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 March 31, 1999
Commission File Number 1-1023
THE MCGRAW-HILL COMPANIES, INC.
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(Exact name of registrant as specified in its charter)
New York 13-1026995
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(State of 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
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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 April 30, 1999 there were approximately 197.8 million shares of common stock
(par value $1.00 per share) outstanding.
<PAGE>
The McGraw-Hill Companies, Inc.
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TABLE OF CONTENTS
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Page Number
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
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Consolidated Statement of Income for
the three months ended March 31, 1999 and 1998 3
Consolidated Balance Sheet at March 31, 1999,
December 31, 1998 and March 31, 1998 4-5
Consolidated Statement of Cash Flows for the three 6
months ended March 31, 1999 and 1998
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Operating
------ Results and Financial Condition 11-15
Part II. OTHER INFORMATION
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Item 1. Legal Proceedings 16-18
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Item 6. Exhibits and Reports on Form 8-K 19-31
------
<PAGE>
Part I
Financial Information
Item 1. Financial Statements
---------------------
<TABLE>
The McGraw-Hill Companies, Inc.
-------------------------------
Consolidated Statement of Income
-------------------------------
Three Months Ended March 31, 1999 and 1998
------------------------------------------
<CAPTION>
1999 1998
----------- -----------
(in thousands, except
per-share data)
<S> <C> <C>
Operating revenue $ 716,471 $ 703,420
Expenses:
Operating 351,081 358,575
Selling and general 267,590 253,035
Depreciation and amortization 52,867 51,606
----------- -----------
Total expenses 671,538 663,216
Other income - net 4,586 4,912
----------- -----------
Income from operations 49,519 45,116
Interest expense - net 9,441 12,102
----------- -----------
Income before taxes on income 40,078 33,014
Provision for taxes on income 15,630 12,875
----------- -----------
Net Income $ 24,448 $ 20,139
=========== ===========
Earnings per common share:
Basic $ 0.12 $ 0.10
=========== ===========
Diluted $ 0.12 $ 0.10
=========== ===========
Average number of common shares outstanding:
Basic 196,847 197,778
Diluted 199,330 199,582
</TABLE>
<PAGE>
<TABLE>
The McGraw-Hill Companies, Inc.
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Consolidated Balance Sheet
--------------------------
<CAPTION>
March 31, Dec. 31, March 31,
1999 1998 1998
---------- ----------- -----------
<S> (In thousands)
ASSETS
Current assets: <C> <C> <C>
Cash and equivalents $ 36,041 $ 10,451 $ 1,721
Accounts receivable (net of allowance
for doubtful accounts and sales
returns) (Note 4) 773,667 950,296 803,113
Receivable from broker-dealers and
dealer banks (Note 5) 7,286 4,597 9,115
Inventories (Note 4) 300,318 284,729 323,603
Prepaid income taxes 92,820 92,496 99,191
Prepaid and other current assets 107,293 86,192 92,502
---------- ---------- ---------
Total current assets 1,317,425 1,428,761 1,329,245
---------- ---------- ---------
Prepublication costs (net of accumulated
amortization) (Note 4) 365,919 358,429 333,390
Investments and other assets:
Investment in Rock-McGraw, Inc. - at
equity 81,115 79,394 73,624
Prepaid pension expense 110,758 107,997 102,609
Other 192,660 189,991 170,971
---------- ---------- ---------
Total investments and other assets 384,533 377,382 347,204
---------- ---------- ---------
Property and equipment - at cost 962,471 914,805 847,002
Less - accumulated depreciation 568,103 550,781 579,589
---------- ---------- ---------
Net property and equipment 394,368 364,024 267,413
Goodwill and other intangible assets - at
cost (net of accumulated amortization) 1,238,722 1,259,548 1,289,116
---------- ---------- ---------
$3,700,967 $3,788,144 $3,566,368
========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
The McGraw-Hill Companies, Inc.
-------------------------------
Consolidated Balance Sheet
--------------------------
<CAPTION>
March 31, Dec. 31, March 31,
1999 1998 1998
---------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 189,113 $ 75,500 $ 75,458
Accounts payable 226,310 318,572 231,687
Payable to broker-dealers and dealer
banks (Note 5) 5,790 4,585 8,988
Accrued liabilities 204,555 312,916 172,571
Income taxes currently payable 62,917 67,396 108,272
Unearned revenue 247,825 236,167 240,227
Other current liabilities 278,859 276,315 241,093
---------- ---------- ----------
Total current liabilities 1,215,369 1,291,451 1,078,296
---------- ---------- ----------
Other liabilities:
Long-term debt (Note 6) 451,825 452,097 606,901
Deferred income taxes 123,224 129,303 107,669
Accrued postretirement healthcare and
other benefits 192,297 192,743 198,504
Other non-current liabilities 159,380 170,742 146,436
---------- ---------- ----------
Total other liabilities 926,726 944,885 1,059,510
---------- ---------- ----------
Total liabilities 2,142,095 2,236,336 2,137,806
---------- ---------- ----------
Shareholders' equity (Note 7):
Capital stock 205,852 205,852 102,933
Additional paid-in capital 19,998 - 42,888
Retained income 1,652,249 1,670,101 1,524,398
Accumulated other comprehensive income (78,975) (75,962) (75,934)
---------- ---------- ----------
1,799,124 1,799,991 1,594,285
Less - common stock in treasury-at cost 222,505 234,673 149,637
Unearned compensation on Restricted stock 17,747 13,510 16,086
---------- ---------- ----------
Total shareholders' equity 1,558,872 1,551,808 1,428,562
---------- ---------- ----------
$3,700,967 $3,788,144 $3,566,368
========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
The McGraw-Hill Companies, Inc.
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Consolidated Statement of Cash Flows
------------------------------------
For The Three Months Ended March 31, 1999 and 1998
--------------------------------------------------
<CAPTION>
1999 1998
---------- --------
<S> (In thousands)
Cash flows from operating activities <C> <C>
- ---------------------------------------------
Net income $ 24,448 $20,139
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation 19,515 18,899
Amortization of goodwill and intangibles 13,227 13,473
Amortization of prepublication costs 20,125 19,234
Provision for losses on accounts receivable 10,033 21,509
Other (1,546) 647
Changes in assets and liabilities net of effect
of acquisitions and dispositions:
Decrease in accounts receivable 166,161 146,520
Increase in inventories (15,957) (33,612)
Increase in prepaid and other current assets (21,525) (4,451)
Decrease in accounts payable and accrued expenses (200,296) (159,308)
Increase in unearned revenue 11,857 20,548
Increase in other current liabilities 3,947 11,214
(Decrease)/increase in interest and income taxes
currently payable (4,235) 2,278
(Decrease)/increase in prepaid/deferred income taxes (176) 2,468
Net change in other assets and liabilities (545) (10,080)
- --------------------------------------------------- ---------- ---------
Cash provided by operating activities 25,033 69,478
- --------------------------------------------------- ---------- ---------
Investing activities
- -------------------------
Investment in prepublication costs (27,026) (26,292)
Purchases of property and equipment (51,507) (12,429)
Acquisition of businesses - (49)
Disposition of property, equipment and businesses 189 39
- --------------------------------------------------- ---------- ---------
Cash used for investing activities (78,344) (38,731)
- --------------------------------------------------- ---------- ---------
Financing activities
- ----------------------------
Additions to/(repayments of) short-term
debt - net 114,122 (2,421)
Dividends paid to shareholders (42,300) (38,595)
Exercise of stock options 7,563 9,072
Other 62 (1,000)
- --------------------------------------------------- ---------- ---------
Cash provided by financing activities 79,447 (32,944)
- --------------------------------------------------- ---------- ---------
Effect of exchange rate fluctuations on cash (546) (850)
---------- ---------
Net change in cash and equivalents 25,590 (3,047)
Cash and equivalents at beginning of period 10,451 4,768
- --------------------------------------------------- ---------- ---------
Cash and equivalents at end of period $36,041 $ 1,721
========== =========
</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 months ended March 31,
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.
<TABLE>
2. The following table is a reconciliation of the company's net income to
comprehensive income for the three month period ended March 31, 1999:
<CAPTION>
1999 1998
----------- -----------
(in thousands, except
per-share data)
<S> <C> <C>
Net income $ 24,448 $ 20,139
Other comprehensive income, net of tax:
Foreign currency translation adjustments (3,013) (1,687)
----------- -----------
Total other comprehensive income (3,013) (1,687)
----------- -----------
Comprehensive income $ 21,435 $ 18,452
=========== ===========
</TABLE>
3. The company has three reportable segments: Educational and 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 consists 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.
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 ended March 31, 1999 and 1998 follows:
<PAGE>
<TABLE>
The McGraw-Hill Companies, Inc.
-------------------------------
Notes to Financial Statements
-----------------------------
<CAPTION> 1999 1998
------------------- --------------------
Operating Operating
Revenue Profit Revenue Profit
-------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Educational and Professional
Publishing $208,983 $(43,857) $208,357 $(39,731)
Financial Services 308,444 94,322 281,504 83,039
Information and Media Services 199,044 15,415 213,559 17,509
-------------------------------- -------- -------- -------- --------
Total operating segments 716,471 65,880 703,420 60,817
General corporate expense - (16,361) - (15,701)
Interest expense - net - (9,441) - (12,102)
-------------------------------- -------- -------- -------- --------
Total company $716,471 $ 40,078* $703,420 $ 33,014*
======== ======== ======== ========
</TABLE>
*Income before taxes on income.
<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>
March 31, Dec. 31, March 31,
1999 1998 1998
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Allowance for doubtful accounts $ 107,377 $ 113,639 $ 97,550
========== =========== ==========
Allowance for sales returns $ 83,220 $ 98,784 $ 74,093
========== =========== ==========
Inventories:
Finished goods $ 241,897 $ 235,341 $ 257,154
Work-in-process 39,191 31,260 35,451
Paper and other materials 19,230 18,128 30,998
---------- ----------- ----------
Total inventories $ 300,318 $ 284,729 $ 323,603
========== =========== ==========
Accumulated amortization of
prepublication costs $ 512,610 $ 607,574 $ 474,392
========== =========== ==========
</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 $277.3 million of matched purchase and sale commitments at March
31, 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>
March 31, Dec. 31, March 31,
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 6,782 7,054 6,901
---------- ---------- ----------
Total long-term debt $ 451,825 $ 452,097 $ 606,901
========== ========== ==========
</TABLE>
<TABLE>
7. Common shares reserved for issuance
for conversions and stock based
awards were as follows:
<CAPTION>
March 31, Dec. 31, March 31,
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 17,978 17,978 17,978
Stock based awards 17,081,129 18,015,440 19,606,162
--------- --------- ---------
17,099,107 18,033,418 19,624,140
========== ========== ==========
</TABLE>
<TABLE>
8. Cash dividends per share declared during the three months ended March 31,
1999 and 1998 were as follows:
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Common stock $.215 $.195
Preference stock .300 .300
</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
ended March 31, 1999 and 1998 follows:
<CAPTION>
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
Average number of common shares outstanding 196,847 197,778
Effect of stock options and other dilutive securities 2,483 1,804
---------- ----------
Average number of common shares outstanding including
effect of dilutive securities 199,330 199,582
========== ==========
</TABLE>
Restricted performance shares outstanding at March 31, 1999 of 748,000 were
not included in the computation of diluted earnings per common shares because
the necessary vesting conditions have not yet been made.
<PAGE>
10.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. The adoption of SFAS No. 133 will not
have a material impact on the company's financial statement disclosures.
<PAGE>
Management's Discussion and Analysis of Operating
--------------------------------------------------
Results and Financial Condition
--------------------------------
Operating Results - Comparing Three Months Ended March 31, 1999 and 1998
- ------------------------------------------------------------------------
Consolidated Review
- -------------------
Operating revenue for the first quarter grew $13.1 million, or 1.9%, over the
prior year's first quarter to $716.5 million. Excluding the impact of divesting
the Information Technology and Communications Group in May 1998 and management's
decision to wind down Continuing Education Center (CEC) effective January 1,
1999, revenue from ongoing operations increased 6.6%. The revenue increase
reflects strong growth in Financial Services, particularly at Standard & Poor's
Ratings Services, as well as from ongoing operations at Educational and
Professional Publishing. Net income increased $4.3 million, or 21.4%, to $24.4
million and diluted earnings per share increased to 12 cents from 10 cents in
the prior year's first quarter. The first quarter represents the company's
smallest quarter due to the seasonal aspect of the company's educational
publishing operations.
Total expenses in 1999 increased only 1.3% to $671.5 million in the first
quarter. The primary reason for this small increase was due to effective cost
controls, the sale of the Information Technology and Communications Group in
June 1998 and the decision to wind down CEC. Excluding the impact of the
disposition and CEC's wind down, total expenses increased 6.6%.
Net interest expense decreased 22.0% to $9.4 million from $12.1 million in 1998.
The primary reasons for the decrease are from lower long-term debt levels as a
result of the company purchasing $155 million of its 9.43% Notes in the third
quarter of 1998 and a lower effective interest rate on outstanding debt.
Although average commercial paper borrowings increased $44.3 million from the
prior year, the average interest rate on the borrowings decreased from 5.7% in
1998 to 5.1% in 1999.
The provision for taxes as a percent of income before taxes is 39%, the same as
the first quarter in 1998.
Segment Review
- --------------
Educational and Professional Publishing revenue increased marginally to $209.0
million. Excluding CEC, revenue from ongoing operations was up 7.6%. Educational
Publishing Group revenue increased due to strong results in our elementary-high
school business in math, social studies, reading and music. Higher Education
revenue experienced some softness in sales.
Professional Book Group revenue increased due to the growing popularity of
computer and Internet-related subjects as well as business, scientific and
medical titles. The titles that contributed to its success were How to Get
Started in Electronic Day Trading and The Official Guide to Quicken.
International revenue grew modestly due to improved results in Canada and
Mexico, offset somewhat by softness in Europe and in the Asia-Pacific region.
Due to the continuing decline in enrollments at CEC, the company will not pursue
new business but will continue to honor existing contracts with students as it
commences with the unit's teach-out. The teach-out of existing contracts will
not have a material effect on future operating profits. The segment's seasonal
operating loss increased $4.1 million to $43.9 million, reflecting increased
spending in preparing for the segment's selling period and the teach-out
provisions at CEC.
<PAGE>
Financial Services' revenue increased 9.6%, or $26.9 million, to $308.4 million
and operating profits climbed 13.6% to $94.3 million. Standard & Poor's Ratings
Services' revenue and operating profit increased despite a 1% decrease in new
issue dollar volume in the U.S. bond market. The areas that contributed most to
its revenue growth were corporate finance, structured finance, information
services, European ratings and non-traditional products. Standard & Poor's
Financial Information Services' revenue grew modestly due to strength in the
retail brokerage market, led by S&P ComStock. Continued softness in the
secondary municipal bond market resulted in flat revenue for J.J. Kenny. The
company's index services continues to do well, recording higher licensing fees
from institutional investors. S&P SPDR'S (S&P Depository Receipts) continue to
grow in popularity. Assets in the large cap SPDR trust increased to $11.9
billion as the average trading volume of these instruments increased to 7.5
million shares in the first quarter. Total assets managed in these SPDR Trusts
and in 15 fee-generating portfolios exceeded $20 billion at the end of the first
quarter.
Information and Media Services' revenue declined $14.5 million, or 6.8%, during
the quarter. Excluding the impact of the sale of the Information Technology &
Communications Group last year, revenues increased slightly. Segment operating
profit declined $2.1 million, or 12.0%, for the quarter. Revenues and operating
profits at Business Week increased, despite one less issue being published this
year versus last year. Advertising pages increased 11.4% during the quarter,
according to Publishers Information Bureau. Construction Information Group
revenue increased due to the strength of the electronic products offered,
particularly at F.W. Dodge and Sweet's. Startup expenditures at F.W. Dodge for
the rollout of its new product, Dodge Plans, decreased operating profit.
Broadcasting's operating profit continues to improve, despite flat revenues, due
to effective cost controls. Publication Services' revenue and operating profit
declined due to weakness in the healthcare, energy and aviation industries.
Tower Group International had a modest gain in revenues, but expenses for
opening new offices and lower gross margins resulted in an operating loss.
Financial Condition
- -------------------
The company continues to maintain a strong financial position. Cash provided by
operating activities in the first quarter totaled $25.0 million compared to
$69.5 million provided in the prior year. Total debt increased $113.3 million
since year-end, reflecting seasonal spending by the company for inventory and
prepublication costs, dividend payments and costs related to the consolidation
of office space in New York City. The company's strong presence in school and
higher education 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, primarily
in the fourth quarter.
Commercial paper borrowings at March 31, 1999 totaled $511.8 million, an
increase of $139.9 million from December 31, 1998. 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 an additional $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.
<PAGE>
Accounts receivable before reserves of $964.3 million decreased $198.5 million
from the end of 1998 primarily from the impact of the seasonality of the
educational publishing business. Inventories increased $15.6 million from the
end of 1998 to $300.3 million as the company prepares itself for school
publishing adoptions later this year.
Net prepublication costs increased $7.5 million from the end of 1998 to $365.9
million due to spending for school publishing programs, higher education and
professional publishing titles. Prepublication cost spending in the first
quarter totaled $27.0 million, an increase of $0.7 million over last year's
first quarter spending. Spending is expected to increase over the remainder of
the year. Purchases of property and equipment were $51.5 million, $39.1 million
higher than the prior year. The majority of the increase can be attributed to
the ongoing move by Standard & Poor's to its new location at 55 Water Street as
part of the company's plan to consolidate office space in New York City.
However, spending will decrease from the prior year as the consolidation of
office space starts to wind down.
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. The Board of Directors also 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. Only 5,000 shares have been repurchased under this program as
of the filing date of this document.
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.
<PAGE>
As of March 31, 1999 we estimate that 96% of the company's applications have
been remediated or replaced, with the remaining 4% to be completed in the 2nd
quarter. Approximately 77% of the applications have been tested and are Year
2000 ready. The company has targeted July 1999 as the expected date that all
computer systems and technology vital to each operating unit's profitability and
functionality, including non-information technology, will have been tested and
will be Year 2000 ready. Contingency plans have been developed for those systems
that may not meet the July 1999 date. As of the filing date of this document,
there have been no material setbacks in meeting the target dates and the company
does not believe that there will be a major break in service due to the Year
2000 issue.
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 is taking the following steps to determine if key third
parties are addressing the Year 2000 issue: (1) identifying and documenting all
third parties related to the company's vital information systems or critical
business processes; (2) sending letters asking them to detail the steps they are
taking to become Year 2000 ready; and (3) based on the responses, meeting with
selected vendors and 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
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.
<PAGE>
The cost to assess, remediate and test systems that will not be replaced will
approximate $19 million between 1998 and 2000; approximately $12.2 million has
been spent through March 31, 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 March 31, 1999, approximately
5 percent of the company's revenues were derived from EMU countries.
The company continues to address Euro related issues and its impact on
information systems, currency exchange rate risk, taxation, contracts,
competition and pricing. Action plans currently being implemented are expected
to be in compliance with all laws and regulations; however, there can be no
certainty that external factors will not have an adverse effect on the Company's
operations. 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 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, 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) upon the filing in
December 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, in March 1997, dismissed the County's
professional negligence claim, with leave to amend. In April 1997, the County
filed an Amended Complaint for breach of contract and "professional malpractice"
and added a claim for punitive damages. The Registrant filed a motion to dismiss
the "professional malpractice" claim, which motion was denied by the District
Court in June 1997. In February 1998, Registrant moved again to dismiss the
County's "professional malpractice" claim, which motion was denied by the
District Court in March 1998. In September 1998, Registrant filed two motions
for partial summary judgment, one to preclude the County from claiming damages
with respect to Standard & Poor's 1993 ratings of County debt ("1993 Motion")
and one to preclude the County from claiming damages on behalf of the so-called
Pool Participants ("Pool Participants' Motion"). In October 1998, the Court
denied Registrant's 1993 Motion and granted in part and denied in part
Registrant's Pool Participants' Motion, holding that the County could not assert
claims on behalf of the Pool Participants with respect to Standard & Poor's
rating of Pool Participants' debt but could assert claims on behalf of Pool
Participants with respect to Standard & Poor's rating of County debt. In
December 1998, Registrant filed a motion for summary judgment on the grounds the
County's contract and "professional malpractice" claims are barred by applicable
California law and the parties' contracts. In December 1998, the County filed a
motion seeking reconsideration of prior rulings dismissing claims against
Registrant for aiding and abetting the County's officers in breaching such
officers' fiduciary duty and seeking leave to file an amended complaint. In
February 1999, the Court granted in part Registrant's motion for summary
judgment based on applicable California law and the parties' contracts,
dismissing any claim by the County that Standard & Poor's provided financial
advice to the County separate from the ratings; otherwise, the Court denied
Registrant's motion, holding there is a triable issue of fact concerning whether
Standard & Poor's breached its duty as a rating agency. In March 1999, the
Court, holding that the First Amendment applies to the County's contract and
tort claims, granted in part Registrant's motion for summary judgment and
dismissed the County's contract and tort claims with respect to Standard &
Poor's 1993 ratings. The Court found there is a triable issue of fact with
respect to Standard & Poor's 1994 ratings. In April 1999, the Court certified
the March 1999 order for an interlocutory appeal to the
<PAGE>
United States Court of Appeals for the Ninth Circuit. Extensive discovery has
been conducted. The trial date, previously scheduled to commence on March 2,
1999, was adjourned by the Court pending a decision by the California Supreme
Court in the City of Atascadero v. Merrill Lynch litigation concerning the issue
of aiding and abetting a breach of fiduciary duty. In May 1999, the Court
granted the County's request to amend the Complaint to include a claim for
aiding and abetting a breach of fiduciary duty. In response to Registrant's
interrogatories, the County has claimed (inconsistently with damages claims made
by the County in other litigation documents) compensatory damages of
approximately $2.1 billion, subject to certain offsets. The Court's dismissal of
the County's claims for Standard & Poor's 1993 ratings should significantly
reduce the County's damages claims. 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 6. Exhibits and Reports on Form 8-K Page Number
-------------------------------- -----------
(a) Exhibits
(3) By-laws (as amended to date) 19-29
(12) Computation of ratio of earnings to fixed charges 30
(27) Financial data schedule 31
(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.
<PAGE>
8. The Secretary of the Company shall act as Secretary at all meetings of the
stockholders and in his absence the Chairman of the meeting may appoint any
person to act as Secretary.
9. At each meeting of stockholders every stockholder entitled to vote may vote
in person or by proxy, and shall have one vote for each share of stock
registered in his name. The Board of Directors may fix a day not more than
fifty days prior to the day of holding any meeting of the stockholders as
the day as of which stockholders entitled to notice of and to vote at such
meeting shall be determined, and all persons who shall be holders of record
of voting stock at such time and no other shall be entitled to notice of
and to vote at such meeting.
10. At all elections of directors the polls shall be opened and closed, the
proxies shall be received and taken in charge and all ballots shall be
received and counted by two inspectors who shall be appointed by the Board.
If any inspector shall fail to attend or refuse to act, the vacancy may be
filled at the meeting by the 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
<PAGE>
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.
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 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.
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
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
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 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.
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.
<PAGE>
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.
<PAGE>
<TABLE>
Exhibit (12)
The McGraw-Hill Companies, Inc.
-------------------------------
Computation of Ratio of Earnings to Fixed Charges
-------------------------------------------------
Periods Ended March 31, 1999
----------------------------
<CAPTION>
Three Twelve
Months Months
--------- ---------
(In thousands)
<S> <C> <C>
Earnings
Earnings from continuing operations
Before income tax expense and
extraordinary item (Note) $ 40,078 $ 551,029
Fixed charges 19,483 79,721
-------- ---------
Total Earnings $ 59,561 $ 630,750
======== =========
Fixed Charges (Note)
Interest expense $ 9,441 $ 48,185
Portion of rental payments deemed to be
interest 10,042 31,536
-------- ---------
Total Fixed Charges $19,483 $ 79,721
======= =========
Ratio of Earnings to Fixed Charges 3.1x 7.9x
<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 March 31, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 36,041
<SECURITIES> 0
<RECEIVABLES> 964,264
<ALLOWANCES> 190,597
<INVENTORY> 300,318
<CURRENT-ASSETS> 1,317,425
<PP&E> 962,471
<DEPRECIATION> 568,103
<TOTAL-ASSETS> 3,700,967
<CURRENT-LIABILITIES> 1,215,369
<BONDS> 0
14
0
<COMMON> 205,838
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,700,967
<SALES> 716,471
<TOTAL-REVENUES> 716,471
<CGS> 671,538
<TOTAL-COSTS> 671,538
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10,033
<INTEREST-EXPENSE> 9,441
<INCOME-PRETAX> 40,078
<INCOME-TAX> 15,630
<INCOME-CONTINUING> 24,448
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,448
<EPS-PRIMARY> 0.12<F1>
<EPS-DILUTED> 0.12<F2>
</TABLE>
