTION>
DESIGNATION NUMBER
<S> <C>
Common 500
</TABLE>
National Software Testing Laboratories, Inc.
<TABLE>
<CAPTION>
DESIGNATION NUMBER
<S> <C>
Common 100
</TABLE>
Leaman-Spear Information Systems, Inc.
<TABLE>
<CAPTION>
DESIGNATION NUMBER
<S> <C>
Common 72,000
</TABLE>
-45-
<PAGE> 32
Tech Valley Publishing
<TABLE>
<CAPTION>
DESIGNATION NUMBER
<S> <C>
Common 17,128,776
</TABLE>
SIXTH: The merger of the subsidiary corporations into the surviving
corporation has been authorized under the laws of the jurisdiction of
incorporation of the subsidiary corporations.
SEVENTH: The effective date of the merger herein certified, insofar as the
provisions of the New York Business Corporation Law govern such effective date,
shall be on March 31, 1993.
IN WITNESS WHEREOF, we have subscribed this document on the date set forth
below and do hereby affirm, under the penalties of perjury, that the statements
contained therein have been examined by us and are true and correct.
Date: March 31, 1993
McGRAW-HILL, INC.
By: /s/ Frank Kaufman
---------------------
Frank Kaufman
Vice President
By: /s/ Robert N. Landes
---------------------
Robert N. Landes
Secretary
-46-
<PAGE> 33
Certificate of Merger
of
Standard & Poor's Compustat Services, Inc.
into
McGraw-Hill, Inc.
(Under Section 905 of the Business Corporation Law)
It is hereby certified by the corporation named herein as the surviving
corporation as follows:
FIRST: The Board of Directors of the corporation named herein as the
surviving corporation has adopted a plan of merger setting forth the terms and
conditions of merging the corporation named herein as the subsidiary corporation
into said surviving corporation.
SECOND: The name of the subsidiary corporation to be merged, the
certificate of incorporation of which was filed by the Department of State on
November 28, 1936, is Standard & Poor's Compustat Services, Inc. The name under
which said corporation was formed is Social Security Statistical Corporation.
THIRD: The name of the surviving corporation, the certificate of
incorporation of which was filed by the Department of State on December 29,
1925, is McGraw-Hill, Inc.. The name under which said corporation was formed is
McGraw-Hill Publishing Company, Inc.
FOURTH: The designation and number of outstanding shares of each class of
the subsidiary corporation, all of which are owned by the surviving corporation,
as set forth in the plan of merger, are as follows:
<TABLE>
<CAPTION>
DESIGNATION NUMBER
<S> <C>
Common Stock 100
</TABLE>
-47-
<PAGE> 34
FIFTH: The effective date of the merger herein certified shall be on April
30, 1993.
IN WITNESS WHEREOF, we have subscribed this document on the date set forth
below and do hereby affirm, under the penalties of perjury, that the statements
contained therein have been examined by us and are true and correct.
Date: April 30, 1993 McGRAW-HILL, INC.
By: /s/ Frank Kaufman
---------------------
Name: Frank Kaufman
Title: Vice President
By: /s/ Robert N. Landes
---------------------
Name: Robert N. Landes
Title: Secretary
-48-
<PAGE> 35
Certificate of Merger
of
McGraw-Hill School Publishing, Inc.
into
McGraw-Hill, Inc.
(Under Section 905 of the Business Corporation Law)
It is hereby certified by the corporation named herein as the surviving
corporation as follows:
FIRST: The Board of Directors of the corporation named herein as the
surviving corporation has adopted a plan of merger setting forth the terms and
conditions of merging the corporation named herein as the subsidiary corporation
into said surviving corporation.
SECOND: The laws of the jurisdiction of the corporation named herein as the
subsidiary corporation permit a merger of the kind certified herein.
THIRD: The name of the subsidiary corporation to be merged, which was
organized under the laws of the State of Delaware on May 12, 1989, is
McGraw-Hill School Publishing, Inc. The Application for Authority in the State
of New York of said corporation to transact business as a foreign corporation
therein was filed by the Department of State of the State of New York on October
31, 1989.
FOURTH: The name of the surviving corporation, the certificate of
incorporation of which was filed by the Department of State on December 29,
1925, is McGraw-Hill, Inc.. The name under which said corporation was formed is
McGraw-Hill Publishing Company, Inc.
FIFTH: The designation and number of outstanding shares of each class of
the subsidiary corporation, all of which are owned by the surviving corporation,
as set forth in the plan of merger, are as follows:
<TABLE>
<CAPTION>
DESIGNATION NUMBER
<S> <C>
Common Stock 1000
</TABLE>
SIXTH: The merger of the subsidiary corporation into the surviving
corporation has been authorized under the laws of the jurisdiction of
incorporation of the subsidiary corporation.
SEVENTH: The effective date of the merger herein certified shall be on
December 31, 1993.
-49-
<PAGE> 36
IN WITNESS WHEREOF, we have subscribed this document on the date set forth
below and do hereby affirm, under the penalties of perjury, that the statements
contained therein have been examined by us and are true and correct.
Date: December 2, 1993 McGRAW-HILL, INC.
By: /s/ Frank Kaufman
--------------------
Name: Frank Kaufman
Title: Vice President
By: /s/ Robert N. Landes
--------------------
Name: Robert N. Landes
Title: Secretary
-50-
<PAGE> 37
Certificate of Merger
of
Macmillan/McGraw-Hill Joint Venture Holding Corporation
Into
McGraw-Hill, Inc.
UNDER SECTION 905 OF THE BUSINESS CORPORATION LAW
Prepared By:
Jeffrey L. Mitnick, Esq.
McGraw-Hill, Inc.
1221 Avenue of the Americas
New York, New York 10020
-51-
<PAGE> 38
Certificate of Merger
of
Macmillan/McGraw-Hill Joint Venture Holding Corporation
into
McGraw-Hill, Inc.
(Under Section 905 of the Business Corporation Law)
It is hereby certified by the corporation named herein as the surviving
corporation as follows:
FIRST: The Board of Directors of the corporation named herein as the
surviving corporation has adopted a plan of merger setting forth the terms and
conditions of merging the corporation named herein as the subsidiary corporation
into said surviving corporation.
SECOND: The laws of the jurisdiction of the corporation named herein as the
subsidiary corporation permit a merger of the kind certified herein.
THIRD: The name of the subsidiary corporation to be merged, which was
organized under the laws of the State of Delaware on August 2, 1989, is
Macmillan/McGraw-Hill Joint Venture Holding Corporation. No Application for
Authority in the State of New York of said corporation to transact business as a
foreign corporation therein was filed by the Department of State of the State of
New York.
FOURTH: The name of the surviving corporation, the certificate of
incorporation of which was filed by the Department of State on December 29,
1925, is McGraw-Hill, Inc. The name under which said corporation was formed is
McGraw-Hill Publishing Company, Inc.
FIFTH: The designation and number of outstanding shares of each class of
the subsidiary corporation, all of which are owned by the surviving corporation,
as set forth in the plan of merger, are as follows:
<TABLE>
<CAPTION>
DESIGNATION NUMBER
<S> <C>
Common Stock 100
</TABLE>
SIXTH: The merger of the subsidiary corporation into the surviving
corporation has been authorized under the laws of the jurisdiction of
incorporation of the subsidiary corporation.
SEVENTH: The effective date of the merger herein certified shall be on
December 31, 1994.
-52-
<PAGE> 39
IN WITNESS WHEREOF, we have subscribed this document on the date set forth
below and do hereby affirm, under the penalties of perjury, that the statements
contained therein have been examined by us and are true and correct.
Date: December 16, 1994 McGRAW-HILL, INC.
By: /s/ Frank Kaufman
----------------------
Name: Frank Kaufman
Title: Vice President
By: /s/ Robert N. Landes
----------------------
Name: Robert N. Landes
Title: Secretary
-53-
<PAGE> 40
Certificate of Merger
of
Columbia Acquisition Corporation
Into
McGraw-Hill, Inc.
UNDER SECTION 905 OF THE BUSINESS CORPORATION LAW
Prepared By:
Jeffrey L. Mitnick, Esq.
McGraw-Hill, Inc.
1221 Avenue of the Americas
New York, New York 10020
-54-
<PAGE> 41
Certificate of Merger
of
Columbia Acquisition Corporation
into
McGraw-Hill, Inc.
(Under Section 905 of the Business Corporation Law)
It is hereby certified by the corporation named herein as the surviving
corporation as follows:
FIRST: The Board of Directors of the corporation named herein as the
surviving corporation has adopted a plan of merger setting forth the terms and
conditions of merging the corporation named herein as the subsidiary corporation
into said surviving corporation.
SECOND: The laws of the jurisdiction of the corporation named herein as the
subsidiary corporation permit a merger of the kind certified herein.
THIRD: The name of the subsidiary corporation to be merged, which was
organized under the laws of the State of Delaware on March 19, 1990, is Columbia
Acquisition Corporation. No Application for Authority in the State of New York
of said corporation to transact business as a foreign corporation therein was
filed by the Department of State of the State of New York.
FOURTH: The name of the surviving corporation, the certificate of
incorporation of which was filed by the Department of State on December 29,
1925, is McGraw-Hill, Inc. The name under which said corporation was formed is
McGraw-Hill Publishing Company, Inc.
FIFTH: The designation and number of outstanding shares of each class of
the subsidiary corporation, all of which are owned by the surviving corporation,
as set forth in the plan of merger, are as follows:
<TABLE>
<CAPTION>
DESIGNATION NUMBER
<S> <C>
Common Stock 110
</TABLE>
SIXTH: The merger of the subsidiary corporation into the surviving
corporation has been authorized under the laws of the jurisdiction of
incorporation of the subsidiary corporation.
SEVENTH: The effective date of the merger herein certified shall be on
December 31, 1994.
-55-
<PAGE> 42
IN WITNESS WHEREOF, we have subscribed this document on the date set forth
below and do hereby affirm, under the penalties of perjury, that the statements
contained therein have been examined by us and are true and correct.
Date: December 16, 1994 McGRAW-HILL, INC.
By: /s/ Frank Kaufman
--------------------
Name: Frank Kaufman
Title: Vice President
By: /s/ Robert N. Landes
-------------------
Name: Robert N. Landes
Title: Secretary
-56-
<PAGE> 43
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF McGRAW-HILL, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
---------------------------------------------------------
It is hereby certified that:
(1) The name of the Corporation is McGRAW-HILL, INC. The name under which
the Corporation was formed was McGraw-Hill Publishing Company, Inc. which name
was changed to McGraw-Hill, Inc. on January 2, 1964.
(2) The Certificate of Incorporation of the Corporation was filed by the
Department of State on December 29, 1925.
(3) Article I of the Certificate of Incorporation of the Corporation is
hereby amended to effect a change in the Corporation's name from "McGraw-Hill,
Inc." to "The McGraw-Hill Companies, Inc." Article I of the Certificate of
Incorporation of the Corporation is hereby amended to read as follows:
"ARTICLE I. The Corporate name shall be: The McGraw-Hill
Companies, Inc."
(4) This Amendment to the Certificate of Incorporation of the Corporation
was properly authorized by vote at a meeting of the board of directors, duly
held on January 25, 1995, followed by the vote of the holders of at least a
majority of all outstanding shares of Common Stock and $1.20 Convertible
Preference Stock, voting together as a single class, entitled to vote thereon on
the Annual Meeting of Shareholders of the Corporation duly held on April 26,
1995.
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<PAGE> 44
IN WITNESS WHEREOF, this Certificate has been signed this 26th day of
April, 1995.
/s/ Robert N. Landes
---------------------------------
Robert N. Landes
Executive Vice President
/s/ Scott L. Bennett
---------------------------------
Scott L. Bennett
Assistant Secretary
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Exhibit (3)
THE McGRAW-HILL COMPANIES, INC.
BY-LAWS
(As amended July 26, 1995)
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 resolution of the Board of Directors and may only be called
pursuant to a resolution approved by a majority of the Board of Directors.
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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.
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.
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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 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.
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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 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) 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.
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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 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
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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 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.
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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.
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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.
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.
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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 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.
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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 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.
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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 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.
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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.
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.
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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.
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.
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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 to perform. He, or the Treasurer shall, with the
Chairman or President sign all debentures and stock certificates of the Company.
7. The Treasurer shall keep or cause to be kept full and true books of
account and records of all receipts and disbursements, property, assets and
liabilities of the Corporation, in books belonging to the Company, and shall
deposit all moneys, securities, and valuables of the Corporation in the name of
and to the credit of the Corporation, in such depositories as shall be
designated by the Board of Directors. He shall disburse funds of the Company as
ordered by the Board, taking proper vouchers therefor and shall render to the
President and the Board of Directors, at regular meetings or whenever required,
an account of all financial transactions of the Company. He shall also have
power to sign debentures and certificates of stock of the Company, checks,
notes, bills of exchange or other negotiable instruments for and in the name of
the Company. He shall perform all other duties incident to the position of
Treasurer, subject to the control of the Board.
8. The Board of Directors shall have power to appoint one or more
Assistant Treasurers, Assistant Secretaries, Controller or Assistant Controllers
who shall have such powers and perform such duties as may be designated by the
Board.
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9. The amount of salaries, wages, or other compensation to be paid to the
officers, employees and agents of the Company shall be determined from time to
time by the Board or by an Executive Officer or Committee to whom this work
shall be delegated. No officer shall be incapacitated to receive a regular
salary or fixed compensation by reason of being a director of the Corporation.
ARTICLE IV-A
1. Bank Accounts, Deposits, Checks, Drafts and Orders Issued in the
Company's Name. Any two of the following officers: the Chairman, President, any
Vice-President, and the Treasurer, Secretary or Controller may from time to time
(1) open and keep in the name and on behalf of the Company, with such banks,
trust companies or other depositories as they may designate, general and special
bank accounts for the funds of the Company, and (2) terminate any such bank
accounts. Any such action by two of the officers as specified above shall be
made by an instrument in writing signed by such two officers and filed with the
Secretary. A copy of such instrument, certified by the Secretary or an Assistant
Secretary, shall be evidence to all concerned that the designations or
terminations therein contained are duly authorized on behalf of the Company at
the time of the certification.
All funds and securities of the Company shall be deposited in such
banks, trust companies or other depositories as are designated by the Board of
Directors or 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.
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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.
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.
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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.
ARTICLE V
CAPITAL STOCK
1. The instruments of debentures, certificate of shares of the preferred,
preference and common capital stock of the Company shall be in such form as
shall be approved by the Board of Directors. The certificates shall be signed by
the Chairman of the Board or the President and also by the Secretary or the
Treasurer. The seal of the Corporation shall be affixed to all certificates. The
signatures of the officers upon a certificate may be facsimiles if the
certificate is countersigned by a transfer agent or registered by a registrar
other than the Corporation itself or its employee.
2. All certificates shall be consecutively numbered, and the names of the
owners, the number of shares and the date of issue, shall be entered in the
Company's books.
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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 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.
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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 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.
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.
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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.
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Exhibit (10)
McGRAW-HILL, INC.
KEY EXECUTIVE SHORT-TERM INCENTIVE
DEFERRED COMPENSATION PLAN
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Article I
PURPOSE
The purpose of the McGraw-Hill, Inc. Key Executive Short-Term Incentive Deferred
Compensation Plan (hereinafter referred to as the "Plan") is to provide funds
for retirement or other expenses for executive employees (and their
beneficiaries) of McGraw-Hill, Inc. and its subsidiaries. It is intended that
the Plan will aid in retaining and attracting employees by providing such
employees with a means to defer receipt of short-term incentive compensation to
a future date.
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<PAGE> 3
ARTICLE II
DEFINITIONS
For the purposes of this Plan, the following words and phrases shall have
the meanings indicated, unless the context clearly indicates otherwise:
Section 2.01 Beneficiary. "Beneficiary" means the person, persons or entity
designated by the Participant to receive any benefits payable under the Plan.
Any Participant Beneficiary designation shall be made in a written instrument
filed with the Company and shall become effective only when received, accepted
and acknowledged in writing by the Company.
Section 2.02 Board. "Board" means the Board of Directors of McGraw-Hill,
Inc.
Section 2.03 Change of Control. For purposes of this Plan, the term "Change
of Control" shall mean any of the following:
(i) The acquisition (other than from the Company) by any person, entity or
"group", within the meaning of Section 13(d) (3) or 14(d) (2) of the Securities
Exchange Act of 1934 (the "Exchange Act"), (excluding, for this purpose, the
Company or its subsidiaries, or any employee benefit plan of the Company or its
subsidiaries) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either the then
outstanding shares of common stock or the combined voting power of the Company's
then outstanding voting securities entitled to vote generally in the election of
directors; or
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<PAGE> 4
(ii) During any period of two consecutive years, individuals who at the
beginning of such period constitute the Board (the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board, provided that any
person becoming a director during such period whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board (other than an
election or nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the Directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of
this Plan, considered as though such person were a member of the Incumbent
Board; or
(iii) Approval by the stockholders of the Company of a reorganization,
merger, or consolidation, in each case, with respect to which persons who were
the stockholders of the Company immediately prior to such reorganization, merger
or consolidation do not, immediately thereafter, own, directly or indirectly,
more than 50% of the combined voting power entitled to vote generally in the
election of directors of the reorganized, merged or consolidated company's then
outstanding voting securities, or a liquidation or dissolution of the Company or
of the sale of all or substantially all of the assets of the Company.
Section 2.04 Committee. "Committee" means the Management Compensation
Committee of the Board.
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<PAGE> 5
Section 2.05 Company. "Company" means McGraw-Hill, Inc., its successors,
any subsidiary or affiliated organizations authorized by the Board of Directors
of McGraw-Hill, Inc. or the Committee to participate in the Plan and any
organization into which or with which the Company may merge or consolidate or to
which all or substantially all of its assets may be transferred.
Section 2.06 Deferred Account. "Deferred Account" means the account
maintained on the books of account of the Company for each Participant pursuant
to Article VI. Separate Deferred Accounts shall be maintained for each
Participant. More than one Deferred Account may be maintained for each
Participant as necessary to reflect (a) various interest credits and/or (b)
separate year deferral elections. A Participant's Deferred Account shall be
utilized solely as a device for the measurement and determination of the amounts
to be paid to the Participant pursuant to this Plan. A Participant's Deferred
Account shall not constitute or be treated as a trust fund of any kind.
Section 2.07 Determination Date. "Determination Date" means the date on
which the amount of a Participant's Deferred Account is determined as provided
in Article VI hereof. The last day of each calendar month shall be a
Determination Date.
Section 2.08 Disability. "Disability" or "Disabled Participant" means
eligibility for disability benefits under the terms of the Company's Long-Term
Disability Plan in effect at the time the Participant becomes disabled.
Section 2.09 Incentive Compensation. "Incentive Compensation" means any
short-term incentive compensation cash award payable by the Company to a
Participant in a Plan Year pursuant to the provisions of the McGraw-Hill, Inc.
1990 and 1995 Key Executive Short-Term Incentive Compensation Plans.
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<PAGE> 6
Section 2.10 Participant. "Participant" means any individual who is
designated by the Committee to participate in this Plan and who elects to
participate by filing a Participation Agreement as provided in Article IV.
Section 2.11 Participation Agreement. "Participation Agreement" means the
agreement filed by a Participant prior to the beginning of the first period for
which the Participant's Incentive Compensation is to be deferred pursuant to the
Plan and the Participation Agreement. Notwithstanding the foregoing sentence,
the Participation Agreement for the first Plan Year of the Plan may be filed no
later than August 31, 1990. A new Participation Agreement shall be filed by the
Participant for each separate Incentive Compensation deferral election.
Section 2.12 Plan Administrator. "Plan Administrator" means the Executive
Vice President, Administration of McGraw-Hill, Inc. or his designee.
Section 2.13 Plan Year. "Plan Year" means a twelve month period commencing
January 1 and ending the following December 31. The first Plan Year shall
commence on January 1, 1990.
Section 2.14 Retirement Date. "Retirement Date" means the date on which the
Participant actually terminates employment due to retirement on or after the
first day of the month coincident with or next following a Participant's
attainment of age fifty-five (55).
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<PAGE> 7
ARTICLE III
ADMINISTRATION
Section 3.01 Plan Administrator; Committee; Duties.
This Plan shall be administered by the Plan Administrator. Decisions of the Plan
Administrator shall be reviewable by the Committee. The Committee shall also
have the authority to make, amend, interpret, and enforce all appropriate rules
and regulations for the administration of this Plan and decide or resolve any
and all questions, including interpretations of this Plan, as may arise in
connection with the Plan.
Section 3.02 Binding Effect of Decisions. The decision or action of the
Committee in respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the rules and
regulations promulgated hereunder shall be final, conclusive and binding upon
all persons having any interest in the Plan, unless a written appeal is received
by the Committee within sixty days of the disputed action. The appeal will be
reviewed by the Committee and the decision of the Committee shall be final,
conclusive and binding on the Participant and all persons claiming by, through
or under the Participant.
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<PAGE> 8
ARTICLE IV
PARTICIPATION
Section 4.01 Participation. Participation in the Plan shall be limited to
executives selected by the Committee who elect to participate in the Plan by
filing a Participation Agreement with the Company. Except as provided below, a
Participation Agreement must be filed prior to December 15th immediately
preceding the Plan Year in which the Participant's participation under the
Agreement will commence, and the election to participate shall be effective on
the first day following receipt by the Company of a properly completed and
executed Participation Agreement. The Participation Agreement for the first Plan
Year of the Plan must be filed no later than August 31, 1990.
Section 4.02 Deferral Amount. A Participant may elect in any Participation
Agreement to defer all or a portion of his Incentive Compensation.
Section 4.02 (a) With respect to Incentive Compensation deferrals, the
deferral selected in each Participation Agreement shall apply only to the
Participant's Incentive Compensation paid for the Plan Year for which the
respective Participation Agreement is applicable.
Section 4.02 (b) From time to time, the Committee may increase or decrease
the period for which the deferrals are effective by giving reasonable written
notice to the affected Participants. Such changes shall be effective for all
Participation Agreements filed thereafter.
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<PAGE> 9
Section 4.02 (c) A Participant's election to defer his Incentive
Compensation shall be irrevocable upon the filing of the respective
Participation Agreement; provided, however, that the deferral under any
Participation Agreement may be terminated or amended as provided in paragraphs
9.01 and 9.02.
Section 4.02 (d) With respect to Incentive Compensation deferrals, to the
extent the Participant participates in the Company's qualified Employee
Retirement Plan (ERP), Employee Retirement Account Plan (ERAP), and Savings
Incentive Plan (SIP), such deferrals will be credited with Company contributions
under non-qualified accounts for the ERP, ERAP and SIP Plans.
Section 4.03 Additional Participation Agreement. A Participant may enter
into additional Participation Agreements if authorized to do so by the Committee
by filing a Participation Agreement with the Company prior to December 15th of
any calendar year, stating the amount that the Participant elects to have
deferred for the next Plan Year. Such additional agreements shall be effective
as to Incentive Compensation paid in the Plan Year beginning after the last day
of the Plan Year in which the respective agreement is filed with the Company.
ARTICLE V
DEFERRED INCENTIVE COMPENSATION
Section 5.01 Elective Deferred Incentive Compensation. The amount of
Incentive Compensation that a Participant elects to defer in the Participation
Agreement executed by the Participant, with respect to each Plan Year of
participation in the Plan, shall be credited by the Company to the Participant's
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<PAGE> 10
Deferred Account. To the extent that the Company is required to withhold any
taxes or other amounts from the employee's deferred wages pursuant to any state,
Federal or local law, such amounts shall be taken out of the portion of the
Participant's Incentive Compensation which is not deferred under this Plan, or
the Participant's base salary.
Section 5.02 Vesting of Deferred Account. A Participant shall be 100%
vested in his/her Deferred Account at all times.
ARTICLE VI
DEFERRED ACCOUNT
Section 6.01 Determination of Account. Each Participant's Deferred Account,
as of each Determination Date, shall consist of the balance of the Participant's
Deferred Account as of the immediately preceding Determination Date. The
Deferred Account of each Participant shall be reduced by the amount of all
distributions, if any, made from such Deferred Account since the preceding
Determination Date.
Section 6.02 Interest Credit. As of each Determination Date, the
Participant's Deferred Account shall be increased by the amount of interest
earned since the preceding Determination Date. Interest shall be credited at a
rate determined to be in effect for each Plan Year, as determined by the
Committee based on the interest rate payable on the Company's long-term debt
securities. Notwithstanding the foregoing, if a Participant's Deferred Account
is paid in installments, interest shall be credited, (i) for retired
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<PAGE> 11
Participants, at the rate determined to be in effect during the Plan Year in
which the Participant retires, and (ii) for all other installment payments, at
the rate determined to be in effect during the Plan Year in which such payments
commence.
Section 6.03 Statement of Accounts. The Company shall submit to each
Participant, by July 1 following the close of each Plan Year, a statement in
such form as the Company deems desirable, setting forth the balance to the
credit of such Participant in his Deferred Account as of the last day of the
preceding Plan Year.
ARTICLE VII
BENEFITS
Section 7.01 Time of Payment. A Participant may elect in any
Participation Agreement whether payment of the balance to the credit of his
Deferred Account shall be paid or commence to be paid (i) on a date specified
by the Participant, or (ii) upon the earlier of the Participant's (A) Retirement
Date or (B) termination of employment other than death, disability, or
retirement. In either case, the Participant shall be entitled to the balance to
the credit of his Deferred Account determined under Section 6.01, which shall be
payable under Section 7.04 as of the Determination Date coincident with or
immediately following such date or event. No change in a Participant's election
shall be valid unless it is made in a Participation Agreement which is filed
with the Committee prior to the Plan Year preceding the Plan Year in which
payment of the Participant's Deferred Account would otherwise have been made or
commenced.
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<PAGE> 12
Section 7.02 Death. If a Participant dies after the commencement of
payments of his Deferred Account, or if a Participant while employed dies prior
to any payments of his Deferred Account, his Beneficiary shall receive a
lump-sum payment equal to his Deferred Account as of the Determination Date
coincident with or immediately following such death.
Section 7.03 Disability. In the event of Disability prior to retirement or
termination of employment, the Disabled Participant, unless he otherwise elects
under this paragraph, shall have payment of his Deferred Account made or
commenced in accordance with the Participation Agreement filed by the
Participant. Before payments commence or are made under the preceding sentence,
a Disabled Participant may elect, subject to Committee approval upon good cause
shown, to have payments (i) made as soon as practicable in a lump sum, or (ii)
commence as soon as practicable in equal annual installments over a period not
in excess of 15 years.
Section 7.04 Form of Payment. Upon the happening of the date or event
described in Sections 7.01 or 7.03, the Company shall pay to the Participant the
balance to the credit of his Deferred Account in a lump sum or in equal annual
installments as elected in the Participation Agreement filed by the Participant.
If a Participant elects to receive payments in installments, payment of the
Deferred Account shall be in an amount which amortizes the Deferred Account
balance in equal annual payments of principal and interest over a period not to
exceed 15 years. For purposes of determining the amount of the annual payment,
the assumed rate of interest shall be the rate under the terms of
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<PAGE> 13
Section 6.02. No change in a Participant's election shall be valid unless it is
made in a Participation Agreement which is filed with the Committee prior to the
Plan Year preceding the Plan Year in which payment of the Participant's Deferred
Account would otherwise have been made or commenced.
Section 7.05 Lump-Sum Payment. Notwithstanding Section 7.04, in its sole
discretion the Committee may direct that the Company make a lump-sum payment of
the balance credited to a Participant's Deferred Account.
Section 7.06 Withholding of Taxes. To the extent required by the law in
effect at the time payments are made, the Company shall withhold from payments
made hereunder any taxes required to be withheld from an employee's wages for
the Federal or any state or local government.
Section 7.07 Commencement of Payments. Commencement of payments under this
Plan shall be made following the earlier of (i) the date specified in the
Participation Agreement filed by the Participant or (ii) receipt of notice by
the Plan Administrator of the event which entitles a Participant (or a
Beneficiary) to payments under this Plan. All payments shall be made as of the
first day of the month.
Section 7.08 Payments in Connection with Change of Control. Notwithstanding
anything contained in the Plan to the contrary, in the event of a Change of
Control of the Corporation the company shall immediately pay to each Participant
in a lump sum the then remaining balance in his/her Deferred Account.
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<PAGE> 14
The terms of sections 9.01 and 9.02 shall not be applicable following a
Change of Control of the Corporation.
The reasonable legal fees incurred by any Participant to enforce his/her
valid rights hereunder shall be paid for by the Company to the Participant in
addition to sums otherwise due hereunder, whether or not the Participant is
successful in enforcing his/her rights or whether or not the matter is settled.
ARTICLE VIII
BENEFICIARY DESIGNATION
Section 8.01 Beneficiary Designation. Each Participant shall have the
right, at any time, to designate any person, persons or entity as his
Beneficiary or Beneficiaries (both principal as well as contingent) to whom
payment under this Plan shall be paid in the event of his death prior to
complete distribution to the Participant of the benefits due him under the Plan.
Section 8.02 Amendments. Any Beneficiary designation may be changed by a
Participant by the written filing of such change on a form prescribed by the
Company. The filing of a new Beneficiary designation form will cancel all
Beneficiary designations previously filed.
Section 8.03 No Beneficiary Designation. If a Participant fails to
designate a Beneficiary as provided above, or if all designated Beneficiaries
predecease the Participant, then any amounts to be paid to the Participant's
Beneficiary shall be paid to the Participant's estate.
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<PAGE> 15
Section 8.04 Effect of Payment. The payment to the deemed Beneficiary shall
completely discharge the Company's obligations under this Plan with respect to
the Participant.
ARTICLE IX
AMENDMENT AND TERMINATION OF PLAN
Section 9.01 Amendment. The Board or the Committee may at any time amend
the Plan in whole or in part, provided, however, that no amendment shall be
effective to decrease or restrict any Deferred Account at the time of such
amendment.
Section 9.02 Company's Right to Terminate. The Board or the Committee may
at any time terminate the Plan with respect to new elections to defer if, in its
judgment, the continuance of the Plan, the tax, accounting, or other effects
thereof, or potential payments thereunder would not be in the best interests of
the Company. The Board or the Committee may also terminate the Plan in its
entirety at any time, and upon any such termination, the Company shall
immediately pay to each Participant in a lump sum the then remaining balance in
his Deferred Account.
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<PAGE> 16
ARTICLE X
MISCELLANEOUS
Section 10.01 Unsecured General Creditor. Participants and their
Beneficiaries shall have no legal or equitable rights, interest or claims in any
property or assets of the Company. Any and all of the Company's assets shall be,
and remain, the general, unpledged, unrestricted assets of the Company. The
Company's obligation under the Plan shall be merely that of an unfunded and
unsecured promise of the Company to pay money in the future.
Section 10.02 Nonassignability. Neither a Participant nor any other person
shall have any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage or otherwise encumber, transfer, hypothecate or convey in advance of
actual receipt the amounts, if any, payable hereunder, or any part thereof,
which are, and all rights to which are, expressly declared to be unassignable
and non-transferable. No part of the amounts payable shall, prior to actual
payment, be subject to seizure or sequestration for the payment of any debts,
judgments, alimony or separate maintenance owed by a Participant or any other
person, nor be transferable by operation of law in the event of a Participant's
or any other person's bankruptcy or insolvency.
Section 10.03 Not a Contract of Employment. The terms and conditions of
this Plan shall not be deemed to constitute a contract of employment between the
Company and the Participant, and the Participant (or his Beneficiary) shall have
no rights against the Company except as may otherwise be specifically provided
herein. Moreover, nothing in this Plan shall be deemed to give a Participant the
right to be retained in the service of the Company or to interfere with the
right of the Company to discipline or discharge him at any time.
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<PAGE> 17
Section 10.04 Protective Provisions. A Participant will cooperate with the
Company by furnishing any and all information requested by the Company, in order
to facilitate the payment of benefits hereunder, and by taking such physical
examinations as the Company may deem necessary and taking such other action as
may be requested by the Company.
As amended: October 27, 1993
January 25, 1995
-95-
<PAGE> 1
Exhibit (12)
THE McGRAW-HILL COMPANIES, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Years Ended December 31
----------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(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) $382,126 $341,816 $293,243 $264,877 $255,608
Fixed charges 92,490 85,897 75,930 81,724 89,050
Capitalized interest (421) (353) (536) (836) (507)
-------- -------- -------- -------- --------
Total Earnings $474,195 $427,360 $368,637 $345,765 $344,151
======== ======== ======== ======== ========
Earnings from continuing operations
before income tax expense and
cumulative effect on prior years
of changes in accounting in
1992 (b)(c) $382,126 $341,816 $ 63,443 $264,877 $255,608
Fixed charges 92,490 85,897 75,930 81,724 89,050
Capitalized interest (421) (353) (536) (836) (507)
-------- -------- -------- -------- --------
Total Earnings $474,195 $427,360 $138,837 $345,765 $344,151
======== ======== ======== ======== ========
Fixed Charges(b)
Interest expense $ 63,832 $ 55,650 $ 46,998 $ 49,935 $ 59,350
Portion of rental payments
deemed to be interest 28,658 30,247 28,932 31,789 29,700
-------- -------- -------- -------- --------
Total Fixed Charges $ 92,490 $ 85,897 $ 75,930 $ 81,724 $ 89,050
======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges:
Before unusual charges and
cumulative adjustment 5.1x 5.0x 4.9x 4.2x 3.9x
After unusual charges
but before cumulative adjustment 5.1x 5.0x 1.8x 4.2x 3.9x
</TABLE>
- --------------
(a) Unusual charges in 1993 totaled $229.8 million before taxes in
connection with the purchase of the remaining 50% interest in the
Macmillan/McGraw-Hill School Publishing Company previously 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.
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<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,
Macmillan/McGraw- Hill's 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.
-97-
<PAGE> 1
Exhibit (13)
<TABLE>
<CAPTION>
PAGE IN
ANNUAL REPORT
---------------
<S> <C>
Business (Textual Material) 4 through 24
Management's Discussion and Analysis 26 to 31 and 34
Eleven Year Financing Review 32 and 33
Consoldiated Statement of Income 35
Consolidated Balance Sheet 36 and 37
Consolidated Statement of Cash Flows 38
Consolidated Statement of Shareholders' Equity 39
Notes to Consolidated Financial Statements 40 to 46
Reports of Management 47
Report of Independent Auditors 47
Supplemental Financial Information 48
</TABLE>
<PAGE> 2
THE MCGRAW-HILL COMPANIES
AT-A-GLANCE
<TABLE>
<CAPTION>
GROUP AND KEY MARKETS LEADING BRANDS
=================================================================================================================================
<S> <C> <C> <C>
FINANCIAL SERVICES FINANCIAL INFORMATION Standard & Poor's Compustat J.J. Kenny Evaluation Services
SERVICES GROUP Standard & Poor's ComStock J.J. Kenny Information Services
Investors, corporations, govern- CUSIP Service Bureau MMS International
ment agencies, financial institu- DRI/McGraw-Hill Platt's
tions, brokers, unit investment Standard & Poor's Equity Services Standard & Poor's Securities, Inc.
trusts, commodity, securities and J.J. Kenny Drake
foreign exchange traders, libraries.
- ---------------------------------------------------------------------------------------------------------------------------------
STANDARD & POOR'S Corporate Ratings Public Finance Ratings
RATINGS SERVICES Financial Institutions Ratings Ratings Information Services
Global capital markets and Insurance Ratings Structured Finance Ratings
related risk assessments. International Ratings
=================================================================================================================================
EDUCATIONAL EDUCATIONAL PUBLISHING Macmillan/McGraw-Hill McGraw-Hill/London House
AND PROFESSIONAL Elementary, secondary, testing, Glencoe/McGraw-Hill McGraw-Hill School Systems
PUBLISHING vocational, post-secondary, and CTB/McGraw-Hill McGraw-Hill College Division
college fields. SRA/McGraw-Hill
- ---------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL PUBLISHING McGraw-Hill Interamericana
Educational and professional McGraw-Hill Europe
markets in Asia, Latin America, Tata McGraw-Hill
Europe and Canada. McGraw-Hill Ryerson
- ---------------------------------------------------------------------------------------------------------------------------------
PROFESSIONAL PUBLISHING Professional Book Group Continuing Education Center
Engineering, science, medicine, Business/McGraw-Hill Shepard's/McGraw-Hill
law, healthcare, computer techn- Osborne/McGraw-Hill
ology, business, and government. Computing/McGraw-Hill
=================================================================================================================================
INFORMATION AND BROADCASTING GROUP KMGH-TV (Denver) KERO-TV (Bakersfield)
MEDIA SERVICES Network-affiliated stations in KGTV (San Diego) WRTV (Indianapolis)
Denver, Indianapolis, San Diego
and Bakersfield.
- ---------------------------------------------------------------------------------------------------------------------------------
BUSINESS WEEK GROUP Business Week
Business professionals and Business Week International
advertisers worldwide. Business Week Online
- ---------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION INFORMATION F. W. Dodge Construction News Publishing Network
GROUP Sweet's Group
Architects, engineers, contractors, Architectural Record
real estate owners, developers, Engineering News-Record
investors, and building products
manufacturers.
- ---------------------------------------------------------------------------------------------------------------------------------
PUBLICATION SERVICES Aviation Week & Space Electrical World
GROUP Technology Postgraduate Medicine
Professionals and corporate execu- BYTE The Physician and Sportsmedicine
tives around the world in aviation, LAN Times Hospital Practice
computers and communications, Data Communications Datapro Information Services Group
healthcare, and science and tech- Chemical Engineering National Software Testing
nology markets. Modern Plastics Laboratories, Inc.
Power Northern Business Information
- ---------------------------------------------------------------------------------------------------------------------------------
TOWER GROUP Tower Group
INTERNATIONAL Tower Group International Canada,
Major North American importers Inc.
and exporters.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 3
MARKET FACTORS
==========================================================================
Strength of equity and bond markets to impact transaction volume and stimulate
demand for information. Growing global investments and popularity of mutual
funds create demand for market information and analysis. Worldwide installed
base of screens from major quote vendors provides multiple and growing
distribution channels. SEC demand for greater price transparency in municipal
bond market creates new opportunities to reach individual investors.
- --------------------------------------------------------------------------
Growth of global financial markets fueled by bank disintermediation;
privatization of state-owned enterprises; and establishment of market economies
throughout the world. Growth in nontraditional financial markets (e.g., project
finance, counterparty risk, asset-backed securities). New measurements of
credit and market risk gain wider acceptance. Growing regulatory
pressures/requirements by SEC. Level of transaction volume in U.S. bond market.
Growth of indigenous local capital markets.
==========================================================================
Improving standards of academic achievement. Spending on textbooks is
increasing. Growing use of multimedia technology in schools. Federal funding
will continue to foster use of technology in education. Enrollments will
increase: K-8 will grow to 38.8 million in 1999; 9-12 will climb to 15.5
million in the same period. Fragmenting national testing marketplace will put
more emphasis on state-specific customized programs. College enrollments will
remain flat at 15 million through 1997, then grow to nearly 16 million by 2002.
Increasing demand for customized course materials and multimedia products in
college markets.
- --------------------------------------------------------------------------
Economic growth in Latin America, Asia and Europe. Enrollments in secondary and
college markets increasing dramatically. Continued demand for English language
training material and technical and professional information in indigenous
languages.
- --------------------------------------------------------------------------
Demand for technical and professional information in medicine, engineering,
business, science, computing and law is increasing. New opportunities in online
distribution of technical and professional products.
==========================================================================
Changing affiliation in Denver and Bakersfield (from CBS to ABC) will improve
demographic ratings as well as increase network compensation. Political
advertising will add to overall demand in each of our markets. Consumer
confidence, auto sales, and home sales levels will be key determinants of total
market advertising demand in 1996.
- --------------------------------------------------------------------------
Corporate profits impact advertising expenditures. Moderate growth in domestic
print advertising. New growth opportunities in international publishing,
particularly in Asia and Latin America. Growing sales of personal computers
with modem and CD-ROM drives and digital network expansion will create
opportunities. Extend franchises into non-magazine formats.
- --------------------------------------------------------------------------
Primary business focused on non-residential construction which is less
susceptible to shifts in interest rates. Increased demand for timely delivery
of information; customers converting from print to electronic services. New
products reflect increased emphasis on speed, accuracy and ease of use.
Delivery media now include on-line, CD-ROM and fax, as well as traditional
print and microfilm. Information product growth to exceed general construction
growth. Intensifying competition in the marketplace.
- --------------------------------------------------------------------------
Global information technology market projected to grow 10% annually for rest of
decade. New product introductions, rapid growth of home computer market key to
gains in computer and communications field. Growth in commercial and business
aviation to help offset slow growth in aerospace and cut backs in defense.
Shift to managed care creates new opportunities to provide clinical and
business information. Growing worldwide demand for information on plastics,
chemicals, energy. Commercialization of networks provides opportunity to reach
new readers.
- --------------------------------------------------------------------------
Projected strong growth in international trade throughout the rest of the
decade. Market for third party logistics management continues to grow rapidly.
Advent of North American Free Trade Zone and GATT will increase demand for
logistic services. Modernization of U.S. Customs will shift focus from
transaction-monitoring to audit-based system.
- --------------------------------------------------------------------------
5
<PAGE> 4
FINANCIAL SERVICES
6
<PAGE> 5
VITAL TO THE VIGOROUS GLOBAL FINANCIAL MARKETPLACE AND FLOURISHING AS A RESULT
"Another record-breaking day." In the news reports on U.S. equity markets that
statement was heard more often than ever before in 1995. Investment activity
boomed and the volume of financial information -- covering an ever-increasing
array of financial instruments and financial markets -- mounted to unparalleled
proportions.
Could the global economy operate without financial services from The
McGraw-Hill Companies? Not easily. The information and analysis provided are
vital. The reputations of the brand names underlying that information and
analysis are peerless. Many of those brands rank number one in their market
segments.
The financial services of The McGraw-Hill Companies encompass stocks, bonds
and other debt, currency exchange and commodities. Financial services units
assess the investment quality of and outlook for individual issues,
well-established and emerging industries, nations and geographic regions --
well-developed and developing. They continue to create a broader portfolio of
risk evaluation products and expand information services.
The revenue of the Financial Services business segment rose 5.5% to $786.8
million, while operating profit increased 6.3% to $230.9 million -- both record
highs. There was notable progress in international markets. Offices were added,
and marketing reach was extended in other ways. Financial Services operations
now have a substantial number of offices and employees outside the U.S.
FINANCIAL INFORMATION SERVICES GROUP
Favorable trends in most of its markets and the turnaround of a key operation
led to significant revenue and profit gains in the Financial Information
Services Group.
The continuing evolution to an open distribution policy helped spur the
group's growth in 1995. The group reached more computer terminals than ever
before -- and provided more data and analysis, as a result of new products and
development of new markets.
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EQUITY SERVICES: MORE DATA, MORE CHOICES
Equity Services has flourished along with the equity marketplace its units serve
by delivering more data in more forms and creating new indices to track
investment performance.
In addition to vastly improving the print edition of its popular Standard &
Poor's Stock Reports, Standard & Poor's inaugurated an electronic version. It
later made its Standard & Poor's Research Reports available online to users of
IBM-compatible computers.
The Standard & Poor's family of index products also continued to grow -- and
spawn novel ways for money managers to fine-tune their portfolios.
- The S&P 1500 Super Composite Index, which debuted in May, was developed to
provide a broad overview of stock market activity.
- A new series of portfolio depository receipts called Midcap SPDRs began
trading on the American Stock Exchange in May, and the Chicago Board Options
Exchange (CBOE) introduced options on the S&P SmallCap 600 Index in June.
- Two other index products were added in November: S&P-BARRA Growth and
Value Index futures, traded on the Chicago Mercantile Exchange, and options,
traded on the CBOE.
Such new applications of the Standard & Poor's brand generate new revenues
through license fees and royalties. Development of industry sector, country and
geographic region indices is under way in response to the demand for new
benchmarking data and investment vehicles identified by the brand.
Standard & Poor's pre-eminence also sparked several new alliances.
- Bear, Stearns & Co., one of Wall Street's top firms, launched a new mutual
fund in April under an exclusive licensing agreement with Standard & Poor's.
Called the S&P STARS Portfolio, it is the only fund
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<PAGE> 7
using S&P's five-point Stock Appreciation Ranking System (STARS) to determine
investment opportunities.
- The Financial Times, one of the world's leading business newspapers, and
Goldman Sachs & Co., a prominent global investment banking firm, invited
Standard & Poor's to join them as co-publisher of a key, internationally
recognized group of indices -- now called The Financial Times/Standard & Poor's
Actuaries World Indices.
- Reuters Money Network, the largest online service dedicated to personal
investing, introduced the Standard & Poor's On-Line Adviser to its subscribers.
Standard & Poor's Compustat also turned in a stellar performance. It
achieved double- digit earnings gains, benefiting from improved versions of its
successful software products and expanded sales efforts in international
markets. Compustat's definitive database of information on more than 22,000
companies around the globe draws heavily from other nonproprietary Standard &
Poor's resources.
FINANCIAL DATA SERVICES: NEW CHANNELS TO GLOBAL GROWTH
The most global unit of The McGraw-Hill Companies, Financial Data Services
extended its leadership positions and reach further in 1995. Exemplifying the
group's worldwide presence, in China it provides its products in Mandarin
Chinese for that country's rapidly growing financial markets.
MMS International, which offers up-to-the-minute market moving analysis,
data and news on debt and currency markets worldwide, opened its 13th office (in
Shanghai, China). It also added products in emerging Asian, European and Latin
American markets and initiated coverage in South Africa. MMS has become the
number one service of its kind on the Bloomberg, Knight Ridder, Reuters and
Telerate networks, reaching some 340,000 screens.
Platt's implemented the open distribution policy Financial Information
Services adopted in 1994, and its services are now available on the same
networks that MMS serves, substantially increasing its presence worldwide.
Platt's services formerly were available only on Standard & Poor's ComStock.
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<PAGE> 8
In addition, Platt's launched the first daily news service for the petroleum
industry in Latin America and extended its coverage of commodities markets to
include electricity futures. Platt's is the leading source of oil product price
data, news and other petroleum industry information.
Standard & Poor's ComStock, which provides real-time data from more than 80
markets and exchanges worldwide, plans to increase its redistribution channels,
which already include CNN and Prodigy. It expects to tap other Standard & Poor's
resources to continuously augment its databases and develop applications
tailored to customer needs.
MUNICIPAL SECURITIES SERVICES: SUCCESS IN A DOWNSIZED MARKET
The stature and scope of Municipal Securities Services -- provided under the
J.J. Kenny banner -- sustained their success despite a contracting marketplace,
both in terms of dealer participants and new issues. Several leading investment
banking firms have closed or downsized municipal finance departments.
Reflecting new steps to extend online distribution from the unmatched Kenny
database, the "J.J. Kenny Drake Digital Data Feed" began supplying the internal
networks of client brokerage firms. Later, in cooperation with Reuters, Kenny
introduced a new municipal securities information service (MuniMarket) for users
of Reuters terminals. It is the first of several new joint services the
companies envision. In addition, KENNYBASE data are now available to Bloomberg
subscribers.
In response to the Securities and Exchange Commission's call for improved
information disclosure in municipal bond trading, the Public Securities
Association (PSA) selected J.J. Kenny to develop and operate a new service,
called Standard & Poor's/PSA Municipal Bond Service. For a small fee, individual
investors can obtain price information on municipal bonds by calling: 1-800-BOND
INFO.
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The PSA is an international trade association of banks and brokerage firms.
On January 1, 1996, new SEC rules expanding disclosure requirements for
municipal bond dealers went into effect. Kenny and Standard & Poor's Ratings
Services have jointly introduced products to help dealers monitor developments
affecting issues and meet the new standards.
The CUSIP Service Bureau, operated by Standard & Poor's for the American
Bankers Association, introduced a CD-ROM directory product and an electronic
application filing service. The standard identification system it provides for
the securities industry is extending its universe as global financial markets
expand.
DRI/MCGRAW-HILL: PROFITS FROM A NEW PERSPECTIVE
DRI/McGraw-Hill's program to broaden the customer base for its economics-driven
information and consulting services helped put the unit back on a growth path in
1995 -- with favorable prospects.
Increasingly, DRI is meeting the business planning, forecasting and
benchmarking needs of operating unit presidents, chief financial officers and
marketing departments. Economists and strategic planners had been its prime
focus in the corporate market. It also has improved the integration of its
operations -- now almost equally divided among publications, data services and
consulting.
Meanwhile, DRI achieved robust gains in services to the auto industry and
added substantial new contracts in the public sector, two of its traditional
strengths. In April it was awarded the largest consulting contract in its
27-year history -- an assignment to help the Malaysian government chart a
10-year master plan for its thriving economy. It also won a contract to help
guide Morocco's economy over the next decade.
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<PAGE> 10
STANDARD & POOR'S RATINGS SERVICES
In the face of challenging market conditions worldwide, Standard & Poor's
Ratings Services -- the world's leading credit rating agency -- posted record
revenues and profits in 1995. Those gains reflected the success of Ratings
Services' efforts to diversify its product line and revenue base, continuing to
reduce its reliance on debt issues. The global scope of its activities has been
another significant plus.
While the first half of 1995 witnessed sluggish debt issuance in most U.S.
markets, falling interest rates in the second half contributed to a strong
rebound among corporate issuers. The public finance market was down 4% from
1994. In structured finance, asset-backed volume reached a record, but that was
offset by a severe decline in mortgage-backed issuance.
Outside the U.S. the picture was also challenging, especially in the
emerging markets sector, slow to rebound from problems in Mexico. In addition,
several banking systems, including those in Japan and France, faced challenges
that strained capital market conditions further.
Interest rates fell in Europe in the second half of the year, fueling
Eurobond issuance, and there were some encouraging signs in Latin America and
Asia. Importantly, the number of sovereign ratings rose substantially in 1995, a
positive sign for further rating activity.
Nontraditional ratings continued to play a key role in company growth.
Demand for ratings of insurance company debt and claims paying ability was
strong, and Ratings Services enhanced its quantitative rating system of
life/health and property/casualty companies to include the full scale from AAA
to D. It now rates more insurance companies worldwide than any other agency.
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<PAGE> 11
In addition, several other products showed gains:
- Ratings of derivative product companies, which are structured to engage in
sophisticated investment management activities;
- Market risk ratings of mutual funds, in both U.S. and international
markets;
- Project finance ratings (which focus on such infrastructure needs as
electric power and telecommunications facilities), especially in Asia;
- Corporate credit ratings used for purposes other than debt issuance;
- Private placement ratings.
Other efforts to diversify Ratings Services' product
line and meet the needs stemming from changing market conditions included:
- Introduction of Standard & Poor's Bank Loan Rating Service, the first
rating scale designed specifically for the $665 billion bank loan market (the
service takes into account the value of collateral and other protective features
commonly provided to bank lenders);
- A joint venture with another unit of The McGraw-Hill Companies, J.J.
Kenny, to meet new SEC disclosure requirements for secondary market trading in
public finance.
A traditional business added an electronic product. Ratings Services signed
an agreement with Disclosure Progress Corporation to provide ratings information
on CD-ROM, to be updated monthly, covering about 20,000 municipal bond issuers.
Meanwhile, Standard & Poor's Ratings Information Services posted strong growth
in its publishing activities to meet the wide array of information needs of
investors and other market participants.
Ratings Services took several steps to further improve its position in
global capital markets. In late 1995 it acquired the 50% interest it didn't own
in S&P-ADEF, the leading rating agency in France; opened a Singapore office, its
fourth in the Pacific Basin; and continued to develop affiliate relationships
with rating agencies in emerging markets. It currently works with local agencies
in Argentina, India and Thailand, and expects to announce additional
relationships in 1996.
The widespread acceptance of Standard & Poor's Ratings Services in U.S.
capital markets, combined with its increasing presence worldwide and commitment
to expand its product line, provides a solid foundation for continued growth. It
is positioned to be the breakaway leader by the turn of the century not only in
ratings but also in risk evaluations and related information products.
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EDUCATIONAL AND
PROFESSIONAL PUBLISHING
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BASIC STRENGTHS AND THE SEARCH FOR NEW WAYS TO SERVE A UNIVERSAL NEED LEAD TO
RISING PROFITS
While teaching theories and practices change, belief in the pre-eminent value of
education persists worldwide -- and the importance of lifelong learning has
never been more widely recognized. The McGraw-Hill Companies, a longstanding
leader in education, has never had more opportunities.
In 1995 the grades on Educational and Professional Publishing's report card
were commendable. This business segment achieved an operating profit increase of
29.3% to $162.6 million, while revenue climbed 6.3% to $1.2 billion. If not for
the economic problems that beset Mexico, where Educational and Professional
Publishing has a strong and sizable presence, the gains would have been even
more impressive.
A realigned management team continued to integrate operations and implement
efficiencies that improved margins. Results also benefited from substantial
ongoing investments in product development as well as favorable trends in most
key markets. CD-ROM, online, video and other nonprint products again accounted
for a rising share of total revenue. International sales, excluding Mexico,
continued to rise, and the outlook for global growth is particularly bright.
EDUCATIONAL PUBLISHING: STAYING AT THE TOP OF THE CLASS
The outlook for The McGraw-Hill Companies, the largest elementary and high
school publisher in the U.S., is clearly positive. Most regions of the country
are in sound fiscal health, of key importance since state and local funds
account for more than 90% of the spending for elementary and high school
education. El-hi enrollment is rising more than 1.5% annually, and education is
a priority -- with renewed emphasis on skills and core subjects.
Year-to-year changes in buying patterns affect industry-wide educational
sales. In 20 states (called "adoption" states), school districts buy books, in
multi-year cycles, guided by state-approved lists. In 30 states ("open
territory") school districts or schools plan their purchases of educational
materials individually.
There was a busy schedule of purchases in key adoption states during 1995,
and the elementary and secondary publishing division competed very well. It
posted double-digit gains in both sales and earnings. Adoption activity will
slow in 1996 and resurge in 1997, with the long-term trend of sales firmly
upward.
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The College Division, among the leaders in college publishing, competes in a
very different environment. Its marketplace is under pressure because of minimal
enrollment growth, budget strains on students, availability of used books, book
sharing, and the rapid evolution of information technology. Nevertheless, it has
armed itself to surpass industry performance in 1996 and beyond.
ELEMENTARY AND SECONDARY DIVISION -- HIGH SCORES
A leader across the board in the core curriculum areas -- reading, math,
science, social studies -- as well as music and health studies, the Elementary
and Secondary Division scored a series of adoption successes during 1995. Texas
alone, one of the three biggest textbook markets, accounted for $62 million in
revenue, a 27% market share, leading all competitors. In open territory states,
sales performance outpaced the industry.
Because of its product breadth, the division has a larger sales force and
stronger open territory sales coverage than its competitors -- advantages
becoming even more important as an increasing number of school districts switch
to a school-by-school textbook selection process.
It already is ahead of competitors in integrating print, software and video
solutions to meet educational needs -- with a growing list of products.
Macmillan/McGraw-Hill, the elementary school unit, is adding to a multimedia
literature program for grades 3-6 with a program for grades 1-2. A social
studies CD-ROM for grades 3-6 and social studies video disks for grades K-6 are
slated for 1996 introduction. Glencoe/McGraw-Hill, the secondary school
publishing unit, is publishing new CD-ROM products in biology, chemistry,
foreign language instruction and social studies.
Investments in market research and product development escalated in 1995 in
preparation for 1997 adoptions. A new generation of elementary school reading
and social studies programs and secondary
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school math, science, social studies and foreign language programs will be
introduced.
The division's in-house desktop publishing unit, started several years ago,
has become one of the industry's largest and most productive. In addition to
controlling costs, it allows fast response to emerging market opportunities. For
example, a math program produced quickly at low cost in 1995 won a leading share
of the California middle school adoption.
COLLEGE DIVISION -- BETTER GRADES
The College Division posted a second year of improved results. Through more
effective marketing, a revitalized sales effort, reduction of expenses and
increased distribution efficiency, profits improved significantly.
Most important, the division strengthened its product lines- in the number
and quality of new titles, in the quality of textbook revisions, and in the
breadth of alternative media. The number of new titles planned for publication
rose 25%. In 1996 the division will offer more new titles than at any time in
its history.
To meet its objectives, the division is emphasizing quick identification of
changing needs, fast action and innovation -- in product development, marketing
and distribution. On scores of campuses it is establishing long-term consulting
relationships that better serve customer needs and broaden sales opportunities.
The division is in the forefront of initiatives to increase electronic
dissemination of educational information -- in partnership with institutions and
bookstores -- while using complementary print media more efficiently. The
databases of The McGraw-Hill Companies provide a significant competitive
advantage.
The pioneering Primis Custom Publishing division, started four years ago, is
the College Division's fastest growing business and the market leader. More than
1,400 institutions now use Primis products, and over 2,400 institutions have
been served by its other custom products.
PROFESSIONAL PUBLISHING: STRONG SALES IN ASIA
With 23 publishing centers around the globe providing products in 16 languages,
the Professional Publishing Group is the leading U.S. publisher of educational
products for international markets. But an important strength became a temporary
liability in 1995. Because of the leadership position of The McGraw-Hill
Companies in Spanish-language publishing, Mexico's problems translated into an
adverse short-term impact.
Asia, in contrast, was the scene of continuing gains, aided by favorable
market dynamics,
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titles in demand and a strong sales force advantageously structured into
specialty areas. Strengthening its position in Asia further, the group will
increase its stake in a co-venture in India to a majority equity interest in
1996. India has become an important publishing center.
The group works closely with other units of The McGraw-Hill Companies in
product development and uses their circulation databases in its marketing
efforts. The availability on the Internet of the group's catalog (with
information on more than 9,000 titles), along with effective telemarketing and
direct mail campaigns, has helped spur sales. The group has also responded to
surging use of the Internet by publishing successful titles on the subject.
Now in its third edition (with more than one million copies in print), The
Internet Yellow Pages, the best-selling book about the Internet, spawned three
special editions-one focused on health, fitness and medicine; one on science,
research and technology; and the third for children and their parents.
Meanwhile, the group has been steadily building a profitable CD-ROM product
list, now numbering in the hundreds. It introduced a CD-ROM edition of
Harrison's Principles of Internal Medicine, the best-selling medical textbook in
the world, plus a version linked to U.S. Pharmacopeia's extensive
drug-information database. Both products exceeded sales targets.
Other notable successes included two CD-ROM products introduced in 1994
primarily for the library market: McGraw-Hill's Multimedia Encyclopedia of
Science and Technology, and Science Navigator.
Stretching to another important audience, the group launched a new imprint,
Training McGraw-Hill, with immediate success. Twenty titles for corporate
trainers and organizational consultants were published during 1995 in
association with the American Society for Training & Development.
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LEGAL INFORMATION: STRESSING CORE STRENGTHS
At midyear Shepard's/ McGraw-Hill, one of the nation's leading providers of
legal information, announced its intention to focus totally on its core
citations business and divest its other, lower-margin products (principally
newsletters, treatises and software). The divestiture of those products was
completed in December.
Shepard's has broadened and upgraded its core products significantly over
the 1993-95 period, reflecting an ongoing multimillion-dollar commitment by The
McGraw Hill Companies to enhance its computing power, database and electronic
media. The Shepard's database currently contains more than 250 million citations
(court records) tracing the history of all decisions in all state and federal
appellate courts.
In September, Shepard's issued a revised Federal Citator, a major product
covering all federal courts except the Supreme Court, in a 21-volume print
edition and a CD-ROM version with an update feature. At year-end the Shepard's
product list included CD-ROM editions covering all 50 states, plus federal
courts. They are updated and issued monthly. Several new electronic products
will reach the market in 1996.
In addition, Shepard's products are available through the Lexis/Nexis and
Westlaw online services and through "ShepNet," a bulletin board service on the
Internet.
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INFORMATION AND
MEDIA SERVICES
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A WEALTH OF RESOURCES EXTENDS THE DEFINITION AND DIMENSIONS OF MULTIMEDIA
The Information and Media Services business segment posted gains for the second
straight year. Operating profit rose 6.3% to $115.1 million on a revenue
increase of 7.0% to $912.9 million. An upturn in advertising revenues and new
advertisers -- particularly in the high tech sector -- helped boost results,
while the drive to reduce dependence on advertising dollars made notable
progress.
The units in this business segment, at the forefront in providing vital
information and analysis in the industries and fields they cover, also stand in
the technological vanguard -- a strength now seen throughout The McGraw-Hill
Companies. They not only report on the Information Age revolution with
particular insight but are active participants -- and frequently leaders -- in
it as well.
They use all of the electronic avenues to information gathering, storage,
interpretation, packaging and dissemination, and the share of their revenues
generated by nonprint media continues to increase.
At the same time, they prove the enduring power of print and face-to-face
communication. As they present more conferences and chat sessions online, they
are sustaining a robust schedule of successful "live" conferences and
symposiums.
BUSINESS WEEK: AN OUTSTANDING YEAR
Business Week wrote an upbeat performance story in 1995: higher circulation,
substantially higher ad volume and net advertising revenues, more editions
targeted to specialized audience segments, and auspicious journalistic
accomplishments. That all added up to the best year for Business Week since
1990.
With its first 1996 issue Business Week began to deliver a guaranteed
worldwide rate base of one million, the only business magazine to attain that
milestone. The total reflects an 870,000-copy North American and 130,000-copy
international rate base.
Global expansion is accelerating in several ways. Business Week
International is available in the English language in four regions: Asia,
Europe, Latin America and the Middle East. Nearly half of the content of the
Asian, European and Latin American editions is customized to the international
region served.
In addition, licensees publish monthly local-language edit-ions in China,
Poland and Russia, and Le Point magazine in France includes a special 16-page
Business Week section for 40,000 executive readers.
Business Week also is extending its franchise in the U.S. During 1995 it
produced three "Enterprise" editions (for 175,000 small-business readers, plus
distribution of 100,000 copies through the Office Depot retail chain). Frequency
will increase in 1996.
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Meanwhile, both its "Elite" edition (tailored for 300,000 upper-tier net
worth readers and appearing 13 times annually) and "Industrial Technology"
edition (appearing 18 times annually) achieved record advertising revenues.
Advertisers that appear in special editions and international editions pay
premium rates.
Other specialized editions are in development. In addition, the magazine's
custom publishing unit and schedule of executive conferences, conducted with
prominent co-sponsors, continue to expand.
The 1995 gains allowed increases in both advertising rates and subscription
fees beginning in 1996. Business Week is now promoting itself more aggressively.
Its positioning: "Beyond news. Intelligence."
Business Week Online, introduced in January 1995 on America Online, was
awarded the 1995 Information Industry Association "Hot Shot Award" as the best
online magazine, reflecting the success it has achieved. Business Week also has
joined the growing family of The McGraw-Hill Companies' publications with World
Wide Web sites on the Internet.
PUBLICATION SERVICES: BUILDING ON A GLOBAL EDGE
With approximately four million readers in more than 120 countries, editorial
bureaus throughout the world, vast databases and publications ranking among the
most authoritative within their purviews, Publication Services is the leading
global business-to-business publisher.
Information services not dependent on advertising revenues -- such as
database-driven information products, newsletters, conferences, books and
directories -- now account for about half of the group's revenues. 1995
additions included conferences presented by Aviation Week & Space Technology on
CompuServe, an online service with subscribers worldwide, and a breakthrough
CD-ROM from Datapro Information Services that contains more than 200
unclassified U.S. government documents and directives relating to electronic
information security.
Computer and communications technologies remain a core focus. In its 20th
anniversary year BYTE magazine continued its international expansion, adding
BYTE Romania and BYTE Venezuela to its roster of foreign-language editions
produced under license; there are now 17.
Data Communications introduced an Asia-Pacific edition and opened bureaus in
Singapore and Israel, center of the largest grouping of networking vendors
outside the U.S. A Data Communications offshoot, a magazine called tele.com,
targeted to telecommunications executives and technical managers worldwide, will
debut in April 1996. From the outset, tele.com will be accompanied by additional
related products such as conferences, seminars and a newsletter.
Publication Services reinforced its position in engineering and science,
another core domain. A supplement to Chemical Engineering published since 1992,
Environmental
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Engineering World, became a stand-alone bimonthly. Modern Plastics International
had a record year in revenue, profit and advertising pages. And the Energy Group
continued to launch new products, including Information Technologies for
Utilities and Electricity Alert, a real-time online electricity pricing product.
The acquisition of Hospital Practice, a leading medical magazine, advanced
the Healthcare Publications Group's efforts to serve the burgeoning managed care
market, extending its presence in another area with strong growth projections.
The group publishes two other medical publications, plus other informational
materials and educational programs for physicians.
In addition, Datapro's comprehensive database on information technology is
being leveraged into markets such as aviation, healthcare, utilities and
chemicals. An example is an alliance with MDB Information Network and Andersen
Consulting to assist hospital managers responsible for information technology
purchases and applications.
CONSTRUCTION INFORMATION: A TRANSFORMATION MOVES FORWARD
Building on a solid foundation of renowned brand names and services, the
Construction Information Group continued its emphasis on electronic products and
strategic alliances.
The group posted gains in revenue, reversing the previous year's decline. It
expects to benefit in 1996 from a more favorable level of construction contracts
and heightened emphasis on its core competencies -- information acquisition and
management, sales and marketing excellence, product management and customer
relationship enhancement.
F.W. Dodge's Dataline(2) -- the most extensively used online service in the
construction industry -- is the group's fastest growing product. It covers
600,000 building projects.
For the first time in several years the Sweet's Group, a provider of
building product information, recorded gains in its print editions. At the same
time, the growth of electronic products continued. SweetSource, the two-year-old
CD-ROM, retained 75% of its advertisers and posted very strong growth in new
sales.
Reflecting Sweet's value to the architectural community, an alliance was
initiated with
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Autodesk, one of the world's largest software companies, to create a new CD-ROM
product, Design Blocks. In joint development for 1996 introduction, it will
allow architects to achieve new levels of productivity by speeding the process
of integrating product information into CAD (computer-aided-design) drawings.
The group's construction publications segment (Architectural Record,
Engineering News- Record and the Construction News Publishing Network) achieved
increases in the circulation of both Architectural Record and Engineering
News-Record. Reach was expanded further through a long-term alliance with the
American Institute of Architects (AIA).
In 1997, Architectural Record will become the official member magazine of
the AIA. In addition, the group and AIA will collaborate to better serve the
architectural community through joint initiatives, awards programs, continuing
education efforts, publishing ventures and other projects.
BROADCASTING: COMPLETING A SWITCH TO ABC
Though political advertising declined markedly, the four television stations of
The McGraw-Hill Companies posted higher revenues and profits in 1995. They look
ahead to the prospect of improved revenue growth in 1996 as federal elections
take center stage and the California economy finally begins to rebound.
In March 1996, KERO-TV in Bakersfield, Calif., completes the group's
transition to affiliations with ABC. In September, KMGH-TV in Denver became an
ABC affiliate and saw its audience shares rise immediately during most time
periods. Similar gains are expected in Bakersfield.
Moving quickly early in the year to establish a presence on the Internet,
WRTV in Indianapolis and KGTV in San Diego became the first stations in their
viewing areas to set up extensive World Wide Web sites.
TOWER GROUP INTERNATIONAL: ADVANCING IN ELECTRONIC COMMERCE
A pioneer in the complex logistics- and management-information industry, Tower
Group International took major steps to expand service coverage and enhance
information technology capabilities.
The acquisition of UCB Canada, a leading Canadian customs brokerage and
freight-forwarding company, further strengthened Tower's position to serve the
North American market. Service locations now number 60, including the key trade
gateways in Canada, the U.S.'s top trade partner. UCB's well-developed,
value-added transportation services, particularly between Asia and Canada,
complement Tower's offerings. The addition of such new clients as Chrysler
Corporation also contributed significantly to revenue growth.
In April, Tower launched a three-year program to transform its technology
systems to be more compatible with open systems standards. The initiative will
accelerate development and facilitate information flows with customers and other
logistics service providers. In October, it completed a major upgrade of its
PC-based TowerNet import management software for use with Windows 95(R).
As Tower guides its customers toward paper-free trade, it is also developing
new ways to create and use database information for clients. Providing improved
information on shipment status, carrier performance and costs is among its aims.
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FINANCIAL REVIEW AND ANALYSIS
Operating Results
<TABLE>
<CAPTION>
CONSOLIDATED REVIEW
(in millions) 1995 1994 1993
- ----------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenue $2,935.3 $2,760.9 $2,195.5
% Increase 6.3 25.8 7.1
- ----------------------------------------------------------------
Operating Profit $ 508.6 $ 451.3 $ 352.6
% Increase 12.7 28.0 2.4
- ----------------------------------------------------------------
% Operating Margin 17 16 16
Share of Profit of
Macmillan/McGraw-Hill
Joint Venture(a) -- -- $ 28.4
Income before Taxes $ 386.3 $ 345.4 $ 66.3(b)
- ----------------------------------------------------------------
Net Income $ 227.1 $ 203.1 $ 11.4(b)
================================================================
</TABLE>
(a) Represents The McGraw-Hill Companies' 50% share of profits for the nine
months ended September 30, 1993. Macmillan/McGraw-Hill School Publishing Company
has been consolidated in The McGraw-Hill Companies' results beginning in the
fourth quarter of 1993, reflecting The McGraw-Hill Companies' 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 The McGraw-Hill
Companies' acquisition of its partner's 50% interest in the
Macmillan/McGraw-Hill School Publishing Company.
REVENUE AND EARNINGS
Operating revenue in 1995 grew to $2,935.3 million, an increase of 6.3%. Net
income was $227.1 million, or $2.28 per share as compared with $203.1 million,
or $2.05 per share in 1994. In 1994, operating revenue increased 25.8%, largely
reflecting The McGraw-Hill Companies' first full year ownership in the former
Macmillan/McGraw-Hill School Publishing Company. 1994 net income increased 17.9%
over 1993, excluding the impact of 1993's unusual charges of $229.8 million
($160.8 million after taxes or $1.64 per share). In 1993, net income after
unusual charges was $11.4 million, or 12 cents per share. All references to
common share data, including earnings per share, reflect the two-for-one stock
split of the company's common stock announced on January 31, 1996.
In the fourth quarter of 1995, the company recorded a $23.8 million pre-tax
gain on the sale of the topical publishing division of Shepard's/McGraw-Hill,
the company's legal publisher. The gain is recorded as other income on the
consolidated statement of income and is reflected in the operating profit of the
Educational and Professional Publishing segment.
1995 earnings reflect a pre-tax charge of $26.8 million, recorded in the
fourth quarter, related to the company's "best practices" initiative to improve
efficiency and effectiveness. The company launched the best practices program to
review major systems and processes, including various administrative functions
and related technology. The charge primarily represents the costs associated
with the elimination of approximately 750 positions, or 5% of the company's
workforce, begun late in 1995 and continuing into 1996. The 1995 operating
profit of each segment and corporate expenses reflect the amount of the best
practices charge associated with each segment. Under the best practices program,
the company will continue to review opportunities to improve its operations in
1996, including assessing technology applications.
Net income as a percent of revenue was 7.7% in 1995, slightly improved over
the 1994 ratio of 7.4%. Return on average shareholders' equity was 23.3% in 1995
compared with 23.4% in 1994.
Operating revenue increased $174.4 million, or 6.3%, in 1995 reflecting
increases in all three operating segments. Educational and Professional
Publishing revenue increased $73.4 million, or 6.3%, to $1,235.6 million,
reflecting a strong performance in educational publishing, with increases also
in domestic professional publishing and international markets despite a decline
in Mexico. Financial Services' revenue increased $41.3 million, or 5.5%,
reflecting another record year for Standard & Poor's Ratings Services and
the Financial Information Services Group. Information and Media Services'
revenue increased $59.7 million, or 7.0%, largely due to Business Week and an
acquisition by Tower Group International. Operating profit for the company
improved $57.3 million, or 12.7%, reflecting improvement in all three segments
led by Educational and Professional Publishing, with an increase of $36.8
million. Educational and Professional Publishing operating profit reflects the
revenue increases associated with the strong adoption year, a strong domestic
professional publishing program and improved international business, partially
offset by reduced profits in Mexico, and the gain on the sale of the Shepard's
topical unit of $23.8 million net of the segment's $15.1 million best practices
charge. Financial Services' operating profit increased $13.7 million, or 6.3%.
Operating profit for Standard & Poor's Ratings Services improved as new bond
issue volume rebounded in the second half of the year due to declining interest
rates. The Financial Information Services Group also had operating profit
growth. In Information and Media Services, operating profit improved $6.8
million, or 6.3%, as Business Week had an excellent year along with small gains
at Broadcasting and the Construction Information Group.
In 1994, operating revenue increased $565.4 million, $459.4 million of which
represents the inclusion of School Publishing for the first nine months of 1994.
The remaining increase reflected 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
26
<PAGE> 24
154.7%. Operating profit for this segment, excluding School Publishing, declined
6% due to the restructuring of certain international operations and competitive
pressures in the home study market. Financial Services' operating profit
improved 8.1% and Information and Media Services posted a gain of 5.9%.
Financial Services' performance reflected a then record year in revenue by
Standards & Poor's Ratings Services, with a modest decline in profits reflecting
planned investments in new products and services. The Financial Information
Services Group contributed solid revenue growth and significant gains in
operating profit. Revenue and profits improved in Information and Media
Services, led by Broadcasting, with gains in Tower Group International and the
computers and communications unit of Publication Services, offset by a decline
in the Construction Information Group.
The company purchased the remaining 50% interest in the
Macmillan/McGraw-Hill School Publishing Company owned by Macmillan for $337.5
million on October 4, 1993. The company thereby achieved 100% ownership of
Macmillan/ McGraw-Hill and it was consolidated in The McGraw-Hill Companies'
operations from the date of acquisition, in the Educational and Professional
Publishing segment. The McGraw-Hill Companies' 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 Macmillan/McGraw-Hill
in The McGraw-Hill Companies' consolidated results in 1993's fourth quarter
increased 1993 revenues for the company by $90.7 million or 4.4%. Due to the
seasonal nature of the school publishing business, 1993's fourth quarter income
was negatively impacted by an incremental 4 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 McGraw-Hill Companies' 1994 results reflected the first full year
of its 100% ownership in its former joint venture, contributing $538 million in
revenue.
EXPENSES
Operating expenses in 1995 increased $92.0 million, or 7.4%, reflecting volume
increases associated with higher revenues, higher paper costs, modest
inflationary increases in key expense categories, such as compensation, and the
best practices charge. Negotiations with printing, paper and distribution
suppliers helped to lessen the impact of rising postal and paper prices. Despite
significant postal and paper price increases, manufacturing costs were held to
an increase of approximately 9%. Selling and general expenses increased $54.0
million, or 6.0%, reflecting costs associated with the increase in revenue. A
significant portion of both operating and selling and general expenses is
compensation, which totaled $807 million in 1995. Compensation expense,
excluding the impact of aquisitions, increased approximately 5% due to the
impact of merit increases and higher sales commission expenses. Depreciation and
amortization expense, including amortization of goodwill and intangible assets
and prepublication costs, increased $1.4 million, or less than 1%. The ratio of
operating, selling and general and amortization and depreciation expenses to
total revenue in 1995 was 86.3% compared with 86.4% in 1994 as the impact of
increased revenues was offset by the best practices charge. In 1996, printing,
paper and distribution prices are expected to remain relatively stable. Overall
manufacturing costs are estimated to increase 4% when taking into account the
effect of prior year paper increases. The impact of merit increases on
compensation costs should approximate 4%.
The increase in 1994 expenses largely reflected the inclusion of School
Publishing expenses for the entire year as compared with only the fourth quarter
in 1993. In addition to the impact of School Publishing, the increase in
operating expenses reflected volume increases and modest inflationary increases
in key expense categories, such as compensation and fringe benefits expenses. In
1994, combined printing, binding, paper and distribution prices decreased in
excess of 2% primarily due 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. The
increase in depreciation and amortization expenses is almost entirely due to the
amortization of goodwill, intangible assets and prepublication costs for School
Publishing for the first nine months of 1994.
INTEREST EXPENSE
Net interest expense in 1995 was $58.8 million compared with $51.7 million in
1994, an increase of $7.1 million, reflecting higher commercial paper borrowing
rates net of lower borrowing levels. The average commercial paper rate was 6.0%
in 1995 and 4.2% in 1994. In 1994, net interest expense increased $15.4 million
because of the full year impact of the 1993 borrowings from the acquisition of
the additional 50% of the Macmillan/McGraw-Hill School Publishing Company and
reflecting increases in interest rates on commercial paper borrowings, partially
offset by reduced average commercial paper borrowing levels from the beginning
of 1994.
PROVISION FOR INCOME TAXES
The provision for taxes as a percent of income before taxes was 41.2% in 1995
and 1994. The rate was 41.8% in 1993, excluding the impact of unusual charges
and related tax benefits of $69 million.
27
<PAGE> 25
FINANCIAL REVIEW ANALYSIS
Segment Review
EDUCATIONAL AND PROFESSIONAL PUBLISHING
<TABLE>
<CAPTION>
(in millions) 1995 1994 1993(a)
- ----------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenue $1,235.6 $1,162.2 $667.5
% Increase 6.3 74.1 17.6
- ----------------------------------------------------------------
Operating Profit $ 162.6 $ 125.8 $ 49.4
% Increase/(Decrease) 29.3 154.7 (21.2)
- ----------------------------------------------------------------
% Operating Margin 13 11 7
================================================================
</TABLE>
(a) Includes School Publishing revenue of $90.7 million and operating loss of
$13.8 million for the fourth quarter.
The Educational and Professional Publishing segment consists of three operating
groups: Educational Publishing (School Publishing and College); Legal
Information; and Professional Publishing (including International Publishing,
Continuing Education Center, Professional Book and Medical Publishing). School
Publishing is included in the segment results beginning in the fourth quarter of
1993, when The McGraw-Hill Companies acquired 100% ownership.
The Educational and Professional Publishing segment revenue increased $73.4
million, or 6.3%, in 1995. The increase in revenues reflects strong sales in the
K-12 school marketplace during the 1995 adoption year, growth in College
publishing and professional publishing and another strong performance in legal
publishing. Operating profit improved $36.8 million, or 29.3%, to $162.6 million
reflecting the strong sales and a gain on the sale of the Shepard's topical
business of $23.8 million, partially offset by a best practices charge of $15.1
million. In 1994, segment revenues increased $494.7 million, or 74.1%; $459.4
million of the increase represented the inclusion of School Publishing for the
entire year as opposed to only the fourth quarter in 1993. 1994 operating profit
more than doubled to $125.8 million reflecting the inclusion of School
Publishing for the entire year and improvement in College.
The Educational Publishing Group is comprised primarily of six divisions:
College; Macmillan/McGraw-Hill, publisher of textbooks and instructional
materials for elementary (grades K-8) schools; Glencoe/McGraw-Hill, secondary
school (grades 7-12) and postsecondary publisher; CTB/McGraw-Hill, producer of
publications and provider of scoring for standardized achievement tests,
customized testing and specialized educational software products;
SRA/McGraw-Hill, developer of supplementary elementary and secondary
instructional materials; and McGraw-Hill School Systems, provider of school
administrative systems.
The Educational Publishing Group had revenues of $743 million in 1995, 60%
of segment revenues. Revenues increased approximately 10% from 1994.
For 1995, the elementary and high school businesses achieved double digit
increases in revenue and profits, enhancing its position as the largest U.S.
school publisher. Profits were positively impacted by the revenue growth and the
effect of integration savings. Glencoe/McGraw-Hill had an exceptional year,
posting record-setting revenue and profits as a result of capturing
extraordinarily high market shares, especially in the adoption states.
Macmillan/ McGraw-Hill had increased sales and profits, aided by strong music
revenues in Texas. SRA/McGraw-Hill had a significant increase in revenues and
profits largely due to its successful campaign in Texas with its Early Childhood
program. CTB/McGraw-Hill's revenue decreased slightly because of a decline in
Title I funding for Norm Reference Testing. McGraw-Hill School Systems' revenue
declined as the division gears up for a new product introduction in 1996.
In comparison with 1995's strong performance, 1996 will be a challenging
year for the School Publishing Group in an off-adoption year. Opportunities
exist for another fine year due to strong publishing programs, but control of
costs will be critical in 1996 to mitigate the lack of revenue growth posed by
the adoption cycle. The adoption cycle turns favorable again in 1997. In 1994,
School Publishing revenue declined compared with the full year 1993 due to an
off-year in the elementary and secondary adoption cycle. In those states with
adoptions, both Macmillan/McGraw-Hill and Glencoe/McGraw-Hill performed well.
The gross margin impact on lower revenue was substantially offset by cost
reductions and savings generated from integrating various operations.
The College Division's 1995 revenue increased, driven by a strong frontlist
performance and continued growth in Primis Custom Publishing. Substantial
improvement in profits was attained through expense controls and savings
associated with consolidation of certain book operating functions. For 1996, the
College Division will continue to operate in a difficult business environment.
Enrollments will be relatively flat, students remain sensitive to the perceived
high prices of books, and used books continue to proliferate. Despite the
environment, the College Division will strive to build upon its 1994 and 1995
successes through a larger 1996 frontlist, additional growth in Primis Custom
Publishing and controlling operating expenses. In 1994, College revenue
increased over 1993, driven largely by double-digit growth in Primis Custom
Publishing and strong performances in economics and foreign language.
Double-digit profit improvement was the result of the favorable sales
performance in addition to expense reductions.
Shepard's/McGraw-Hill, our legal publisher, had revenue of $109 million in
1995, 9% of segment revenue. Shepard's 1995 revenue grew 4.4% as a direct result
of a re-negotiated on-line license agreement, continued strong performance of
existing and new citation CD-ROM products; and the publication of a new
21-volume citation revision, Federal Citations. On December 28, 1995, Shepard's
sold its non-citations product lines (Topical Publishing) which contributed $23
million to 1995 revenue. The products sold were treatises, desktop codes,
newsletters, litigation reporters, and software productivity tools. The
divestiture will enable Shepard's to focus investment on growing its core legal
citations
28
<PAGE> 26
business. Overall, 1995 profits grew at a greater rate than revenue due mostly
to improved margins on higher sales volumes and expense saving initiatives.
Shepard's projects growth in the rate of legal information spending in 1996.
Attorneys are increasingly migrating away from print towards use of legal
information in electronic form, thus accelerating the growth of on-line and
CD-ROM citation sales. Historical print citation revisions are becoming less
acceptable to customers. In response, Shepard's continues to improve the
features, functionality, and currentness of citations information available in
electronic form, and is developing new citations products and services. In 1994,
Shepard's revenue grew significantly as a direct result of the publication of
its single largest citation revision, the United States Citations; strong
performance from CD-ROM products; and growth from primary law topical code
products first published in late 1993. 1994 profits grew at a rate less than
revenue due mainly to the heavy one-time investments required in the publication
of non-citation products.
The Professional Publishing Group had revenue of $384 million in 1995, 31%
of segment revenue. In 1995, the Professional Publishing Group achieved revenue
growth of 1.2% despite the negative economic conditions experienced in Mexico,
where the Group has a significant publishing presence and estimates that it lost
$15 million in business in 1995. Profits increased in 1995 as a result of
continued margin improvement and focus on operating efficiencies. The
International Publishing unit continued to perform well in the Asia Pacific and
non-Mexican Spanish language markets as worldwide growth opportunities were
vigorously pursued. The Medical Publishing unit revenues declined against 1994's
release of the 13th edition of Harrison's Principles of Internal Medicine.
However, profits grew as a result of the release of a CD-ROM version of
Harrison's as well as French, Italian and German book translations. The
Continuing Education Center unit increased revenue and profits with growth in
computer related courses. The Professional Book unit achieved significant
increases in the business, computing and engineering product lines. For 1996,
further improvement in the international markets and expansion of publishing
programs should position the Professional Publishing Group to take advantage of
growth opportunities. The Group will be favorably affected if the Mexican
economy shows even a partial recovery. In 1994, the Professional Publishing
Group achieved a 10% increase in revenue, but profits declined due to higher
operating costs and the company's write-downs for discontinuing a Canadian
citations service and its Japanese operation. The International Publishing unit
also had an excellent year, particularly in Asia and the Ibero-America sectors.
The Medical Publishing unit achieved revenue and profit growth, aided by the
revision of Harrison's Principles of Internal Medicine and continued focus on
operational efficiencies. The Continuing Education Center revenue was flat
compared with the prior year while costs increased.
FINANCIAL SERVICES
<TABLE>
<CAPTION>
(in millions) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenue $786.8 $745.5 $696.9
% Increase 5.5 7.0 12.8
- --------------------------------------------------------------------------------
Operating Profit $230.9 $217.2 $200.9
% Increase 6.3 8.1 19.3
- --------------------------------------------------------------------------------
% Operating Margin 29 29 29
================================================================================
</TABLE>
The Financial Services segment consists of two operating groups: Standard &
Poor's Ratings Services and the Financial Information Services Group, which
comprises Financial Data Services (MMS International, Platt's, and Standard &
Poor's ComStock); Equity Services (Standard & Poor's Equity Services, Standard
& Poor's Compustat and Standard &Poor's Securities Inc.); Municipal Securities
Services (J.J. Kenny Drake, J.J. Kenny Evaluation Services, J.J. Kenny
Information Services and CUSIP Service Bureau) and DRI/McGraw-Hill.
Financial Services revenue increased 5.5% to $786.8 million and operating
profit rose 6.3% to $230.9 million in 1995. 1995 operating profit reflects a
$4.1 million best practices charge. In 1994, the segment's revenue grew 7.0% and
operating profit rose 8.1%.
Standard & Poor's Ratings Services revenue increased in 1995 despite a
decline in municipal bond issuance and early year softness in the corporate bond
market. As interest rates declined, new issuance volume in the corporate bond
market rebounded in the second half of the year. An increase of over 40% in
Asset-Backed security volume enabled the Structured Finance unit to post
excellent financial results, despite a 50% decline in Mortgaged-Backed
securities volume. Worldwide expansion continues with the purchase of the
remaining 50% of the Standard & Poor's-ADEF joint venture in Paris in December
1995, a cooperation agreement with CRISIL, India's leading rating agency, and
the opening of a new office in Singapore. Product line diversification also
continued in 1995. In June, the Bank Loan Rating initiative was launched, a
product that extends the review of the risk of default to collateral and other
protective features that are an integral part of many bank loans. Other new
products and initiatives also produced solid growth. 1995 operating profits
improved, reflecting the increased revenues net of continuing investments.
Ratings Services anticipates moderate growth in 1996. The International,
Structured Finance, and Insurance units anticipate growth while the core units
- -- Corporate and Public Finance -- which are extremely dependent on the U.S.
capital markets, should maintain 1995 levels. In 1994, Standard & Poor's Ratings
Services revenue increased despite a 35% decline in corporate and municipal bond
issuance. International, Insurance and Structured Finance posted excellent
financial performance offsetting the downturn in core markets. New products,
such as Bond Fund Risk ratings, and product extensions produced solid growth.
Worldwide expansion continued in 1994 with the purchase of 100% of Iberating
(Spanish Rating Agency) which the company previously owned 25%. 1994 profits
declined slightly reflecting investments for expansion and new products and
services.
29
<PAGE> 27
FINANCIAL REVIEW AND ANALYSIS
Segment Review (continued)
The Financial Information Services Group's revenue grew in 1995 and
operating profit increased at a greater rate. Despite robust growth in
international markets as a result of firm end-user demand and new product
introductions, domestic revenue growth was negatively impacted by a severe
contraction in the municipal securities market and weaker demand for print based
subscription products. MMS International, Platt's, Standard & Poor's ComStock
and Standard &Poor's Compustat's globally targeted products were the key
beneficiaries of the increased demand for global market information and
analysis, especially in the world's emerging markets. Strong domestic demand for
electronic products, particularly in the money management segment, was offset by
a decline in print product demand. The municipal securities market, which in
1995 saw the exit of a number of major bond dealers, was an area of particular
weakness. DRI/McGraw-Hill continues to capitalize on the global demand for its
economic consulting, forecasting and data gathering expertise. New product
initiatives and enhanced distribution capabilities should provide global
opportunities in 1996. The Group will continue to adhere to its long-term open
distribution strategy, using all available media -- including traditional quote
vendor services, fax and CD-ROM as well as the Internet -- to deliver
actionable, highly value-added information to a wide range of financial decision
makers. In 1994, the Financial Information Services Group experienced
significant revenue and earnings growth despite less than robust market
conditions, reflecting depressed domestic bond and equity markets as a result
of higher interest rates.
INFORMATION AND MEDIA SERVICES
<TABLE>
<CAPTION>
(in millions) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenue $912.9 $853.2 $831.1
% Increase/(Decrease) 7.0 2.7 (4.0)
- --------------------------------------------------------------------------------
Operating Profit $115.1 $108.3 $102.3
% Increase/(Decrease) 6.3 5.9 (9.6)
- --------------------------------------------------------------------------------
% Operating Margin 13 13 12
================================================================================
</TABLE>
The Information and Media Services segment is comprised of three operating
groups: Information Services (Business Week, Publication Services and Tower
Group International); Construction Information and Broadcasting.
The Information and Media Services segment's revenue increased 7.0% in 1995
and operating profit increased $6.8 million, or 6.3%, to $115.1 million.
Operating profit reflects a best practices charge of $6.3 million. Excluding
that charge, operating profits increased 12.1% and margins would have expanded
from 12.7% in 1994 to 13.3% in 1995. In 1994, revenue increased 2.7% and
operating profit increased $6.0 million, or 5.9%, to $108.3 million.
The Information Services Group had 1995 revenue of $542 million, 59% of
segment revenue. Revenue increased $51.1 million, or 10.4%. Excluding Tower
Group International's acquisition of United Customs Brokers (UCB) Canada, the
increase was 8.1%.
Information Services' revenue increase is primarily due to Business Week
which had a very successful year as revenues increased substantially, both
domestically and internationally. North American advertising pages, as measured
by the Publishers Information Bureau, were up 4.8%. International pages, as
measured internally, were up 13.1%. Investments in technology and international
circulation continued in 1995. Despite large paper price increases, operating
profits improved dramatically. A successful 1996 for Business Week is dependent
upon continued strength in the domestic advertising market and continued success
in the expansion of the Group's international markets. In 1994, Business Week's
revenues declined slightly due to a weak second half of the year in the domestic
advertising market. 1994 profits were negatively impacted by the revenue
decline, increased promotional expenses and investments in the Asian market.
Publication Services is comprised of the Computers and Communications
Information, Aviation Week, Healthcare Publications and the Science and
Technology groups. 1995 revenue increased as the group increased market share
for several publications and introduced new products and services globally both
in print and electronically. The acquisition of Hospital Practice magazine also
contributed to increased revenue. Operating profit improved over 1994.
Computers and Communications revenue and profit were flat with last year.
LAN Times and Data Communications grew significantly, driven by increased
advertising pages, the introduction of new products and global expansion.
Offsetting this growth was the decline in advertising pages in BYTE and the
shutdown of Open Computing, which was discontinued in the fourth quarter.
Datapro's revenue and profit grew reflecting the impact of electronic
distribution. In 1996, the Group will continue to focus on increasing
international revenue and will launch a new publication, tele.com. In 1994,
revenue and profits grew due to increased advertising revenue for LAN Times and
Data Communications and stringent expense control.
The Aviation Week Group's revenue in 1995 grew slightly versus 1994.
Aviation Week continues to increase market share in a declining advertising
market in addition to successfully introducing new products at major airshows
worldwide. Profits for the Group were up slightly versus the prior year. In
1996, the Aviation Week Group expects to maintain a significant presence in this
market and plans several new product launches. In 1994, the Aviation Week Group
grew its profit primarily through solid expense management.
The Healthcare Publications' revenue grew significantly in 1995 primarily
due to the acquisition of Hospital Practice early in the year which generated
additional revenue along
30
<PAGE> 28
with providing strong synergistic sales opportunities with the other healthcare
publications. In 1996, the Healthcare Group will continue to focus on increasing
its advertising revenue along with introducing new ancillary products and
services. In 1994, Healthcare revenue and profits were lower than the previous
year due to softness in the healthcare advertising market.
The Science and Technology Group's revenue grew in 1995 due in part to a
record-breaking advertising performance for Modern Plastics International. Also,
Chemical Engineering advertising pages increased. However, profits were flat
with 1994 due to softness in the Energy Group and investments in new products
and services. The Science and Technology Group is focused on international
expansion in 1996 and continued new product introduction. In 1994, the Group had
revenue and profit growth due to a strong market share increase by the Plastics
publications and the introduction of new conferences and newsletters in the
Energy Group.
Tower Group International experienced significant revenue growth in 1995 as
a result of the acquisition of UCB Canada, expansion of service capabilities,
and generally favorable market conditions for core import services. The Group
acquired the assets of UCB Canada on April 1, 1995, extending its service
capabilities into Canada. Tower Group International's 1995 operating profit
declined as investments in new logistics services and products combined with
costs associated with the development of a national sales and marketing
organization offset the year-to-year revenue growth. In 1996, imports are
expected to grow at approximately half the rate of the previous two years, with
the strongest activity occurring from Asia and Latin America. The Group will
continue to implement initiatives to enhance its sales and marketing
capabilities, reengineer its core business processes, enhance its technology
systems, and invest in value-added products and services. Tower experienced
significant revenue growth in 1994 from increased import activity and growth in
Tower's logistics and management services. 1994 profits also improved.
The Construction Information Group had 1995 revenue of $253 million, 28% of
segment revenue. Revenue increased in 1995 primarily due to a gain in Sweet's in
both advertising pages and electronic revenue. Dodge had a small increase in
revenue while advertising revenue for the construction magazines was down
slightly. Profits for the Construction Information Group increased modestly.
Total U.S. construction contract awards were up 1% versus the previous year,
with the key non-residential sector reporting a healthy 8% increase. The
contract value of total non-residential building is expected to continue its
rise in 1996, fostering a more positive environment for the Group in the coming
year. Electronic-based products continued to show strong growth in 1995 and
should contribute significantly in 1996 as existing products are enhanced and
the Group focuses on new electronic products. Sales force automation and other
new sales and marketing initiatives will be rolled out to the Dodge and
construction magazines' market in 1996. In 1994, revenue and profits for the
Construction Information Group declined, despite strong growth in electronic
products, as sales lagged behind a modest recovery in the construction market.
Broadcasting had 1995 revenue of $118 million, or 13% of segment revenue.
The Broadcasting Group operates four television stations: VHF Stations in
Denver, Indianapolis, and San Diego and a UHF station in Bakersfield,
California. With the conversion of the Bakersfield station in 1996, all four
stations will be ABC affiliates. The Broadcasting Group reported modest
increases in revenue and operating profit in 1995 to record levels, despite the
lack of political advertising following a strong 1994 election year. 1995
performance was enhanced by increased network compensation for the Denver
station and the switch in Denver's affiliation in September from CBS to ABC.
Political advertising is expected to enhance revenue in 1996 although political
revenue is not expected to match 1994 levels because of the lack of either a
gubernatorial or U.S. Senate race in California. Revenue and operating profit
grew substantially in 1994 to then record levels based on strong political
advertising and non-political sales, in particular automotive advertising.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
(in millions) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Working Capital $193.3 $130.3
- --------------------------------------------------------------------------------
Total Debt $628.7 $762.8
- --------------------------------------------------------------------------------
Accounts Receivable
(before reserves) $935.4 $836.7
% Increase 12 6
- --------------------------------------------------------------------------------
Inventories $238.0 $213.3
% Increase/(Decrease) 12 (1)
- --------------------------------------------------------------------------------
Investment in Prepublication Costs $134.1 $118.4
% Increase 13 59
- --------------------------------------------------------------------------------
Purchases of Property and Equipment $ 58.8 $ 77.1
% Increase/(Decrease) (24) 55
================================================================================
</TABLE>
The company continues to maintain a strong financial position. Cash flow from
operations increased to $433 million in 1995, an increase of $19 million, which
was sufficient to cover dividends and outlays for the purchase of property and
equipment, investment in publishing programs and also reduce commercial paper
borrowings. 1994's cash flow from operations was $414 million, a decline of $52
million from 1993, reflecting the full year ownership of School Publishing
compared to only the fourth quarter in 1993. 1993's cash flow had benefitted
significantly from fourth quarter collections of School Publishing receivables,
reflecting the seasonality of the school publishing business and the timing of
the acquisition by the company.
Working capital at the end of 1995 of $193 million was $63 million above the
level at the end of 1994 reflecting reduced debt levels net of higher inventory
balances.
Continued on page 34
31
<PAGE> 29
ELEVEN-YEAR FINANCIAL REVIEW
<TABLE>
<CAPTION>
(in thousands, except per-share data) 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING RESULTS BY SEGMENT AND INCOME STATISTICS
OPERATING REVENUE
Educational and Professional Publishing $1,235,578 $1,162,157 $ 667,444 $ 567,363
Financial Services 786,786 745,480 696,933 617,555
Information and Media Services 912,919 853,232 831,076 865,573
- -------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING REVENUE 2,935,283 2,760,869 2,195,453 2,050,491
- -------------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT (Note d)
Educational and Professional Publishing 162,604 125,765 49,374 62,746
Financial Services 230,934 217,212 200,865 168,394
Information and Media Services 115,069 108,343 102,344 113,198
- -------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING PROFIT 508,607 451,320 352,583 344,338
Share of profit of Macmillan/McGraw-Hill
School Publishing Company (Notes b and d) -- -- 28,376 11,280
Unusual charges (Notes c and d) -- -- (229,800) --
Gain on sale of interest in Nikkei/McGraw-Hill (Note e) -- -- -- --
General corporate (expense)/income (Notes d and f) (63,570) (54,134) (48,538) (50,774)
Interest (expense)/income -- net (58,766) (51,746) (36,342) (37,557)
- -------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES ON INCOME (Note a) 386,271 345,440 66,279 267,287
Provision for taxes on income 159,144 142,321 54,838 114,132
- -------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE ADJUSTMENT 227,127 203,119 11,441 153,155
- -------------------------------------------------------------------------------------------------------------------------
Cumulative effect on prior years of changes in accounting
(Note g) -- -- -- (124,587)
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 227,127 $ 203,119 $ 11,441 $ 28,568
- -------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Income before cumulative adjustment $ 2.28 $ 2.05 $ 0.12 $ 1.57
Cumulative adjustment (Note g) -- -- -- (1.28)
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 2.28 $ 2.05 $ 0.12 $ 0.29
Shares used to calculate earnings per share 99,752 98,998 98,378 97,778
Dividends per share of common stock $ 1.20 $ 1.16 $ 1.14 $ 1.12
- -------------------------------------------------------------------------------------------------------------------------
OPERATING STATISTICS
Return on average shareholders' equity 23.3% 23.4% 1.3% 3.0%
Income before taxes as a percent of revenue 13.2 12.5 3.0 13.0
Income before cumulative adjustment as a percent of revenue 7.7 7.4 0.5 7.5
- -------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Working capital $ 193,346 $ 130,272 $ 62,887 $ (19,596)
Total assets 3,104,389 3,004,363 3,084,163 2,508,140
Total debt 628,664 762,805 928,710 482,991
Shareholders' equity 1,035,066 913,052 823,008 908,760
- -------------------------------------------------------------------------------------------------------------------------
NUMBER OF EMPLOYEES 15,004 15,339 15,661 13,393
=========================================================================================================================
</TABLE>
(a) 1995 income before taxes on income reflects a $26.8 million provision for
best practice initiatives and a $23.8 million gain on sale of the topical
publishing division of Shepard's/McGraw-Hill.
(b) Reflects The McGraw-Hill Companies' share of profit of Macmillan/McGraw-Hill
School Publishing Company through September 30, 1993. Macmillan/McGraw-Hill
results are consolidated effective October 1, 1993 in the Educational and
Professional Publishing segment.
(c) 1993 amount reflects unusual charges in connection with the acquisition of
the additional 50% interest in Macmillan/McGraw-Hill.
(d) 1989 and 1988 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>
32
<PAGE> 30
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987 1986 1985
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 532,438 $ 534,724 $ 483,666 $ 437,590 $ 408,252 $ 327,903 $ 318,853
555,820 505,641 432,314 399,242 390,131 357,998 327,422
854,754 898,273 872,983 836,734 801,352 741,891 714,080
- -----------------------------------------------------------------------------------------------------------------
1,943,012 1,938,638 1,788,963 1,673,566 1,599,735 1,427,792 1,360,355
- -----------------------------------------------------------------------------------------------------------------
48,928 70,196 44,107 48,185 30,464 37,109 34,328
143,056 123,999 85,081 81,765 81,557 81,558 72,088
120,242 170,788 192,254 175,384 176,564 166,679 158,219
- -----------------------------------------------------------------------------------------------------------------
312,226 364,983 321,442 305,334 288,585 285,346 264,635
27,483 21,601 13,688 2,349 11,585 30,037 29,461
-- -- (220,000) (149,564) -- -- --
-- -- -- 221,783 -- -- --
(34,415) (28,370) 6,546 5,005 3,418 (23,519) (17,609)
(46,987) (55,627) (35,038) (5,290) (4,506) 3,915 7,840
- -----------------------------------------------------------------------------------------------------------------
258,307 302,587 86,638 379,617 299,082 295,779 284,327
110,297 130,112 46,847 194,112 134,288 141,770 136,923
- -----------------------------------------------------------------------------------------------------------------
148,010 172,475 39,791 185,505 164,794 154,009 147,404
- -----------------------------------------------------------------------------------------------------------------
-- -- 8,000 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------
$ 148,010 $ 172,475 $ 47,791 $ 185,505 $ 164,794 $ 154,009 $ 147,404
- -----------------------------------------------------------------------------------------------------------------
$ 1.52 $ 1.77 $ 0.41 $ 1.92 $ 1.64 $ 1.52 $ 1.46
-- -- 0.08 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------
$ 1.52 $ 1.77 $ 0.49 $ 1.92 $ 1.64 $ 1.52 $ 1.46
97,642 97,638 97,450 96,950 100,820 101,302 101,082
$ 1.10 $ 1.08 $ 1.00 $ 0.92 $ 0.84 $ 0.76 $ 0.70
- -----------------------------------------------------------------------------------------------------------------
15.2 % 18.8 % 5.3 % 21.2 % 19.5 % 18.8 % 20.0 %
13.3 15.6 4.8 22.7 18.7 20.7 20.9
7.6 8.9 2.7 11.1 10.3 10.8 10.8
- -----------------------------------------------------------------------------------------------------------------
$ 29,543 $ 44,193 $ 22,743 $ (72,023) $ (66,214) $ 65,641 $ 163,236
2,515,544 2,534,708 2,208,249 1,729,562 1,619,935 1,446,588 1,257,735
568,159 622,372 503,434 148,434 186,476 56,403 5,932
998,975 954,260 880,154 922,803 825,265 861,418 776,674
- -----------------------------------------------------------------------------------------------------------------
13,539 13,868 13,741 13,891 13,879 13,257 13,027
=================================================================================================================
</TABLE>
(e) In May 1988, the company sold its 49% interest in Nikkei/McGraw-Hill, Inc.,
a magazine publishing operation in Japan, for $283.1 million. The gain on sale
was $221.8 million ($109.8 million after taxes).
(f) General corporate income for 1989 includes gains on dispositions of
businesses totaling $48.8 million, 1988 includes gains on dispositions of $26.5
million and 1987 includes gains from the settlement of a portion of the
company's pension obligation of $20.1 million.
(g) The cumulative adjustment in 1992 reflects the adoption of the provisions of
Statement of Financial Accounting Standards (SFAS) No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions, and SFAS No. 112,
Employers' Accounting for Postemployment Benefits. In 1989, the company
recognized the cumulative effect of a change in accounting for income taxes
under SFAS No. 96.
33
<PAGE> 31
FINANCIAL REVIEW AND ANALYSIS
Liquidity and Capital Resources (continued)
The company's earnings and cash flow are significantly impacted by the
seasonality of some of its businesses, particularly educational publishing,
reflecting the acquisition of the Macmillan/McGraw-Hill School Publishing
Company in 1993. The first quarter is the least significant to the company,
accounting for 19% of revenues and only 6% of income in 1995. The third quarter
of the year is the most significant to the company, although an earlier buying
pattern by school districts in 1995 positively impacted the second quarter. This
seasonality in revenue also impacts cash flow and related borrowing patterns.
The company typically borrows in the first half of the year, and generates cash
in the second half of the year, primarily from fourth quarter collections from
customers in the education markets. This pattern is magnified in years where
there is significant state adoption activity, such as in 1995. The early
ordering in the school market in the second quarter accelerated some cash
collections into the third quarter in 1995.
In 1995, total debt decreased $134 million, reflecting the retirement of
commercial paper borrowings resulting from the company's positive cash flow.
Total debt as a percentage of total capital improved to 37.8% at the end of 1995
from 45.5% at the end of 1994. 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.
The company's commercial paper borrowings at December 31, 1995 were $368.5
million. Commercial paper debt is supported by an $800 million revolving credit
agreement with a group of banks terminating in November 1999, and $300 million
has been classified as long-term. There are no amounts outstanding under this
agreement.
The company has $250 million of 9.43% senior notes due in the year 2000.
Under a shelf registration which became effective with the Securities and
Exchange Commission in mid-1990, the company can issue an additional $250
million of debt securities. The 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 $98.7 million, or 11.8%,
primarily as a result of increased revenues and the acquisition of UCB Canada.
The year-to-year increase was effectively controlled through timely collections.
A portion of the increase was in international markets where terms of sale and
repayment are traditionally longer. Number of days sales outstanding, a key
indicator of collection efficiency, increased five days at year end due to a
variety of factors, including the increase in international receivables. During
the course of the year, average days sales outstanding was equal to the results
achieved in 1994, demonstrating that receivables continue to be managed
effectively despite the growth in international business.
Finished goods and work-in-process inventories increased $13.3 million, or
7.1%, primarily at Glencoe/McGraw-Hill, reflecting its robust sales, and in
certain international locations. Raw material inventory, primarily paper,
increased $11.4 million due to higher paper prices and the maintenance of higher
quantities reflecting greater demand.
Capital expenditures for the purchase of property and equipment totaled
$58.8 million in 1995 compared with $77.1 million in 1994. In 1995, expenditures
were primarily for computer equipment for business units and corporate
departments. In 1994, there were significant expenditures for the purchase of a
building which houses some of the Financial Information Services Group's 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
business units. In 1996, purchases of property and equipment are expected to
increase in the range of 20-30% as the company begins to implement technology
enhancements under the best practices program.
Net prepublication costs declined approximately 1%
to $268.2 million at December 31, 1995 as amortization expense exceeded 1995
spending, net of foreign exchange impacts. Prepublication investment totaled
$134.1 million in 1995, an increase over 1994 of $15.7 million, reflecting
spending for the 1997 adoption year programs as well as College and Professional
Publishing titles. 1996 prepublication spending is expected to increase
approximately 20-30% from 1995 levels, reflecting investment for the 1997
adoption year.
On January 31, 1996, the company's Board of Directors approved a stock
repurchase program authorizing the purchase of up to 4 million shares of the
company's common stock. Financing for the buyback program will come from
internally generated funds or from short-term borrowings. The repurchased shares
will be used for general corporate purposes, including the issuance of shares
for the exercise of employee stock options.
On January 31, 1996, the company announced an increase in the quarterly
common stock dividend of three cents, or 10%, to 33 cents per share.
In 1996, the company expects that cash flow from operations will be
sufficient to cover dividends, outlays for the purchase of property and
equipment and investment in publishing programs. The level of additional debt
retirement is dependent on the amount of expenditure related to the share
repurchase program.
34
<PAGE> 32
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Years ended December 31 (in thousands, except per-share data) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUE $2,935,283 $2,760,869 $2,195,453
- ----------------------------------------------------------------------------------------------------------
EXPENSES:
Operating 1,340,348 1,248,306 1,055,845
Selling and general 960,875 906,878 707,277
Depreciation and amortization 231,408 230,026 139,619
- ----------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 2,532,631 2,385,210 1,902,741
Share of profit of Macmillan/McGraw-Hill School Publishing
Company (Note 3) -- -- 28,376
Unusual charges related to acquisition of additional 50% of
Macmillan/McGraw-Hill School Publishing Company (Note 3) -- -- (229,800)
Other income-- net (Note 2) 42,385 21,527 11,333
- ----------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 445,037 397,186 102,621
Interest expense-- net 58,766 51,746 36,342
- ----------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES ON INCOME 386,271 345,440 66,279
Provision for taxes on income (Note 5) 159,144 142,321 54,838
- ----------------------------------------------------------------------------------------------------------
NET INCOME $ 227,127 $ 203,119 $ 11,441
- ----------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE (Note 1) $ 2.28 $ 2.05 $ 0.12
Average number of common shares outstanding during year (Note 1) 99,752 98,998 98,378
==========================================================================================================
</TABLE>
See accompanying notes.
35
<PAGE> 33
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31 (in thousands, except share data) 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents (Note 1) $ 10,250 $ 8,056
Accounts receivable (net of allowance for doubtful accounts:
1995-- $79,980; 1994-- $78,732) 855,372 757,949
Receivable from broker-dealers and dealer banks (Note 1) 9,674 23,047
Inventories:
Finished goods 185,608 172,930
Work-in-process 15,675 15,033
Paper and other materials 36,747 25,290
- ----------------------------------------------------------------------------------------
Total inventories 238,030 213,253
Prepaid income taxes 67,128 70,556
Prepaid and other current assets 59,351 51,226
- ----------------------------------------------------------------------------------------
Total current assets 1,239,805 1,124,087
- ----------------------------------------------------------------------------------------
PREPUBLICATION COSTS (net of accumulated amortization:
1995-- $391,384; 1994-- $346,172) (Note 1) 268,200 270,506
INVESTMENTS AND OTHER ASSETS
Investment in Rock-McGraw, Inc.-- at equity (Note 6) 61,797 57,652
Prepaid pension expense 98,177 84,782
Other 141,861 148,660
- ----------------------------------------------------------------------------------------
Total investments and other assets 301,835 291,094
- ----------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT-- AT COST
Land 19,365 19,295
Buildings and leasehold improvements 297,796 291,554
Equipment and furniture 510,146 477,822
- ----------------------------------------------------------------------------------------
Total property and equipment 827,307 788,671
Less-- accumulated depreciation 491,178 442,889
- ----------------------------------------------------------------------------------------
Net property and equipment 336,129 345,782
- ----------------------------------------------------------------------------------------
GOODWILL AND OTHER INTANGIBLE ASSETS-- AT COST
(net of accumulated amortization:
1995-- $366,277; 1994-- $336,523) (Notes 1 and 3) 958,420 972,894
- ----------------------------------------------------------------------------------------
$3,104,389 $3,004,363
========================================================================================
</TABLE>
See accompanying notes.
36
<PAGE> 34
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable (Note 7) $ 71,299 $ 105,288
Accounts payable 215,179 176,314
Payable to broker-dealers and dealer banks (Note 1) 7,469 21,909
Accrued royalties 63,582 58,707
Accrued compensation and contributions to retirement plans 124,800 114,295
Income taxes currently payable 70,405 54,300
Unearned revenue 241,816 239,715
Other current liabilities 251,909 223,287
- -------------------------------------------------------------------------------------------------
Total current liabilities 1,046,459 993,815
- -------------------------------------------------------------------------------------------------
OTHER LIABILITIES
Long-term debt (Note 7) 557,365 657,517
Deferred income taxes 140,531 129,750
Accrued postretirement healthcare and other benefits 200,100 201,650
Other non-current liabilities 124,868 108,579
- -------------------------------------------------------------------------------------------------
Total other liabilities 1,022,864 1,097,496
- -------------------------------------------------------------------------------------------------
Total liabilities 2,069,323 2,091,311
- -------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 6 and 8)
- -------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (Notes 9 and 10)
$1.20 preference stock, $10 par value: authorized-- 891,256 shares;
outstanding-- 1,416 shares in 1995 and 1,514 in 1994 14 15
Common stock, $1 par value: authorized-- 150,000,000 shares;
issued-- 102,918,876 shares in 1995 and 102,918,232 in 1994 102,919 102,918
Additional paid-in capital 26,740 17,855
Retained income 1,030,526 923,052
Foreign currency translation adjustments (56,247) (45,224)
- -------------------------------------------------------------------------------------------------
Less -- common stock in treasury -- at cost
(2,775,996 shares in 1995 and 3,574,014 in 1994) 60,778 76,987
unearned compensation on restricted stock 8,108 8,577
- -------------------------------------------------------------------------------------------------
Total shareholders' equity 1,035,066 913,052
- -------------------------------------------------------------------------------------------------
$3,104,389 $3,004,363
=================================================================================================
</TABLE>
37
<PAGE> 35
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31 (in thousands) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 227,127 $ 203,119 $ 11,441
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation 67,916 64,281 54,941
Amortization of goodwill and intangibles 38,548 37,489 27,939
Amortization of prepublication costs 124,944 128,256 56,739
Provision for losses on accounts receivable 65,385 67,508 60,401
Gain on sale of topical publishing (23,782) -- --
Unusual charges related to acquisition of additional 50% of
Macmillan/McGraw-Hill School Publishing Company (Note 3) -- -- 229,800
Undistributed share of profit of Macmillan/McGraw-Hill joint
venture (Note 3) -- -- (26,318)
Other 6,120 3,862 1,234
Change in assets and liabilities net of effect of acquisitions and dispositions:
(Increase)/decrease in accounts receivable (147,151) (120,286) 79,403
(Increase)/decrease in inventories (30,804) (7,026) 11,258
(Increase)/decrease in prepaid and other current assets (7,957) (6,549) 6,909
Increase/(decrease) in accounts payable and accrued expenses 51,697 (7,460) 7,822
Increase/(decrease) in unearned revenue 2,894 (9,088) 17,376
Increase/(decrease) in other current liabilities 9,814 6,082 (15,636)
Increase in interest and income taxes currently payable 23,913 12,293 4,746
Increase/(decrease) in prepaid/deferred income taxes 18,913 39,048 (39,141)
Net change in other assets and liabilities 5,659 2,390 (23,358)
- -------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 433,236 413,919 465,556
- -------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Investment in prepublication costs (134,118) (118,377) (74,489)
Purchase of property and equipment (58,776) (77,068) (49,808)
Acquisition of businesses and equity interests (Note 2) (36,246) (1,219) (323,913)
Disposition of property, equipment and businesses 35,481 12,962 492
Other 700 2,655 --
- -------------------------------------------------------------------------------------------------------------------------
Cash used for investing activities (192,959) (181,047) (447,718)
- -------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Dividends paid to shareholders (119,653) (114,317) (111,833)
Debt for acquisition of Macmillan/McGraw-Hill -- -- 337,500
Repayment of commercial paper and other short-term debt-- net (133,700) (165,785) (105,611)
Repayment of long-term debt-- net (540) (317) (120,390)
Exercise of stock options 20,616 13,983 19,047
Other (2,593) (1,450) (558)
- -------------------------------------------------------------------------------------------------------------------------
Cash (used for)/provided by financing activities (235,870) (267,886) 18,155
- -------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (2,213) (4,883) (1,268)
- -------------------------------------------------------------------------------------------------------------------------
Net change in cash and equivalents 2,194 (39,897) 34,725
Cash and equivalents at beginning of year 8,056 47,953 13,228
- -------------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF YEAR $ 10,250 $ 8,056 $ 47,953
=========================================================================================================================
</TABLE>
See accompanying notes.
38
<PAGE> 36
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
$1.20 Additional
preference Common paid-in Retained
(in thousands, except per-share data) $10 par $1 par capital income
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1993 $16 $102,918 $ 7,945 $ 934,642
Net income -- -- -- 11,441
Dividends ($1.14 per share) -- -- -- (111,833)
Exercise of stock options -- -- 4,348 --
Restricted stock -- -- (302) --
Foreign currency translation
adjustments-- net -- -- -- --
Other -- -- 62 --
- -------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 16 102,918 12,053 834,250
Net income -- -- -- 203,119
Dividends ($1.16 per share) -- -- -- (114,317)
Exercise of stock options -- -- 3,513 --
Restricted stock -- -- 2,093 --
Foreign currency translation
adjustments-- net -- -- -- --
Other (1) -- 196 --
- -------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 15 102,918 17,855 923,052
Net income -- -- -- 227,127
Dividends ($1.20 per share) -- -- -- (119,653)
Exercise of stock options -- -- 5,685 --
Restricted stock -- -- 2,556 --
Foreign currency translation
adjustments-- net -- -- -- --
Other (1) 1 644 --
- -------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 $14 $102,919 $26,740 $1,030,526
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
Less--
Foreign Less-- unearned
currency common stock compensation
translation in treasury on restricted
(in thousands, except per-share data) adjustments at cost stock Total
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1993 $(21,751) $ 99,448 $15,562 $ 908,760
Net income -- -- -- 11,441
Dividends ($1.14 per share) -- -- -- (111,833)
Exercise of stock options -- (14,699) -- 19,047
Restricted stock -- 2,272 (5,597) 3,023
Foreign currency translation
adjustments-- net (6,826) -- -- (6,826)
Other -- 666 -- (604)
- ----------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 (28,577) 87,687 9,965 823,008
Net income -- -- -- 203,119
Dividends ($1.16 per share) -- -- -- (114,317)
Exercise of stock options -- (10,470) -- 13,983
Restricted stock -- (1,569) (1,388) 5,050
Foreign currency translation
adjustments-- net (16,647) -- -- (16,647)
Other -- 1,339 -- (1,144)
- ----------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 (45,224) 76,987 8,577 913,052
Net income -- -- -- 227,127
Dividends ($1.20 per share) -- -- -- (119,653)
Exercise of stock options -- (14,931) -- 20,616
Restricted stock -- (4,204) (469) 7,229
Foreign currency translation
adjustments-- net (11,023) -- -- (11,023)
Other -- 2,926 -- (2,282)
- ----------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 $(56,247) $ 60,778 $ 8,108 $1,035,066
==============================================================================================
</TABLE>
See accompanying notes.
39
<PAGE> 37
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.
Use of estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
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. It is the company's policy to evaluate the remaining lives
and recoverability of such costs, which is often dependent upon program
acceptance by state adoption authorities.
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 $1.3 billion at December 31, 1995 and $1.2 billion at
December 31, 1994, 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 $198.1 million and $311.1 million at December
31, 1995 and 1994, 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
Advertising expense. The cost of advertising is expensed as incurred. The
company incurred $63 million, $58 million and $39 million in advertising costs
in 1995, 1994 and 1993.
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.
Stock based compensation. The company grants options for a fixed number of
shares to employees with the exercise price equal to the fair value of the
shares at the date of grant. The company accounts for stock option grants in
accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees,
and, accordingly, recognizes no compensation expense for the stock option
grants.
40
<PAGE> 38
Stock split. On January 31, 1996, the Board of Directors declared a two-for-one
stock split of the company's common stock which will be distributed on April 26,
1996 to all shareholders of record on March 28, 1996. Accordingly, all
references in the financial statements and notes to common share data have been
restated to reflect that split.
Reclassification. Certain prior year amounts have been reclassified for
comparability purposes.
2. ACQUISITIONS AND DISPOSITIONS
Acquisitions. In 1995, the company made six acquisitions, including UCB Canada,
Inc., for $36.2 million in cash. In 1994, the company made five small
acquisitions totaling $1.2 million. In 1993, excluding the acquisition of the
Macmillan/McGraw-Hill Publishing Company, the company made six acquisitions
totaling $23.1 million. The effect of these acquisitions on the results of
operations for the years presented was not material. See Note 3 for details of
the Macmillan/McGraw-Hill School Publishing acquisition.
Non-cash Investing Activities. Liabilities assumed in conjunction with the
acquisition of businesses are as follows:
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993*
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Fair value of assets acquired $58,152 $1,520 $835,569**
Cash paid (net of cash
acquired) 36,246 1,219 323,913
- ------------------------------------------------------------------------------
Liabilities assumed $21,906 $ 301 $511,656
==============================================================================
</TABLE>
* Includes the impact of the Macmillan/McGraw-Hill School Publishing Company
acquisition.
** Net of The McGraw-Hill Companies' investment in Macmillan/McGraw-Hill School
Publishing Company.
Dispositions. In 1995, the company sold the topical publishing business of
Shepard's/McGraw-Hill. The pre-tax gain on this disposition was $23.8 million,
which was included in other income. After taxes, the gain was $15.1 million. In
1994 and 1993 there were no significant dispositions.
3. MACMILLAN/MCGRAW-HILL SCHOOL PUBLISHING COMPANY
On October 4, 1993, the company purchased the 50% interest in the
Macmillan/McGraw-Hill School Publishing Company (Macmillan/McGraw-Hill) 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 thereby obtained 100%
ownership of Macmillan/McGraw-Hill and it was consolidated in the company's
operations from the date of acquisition of the additional 50% interest. Prior to
obtaining full ownership, 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 $1.46 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 $.18 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 information presents the consolidated
results of operations of the company for 1993, as if the acquisition of the
additional 50% of Macmillan/McGraw-Hill had occurred at the beginning of 1993,
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 pro forma results exclude the
total non-recurring charge of $160.8 million after taxes, but includes its
effect on amortization. Pro forma results for 1993 are: operating revenue $2.7
billion; net income $184 million and earnings per common share $1.87. These pro
forma results are not necessarily indicative of those that would have occurred
had the acquisition taken place at the beginning of 1993.
Actual unaudited operating results for Macmillan/ McGraw-Hill for the nine
months ended September 30, 1993 were: operating revenue $526.7 million;
operating profit $68.4 million and net profit before partners' income taxes
$54.2 million.
41
<PAGE> 39
4. 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 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 between geographic
areas are recorded at cost plus a mark-up and intercompany revenue and profits
are eliminated.
A summary of information about the company's operations by segment and
geographic area follows:
<TABLE>
<CAPTION>
Operating Operating Assets at Depreciation and Capital
(in thousands) revenue profit December 31 amortization+ expenditures++
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
Educational and Professional Publishing $1,235,578 $ 162,604 $1,620,823 $166,847 $154,560
Financial Services 786,786 230,934 562,742 29,331 19,960
Information and Media Services 912,919 115,069 620,114 33,086 18,048
- ----------------------------------------------------------------------------------------------------------------
Total operating segments 2,935,283 508,607 2,803,679 229,264 192,568
Corporate -- (63,570) 300,710 2,144 326
Interest expense-- net -- (58,766) -- -- --
- ----------------------------------------------------------------------------------------------------------------
Total company $2,935,283 $ 386,271* $3,104,389 $231,408 $192,894
- ----------------------------------------------------------------------------------------------------------------
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) 275,291 1,200 1,060
Interest expense-- net -- (51,746) -- -- --
- ----------------------------------------------------------------------------------------------------------------
Total company $2,760,869 $ 345,440* $3,004,363 $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
- ----------------------------------------------------------------------------------------------------------------
1995
United States $2,528,553 $ 448,876 $2,744,804
Foreign 406,730 59,731 359,585
- -------------------------------------------------------------------------------
1994
United States $2,402,976 $ 408,846 $2,679,589
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
===============================================================================
<FN>
* 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.
</FN>
</TABLE>
42
<PAGE> 40
5. 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) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic operations $356.1 $319.3 $38.7
Foreign operations 30.2 26.1 27.6
- --------------------------------------------------------------------------------
Total income before taxes $386.3 $345.4 $66.3
================================================================================
</TABLE>
A reconciliation of the U.S. statutory tax rate to the company's effective tax
rate for financial reporting purposes follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. statutory rate 35.0% 35.0% 35.0%
Unusual charges -- -- 33.5
Goodwill amortization 1.7 1.9 13.1
Effect of state and local
income taxes 5.5 6.1 10.6
Other-- net (1.0) (1.8) (9.5)
- -------------------------------------------------------------------------------
Effective tax rate 41.2% 41.2% 82.7%*
===============================================================================
<FN>
*Excluding unusual charges, the 1993 effective tax rate was 41.8%.
</FN>
</TABLE>
The provision for taxes on income consists of the following:
<TABLE>
<CAPTION>
(in millions) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $104.9 $ 75.8 $62.8
Deferred 11.9 28.5 (25.8)
- --------------------------------------------------------------------------------
Total federal 116.8 104.3 37.0
- --------------------------------------------------------------------------------
Foreign:
Current 7.3 8.8 5.4
Deferred 2.3 (3.2) 1.6
- --------------------------------------------------------------------------------
Total foreign 9.6 5.6 7.0
- --------------------------------------------------------------------------------
State and local:
Current 28.0 20.9 22.6
Deferred 4.7 11.5 (11.8)
- --------------------------------------------------------------------------------
Total state and local 32.7 32.4 10.8
- --------------------------------------------------------------------------------
Total provision for taxes $159.1 $142.3 $54.8
================================================================================
</TABLE>
The principal temporary differences between the accounting for income and
expenses for financial reporting and income tax purposes as of December 31
follow:
<TABLE>
<CAPTION>
(in millions) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Fixed assets and intangible
assets $ 125.9 $ 117.6
Prepaid pension and other
expenses 65.6 61.5
Unearned revenue 36.0 33.0
Reserves and accruals (117.7) (106.1)
Postretirement and
postemployment benefits (95.1) (92.4)
Other-- net 58.7 45.6
- --------------------------------------------------------------------------------
Deferred tax liability-- net $ 73.4 $ 59.2
================================================================================
</TABLE>
The company made income tax payments totaling $111.4 million in 1995, $83.9
million in 1994 and $78.4 million in 1993.
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 $65
million at December 31, 1995, 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 $17 million
would have been required.
6. 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 1995, the company paid Rock-McGraw gross
annual rentals of $19.4 million (including various escalation payments) for the
occupied space and $13.7 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) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 62.7 $ 61.8 $ 52.4
- --------------------------------------------------------------------------------
Net income 9.7 10.0 5.3
- --------------------------------------------------------------------------------
Depreciation expense 6.4 6.4 5.2
- --------------------------------------------------------------------------------
Total assets 200.7 198.0 178.5
- --------------------------------------------------------------------------------
Mortgage payable 27.5 31.2 34.8
- --------------------------------------------------------------------------------
Total liabilities 63.0 70.1 60.7
================================================================================
</TABLE>
The building is financed by an 81/8%, 25-year mortgage repayable in quarterly
installments of $.9 million plus interest with the balance of $18.3 million due
at maturity in 1998.
7. DEBT
At December 31, 1995, the company had short-term borrowings of $371 million,
primarily representing domestic commercial paper borrowings at an average
interest rate of 6.0% maturing at various dates during 1996. The commercial
paper borrowings are supported by the revolving credit agreement described
below, and $300 million has been classified as long-term.
43
<PAGE> 41
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 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, 1995, 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, 1994, the company had short-term borrowings of $505 million,
primarily representing domestic commercial paper borrowings at an average
interest rate of 5.9% maturing at various dates during 1995. The commercial
paper borrowings were supported by the revolving credit agreement noted above
and $400 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) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
9.43% senior notes due 2000 $250,000 $250,000
Commercial paper supported
by bank revolving credit agreement 300,000 400,000
Other 7,365 7,517
- --------------------------------------------------------------------------------
Total long-term debt $557,365 $657,517
================================================================================
</TABLE>
The company paid interest on its debt totaling $58.6 million in 1995, $51.7
million in 1994 and $33.8 million in 1993.
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, 1995 and 1994 totaling $257.4 million and
$257.5 million, respectively, based on current borrowing rates for debt with
similar terms and maturities is estimated to be $294 million and $271 million,
respectively.
8. RENTAL EXPENSE AND LEASE OBLIGATIONS
Rental expense for property and equipment under all operating lease agreements
was as follows:
<TABLE>
<CAPTION>
(in millions) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross rental expense $112.1 $114.4 $100.3
Less: sublease revenue 26.1 23.7 22.0
- --------------------------------------------------------------------------------
Net rental expense $ 86.0 $ 90.7 $ 78.3
================================================================================
</TABLE>
The company is committed under lease arrangements covering property, computer
systems and office equipment. Certain 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 6, are shown in the following table. The annual
rental commitments for real estate through the year 2002 have been reduced by
approximately $21 million of revenue from existing noncancelable subleases.
<TABLE>
<CAPTION>
(in millions)
- --------------------------------------------------------------------------------
<S> <C>
1996 $ 56.8
1997 49.6
1998 40.1
1999 29.9
2000 21.6
2001 and beyond 69.8
- --------------------------------------------------------------------------------
Total $267.8
================================================================================
</TABLE>
9. 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 6.6
shares of common stock.
The number of common shares issuable for the exercise of stock options was
7,208,178 at December 31, 1995 and 8,110,228 at December 31, 1994. Under the
Directors' Stock Payment Plan, 37,048 common shares were reserved for issuance
at December 31, 1995 and 38,776 at December 31, 1994.
On January 31, 1996, the Board of Directors approved a stock repurchase
program authorizing the company to purchase up to four million shares of the
company's common stock. The repurchased shares may be used for general corporate
purposes, including the issuance of shares for the exercise of stock options.
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 1/200th interest in a share of a
series of preferred stock at an exercise price of $137.50 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-half cent per right until a party acquires 20% or more of the company's
common shares and expire November 6, 1999.
44
<PAGE> 42
10. 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 of incentive stock options and nonqualified stock options to
purchase 2,400,000 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 9,200,000
shares of the company's common stock -- 4,600,000 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 40,000 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 1993 and
1987 Plans. 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.
1995 option activity was as follows:
<TABLE>
<CAPTION>
1993 Plan 1987 Plan 1983 Plan
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning
of year -- 2,330,998 702,590
Options granted 568,200 310,100 --
Less:
Options exercised -- 444,214 253,940
Options canceled and
expired 43,550 56,176 6,066
- --------------------------------------------------------------------------------
Outstanding at end of year 524,650 2,140,708 442,584
- --------------------------------------------------------------------------------
Exercisable at end of year 7,600 1,504,758 442,584
- --------------------------------------------------------------------------------
Shares of common stock
reserved for issuance
at beginning of year 4,600,000 2,807,638 702,590
- --------------------------------------------------------------------------------
Shares of common stock
reserved for issuance
at end of year 4,400,384 2,365,210 442,584
- --------------------------------------------------------------------------------
Price range of options
outstanding at end $33.56 to $26.22 to $24.84 to
of year $34.88 $34.88 $33.69
- --------------------------------------------------------------------------------
Price range of options -- $26.22 to $22.06 to
exercised during year $33.97 $33.69
================================================================================
</TABLE>
A total of 282,468 restricted shares were issued at an average market value of
$33.68 in 1995. In 1994, 235,952 restricted shares were issued at an average
market value of $33.94. 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 $7.2 million for 1995, $5.2 million for 1994 and $3.0
million for 1993. Restricted shares outstanding at the end of the year were
539,356 shares in 1995, 549,894 shares in 1994, and 542,240 shares in 1993.
11. 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) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 13.2 $ 16.4 $ 11.5
Interest cost 28.5 27.7 25.0
Return on assets:
Actual return (122.2) (7.4) (45.9)
Deferred 75.7 (37.5) 5.9
- --------------------------------------------------------------------------------
Recognized (46.5) (44.9) (40.0)
Amortization of net asset
at 1/1/86 (6.1) (6.1) (6.1)
Net amortization and
deferral (2.1) 1.2 1.1
- --------------------------------------------------------------------------------
Net negative pension cost $ (13.0) $ (5.7) $ (8.5)
- --------------------------------------------------------------------------------
Assumed rates-- January 1:
Discount rate (interest cost) 8 1/2% 7 1/4% 7 3/4%
Compensation increase factor 5 1/2 6 6
Return on assets 9 1/2 9 1/2 9 1/2
================================================================================
</TABLE>
45
<PAGE> 43
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 $2.0 million for 1995, $2.4 million for 1994, and $2.2 million for
1993. The accumulated benefit obligation as of December 31, 1995 was $16.0
million including vested benefits of $14.6 million and the projected benefit
obligation was $17.5 million.
Total retirement plans cost was $31.3 million for 1995, $36.7 million for
1994 and $25.7 million for 1993.
The funded status of the domestic defined benefit plans as of December 31
follows:
<TABLE>
<CAPTION>
(in millions) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of pension benefits:
Vested benefits $(362.5) $(309.2)
Non-vested benefits (19.4) (13.9)
- --------------------------------------------------------------------------------
Accumulated benefit obligation (381.9) (323.1)
Additional amount related to projected
compensation increases (28.1) (19.6)
- --------------------------------------------------------------------------------
Projected benefit obligation (410.0) (342.7)
Plan assets at market value --
primarily listed stocks and
U.S. government obligations 585.4 486.1
- --------------------------------------------------------------------------------
Excess of assets over projected
benefit obligation 175.4 143.4
Unrecognized net asset at 1/1/86 (4.6) (10.7)
Unrecognized prior service cost 7.6 8.7
Unrecognized net gain (80.2) (56.6)
- --------------------------------------------------------------------------------
Prepaid pension cost at December 31 $ 98.2 $ 84.8
- --------------------------------------------------------------------------------
Assumed rates-- December 31:
Discount rate 7 1/4% 8 1/2%
Compensation increase factor 5 1/2 5 1/2
================================================================================
</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.
12. POSTRETIREMENT HEALTHCARE AND OTHER BENEFITS
The company and some of 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 $7.1 million in 1995, $9.3 million in 1994
and $12.6 million in 1993. A summary of the components of the cost in 1995, 1994
and 1993 follows:
<TABLE>
<CAPTION>
(in millions) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 2.0 $ 2.2 $ 2.4
Interest cost 10.4 10.6 12.8
Net amortization and deferral (5.3) (3.5) (2.6)
- --------------------------------------------------------------------------------
Postretirement benefits cost $ 7.1 $ 9.3 $12.6
================================================================================
</TABLE>
A summary of the components of the unfunded postretirement benefit obligation as
of December 31 follows:
<TABLE>
<CAPTION>
(in millions) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Retirees $(103.8) $(100.9)
Fully eligible plan participants (14.9) (12.8)
Other active plan participants (22.1) (18.8)
- --------------------------------------------------------------------------------
Total accumulated postretirement
benefit obligation (140.8) (132.5)
Unrecognized net gain (37.2) (44.5)
Unrecognized prior service cost (22.1) (24.7)
- --------------------------------------------------------------------------------
Accrued postretirement benefit
obligation $(200.1) $(201.7)
================================================================================
</TABLE>
The assumed weighted average healthcare cost trend rate ranges from 9.0% in 1996
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, 1995 by $11.2 million and 1995 benefit expense by
$1.2 million. The weighted average discount rate used to measure expense was
8.5% in 1995 and 7.5% in 1994; the rate used to measure the accumulated
postretirement benefit obligation was 7.25% in 1995 and 8.5% in 1994.
46
<PAGE> 44
REPORT OF MANAGEMENT
TO THE SHAREHOLDERS OF THE MCGRAW-HILL COMPANIES, INC.
The financial statements in this report were prepared by the management of The
McGraw-Hill Companies, 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 The McGraw-Hill Companies' financial condition and the
results of the company's operations. Other financial information given in this
report is consistent with these statements.
The McGraw-Hill Companies' 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.
The McGraw-Hill Companies' 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 THE MCGRAW-HILL COMPANIES, INC.
We have audited the accompanying consolidated balance sheets of The McGraw-Hill
Companies, Inc. as of December 31, 1995 and 1994, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1995. 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.
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 provide a reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of The McGraw-Hill Companies, Inc. at December 31, 1995 and
1994, and the consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
January 31, 1996
47
<PAGE> 45
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>
1995
Operating revenue $568,548 $712,782 $ 904,351 $749,602 $2,935,283
Income before taxes 23,727 89,864 179,970 92,710 386,271
Net income 13,951 52,841 105,822 54,513 227,127
Earnings per share (Note a) 0.14 0.53 1.06 0.55 2.28
- -------------------------------------------------------------------------------------------
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 (Note a) 0.15 0.49 0.91 0.50 2.05
- -------------------------------------------------------------------------------------------
1993
Operating revenue $466,947 $490,907 $ 554,969 $682,630 $2,195,453
Income/(loss) before taxes (Note b) 26,614 71,748 (108,804) 76,721 66,279
Net income/(loss) (Note b) 15,250 43,177 (91,868) 44,882 11,441
Earnings per share (Note a) 0.15 0.44 (0.93) 0.46 0.12
===========================================================================================
<FN>
(a) Earnings per share reflect a 2-for-1 stock split approved by the company's Board of
Directors on January 31, 1996. All prior periods have been restated to reflect the split.
(b) 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 $1.64 per share). See Note 3.
</FN>
</TABLE>
HIGH AND LOW SALES PRICES OF THE MCGRAW-HILL COMPANIES COMMON STOCK ON THE NEW
YORK STOCK EXCHANGE* (NOTE A)
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
First quarter $36 5/8-31 7/8 $36 1/2-32 1/4 $32 -28 1/4
Second quarter 38 7/8-35 5/8 35 -31 1/4 32 1/8-27 5/8
Third quarter 42 3/8-37 5/8 38 5/8-33 1/8 35 -29 1/8
Fourth quarter 43 7/8-39 1/2 37 3/8-32 37 5/8-32 7/8
- --------------------------------------------------------------------------------
Year 43 7/8-31 7/8 38 5/8-31 1/4 37 5/8-27 5/8
================================================================================
<FN>
*The New York Stock Exchange is the principal market on which the company's
shares are traded.
(a) High and low sales prices were adjusted to reflect the 2-for-1 stock split
approved by the company's Board of Directors on January 31, 1996. All prior
periods have been restated to reflect the split.
</FN>
</TABLE>
48
<PAGE> 1
Exhibit (21)
THE McGRAW-HILL COMPANIES, INC.
Subsidiaries of Registrant
Listed below are all the subsidiaries of Registrant, except certain inactive
subsidiaries and certain other of The McGraw-Hill Companies' 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>
The McGraw-Hill Companies, Inc. New York Registrant
CM Research, Inc. New York 100
Capitol Radio Engineering
Institute, Inc. Delaware 100
*National Radio Institute Delaware 100
Computer and Communications
Information Group, Inc. New Jersey l00
DRI Europe, Inc. Delaware 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 Corporation Delaware 100
McGraw-Hill Capital, Inc. New York l00
*International Valuation
Services, Inc. Delaware 40
McGraw-Hill Financial Publications, Inc. Delaware 100
McGraw-Hill Interamericana, Inc. New York 100
McGraw-Hill International
Enterprises, Inc. New York 100
*McGraw-Hill Korea, Inc. Korea 100
*McGraw-Hill (Malaysia) Sdn.Bhd Malaysia 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 l00
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
Standard & Poor's Investment Advisory
Services, Inc. Delaware 100
Standard & Poor's Ltd. Delaware 100
Standard & Poor's Securities, Inc. Delaware l00
Tower Group International, Inc. New York 100
*Tower Group International Canada Inc. Canada 100
</TABLE>
-98-
<PAGE> 2
<TABLE>
<CAPTION>
State or Percentage
Jurisdiction of Voting
of Securities
Incorporation Owned
------------- -----------
<S> <C> <C>
Calificadora de Valores, S.A. de C.V. Mexico 100
Columbia Administration Software
Publishing Corporation British Columbia 100
*Columbia Computing Services, Inc. Delaware 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. U.S. Virgin Islands 100
Nueva Editorial Interamericana,
S.A. de C.V. Mexico 100
Standard & Poor's - Nordisk Rating AB Sweden 100
Science Research Associates, Pty., Ltd. Australia 100
Science Research Associates, Limited United Kingdom 100
Standard & Poor's - ADEF France 100
Standard & Poor's International, S.A. Belgium 100
Tata McGraw-Hill Publishing Company
Private Limited India 40
</TABLE>
*Subsidiary of a subsidiary.
-99-
<PAGE> 1
Exhibit (23)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report on Form 10-K
of The McGraw-Hill Companies, Inc. of our report dated January 31, 1996,
included in the 1995 Annual Report to Shareholders of The McGraw-Hill Companies,
Inc.
Our audits also included the consolidated financial statement schedule of The
McGraw-Hill Companies, 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 The McGraw-Hill
Companies, 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 Standard & Poor's Savings Incentive Plan for Represented
Employees, The Standard & Poor's Employee Retirement Account Plan for
Represented Employees, The Employees' Investment Plan of McGraw-Hill
Broadcasting Company, Inc. and Its Subsidiaries (No. 33-50856) and in the
related prospectuses of our report dated January 31, 1996 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 The McGraw-Hill
Companies, Inc.
/s/ ERNST & YOUNG LLP
New York, New York
March 26, 1996
-100-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 10,250
<SECURITIES> 0
<RECEIVABLES> 935,352
<ALLOWANCES> 79,980
<INVENTORY> 238,030
<CURRENT-ASSETS> 1,239,805
<PP&E> 827,307
<DEPRECIATION> 491,178
<TOTAL-ASSETS> 3,104,389
<CURRENT-LIABILITIES> 1,046,459
<BONDS> 0
102,919
14
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,104,389
<SALES> 2,935,283
<TOTAL-REVENUES> 2,935,283
<CGS> 2,532,631
<TOTAL-COSTS> 2,532,631
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 65,385
<INTEREST-EXPENSE> 58,766
<INCOME-PRETAX> 386,271
<INCOME-TAX> 159,144
<INCOME-CONTINUING> 227,127
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 227,127
<EPS-PRIMARY> 2.28
<EPS-DILUTED> 2.28
</TABLE>
<PAGE> 1
THE MCGRAW-HILL COMPANIES, INC.
SCHEDULE II - RESERVE FOR DOUBTFUL ACCOUNTS
Years ended December 31, 1995, 1994 and 1993
(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>
1995 $78,732 $65,385 $64,137 $ - $79,980
1994 79,461 67,508 68,237 - 78,732
1993 80,768 60,401 65,534 3,826 (B) 79,461
</TABLE>
(A) Accounts written off, less recoveries.
(B) Reserves acquired in connection with the purchase of the
MacMillan/McGraw-Hill School Publishing Co.
-102-
