UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 512-2000
------------------
Not Applicable
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(Former name, former address and former fiscal year, if changed since
last report)
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[ ]
On July 31, 1998 there were approximately 99.3 million shares of common
stock (par value $1.00 per share) outstanding.
<PAGE>
The McGraw-Hill Companies, Inc.
-------------------------------
TABLE OF CONTENTS
-----------------
Page Number
-----------
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
-------
Consolidated Statements of Income for
the three and six month periods ended
June 30, 1998 and 1997 3
Consolidated Balance Sheets at June 30, 1998,
December 31, 1997 and June 30, 1997 4-5
Consolidated Statements of Cash Flows for the six
months ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of Operating
------- Results and Financial Condition 12-15
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 16
-------
Item 4. Submission of Matters to a Vote of Security Holders 17-18
-------
Item 6. Exhibits and Reports on Form 8-K 17-34
-------
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<PAGE>
PART I
Financial Information
Item 1. Financial Statements
--------------------
<TABLE>
The McGraw-Hill Companies, Inc.
-------------------------------
Consolidated Statements of Income
--------------------------------
Periods Ended June 30, 1998 and 1997
------------------------------------
<CAPTION>
Three Months Six Months
-------------------- ----------------------
1998 1997 1998 1997
--------- --------- ---------- ----------
(In thousands, except per-share data)
<S> <C> <C> <C> <C>
Operating revenue $ 881,122 $ 836,652 $1,584,542 $1,489,587
Expenses:
Operating 390,203 371,484 748,778 697,080
Selling and general 288,998 273,244 541,950 519,689
Depreciation and amortization 67,832 74,162 119,438 122,321
--------- --------- ---------- ----------
Total expenses 747,033 718,890 1,410,166 1,339,090
Other income - net 6,545 5,065 11,374 8,691
--------- --------- ---------- ----------
Income from operations 140,634 122,827 185,750 159,188
Interest expense - net 13,025 14,234 25,127 25,618
--------- --------- ---------- ----------
Income before taxes on income 127,609 108,593 160,623 133,570
Provision for taxes on income 49,768 43,437 62,643 53,428
--------- --------- ---------- ----------
Net income $ 77,841 $ 65,156 $ 97,980 $ 80,142
========= ========= ========== ==========
Earnings per common share:
Basic $ 0.79 $ 0.66 $ 0.99 $ 0.81
========= ========= ========== ==========
Diluted $ 0.78 $ 0.65 $ 0.98 $ 0.80
========= ========= ========== ==========
Average number of common
shares outstanding:
Basic 98,936 99,398 98,976 99,354
======= ======= ======= =======
Diluted 99,834 100,107 99,875 100,011
======= ======= ======= =======
</TABLE>
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<PAGE>
<TABLE>
The McGraw-Hill Companies, Inc.
-------------------------------
Consolidated Balance Sheets
---------------------------
<CAPTION>
June 30, Dec. 31, June 30,
1998 1997 1997
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 32,579 $ 4,768 $ 6,788
Accounts receivable (net of allowance
for doubtful accounts and sales
returns) (Note 3) 925,969 972,449 877,310
Receivable from broker-dealers and
dealer banks (Note 4) 5,019 9,483 5,006
Inventories (Note 3) 362,500 290,479 360,001
Prepaid income taxes 100,269 99,131 108,152
Prepaid and other current assets 75,968 88,111 93,542
---------- ---------- ----------
Total current assets 1,502,304 1,464,421 1,450,799
---------- ---------- ----------
Prepublication costs (net of accumulated
amortization) (Note 3) 342,794 326,251 372,020
Investments and other assets:
Investment in Rock-McGraw, Inc. - at
equity 75,355 72,292 69,552
Prepaid pension expense 116,974 111,895 107,414
Other 168,552 167,701 168,488
---------- ---------- ----------
Total investments and other assets 360,881 351,888 345,454
---------- ---------- ----------
Property and equipment - at cost 882,920 838,214 849,072
Less - accumulated depreciation 590,229 564,584 546,274
---------- ---------- ----------
Net property and equipment 292,691 273,630 302,798
Goodwill and other intangible assets - at
cost (net of accumulated amortization) 1,268,130 1,308,284 1,296,321
---------- ---------- ----------
$3,766,800 $3,724,474 $3,767,392
========== ========== ==========
</TABLE>
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<PAGE>
<TABLE>
The McGraw-Hill Companies, Inc.
-------------------------------
Consolidated Balance Sheets
---------------------------
<CAPTION>
June 30, Dec. 31, June 30,
1998 1997 1997
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 128,197 $ 77,395 $ 372,579
Accounts payable 255,285 285,862 237,897
Payable to broker-dealers and dealer
banks (Note 4) 4,894 9,331 4,632
Accrued liabilities 209,432 278,194 178,132
Income taxes currently payable 134,716 100,685 125,051
Unearned revenue 227,217 219,698 214,728
Other current liabilities 284,001 235,077 235,572
---------- ---------- ----------
Total current liabilities 1,243,742 1,206,242 1,368,591
---------- ---------- ----------
Other liabilities:
Long-term debt (Note 5) 606,868 607,030 563,028
Deferred income taxes 107,481 111,022 143,768
Accrued postretirement healthcare and
other benefits 200,500 196,508 197,820
Other non-current liabilities 162,193 169,021 158,572
---------- ---------- ----------
Total other liabilities 1,077,042 1,083,581 1,063,188
---------- ---------- ----------
Total liabilities 2,320,784 2,289,823 2,431,779
---------- ---------- ----------
Shareholders' equity (Note 6):
Capital stock 102,933 102,933 102,933
Additional paid-in capital 42,585 35,469 43,951
Retained income 1,561,351 1,542,854 1,403,303
Accumulated other comprehensive income (78,706) (74,247) (67,578)
---------- ----------- -----------
1,628,163 1,607,009 1,482,609
Less - common stock in treasury-at cost 164,001 159,447 131,930
unearned compensation on
restricted stock 18,146 12,911 15,066
---------- ---------- ----------
Total shareholders' equity 1,446,016 1,434,651 1,335,613
---------- ---------- ----------
$3,766,800 $3,724,474 $3,767,392
========== ========== ==========
</TABLE>
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<PAGE>
<TABLE>
The McGraw-Hill Companies, Inc.
-------------------------------
Consolidated Statements of Cash Flows
------------------------------------
For The Six Months Ended June 30, 1998 And 1997
-----------------------------------------------
<CAPTION>
1998 1997 --------- ---------
-------- -------
(In thousands)
<S> <C> <C>
Cash flows from operating activities
- ------------------------------------
Net income $ 97,980 $ 80,142
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation 38,262 35,497
Amortization of goodwill and intangibles 26,753 24,796
Amortization of prepublication costs 54,423 62,028
Provision for losses on accounts receivable 32,327 40,595
Other (635) 2,975
Changes in assets and liabilities net of effect of
acquisitions and dispositions:
Increase/(decrease) in accounts receivable 8,923 (43,477)
Increase in inventories (74,049) (87,447)
Decrease (increase) in prepaid and other current assets 9,251 (13,946)
Decrease in accounts payable and accrued expenses (99,329) (57,058)
Increase/(decrease) in unearned revenue 13,414 (16,102)
Increase/(decrease) in other current liabilities 27,686 (18,755)
Increase/(decrease) in interest and income taxes
currently payable 34,405 (110,441)
Increase/(decrease) in prepaid/deferred income taxes 1,653 (2,030)
Net change in other assets and liabilities (3,365) (13,201)
- --------------------------------------------------- --------- ---------
Cash provided by/(used for) by operating activities 167,699 (116,424)
- --------------------------------------------------- --------- ---------
Investing activities
- --------------------
Investment in prepublication costs (69,100) (80,727)
Purchases of property and equipment (60,325) (31,515)
Proceeds from exchange of Shepard's/McGraw-Hill
for the Times Mirror Higher Education Group - 6,730
Acquisition of businesses - (24,834)
Disposition of property, equipment and businesses 30,747 1,773
- --------------------------------------------------- --------- ---------
Cash used for investing activities (98,678) (128,573)
- --------------------------------------------------- --------- ---------
Financing activities
- --------------------
Additions to short-term debt - net 50,797 349,105
Dividends paid to shareholders (79,483) (71,723)
Exercise of stock options 14,441 13,718
Repurchase of treasury shares (22,695) (41,365)
Other (4,270) (1,380)
- --------------------------------------------------- --------- ---------
Cash (used for)/provided by financing activities (41,210) 248,355
- --------------------------------------------------- --------- ---------
Net change in cash and equivalents 27,811 3,358
Cash and equivalents at beginning of period 4,768 3,430
- --------------------------------------------------- --------- ---------
Cash and equivalents at end of period $ 32,579 $ 6,788
========= =========
</TABLE>
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<PAGE>
The McGraw-Hill Companies, Inc.
-------------------------------
Notes to Financial Statements
-----------------------------
1. The financial information in this report has not been audited, but in the
opinion of management all adjustments (consisting only of normal recurring
adjustments) considered necessary to present fairly such information have
been included. The operating results for the three and six month periods
ended June 30, 1998 and 1997 are not necessarily indicative of results to
be expected for the full year due to the seasonal nature of some of the
company's businesses. The financial statements included herein should be
read in conjunction with the financial statements and notes included in the
company's Annual Report on Form 10-K for the year ended December 31, 1997.
Certain prior year amounts have been reclassified for comparability
purposes.
<TABLE>
2. Operating profit by segment is total operating revenue less expenses which
are deemed to be related to the unit's operating revenue. A summary of
operating results by segment for the three months and six months ended
June 30, 1998 and 1997 follows:
<CAPTION>
1998 1997
-------------------- ---------------------
Operating Operating
Revenue Profit Revenue Profit
--------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Three Months
------------
Educational and Professional
Publishing $354,217 $ 35,457 $357,278 $ 34,204
Financial Services 282,140 86,159 234,400 69,846
Information and Media Services 244,765 36,428 244,974 34,244
-------------------------------- -------- -------- -------- --------
Total operating segments 881,122 158,044 836,652 138,294
General corporate expense - (17,410) - (15,467)
Interest expense - net - (13,025) - (14,234)
-------------------------------- -------- -------- -------- --------
Total company $881,122 $127,609* $836,652 $108,593*
======== ======== ======== ========
<FN>
*Income before taxes on income.
</FN>
</TABLE>
-7-
<PAGE>
<TABLE>
The McGraw-Hill Companies, Inc.
-------------------------------
Notes to Financial Statements
-----------------------------
<CAPTION>
1998 1997
-------------------- ---------------------
Operating Operating
Revenue Profit Revenue Profit
---------- --------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Six Months
----------
Educational and Professional
Publishing $ 562,574 $ (4,274) $ 554,135 $ (8,347)
Financial Services 563,644 169,198 469,328 144,526
Information and Media Services 458,324 53,937 466,124 52,172
----------------------------- ---------- -------- ---------- --------
Total operating segments 1,584,542 218,861 1,489,587 188,351
General corporate expense - (33,111) - (29,163)
Interest expense - net - (25,127) - (25,618)
----------------------------- ---------- -------- ---------- --------
Total company $1,584,542 $160,623* $1,489,587 $133,570*
========== ======== ========== ========
<FN>
*Income before taxes on income.
</FN>
</TABLE>
<TABLE>
3. The following table is a reconciliation of the company's net income to
comprehensive income for the three month and six month periods ended June 30,
1998:
<CAPTION>
Three Months Six Months
-------------------- ----------------------
1998 1997 1998 1997
--------- --------- ---------- ----------
(amount in thousands)
<S> <C> <C> <C> <C>
Net Income $ 77,841 $ 65,156 $ 97,980 $ 80,142
Other Comprehensive Income,
net of tax: Foreign Currency
translation adjustment (2,772) (1,538) (4,459) (10,276)
--------- --------- --------- ---------
Comprehensive Income 75,069 63,618 93,521 69,866
========= ========= ========= ========
</TABLE>
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<PAGE>
The McGraw-Hill Companies, Inc.
-------------------------------
Notes to Financial Statements
-----------------------------
<TABLE>
4. The allowance for doubtful accounts and sales returns, the components of
inventory and the accumulated amortization of prepublication costs were as
follows:
<CAPTION>
June 30, Dec. 31, June 30,
1998 1997 1997
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Allowance for doubtful accounts $ 89,991 $ 98,321 $ 93,268
========= ========= =========
Allowance for sales returns $ 48,579 $ 84,308 $ 48,772
========= ========= =========
Inventories:
Finished goods $ 285,647 $ 233,105 $ 293,986
Work-in-process 45,656 28,455 35,545
Paper and other materials 31,197 28,919 30,470
--------- --------- ---------
Total inventories $ 362,500 $ 290,479 $ 360,001
========= ========= =========
Accumulated amortization of
prepublication costs $ 507,098 $ 526,156 $ 507,797
========= ========= =========
</TABLE>
5. 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 $262.2 million of matched purchase and sale commitments at
June 30, 1998. Only those transactions not closed at the settlement date
are reflected in the balance sheet as receivables and payables.
<TABLE>
6. A summary of long-term debt follows:
<CAPTION>
June 30, Dec. 31, June 30,
1998 1997 1997
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
9.43% senior notes due 2000 $ 250,000 $ 250,000 $ 250,000
Commercial paper supported by
bank revolving credit agreement 350,000 350,000 300,000
Other 6,868 7,030 13,028
--------- --------- ---------
Total long-term debt $ 606,868 $ 607,030 $ 563,028
========= ========= =========
</TABLE>
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<PAGE>
The McGraw-Hill Companies, Inc.
-------------------------------
Notes to Financial Statements
-----------------------------
<TABLE>
7. Common shares approved for issuance for conversions and stock based awards were
as follows:
<CAPTION>
June 30, Dec. 31, June 30,
1998 1997 1997
---------- --------- ---------
<S> <C> <C> <C>
$1.20 convertible preference stock
at the rate of 6.6 shares for each
share of preference stock 8,989 8,989 9,134
Stock based awards 9,540,427 10,239,262 10,725,501
---------- ---------- ----------
9,549,416 10,248,251 10,734,635
========== ========== ==========
</TABLE>
<TABLE>
8. Cash dividends per share declared during the periods were as follows:
<CAPTION>
Three Months Six Months
------------ ----------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Common stock $.39 $.36 $.78 $.72
Preference stock .30 .30 .60 .60
</TABLE>
<TABLE>
9. A reconciliation of the number of shares used for calculating basic earnings
per common share and diluted earnings per share for the three months and the
six months ended June 30, 1998 and 1997 follows:
<CAPTION>
Three month period 1998 1997
-------- ---------
(Thousands of shares)
<S> <C> <C>
Average number of common shares outstanding 98,936 99,398
Effect of stock options and other dilutive securities 898 709
------- --------
99,834 100,107
======= ========
</TABLE>
<TABLE>
<CAPTION>
Six month period 1998 1997
-------- ---------
(Thousands of shares)
<S> <C> <C>
Average number of common shares outstanding 98,976 99,354
Effect of stock options and other dilutive securities 899 657
------- ------- 99,875 100,011
99,834 100,107
======= ========
</TABLE>
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<PAGE>
The McGraw-Hill Companies, Inc.
-------------------------------
Notes to Financial Statements
-----------------------------
Restricted performance shares outstanding at June 30, 1998 of 502,000 were not
included in the computation of diluted earnings per common share because the
necessary vesting conditions have not yet been met.
10.In June 1997 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures
about Segments of an Enterprise and Related Information. The new
standard must be adopted on December 31, 1998. SFAS No. 131 establishes
standards for the manner in which companies report information about
operating segments and related disclosures about products and services,
geographic areas and major customers. SFAS No.131 supersedes SFAS
No. 14, Financial Reporting for Segments of a Business Enterprise.
The adoption of SFAS No. 131 is not expected to have a material impact on
the company's financial statement disclosures.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The new standard is effective January 1,
2000. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities, requiring companies to
recognize all derivatives as either assets or liabilities on their balance
sheet and measuring them at fair value. Management has determined that the
pronouncement will have no material impact on the company's financial
statements.
-11-
<PAGE>
Item 2. Management's Discussion and Analysis of Operating
-------------------------------------------------
Results and Financial Condition
-------------------------------
Operating Results - Comparing Periods Ended June 30, 1998 and 1997
Three Months
Consolidated Review
Operating revenue for the quarter increased $44.5 million, or 5.3%, over the
1997 quarter to $881.1 million, essentially driven by strong growth in the
Financial Services segment, particularly S&P Ratings, and Business Week in the
Information and Media segment. Excluding the impact of divested businesses,
revenues would have increased 8.4%.
Net income for the quarter increased $12.7 million, or 19.5%, over the
comparable quarter last year. Diluted earnings per share for the quarter were
78 cents compared to 65 cents in 1997, a 20% increase. The improvement in net
income is largely a result of higher revenues.
Net interest expense decreased $1.2 million, or 8.5%, from the prior year.
Borrowing levels are down from the prior year due to improved operating results
and the timing of a tax payment made in 1997 in connection with the company's
October 1996 exchange of the Shepard's/McGraw-Hill legal publishing business for
the Times Mirror Higher Education Group. The 5.6% average interest rate on
commercial paper is the same as the prior year.
The provision for taxes as a percent of income before taxes was 39% in 1998
compared to 40% in 1997. The reduction in the effective income tax rate
reflects favorable apportionment changes reducing state income taxes.
Segment Review
Educational and Professional Publishing revenues declined only .9%, or $3.1
million, to $354.2 million, but operating profit improved $1.3 million, or 3.7%
over the same period last year. The comparisons between the two years are
difficult as 1997 benefited from very strong elementary school sales,
particularly in Texas, and the introduction of the Encyclopedia of Science and
Technology, one of our all time best sellers. Nonetheless, SRA/McGraw-Hill and
Glencoe/McGraw-Hill improved results in the second quarter bolstered by
excellent results in their math, social science, reading, English and foreign
language programs in adoption states and open territories. Higher Education
posted higher revenues benefiting from front list sales and integration actions
taken last year. Operating results at International publishing decreased from
the prior year due to softness in the Asia/Pacific group resulting from
continued economic troubles and the strengthening of the U.S. dollar in several
other key markets, and delays in ordering by Canadian college bookstores.
Enrollments at the Continuing Education Center continued to decline.
Financial Services revenue increased $47.7 million, or 20.4%, and operating
profit increased $16.3 million, or 23.4%, over the prior year's second quarter.
Standard & Poor's Ratings had another strong quarter in both the domestic and
international markets. According to Securities Data Company, the U.S. Bond
market benefited from a 58% increase in new issue dollar volume. In corporate
issuance, the high yield sector was particularly strong as new issue dollar
volume surged 80%. Structured finance and public finance also performed well.
Foreign source revenues grew at a faster pace than domestic, fueled by an
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<PAGE>
increase in new issue volume in Europe and Standard & Poor's global expansion.
Financial Information Services revenues increased primarily due to growth in
mutual funds information services, global commodities information markets
and index services as well as the introduction of new web-based products.
Softness in the secondary municipal bond area reflecting a continued weak
market. Despite the revenue increase, operating profit for the segment was only
slightly higher than the prior year because of new product development costs.
Information & Media Services revenue was flat with the prior year, but excluding
the impact of divested businesses in 1998 and 1997, revenues would have
increased 6.3%. Operating profit for the segment increased $2.2 million, or
6.4%, over the prior year. Outstanding results at Business Week and
Broadcasting group helped to offset softness in the Publication Services and
losses at the Information Technology Group publications, which were divested in
May 1998. Business Week posted double digit gains in both revenues and
operating profit as new business helped improve revenue per page; advertising
pages increased 7.5% in the second quarter, according to the Publishers
Information Bureau. Broadcasting Group also posted strong revenue and operating
profit, fueled by political advertising and cost containment. The Construction
Information Group revenues improved and new product development continues. The
Publications Services Group operating profit was soft, reflecting some weakness
in aviation and science and technology publications. The Information Technology
and Communications Group had a loss for the quarter. This Group, which was sold
to CMP Media in late May for $28.6 million, included the magazines BYTE, Data
Communications, LAN Times and tele.com as well as the testing business NSTL.
There was no gain or loss on the divestiture as the proceeds minus disposition-
related costs approximated book value.
Six Months
Consolidated Review
For the first six months of the year, operating revenue increased $95.0 million,
or 6.4%, over the prior year, reflecting increases in the Educational &
Professional Publishing and Financial Services segments offset by a decrease in
Information & Media Services. Total expenses increased $71.1 million, or 5.3%,
from the prior year primarily due to volume related costs arising from higher
revenues and costs from the launch of new products and initiatives.
Net income for the first half of the year increased $17.8 million, or 22.3%,
over 1997 fueled by higher profits in all three segments. Diluted earnings per
share of 99 cents was approximately 22.5% higher than the prior year's 80 cents.
The provision for taxes as a percent of income before taxes was 39% in 1998
compared to 40% in 1997. The reduction in the effective income tax rate
reflects favorable apportionment changes reducing state taxes.
Net interest expense through the first half of 1998 was $25.1 million, 1.9%
lower than the last year. Borrowing levels are down from the prior year due to
improved operating results and the timing of a tax payment made in 1997 in
connection with the company's October 1996 exchange of the Shephard's/McGraw-
Hill legal publishing business for the Times Mirror Higher Education Group.
Interest expense is expected to increase in the second half due to share
repurchases, usual seasonal borrowing levels and outlays related to the
consolidation of office space in New York city. Average commercial borrowing
rates increased from 5.5% in 1997 to 5.7% in 1998.
-13-
<PAGE>
Segment Review
Educational and Professional Publishing revenue increased $8.4 million, or 1.5%,
from the last year. Educational publishing revenue increased as Glencoe and SRA
continue to post strong operating results in their state adoption sales,
particularly in math, social science, reading, English and foreign language.
Higher Education also posted higher revenues than the prior year as their front
list titles are off to a good start. Professional publishing revenue is flat
with prior year despite improved results in the Ibero Group because of softness
in the Asia-Pacific Group. Continuing Education Center continues to experience
weakness as enrollments declined.
Financial Services revenue increased $94.3 million, or 20.1%, and operating
profit increased $24.7 million, or 17.1%, over the prior year. Standard &
Poor's Ratings Services improved revenues and profits were driven by a 63%
increase in new issuance volume in the entire U.S. corporate bond market,
particularly in the high yield sector and in structured finance and public
finance. Standard & Poor's Financial Information Services revenue increased due
to new products and strength in the retail brokerage and institutional global
markets. Profits declined due to investments in new products.
Information and Media Services revenue declined $7.8 million, or 1.7%, from the
prior year primarily from the sale of the Information Technology and
Communications Group in May. Excluding Information Technology and
Communications, total revenue for the segment increased 4.1%. Segment operating
profit increased $1.8 million, or 3.4%, from the prior year. Business Week
revenues increased due to advertising page growth and increased revenue per
page. The construction and broadcasting groups improved performance, while the
aviation, healthcare and science and technology magazines were weak in the first
half of the year. The Information Technology and Communications Group, which
was sold in May 1998, incurred a loss.
Financial Condition
The company continues to maintain its strong financial position. Cash provided
by operating activities in the first six months totaled $167.7 million as
compared to a use of cash of $116.4 million in 1997 primarily due to higher
earnings, a special tax payment in 1997 related to the company's exchange of the
Shephard's publishing business and higher working capital due to the
introduction of new products. Total debt increased $51 million from year-end
due primarily to seasonal requirements. The company's strong presence in school
and higher education publishing significantly impacts the seasonality of its
earnings and borrowing patterns during the year, with the company borrowing
during the first half of the year and generating cash during the second half of
the year, particularly in the fourth quarter.
Commercial paper borrowings at June 30, 1998 totaled $436 million, an increase
of approximately $55 million from the prior year. Commercial paper is supported
by a $800 million revolving credit agreement with a group of banks terminating
in February 2002, and $350 million has been classified as long-term. There are
no amounts outstanding under this agreement.
$250 million of 9.43% senior notes, due in the year 2000, remain outstanding.
Under a shelf registration which became effective with the Securities and
Exchange Commission in 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 borrowings with longer term securities, when and if interest rates
are attractive and markets are favorable.
-14-
<PAGE>
Gross accounts receivable decreased $90.5 million from year end due primarily to
the seasonality of the business. Year over year receivables increased $45
million due to higher revenues. Inventories increased $72.0 million from the
end of 1997 in anticipation of school adoption program orders during the third
quarter.
Net prepublication costs increased $16.5 million from the end of 1997 to $342.8
million due to higher spending for the school publishing, higher education and
professional publishing products. Purchases of property and equipment were
$60.3 million through the current six month period, $28.8 million higher than
the prior year as the company continues the consolidation of its New York City
office space. These capital expenditures are for furniture and equipment and
for building improvements.
Spending is expected to continue at the current rate as the company begins to
occupy its new locations.
In January 1996, the Board of Directors approved a stock repurchase program
authorizing the purchase of up to four million shares of common stock. At the
end of 1997, 2.7 million common shares had been repurchased at a cost of $143.2
million; through the first six months of 1998, 0.3 million common shares had
been repurchased at a cost of $22.7 million. Purchases under this program may
be made from time to time according to market conditions, and the company
intends on purchasing additional shares later this year. The repurchased shares
will be used for general corporate purposes.
The technology environment has been reviewed to assess Year 2000 risks. Plans
have been developed in earlier months to convert or replace systems to achieve
Year 2000 compliance, and the total estimated cost to convert these systems has
not changed materially since the last quarter. The company has communicated
with its significant vendors, redistributors and customers to determine their
plans to address the Year 2000 issue. While the company expects a successful
resolution of these issues, there can be no guarantee that the systems of other
companies, on which our systems rely, will address all Year 2000 issues on a
timely basis or that their failure to successfully address all issues would not
have an adverse effect on the company.
At the company's annual meeting on April 29, 1998, the shareholders approved an
increase in the number of authorized common shares from 150 million shares to
300 million shares.
"Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995"
This section, as well as other portions of this document, include certain
forward-looking statements about the company's business, new products, sales,
expenses, cash flows, debt levels and operating and capital requirements. Such
forward-looking statements include, but are not limited to: the strength of
profit levels at Standard & Poor's Rating Services; the level of success in 1998
school publishing adoptions; the level of capital expenditures in 1998; shares
to be reacquired under the share repurchase plan; and the level of the future
cash flow and debt levels.
Actual results may differ materially from those in any forward-looking
statements because any such statements involve risk and uncertainties and are
subject to change based on various important factors, including but not limited
to worldwide economic and political conditions, the health of capital and equity
markets, the successful marketing of new products and the effect of competitive
products and pricing.
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<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
-----------------
County of Orange v. McGraw-Hill Companies, Inc.
-----------------------------------------------
In previous filings, Registrant reported that a Complaint was filed
on June 11, 1996, in the United States Bankruptcy Court, Central
District of California, in an action captioned County of Orange v.
McGraw-Hill Companies, Inc., d/b/a Standard & Poor's (Case No. SA 94
-222-72-JR; Adversary No. SA 96-01624-JR). The Complaint alleged
that Standard & Poor's breached its contracts with Orange County, was
professionally negligent and aided and abetted the County's officers
in breaching their fiduciary duty by, inter alia, assigning unduly
high ratings to debt instruments issued by the County and by failing
to advise the County's Board of Supervisors of the illegal acts being
committed by the County's officers. On October 17, 1996, the United
States District Court, Central District of California, granted
Registrant's motion to withdraw the Bankruptcy Court reference. The
action was transferred to the United States District Court for the
Central District of California (Case No. SA CV 96-765-GLT) upon the
filing on December 4, 1996 of the Bankruptcy Court's ruling on
Registrant's motion to dismiss the Complaint. In that ruling, the
Bankruptcy Court granted Registrant's motion to dismiss the County's
aiding and abetting claim, but denied it as to the breach of contract
and professional negligence claims. Registrant appealed this
decision to the District Court which, on March 18, 1997, dismissed
the County's professional negligence claim, with leave to amend. On
April 9, 1997, the County filed an Amended Complaint for breach of
contract and professional malpractice, adding a claim for punitive
damages. On April 28, 1997, the Registrant filed a motion to dismiss
the professional malpractice claim, which motion was denied by the
District Court on June 2, 1997. Extensive discovery has been
conducted. On February 13, 1998, Registrant moved again to dismiss
the County's professional malpractice claim, which motion was denied
by the District Court on March 16, 1998. Trial is currently
scheduled to begin on May 4, 1999. In response to Registrant's
interrogatories, the County has claimed compensatory damages of
approximately $3 billion, subject to certain offsets. The County has
also claimed unspecified punitive damages. Registrant continues to
believe that the allegations of the complaint and the damages claims
lack merit and is vigorously contesting the action.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The 1998 Annual Meeting of Shareholders of the company was held on
April 29, 1998.
(b) The following nominees having received the FOR votes set forth
opposite their respective names, constituting a plurality of the
votes cast at the Annual Meeting for the election of
Directors, were duly elected Directors of the Registrant
for three-year terms:
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<PAGE>
DIRECTOR FOR WITHHOLD AUTHORITY
Pedro Aspe 88,802,041 861,863
George B. Harvey 88,801,939 861,965
Richard H. Jenrette 88,758,451 905,453
Robert P. McGraw 88,806,981 856,923
Lois Dickson Rice 88,758,765 905,139
The terms of office of the following directors continued after the
meeting: Joseph L. Dionne, Linda Koch Lorimer,
Harold W. McGraw III, Alva O. Way, Vartan Gregorian,
John T. Hartley, James H. Ross and Sidney Taurel.
(c) (i) Shareholders approved the proposal to amend the Restated
Certificate ofIncorporation to increase the authorized shares
of Common Stock. The vote was 84,496,481 shares FOR and
4,480,023 shares AGAINST, with 687,400 shares abstaining and
no broker nonvotes.
(ii) Shareholders ratified the appointment of Ernst & Young as
independent auditors for the Registrant and its subsidiaries
for 1998. The vote was 89,423,697 shares FOR and 58,878 shares
AGAINST, with 181,329 shares abstaining and no broker nonvotes.
Item 6. Exhibits and Reports on Form 8-K Page Number
-------------------------------- -----------
(a) Exhibits;
(3) Amendment of the Certificate of Incorporation; 19
(3) By-Laws, as amended through April 29, 1998; 23
(12) Computation of Ratio of Earnings to Fixed Charges; 33
(27) Financial Data Schedule; 34
(b) Reports on Form 8-K.
A Report on Form 8-K was filed on April 30, 1998.
Item 5 was reported on pursuant to said Report.
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<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE McGRAW-HILL COMPANIES, INC.
-------------------------------
Date: August 12, 1998 By Robert J. Bahash
------------------ -------------------------------
Robert J. Bahash
Executive Vice President
and Chief Financial Officer
Date: August 12, 1998 By James L. Glenn
------------------ -------------------------------
James L. Glenn
Vice President and Controller
Date: August 12, 1998 By Kenneth M. Vittor
------------------ -------------------------------
Kenneth M. Vittor
Senior Vice President
and General Counsel
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<PAGE>
Exhibit (3)
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
THE McGRAW-HILL COMPANIES, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
Prepared by:
Scott L. Bennett, Esq.
Senior Vice President, Secretary
and Associate General Counsel
The McGraw-Hill Companies, Inc.
1221 Avenue of the Americas
New York, New York 10020
(212) 512-3998
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<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF THE McGRAW-HILL COMPANIES, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
It is hereby certified that:
(1) The name of the Corporation is THE McGRAW-HILL COMPANIES, 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 and to The McGraw-Hill Companies, Inc.
on April 26, 1995.
(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 150,000,000 shares to 300,000,000 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 302,891,256
shares, 891,256 shares of which shall have a par value of $10
per share and 302,000,000 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, 300,000,000 shares of the par
value of $1 per share."
(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 February 25, 1998, followed by
the vote 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 at the
Annual Meeting of Shareholders of the Corporation duly held on
April 29, 1998.
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<PAGE>
IN WITNESS WHEREOF, this Certificate has been signed this 29th day of
April, 1998.
----------------------
/S/ Kenneth M. Vittor
Kenneth M. Vittor
Senior Vice President
----------------------
/S/ Scott L. Bennett
Scott L. Bennett
Secretary
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<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
KENNETH M. VITTOR, being duly sworn deposes and says that he is the
person who signed the foregoing Certificate of Amendment; that he signed said
Certificate in the capacity set forth beneath his signature thereon; that he has
read said Certificate and knows the contents thereof; and that the statements
contained therein are true to his own knowledge.
---------------------
/S/ Kenneth M. Vittor
Kenneth M. Vittor,
Senior Vice President
Subscribed and sworn to
Before me on April 29, 1998.
/S/ Linda Widmer
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<PAGE>
THE McGRAW-HILL COMPANIES, INC.
BY-LAWS
(As amended April 29, 1998)
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.
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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<PAGE>
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.
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
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<PAGE>
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.
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 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.
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<PAGE>
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.
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 thirteen (13). 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.
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 any 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.
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<PAGE>
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.
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, a
Chairman of the Board, 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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<PAGE>
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. 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.
9. 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.
10. Any one or more members of the Board may participate in a meeting of the
Board by means of a conference telephone or similar communications equipment
allowing all persons participating in the meeting to hear each other at the
same time. Participation by such means shall constitute presence in person
at a meeting.
ARTICLE III
COMMITTEES
1. The Board may appoint such committees, as it may deem advisable. Committees
so appointed shall have such powers and duties as may be specified in the
resolution of appointment.
2. Each committee shall keep regular minutes of its proceedings and report the
same to the Board when required.
3. Any one or more members of any such committee may participate in a meeting
of such committee by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting
to hear 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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<PAGE>
ARTICLE IV
OFFICERS
1. The elective officers of the Corporation other than directors shall be a
President and Chief Executive Officer, one or more Vice-Presidents, a
Secretary and a Treasurer. Any two of the aforesaid offices may be filled
by the same person, except the offices of President and Secretary. 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 President and Chief Executive
Officer shall be chosen from among the directors.
2. The President and Chief Executive Officer of the Corporation 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. He shall also 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.
3. 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 director or senior corporate officer to perform
the duties of temporary Chairman which shall include presiding at meetings
of stockholders and of the Board of Directors.
5. The Board may elect or appoint one or more Vice-Presidents.
Each Vice-President shall have such powers and shall perform such duties as
may be assigned to him by the Board or by the President. In case of the
absence or disability of the President the duties of that office shall be
performed by whomever the Board shall determine by resolution.
6. The Secretary shall be sworn to the faithful discharge of his duties; he
shall attend all meetings of the directors and stockholders, and shall
record all the proceedings of such meetings in a book to be kept for that
purpose, and shall perform like duties for standing committees when
required. He shall have charge of the giving of notice of meetings of
stockholders and directors, and perform all the duties assigned to him by
the Board of Directors, or usual for the Secretary of a Corporation 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
-29-
<PAGE>
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.
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 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 President, any Vice-President, the
Secretary, the Controller, the Treasurer or an Assistant Treasurer, and each
of them, or any other person or persons authorized by the Board of
Directors, may endorse, assign and deliver checks, notes, drafts, and other
orders for the payment of money which are payable to the Company.
All checks, drafts, or orders for the payment of money, drawn in the name of
the Company, may be signed by the 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 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.
-30-
<PAGE>
ARTICLE IV B
INDEMNIFICATION
1. Any person made or threatened to be made a party to any action or
proceeding, whether civil or criminal, by reason of the fact that such
person or such person's testator or intestate is or was a director, officer
or employee of the Corporation or serves or served any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
in any capacity at the request of the Corporation shall be indemnified by
the Corporation, and the Corporation may advance such person's related
expenses, to the full extent permitted by law.
For purposes of this section, references to "the Corporation" shall include,
in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power
and authority to indemnify its directors, officers, and employees, so that
any person who is or was a director, officer or employee of such constituent
corporation, or is or was serving at the request of such constituent
corporation any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise in any capacity at the request of
the Corporation, shall stand in the same position under the provisions of
this section with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its
separate existence had continued.
ARTICLE V
CAPITAL STOCK
1. The instruments of debentures, certificate of shares of the preferred,
preference and common capital stock of the Company shall be in such form as
shall be approved by the Board of Directors. The certificates shall be
signed by the Chairman of the Board or the President and also by the
Secretary or the Treasurer. The seal of the Corporation shall be affixed to
all certificates. The signatures of the officers upon a certificate may be
facsimiles if the certificate is countersigned by a transfer agent or
registered by a registrar other than the Corporation itself or its employee.
2. All certificates shall be consecutively numbered, and the names of the
owners, the number of shares and the date of issue, shall be entered in the
Company's books.
3. The Company or its duly authorized stock transfer agent shall keep a book to
be known as the stock book, containing the names, alphabetically arranged,
of all persons who are stockholders of the Corporation, showing their places
of residence, the number of shares of preferred, preference and common stock
held by each respectively, and the time when each became the owner thereof,
also entries showing from and to whom such shares shall be transferred, and
the number and 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.
-31-
<PAGE>
4. Shares shall be transferred only on the books of the Corporation by the
holder thereof in person or by his attorney upon the surrender and
cancellation of certificates for a like number of shares, and upon tender of
stock transfer stamps or the equivalent in money sufficient to satisfy all
legal requirements.
5. The Board may make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates of stock of
the Company.
6. Certificates for shares of stock or for debentures in the Corporation may be
issued in lieu of certificates alleged to have been lost, stolen, destroyed,
mutilated, or abandoned, upon the receipt of (1) such evidence of loss,
theft, destruction or 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.
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.
-32-
<PAGE>
<TABLE>
Exhibit (12)
The McGraw-Hill Companies, Inc.
-------------------------------
Computation of Ratio of Earnings to Fixed Charges
-------------------------------------------------
Periods Ended June 30, 1998
---------------------------
<CAPTION>
Six Twelve
Months Months
--------- ---------
(In thousands)
<S> <C> <C>
Earnings
Earnings from continuing operations
before income tax expense (Note)...... $ 157,561 $ 492,516
Fixed charges........................... 40,121 83,164
--------- ---------
Total Earnings....................... $ 197,682 $ 575,680
========= =========
Fixed Charges (Note)
Interest expense........................ $ 27,127 $ 56,546
Portion of rental payments deemed to be
interest.............................. 12,994 26,618
--------- ---------
Total Fixed Charges.................. $ 40,121 $ 83,164
========= =========
Ratio of Earnings to Fixed Charges 4.9x 6.9x
<FN>
(Note) 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 (2) the portion of the
company's rental expense deemed representative of the interest factor in
rental expense.
Earnings from continuing operations before income taxes for the twelve
month period ended June 30, 1998 includes a $33.2 million pre-tax
provision for real estate write-downs related to the consolidation of
office space in New York City and a $20.4 million pre-tax gain on the
sale of Datapro Information Services.
</FN>
</TABLE>
-33-
</PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 32,579
<SECURITIES> 0
<RECEIVABLES> 1,064,539
<ALLOWANCES> 138,570
<INVENTORY> 362,500
<CURRENT-ASSETS> 1,502,304
<PP&E> 882,920
<DEPRECIATION> 590,229
<TOTAL-ASSETS> 3,766,800
<CURRENT-LIABILITIES> 1,243,742
<BONDS> 0
<COMMON> 102,919
14
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,766,800
<SALES> 1,584,542
<TOTAL-REVENUES> 1,584,542
<CGS> 1,410,166
<TOTAL-COSTS> 1,410,166
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 32,327
<INTEREST-EXPENSE> 25,127
<INCOME-PRETAX> 160,623
<INCOME-TAX> 62,643
<INCOME-CONTINUING> 97,980
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97,980
<EPS-PRIMARY> 0.99<F1>
<EPS-DILUTED> 0.98<F2>
<FN>
<F1> Amount reported is EPS-BASIC.
<F2> Amount reported is EPS-FULLY DILUTED.
</FN>
</TABLE>
