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, 1999
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 of 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
------------------
Not Applicable
- -----------------------------------------------------------------------------
(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 30, 1999 there were approximately 196.8 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 Statement of Income for
the three and six month periods ended
June 30, 1999 and 1998 3
Consolidated Balance Sheets at June 30, 1999,
December 31, 1998 and June 30, 1998 4-5
Consolidated Statement of Cash Flows for the six 6
months ended June 30, 1999 and 1998
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of Operating
------ Results and Financial Condition 12-17
Part II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 18
------
Item 4. Submission of Matters to a Vote of Security Holders 18
------
Item 6. Exhibits and Reports on Form 8-K 19-32
------
<PAGE>
Part I
Financial Information
Item 1. Financial Statements
---------------------
<TABLE>
The McGraw-Hill Companies, Inc.
-------------------------------
Consolidated Statement of Income
-------------------------------
Periods Ended June 30, 1999 and 1998
------------------------------------------
<CAPTION>
Three Months Six Months
--------------------- -------------------
1999 1998 1999 1998
-------- -------- --------- ---------
(in thousands, except per-share data)
<S> <C> <C> <C> <C>
Operating revenue $ 922,721 $ 881,122 $ 1,639,192 $ 1,584,542
Expenses:
Operating 410,042 390,203 761,123 748,778
Selling and general 290,409 288,998 557,999 541,950
Depreciation and amortization 69,241 67,832 122,108 119,438
---------- ----------- ----------- -----------
Total expenses 769,692 747,033 1,441,230 1,410,166
Other income - net 4,840 6,545 9,426 11,374
----------- ----------- ----------- -----------
Income from operations 157,869 140,634 207,388 185,750
Interest expense - net 10,296 13,025 19,737 25,127
----------- ----------- ----------- -----------
Income before taxes on income 147,573 127,609 187,651 160,623
Provision for taxes on income 57,553 49,768 73,183 62,643
----------- ----------- ----------- -----------
Net income 90,020 $ 77,841 $ 114,468 $ 97,980
=========== =========== =========== ===========
Earnings per common share:
Basic $ 0.46 $ 0.39 $ 0.58 $ 0.49
=========== =========== =========== ===========
Diluted $ 0.45 $ 0.39 $ 0.57 $ 0.49
=========== =========== =========== ===========
Average number of common
shares outstanding:
Basic 197,100 197,872 197,079 197,952
=========== =========== =========== ===========
Diluted 199,385 199,668 199,463 199,750
=========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
The McGraw-Hill Companies, Inc.
-------------------------------
Consolidated Balance Sheet
--------------------------
<CAPTION>
June 30, Dec. 31, June 30,
1999 1998 1998
---------- ----------- -----------
(in thousands)
<S>
ASSETS
Current assets: <C> <C> <C>
Cash and equivalents $ 23,003 $ 10,451 $ 32,579
Accounts receivable (net of allowance
for doubtful accounts and sales
returns) (Note 3) 921,419 950,296 920,769
Receivable from broker-dealers and
dealer banks (Note 4) 9,988 4,597 5,019
Inventories (Note 3) 337,797 284,729 362,500
Prepaid income taxes 93,102 92,496 100,269
Prepaid and other current assets 74,500 86,192 75,968
---------- ---------- ----------
Total current assets 1,459,809 1,428,761 1,497,104
---------- ---------- ----------
Prepublication costs (net of accumulated
amortization) (Note 3) 404,511 358,429 342,794
Investments and other assets:
Investment in Rock-McGraw, Inc. - at
equity 82,836 79,394 75,355
Prepaid pension expense 113,518 107,997 105,574
Other 202,965 189,991 168,552
---------- ---------- ----------
Total investments and other assets 399,319 377,382 349,481
---------- ---------- ----------
Property and equipment - at cost 996,748 914,805 882,920
Less - accumulated depreciation 575,506 550,781 590,229
---------- ---------- ----------
Net property and equipment 421,242 364,024 292,691
Goodwill and other intangible assets - at
cost (net of accumulated amortization) 1,258,798 1,259,548 1,268,130
---------- ---------- ----------
$3,943,679 $3,788,144 $3,750,200
========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
The McGraw-Hill Companies, Inc.
-------------------------------
Consolidated Balance Sheet
--------------------------
<CAPTION>
June 30, Dec. 31, June 30,
1999 1998 1998
---------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 280,264 $ 75,500 $ 128,197
Accounts payable 296,935 318,572 255,285
Payable to broker-dealers and dealer
banks (Note 4) 9,833 4,585 4,894
Accrued liabilities 206,816 312,916 209,432
Income taxes currently payable 109,832 67,396 134,716
Unearned revenue 241,500 236,167 227,217
Other current liabilities 288,114 276,315 278,801
---------- ---------- ----------
Total current liabilities 1,433,294 1,291,451 1,238,542
---------- ---------- ----------
Other liabilities:
Long-term debt (Note 5) 451,656 452,097 606,868
Deferred income taxes 123,311 129,303 107,481
Accrued postretirement healthcare and
other benefits 191,852 192,743 200,500
Other non-current liabilities 166,796 170,742 150,793
---------- ---------- ----------
Total other liabilities 933,615 944,885 1,065,642
---------- ---------- ----------
Total liabilities 2,366,909 2,236,336 2,304,184
---------- ---------- ----------
Shareholders' equity (Note 6):
Capital stock 205,852 205,852 102,933
Additional paid-in capital 24,812 - 42,585
Retained income 1,699,813 1,670,101 1,561,351
Accumulated other comprehensive income (83,823) (75,962) (78,706)
---------- ---------- ----------
1,846,654 1,799,991 1,628,163
Less - common stock in treasury-at cost 250,219 234,673 164,001
Unearned compensation on restricted stock 19,665 13,510 18,146
---------- ---------- ----------
Total shareholders' equity 1,576,770 1,551,808 1,446,016
---------- ---------- ----------
$3,943,679 $3,788,144 $3,750,200
========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
The McGraw-Hill Companies, Inc.
-------------------------------
Consolidated Statement of Cash Flows
------------------------------------
For The Six Months Ended June 30, 1999 and 1998
--------------------------------------------------
<CAPTION>
1999 1998
<S> ------ -----
Cash flows from operating activities (in thousands)
- --------------------------------------------- <C> <C>
Net income $114,468 $ 97,980
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation 39,365 38,262
Amortization of goodwill and intangibles 26,424 26,753
Amortization of prepublication costs 56,319 54,423
Provision for losses on accounts receivable 25,091 37,527
Other (1,548) 108
Changes in assets and liabilities net of effect of
acquisitions and dispositions:
(Increase)/decrease in accounts receivable (1,086) 8,923
Increase in inventories (51,159) (74,049)
Decrease in prepaid and other current assets 11,375 9,251
Decrease in accounts payable and accrued expenses (128,222) (99,329)
Increase in unearned revenue 5,455 13,414
Increase in other current liabilities 20,841 22,486
Increase in interest and income taxes
currently payable 57,097 34,405
(Decrease)/increase in prepaid/deferred income taxes (170) 1,653
Net change in other assets and liabilities (21,709) (3,365)
- --------------------------------------------------- --------- ---------
Cash provided by operating activities 152,541 168,442
- ---------------------------------------------------- --------- ---------
Investing activities
- -------------------------
Investment in prepublication costs (94,893) (69,100)
Purchases of property and equipment (98,505) (60,325)
Acquisition of businesses, net of cash acquired (42,879) -
Disposition of property, equipment and businesses 2,112 30,747
- --------------------------------------------------- --------- ----------
Cash used for investing activities (234,165) (98,678)
- --------------------------------------------------- --------- ----------
Financing activities
- ---------------------------------------------------
Additions to short-term debt - net 205,693 50,797
Dividends paid to shareholders (84,756) (79,483)
Exercise of stock options 14,329 14,441
Repurchase of treasury shares (39,417) (22,695)
Other (5) (3,060)
- --------------------------------------------------- --------- ----------
Cash provided by/(used for) financing activities 95,844 (40,000)
- --------------------------------------------------- --------- ----------
Effect of exchange rate fluctuations on cash (1,668) (1,953)
- --------------------------------------------------- --------- ----------
Net change in cash and equivalents 12,552 27,811
Cash and equivalents at beginning of period 10,451 4,768
- --------------------------------------------------- --------- ----------
Cash and equivalents at end of period $ 23,003 $ 32,579
========= ==========
</TABLE>
<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, 1999 and 1998 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, 1998.
On January 27, 1999, the Board of Directors declared a two-for-one stock
split of the company's common stock which was distributed on March 8, 1999
to all shareholders of record on February 24, 1999. Accordingly, all
references to common share data in the financial statements and notes have
been restated to reflect the split.
Certain prior year amounts have been reclassified for comparability
purposes.
2. 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, 1999:
<TABLE>
<CAPTION>
Three Months Six Months
---------------------- ----------------------
1999 1998 1999 1998
--------- ---------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Net income $ 90,020 $ 77,841 $ 114,468 $ 97,980
Other comprehensive income,
net of tax: Foreign currency
translation adjustment (4,848) (2,772) (7,861) (4,459)
--------- --------- --------- ---------
Comprehensive income $ 85,172 $ 75,069 $ 106,607 $ 93,521
========= ========= ========= =========
</TABLE>
3. The company has three reportable segments: Educational & Professional
Publishing, Financial Services, and Information and Media Services. The
educational and professional publishing segment provides education,
training and lifetime learning textbooks and instructional materials for
students and professionals. The financial services segment coexists of
Standard & Poor's operations, which provide financial information, ratings
and analyses, enabling access to capital markets. The information and media
services segment includes business and trade media offering information,
insight and analysis.
<PAGE>
<TABLE>
The McGraw-Hill Companies, Inc.
-------------------------------
Notes to Financial Statements
-----------------------------
Operating profit by segment is the primary basis for the chief
operating decision maker of the company, the CEO Council, to evaluate the
performance of each segment. A summary of operating results by segment
for the three months and six months ended June 30, 1999 and 1998 follows:
<CAPTION>
1999 1998
---------------------- ----------------------
Operating Operating
Revenue Profit Revenue Profit
<S> --------- ---------- --------- ---------
Three Months (in thousands)
- ------------
Educational and Professional <C> <C> <C> <C>
Publishing $ 371,068 $ 41,250 $ 354,217 $ 35,457
Financial Services 314,891 95,672 282,140 86,159
Information and Media Services 236,762 39,245 244,765 36,428
- ------------------------------ --------- --------- --------- ---------
Total operating segments 922,721 176,167 881,122 158,044
General corporate expense - (18,298) - (17,410)
Interest expense - net - (10,296) - (13,025)
- ------------------------------ --------- --------- --------- ---------
Total company $ 922,721 $ 147,573* $ 881,122 $ 127,609*
========= ========= ========= =========
</TABLE>
*Income before taxes on income.
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
Operating Operating
Revenue Profit Revenue Profit
<S> --------- ---------- --------- ---------
Six Months (in thousands)
- ------------
Educational and Professional <C> <C> <C> <C>
Publishing $ 580,051 $ (2,607) $ 562,574 $ (4,274)
Financial Services 623,335 189,994 563,644 169,198
Information and Media Services 435,806 54,660 458,324 53,937
- ------------------------------ ---------- --------- ---------- ---------
Total operating segments 1,639,192 242,047 1,584,542 218,861
General corporate expense - (34,659) - (33,111)
Interest expense - net - (19,737) - (25,127)
- ------------------------------ ---------- --------- ---------- ---------
Total company $1,639,192 $ 187,651* $1,584,542 $ 160,623*
========== ========= ========== =========
</TABLE>
*Income before taxes on income.
<PAGE>
<TABLE>
The McGraw-Hill Companies, Inc.
-------------------------------
Notes to Financial Statements
-----------------------------
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,
1999 1998 1998
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Allowance for doubtful accounts $ 107,631 $ 113,639 $ 95,191
========== ========== ==========
Allowance for sales returns $ 65,699 $ 98,784 $ 48,579
========== ========== ==========
Inventories:
Finished goods $ 272,190 $ 235,341 $ 285,647
Work-in-process 43,848 31,260 45,656
Paper and other materials 21,759 18,128 31,197
---------- ---------- ----------
Total inventories $ 337,797 $ 284,729 $ 362,500
========== ========== ==========
Accumulated amortization of
prepublication costs $ 555,007 $ 607,574 $ 507,098
========== ========== ==========
</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 $279.0 million of matched purchase and sale commitments at
June 30, 1999. Only those transactions not closed at the settlement date
are reflected in the balance sheet as receivables and payables.
<PAGE>
<TABLE>
The McGraw-Hill Companies, Inc.
-------------------------------
Notes to Financial Statements
-----------------------------
6. A summary of long-term debt follows:
<CAPTION>
June 30, Dec. 31, June 30,
1999 1998 1998
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
9.43% Notes due 2000 $ 95,043 $ 95,043 $ 250,000
Commercial paper supported by
bank revolving credit agreement 350,000 350,000 350,000
Other 6,613 7,054 6,868
---------- ---------- ----------
Total long-term debt $ 451,656 $ 452,097 $ 606,868
========== ========== ==========
</TABLE>
<TABLE>
7. Common shares reserved for issuance for conversions and stock based awards
were as follows:
<CAPTION>
June 30, Dec. 31, June 30,
1999 1998 1998
---------- ---------- ----------
<S> <C> <C> <C>
$1.20 convertible preference stock
at the rate of 13.2 shares for each
share of preference stock 17,912 17,978 17,978
Stock based awards 16,792,511 18,015,440 19,080,854
---------- ---------- ----------
16,810,423 18,033,418 19,098,832
========== ========== ==========
</TABLE>
<TABLE>
8. Cash dividends per share declared during the periods were as follows:
<CAPTION>
Three Months Six Months
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Common stock $.215 $.195 $.430 $.390
Preference stock .300 .300 .600 .600
</TABLE>
<TABLE>
9. A reconciliation of the number of shares used for calculating basic
earnings per common share and diluted earnings per common share for the
three months and the six months ended June 30, 1999 and 1998 follows:
<CAPTION>
Three month period 1999 1998
------------------ ---------- ----------
(thousands of shares)
<S> <C> <C>
Average number of common shares outstanding 197,100 197,872
Effect of stock options and other dilutive securities 2,285 1,796
---------- ----------
199,385 199,668
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Six month period 1999 1998
---------------- ---------- ----------
(thousands of shares)
<S> <C> <C>
Average number of common shares outstanding 197,079 197,952
Effect of stock options and other dilutive securities 2,384 1,798
---------- ----------
199,463 199,750
========== ==========
</TABLE>
Restricted performance shares outstanding at June 30, 1999 of 890,000
were not included in the computation of diluted earnings per common
shares because the necessary vesting conditions have not yet been made.
<PAGE>
The McGraw-Hill Companies, Inc.
-------------------------------
Notes to Financial Statements
-----------------------------
10. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The new standard is effective January
1, 2001. 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. The adoption of SFAS No. 133 will
not have a material impact on the company's financial statement
disclosures.
Operating Results - Comparing Results Ended June 30, 1999 and 1998
- ------------------------------------------------------------------
Three Months
- ------------
Consolidated Review
- -------------------
Operating revenue for the quarter increased $41.6 million, or 4.7%, over
the prior year's quarter to $922.7 million. This increase in operating revenue
was due mostly to the Financial Services segment, particularly at Standard &
Poor's Ratings, and in the Educational Publishing Group of the Educational and
Professional Publishing segment. Excluding the impact of divested businesses,
revenue would have increased 7.6%.
Net income for the quarter increased $12.2 million, or 15.6%, over the
comparable quarter in the prior year. Diluted earnings per share for the
quarter were 45 cents versus 39 cents in the prior year.
Net interest expense decreased $2.7 million or 21.0%, primarily from the
impact of the company's tender offer which retired $155 million of its 9.43%
Notes in September 1998. Commercial paper borrowing levels are higher this
quarter than the prior year due to the impact of the tender offer, the company
consolidating office space in New York City and the stock repurchase program
announced in the first quarter. The 4.9% per annum average interest rate on
commercial paper is lower than the 5.6% per annum average interest rate in the
prior year's second quarter.
The provision for taxes as a percent of income before taxes is 39%, the same as
the second quarter of 1998.
Segment Review
- --------------
Educational and Professional Publishing revenue increased 4.8%, or $16.9
million, and operating profit increased 16.3% to $41.3 million. Excluding
Continuing Education Center, which is winding down operations as of the start of
this year, revenue increased 7.7% and operating profit grew modestly as
expenditures were made in preparation for a robust education market in the third
quarter.
The Educational Publishing Group posted solid results for the three months
due to Glencoe and SRA/McGraw-Hill. Glencoe posted strong results in its math,
social studies, science and health titles. SRA/McGraw-Hill benefited from a
return to basics in the reading market, with its Direct Instruction and
Collection for Young Scholars series. Higher Education continues to post solid
results from new titles and a good backlist performance. Professional book
continues to do well with its computer titles, led by books geared to
Microsoft's release of Office 2000, as well as in the certification market,
science, technical and medical titles. International revenue was higher, led by
strong results in Mexico, Europe and the beginning of a recovery in the
Asia-Pacific region.
Financial Services' revenue increased 11.6%, or $32.8 million, to $314.9
million and operating profit increased 11.0% to $95.7 million. Standard & Poor's
Ratings Services' continues to post stellar results through global expansion and
its non-traditional services. This growth at Ratings occurred despite an 11.4%
decrease in new domestic bond issue volume in the second quarter. A 90% new
issue volume increase for Eurobonds helped increase Ratings' foreign revenue
for the quarter. The areas that contributed most to the revenue growth
were structured finance, public finance and corporate finance. Standard &
Poor's Financial Information Services' revenue increased primarily from growth
in the retail brokerage and institutional market. The company's index
services continues to do well recording higher licensing fees from
increasing volume in S&P SPDR's (S&P Depository Receipts). In the second
quarter, the large cap SPDR trust's total assets increased to $13.3 billion
as average daily volume climbed to 7.9 million shares. Despite the revenue
increases, operating profit declined due to softness in the secondary
municipal market and the continued investments in new products and
services.
<PAGE>
Information and Media Services' revenue declined 3.3%, or $8.0 million, to
$236.8 million during the quarter but operating profit improved 7.7% over the
prior year. Excluding the impact of the sale of the Information Technology and
Communications Group last year, revenue for the segment was up 2.4% over the
prior year but operating profit declined modestly. Business Week continues to
post strong results led by increased advertisement pages from the computer and
communication sector as well as with international advertisers. Publication
Services posted solid revenue increases for the quarter largely from trade shows
at Aviation Week and Space Technology. The Construction Information Group,
despite a small revenue increase, had a decline in its operating profit due to
the costs related to the rollout of a new electronic product, Dodge Digital
Plans and Specs. Tower Group International posted higher revenues than last year
but operating profit declined due to lower gross margins.
Six Months
- ----------
Consolidated Review
- -------------------
For the first six months of the year, operating revenue increased 3.4%, or
$54.7 million, to $1.64 billion. The primary factor of this increase is the
performance of Financial Services, particularly Standard & Poor's Rating
Services, offset by a decrease in Information and Media Services. Excluding the
impact of the sale of Information Technology and Communication Group in 1998 and
the decision to discontinue Continuing Education Center in 1999, revenue
increased 7.2% over the prior year. Net income through the first six months rose
16.8% to $114.5 million. Diluted earnings per share were 57 cents versus 49
cents for the comparable period last year.
Net interest expense through the first half of 1999 was $19.7 million,
approximately 21.5% lower than the prior year. The primary reason for the
decrease in net interest expense is the impact from the company's tender offer
which retired $155 million of its 9.43% Notes in September 1998. This was offset
by a $96.3 million increase in the average level of commercial paper borrowings
through the first six months of 1999. Interest expense should increase in the
second half due to our share repurchases, normal seasonal borrowing levels and
the acquisition of Appleton & Lange at the end of June.
Segment Review
- --------------
Educational and Professional Publishing revenue increased 3.1% to $580.1
million and its operating loss decreased 39.0% through the first six months of
1999. Excluding the impact of CEC, sales increased 7.6% over the prior year. The
Educational Publishing Group has performed very well, particularly its math,
social studies and health titles in the elementary-high school business. Higher
Education experienced some softness in sales and is flat with prior year.
Professional Book Group has posted impressive revenue gains over the prior year
due to the popularity of its computer and Internet-related titles such as The
Official Guide to Quicken and books geared to Microsoft's release of Office
2000. International revenue increased due to improved performances in Canada and
Mexico as well as a slow emergence in the Asia-Pacific region.
Financial Services revenue increased $59.7 million, or 10.6%, over the
prior year and operating profit increased $20.8 million to $190.0 million.
Standard & Poor's Rating Services continues to post stellar results despite a
domestic bond market that has declined 6.1% in dollar volume and 8.3% in the
number of issuances from the prior year. International revenue continues to do
well due to the emergence of the Euro and Euro-denominated bonds; total dollar
volume of Eurobonds issued to date has increased 79% over the prior year. The
areas that have performed the strongest through the first six months include
corporate finance, structured finance and non-traditional products and services.
Standard & Poor's Financial Information Services' revenue increased due largely
to the retail market sector. S&P Comstock, which provides real-time quotes to
investors, and Index Services were the areas contributing the most to this
revenue increase. Operating profits declined slightly year-to-date due to a
decline in global information services and investment in the development of the
electronic products.
<PAGE>
Information & Media Services' revenue declined 4.9% from the prior year,
but operating profit increased slightly to $54.7 million. Excluding the impact
from the sale of the Information Technology & Communication Group in 1998,
revenue increased 2.0%. Business Week has posted solid revenue growth from its
advertising pages particularly with international advertisers. Construction
Information Group's revenue increased due to its electronic products, but
operating profits are down due to expenses related to the rollout of Dodge Plans
& Specs. Broadcasting's revenue is down because of the absence of political
advertising and softness in local market TV sales. Tower Group International's
revenue operating profit is higher due to volume increases but operating profit
has decreased due to lower gross margins.
Financial Condition
- -------------------
The company continues to maintain a strong financial position. Cash
provided by operating activities in the first half totaled $152.5 million
compared to $168.4 million in 1998 primarily due to higher working capital
requirements from the introduction of new products and implementing new systems,
partially offset by higher earnings year to date. Total debt as of June 30, 1999
increased $204 million from year-end, due primarily to seasonal requirements,
the impact of consolidating office space in New York City and the purchase of
Appleton & Lange at the end of June. 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 in the second half of the
year, particularly in the fourth quarter.
Commercial paper borrowings at June 30, 1999 totaled $600 million, an
increase of approximately $164 million from the prior year. Commercial paper
borrowings have increased in part from the company's early extinguishment of
$155 million of its 9.43% Notes in the third quarter of 1998. 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.
$95 million of 9.43% Notes, due in the year 2000, remain outstanding. Under
a shelf registration that became effective with the Securities and Exchange
Commission in 1990, the company can issue up to $300 million of debt securities.
The new debt could be used to replace a portion of the commercial paper
borrowings with longer-term securities when management has determined that
interest rates are attractive and markets are favorable.
Gross accounts receivable decreased $68.0 million from year end due
primarily to the seasonality of the business. Year over year receivables
increased $30.2 million due to higher sales. Inventories increased $53.1 million
from the end of 1998 in anticipation of school adoption program orders during
the third quarter. Net prepublication costs increased $46.1 million from the end
of 1998 to $404.5 million due to higher spending for the educational publishing,
higher education and professional publishing products. Purchases of property and
equipment were $98.5 million through the current six month period, $38.2 million
higher than the prior year, as the company continues the consolidation of its
New York City office space. These capital expenditures are largely 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 late June, the company purchased Appleton & Lange, Inc. for $46 million.
This company, a strong force in medical publishing, will be included in the
results for Professional Publishing in the Educational & Professional Publishing
segment. There were no significant operating results from this acquisition on
the company's second quarter results.
<PAGE>
In January 1999, the Board of Directors declared a two-for-one stock split
of the company's common stock that was distributed to shareholders on
March 8, 1999, and approved a 10.3% increase in the regular quarterly
dividend on the company's common stock from $.195 to $.215 per common share. The
Board of Directors also authorized a stock repurchase program of up to 15
million shares of outstanding shares. The repurchased shares will be used for
general corporate purposes, including the issuance of shares for the exercise of
employee stock options. Purchases under this program may be made from time to
time on the open market and in private transactions dependent on market
conditions. 757,000 shares have been repurchased at a cost of $39.7 million
under this program as of the end of the second quarter.program as of the end of
the second quarter.
Year 2000 Issue
- ---------------
Computer software and certain embedded systems that use two digits rather
than four to identify the applicable year may be unable to interpret
appropriately the calendar year 2000, and thus could potentially disrupt normal
business activities. The Year 2000 issue affects virtually all companies and
organizations, including vendors, suppliers, customers and other third parties
that interface with the company.
The company uses software and data in various aspects of its business,
including its products, product development, product support and many
administrative functions such as billing and receiving information and
merchandise from suppliers. As of December 31, 1998, the company had
substantially completed an inventory of its technology environment, including
non-information technology systems, with special emphasis placed on the
company's key information processes. Plans have been developed to remediate or
replace, and to test systems at each operating unit to achieve Year 2000
readiness, as appropriate.
The company has hired outside vendors to assist the operating units in
implementing and/or remediating computer systems to be Year 2000 ready and to
assist in testing. Each of the company's operating units has designated a leader
responsible for overseeing and coordinating the day-to-day process to become
Year 2000 ready.
As of June 30, 1999 we estimate that 99% of the company's applications have
been remediated or replaced, with the remaining 1% to be remediated or replaced
in the 3rd quarter. Approximately 97% of the applications have been tested and
are considered Year 2000 ready. Management estimates that the remainder of the
computer systems that have not been certified as Year 2000 ready will be tested
and certified no later than the end of calendar year 1999. As of the filing date
of this document, management does not foresee significant problems achieving
Year 2000 readiness for any of its material computer systems by the end of the
year.
The company is communicating with third parties, including its key vendors,
redistributors and customers, to determine their plans to address the Year 2000
issue. The company has taken the following steps to determine if key third
parties are addressing the Year 2000 issue: (1) identified and documented all
third parties related to the company's vital information systems or critical
business processes; (2) sent letters asking them to detail the steps they are
taking to become Year 2000 ready; and (3) based on the responses, met with
selected vendors and is in the process of establishing follow-up time schedules
to evaluate progress on the issue.
Standard & Poor's (S&P) Financial Services' groups have been responding to
the Securities Industry Association's (SIA) inquiries on the securities
industry's readiness. As a part of this inquiry, the S&P Financial Services'
groups have provided SIA with the appropriate documents, including an overview
of Year 2000 projects, the techniques used to make their products Year 2000
ready, results of tests, methods of updating databases and critical third party
product dependencies. These responses are being updated periodically.
Although the company expects a positive resolution to these issues, due to
the unique and pervasive nature of the Year 2000 issue, it is difficult at this
time to ascertain the financial impact to the company if the company experiences
unanticipated problems related to the Year 2000 issue. The following describes
the company's most reasonably likely worst case scenario, while recognizing the
uncertainties inherent in a global problem that could potentially affect any
<PAGE>
business. Material systems failures resulting from the Year 2000 problem have
the potential to adversely affect the company's operations and financial
systems. Material failures could affect, by way of example, billing systems,
collections, payroll, ordering, processing of financial records and access to
facilities. The company's business segments could face additional operational
problems in the event of a material systems or vendor failure, such as by way of
example, an inability to fulfill book orders on a timely basis, a disruption in
the company's ability to provide real time financial information or a disruption
in our periodicals publishing schedule.
The company is also reviewing its business continuity plans that cover
current worldwide operations and is preparing to devote appropriate internal and
external resources in the event of an unforeseen or unanticipated Year 2000
readiness issue arising on or after January 1, 2000, including those related to
third party dependencies, such as power outages, telecommunications failures or
vendor failures. For example, as part of the planning process for the December
31, 1999 weekend, the company is making arrangements to: staff a Crisis Center
at the company's Hightstown, NJ facilities with senior executives; station key
facilities, security and information technology personnel at locations
worldwide; and to have a major component of our information technology personnel
at their work stations over that weekend and continuing as long thereafter as
required.
The cost to assess, remediate and test systems that will not be replaced
will approximate $19 million between 1998 and 2000; approximately $14.2 million
has been spent through June 30, 1999 to remediate these systems. Certain systems
that are not Year 2000 ready are being replaced as part of ongoing system
development projects.
Euro Conversion
- ---------------
On January 1, 1999, certain member nations of the European Economic and
Monetary Union ("EMU") adopted a common currency, the Euro. For a three and a
half-year transition period, non-cash transactions may be denominated in either
the Euro or in the old national currencies. After July 1, 2002, the Euro will be
the sole legal tender for EMU countries. The adoption of the Euro will affect a
multitude of financial systems and business applications as the commerce of
these nations will be transacted in the Euro and the existing national currency.
For the year ended December 31, 1998, and for the period ended June 30, 1999,
approximately 5 percent of the company's revenues were derived from EMU
countries.
Since the adoption of the Euro on January 1, 1999, the company has begun to
collect and disburse in the new currency. Our billing systems are prepared to
handle Euro invoicing in response to customer interest, and some businesses have
already converted from national currency to Euro invoicing for most EMU
customers. Plans to convert the accounting currency of businesses operating in
the EMU countries from national currencies to the Euro have been formulated with
the goal of full conversion by January 1, 2001, a year before the end of
transition period. Any costs associated with the adoption of the Euro will be
expensed as incurred and the company does not expect these costs to be material
to its results of operations, financial condition or liquidity.
"Safe Harbor Statement under the Private Securities Litigation Reform
--------------------------------------------------------------------
Act of 1995"
-----------
This section, as well as other portions of this document, includes certain
forward-looking statements about the company's business, new products, sales,
expenses, cash flows, 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's Services; the level of capital
expenditures, cash flow, debt levels and prepublication cost spending; the
Educational and Professional Publishing Group's level of success in state
adoptions; the level of success in obtaining advertising; the level of success
of new product development and resolution of Year 2000 and Euro conversion
issues.
Actual results may differ materially from those in any forward-looking
statements because any such statements involve risks 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, currency and foreign exchange volatility, continued state and
local funding for educational matters, expenditures for advertising, the
successful marketing of new products, the effect of competitive products and
pricing.
<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. The action was transferred to the United States District Court for the
Central District of California (Case No. SA CV 96-765-GLT) in December 1996. In
April 1997, the County filed an Amended Complaint for breach of contract and
"professional malpractice" and added a claim for punitive damages. In May 1999,
the Court granted the County's request to modify the Amended Complaint to
replead a claim for aiding and abetting a breach of fiduciary duty. In response
to Registrant's interrogatories, and in litigation filings, the County claimed
compensatory damages of approximately $2.1 billion, subject to certain offsets,
and unspecified punitive damages.
On June 14, 1999, the County agreed to dismiss the lawsuit against
Registrant with prejudice in exchange for the payment by Registrant of $140,000,
which sum represented a partial refund of rating fees paid by the County for
ratings of County debt in 1994. On June 29, 1999, Federal District Court Judge
Gary L. Taylor entered an Order which, inter alia, dismissed the lawsuit with
prejudice.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
(a) The 1999 Annual Meeting of Shareholders of the Registrant was held on
April 28, 1999.
(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:
DIRECTOR FOR WITHHOLD AUTHORITY
Joseph L. Dionne 164,927,859 12,670,371
Linda Koch Lorimer 164,916,739 12,681,491
Harold W. McGraw III 164,940,011 12,658,219
The terms of office of the following directors continued after
the meeting: Vartan Gregorian, John T. Hartley, James H. Ross,
Sidney Taurel, Pedro Aspe, George B. Harvey, Robert P. McGraw and
Lois Dickson Rice.
(c)(i)Shareholders ratified the appointment of Ernst & Young as independent
auditors for the Registrant and its subsidiaries for 1999. The vote
was 177,090,513 shares FOR and 109,411 shares AGAINST, with 397,478
shares abstaining and no broker non-votes.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K Page Number
-------------------------------- -----------
(a) Exhibits
(3) By-laws (as amended to date) 21-30
(12) Computation of ratio of earnings to fixed charges 31
(27) Financial data schedule 32
(b) Reports on Form 8-K
No reports were filed during the period covered
by this report
<PAGE>
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
The McGraw-Hill Companies, Inc.
-------------------------------
Date: By
-------------------- ------------------------------
Robert J. Bahash
Executive Vice President
and Chief Financial Officer
Date: By
-------------------- ------------------------------
Kenneth M. Vittor
Executive Vice President
and General Counsel
<PAGE>
Exhibit (3)
THE McGRAW-HILL COMPANIES, INC.
BY-LAWS
(As amended April 28, 1999)
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.
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.
<PAGE>
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 90 days nor more than 120 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 120th day prior to such annual meeting and not later than
the close of business on the later of the 90th 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. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time
period for the giving of a stockholder's notice as provided above. 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.
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 100 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.
<PAGE>
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 120th day
prior to such special meeting and not later than the close of business on
the later of the 90th 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. In no event shall the public announcement of
an adjournment of an annual meeting commence a new time period for the
giving of a stockholder's notice as provided above.
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.
<PAGE>
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 twelve (12). 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.
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.
<PAGE>
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.
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.
<PAGE>
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.
<PAGE>
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.
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.
<PAGE>
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 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.
<PAGE>
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.
ARTICLE IV-B
------------
Indemnification
---------------
1. Any person made or threatened to be made a party to any action or
proceeding, whether civil or criminal, by reason of the fact that such
person or such person's testator or intestate is or was a director, officer
or employee of the Corporation or serves or served any other corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise in any capacity at the request of the Corporation shall be
indemnified by the Corporation, and the Corporation may advance such
person's related expenses, to the full extent permitted by law.
For purposes of this section, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees, so that any person who is or was a director, officer or
employee of such constituent corporation, or is or was serving at the
request of such constituent corporation any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise in any
capacity at the request of the Corporation, shall stand in the same
position under the provisions of this section with respect to the resulting
or surviving corporation as such person would have with respect to such
constituent corporation if its separate existence had continued.
<PAGE>
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. Notwithstanding the foregoing provisions regarding share
certificates or any other provisions of this Article V, officers of the
Corporation may provide that some or all of any or all classes or series of
the Corporation's capital stock may be uncertificated shares.
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.
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.
<PAGE>
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.
<PAGE>
<TABLE>
Exhibit (12)
The McGraw-Hill Companies, Inc.
-------------------------------
Computation of Ratio of Earnings to Fixed Charges
-------------------------------------------------
Periods Ended June 30, 1999
----------------------------
Six Twelve
Months Months
--------- ---------
(In thousands)
<S> <C> <C>
Earnings
Earnings from continuing operations
before income tax expense and
extraordinary item (Note) $ 187,651 $ 572,723
Fixed charges 41,522 81,019
--------- ---------
Total Earnings $ 229,173 $ 653,742
========= =========
Fixed Charges (Note)
Interest expense $ 21,174 $ 45,904
Portion of rental payments deemed to be
interest 20,348 35,115
--------- ---------
Total Fixed Charges $ 41,522 $ 81,019
========= =========
Ratio of Earnings to Fixed Charges 5.5x 8.1x
<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, 1999 includes a $26.7 million
gain on the sale of a building at 65 Broadway and a $16.0 million charge
for the write-down of assets at the Continuing Education Center, recorded
in 1998.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 23,003
<SECURITIES> 0
<RECEIVABLES> 1,094,749
<ALLOWANCES> 173,330
<INVENTORY> 337,797
<CURRENT-ASSETS> 1,459,809
<PP&E> 996,748
<DEPRECIATION> 575,506
<TOTAL-ASSETS> 3,943,679
<CURRENT-LIABILITIES> 1,433,294
<BONDS> 0
14
0
<COMMON> 205,838
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,943,679
<SALES> 1,639,192
<TOTAL-REVENUES> 1,639,192
<CGS> 1,441,230
<TOTAL-COSTS> 1,441,230
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 25,019
<INTEREST-EXPENSE> 19,737
<INCOME-PRETAX> 187,651
<INCOME-TAX> 73,183
<INCOME-CONTINUING> 114,468
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 114,468
<EPS-BASIC> 0.58<F1>
<EPS-DILUTED> 0.57<F2>
</TABLE>
