Item 1. Business
The Registrant, incorporated in December 1925, is a leading global information services provider serving the financial services, education and business information markets with information products and services. Other markets include energy, construction, aerospace and defense, and medical and health. It serves its customers through a broad range of distribution channels, including printed books, magazines and newsletters, online via Internet websites and digital platforms, through wireless and traditional on-air broadcasting, and through a variety of conferences and trade shows.
The Registrant's 16,505 employees are located worldwide. They perform the vital functions of analyzing the nature of changing demands for information and of channeling the resources necessary to fill those demands. By virtue of the numerous copyrights and licensing, trade, and other agreements, which are essential to such a business, the Registrant is able to collect, compile, and disseminate this information. Most book manufacturing and magazine printing is handled through a number of independent contractors. The Registrant's principal raw material is paper, and the Registrant has assured sources of supply, at competitive prices, adequate for its business needs.
Descriptions of the company's principal products, broad services and markets, and significant achievements are hereby incorporated by reference from Exhibit (13), pages 6 through 24, containing textual material of the Registrant's 2002 Annual Report to Shareholders.
The Registrant has an investor kit available online or in print that includes the current Annual Report, Proxy Statement, 10-Q, 10-K, current earnings release and Dividend Reinvestment and Direct Stock Purchase Program. For online access go to www.mcgraw-hill.com/investor_relations and click on the digital investor kit. Requests for printed copies can be e-mailed to investor_relations@mcgraw-hill.com or mailed to Investor Relations, The McGraw-Hill Companies, 1221 Avenue of the Americas, New York, NY 10020-1095. You can call Investor Relations at 866-436-8502.
Information as to Operating Segments
The relative contribution of the operating segments of the Registrant and its subsidiaries to operating revenue, operating profit, long-lived assets and geographic information for the three years ended December 31, 2002 at the end of each year, are included in Exhibit (13), on pages 56 and 57 in the Registrant's 2002 Annual Report to Shareholders and is hereby incorporated by reference.
Item 2.
Item 2. Properties
The Registrant leases office facilities at 331 locations: 233 are in the United States. In addition, the Registrant owns real property at 14 locations: 10 are in the United States. The principal facilities of the Registrant are as follows:
In July 2002, a new lease for 1221 Avenue of the Americas commenced. The Registrant no longer has any non-McGraw-Hill subtenants at this location.
In June 2002, a new lease commenced for 7500 Chavenelle Drive, Dubuque, IA for 330,988 square feet. Most of Registrant's staff at the owned location in Dubuque relocated to this new location. The majority of the former location (2460 Kerper Blvd) is subleased to Quebecor World at a current square footage of 281,668.
Effective March 2003, CB Richard Ellis will take over the management of 42 U.S. facilities. CB Richard Ellis will partner with IKON (mail, reprographics) and EMCOR (facilities maintenance) to fulfill the agreement.
Item 3.
Item 3. Legal Proceedings
While the Registrant and its subsidiaries are defendants in numerous legal proceedings in the United States and abroad, neither the Registrant nor its subsidiaries are a party to, or any of their properties subject to, any known material pending legal proceedings which Registrant believes will result in a material adverse effect on its financial statements or business operations.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Registrant's security holders during the last quarter of the period covered by this Report.
Executive Officers of Registrant
Name Age Position ---- --- --------
Harold McGraw III 54 Chairman of the Board, President and Chief Executive Officer
Robert J. Bahash 57 Executive Vice President and Chief Financial Officer
David L. Murphy 57 Executive Vice President, Human Resources
Deven Sharma 47 Executive Vice President, Global Strategy
Kenneth M. Vittor 53 Executive Vice President and General Counsel
Scott L. Bennett 53 Senior Vice President, Associate General Counsel and Secretary
Glenn S. Goldberg 44 Senior Vice President, Corporate Affairs and Assistant to the Chairman, President and Chief Executive Officer
Talia M. Griep 40 Senior Vice President, Corporate Controller
Frank J. Kaufman 58 Senior Vice President, Taxes
Frank D. Penglase 62 Senior Vice President, Treasury Operations
All of the above executive officers of the Registrant have been full-time employees of the Registrant for more than five years except for Deven Sharma and David Murphy.
Mr. Sharma, prior to becoming an officer of the Registrant on January 15, 2002 was a partner at Booz Allen & Hamilton. During his fourteen years with that firm, he led its U.S. Marketing Board and Customer Manager Initiatives.
Mr. Murphy, prior to becoming an officer of the Registrant on July 22, 2002, spent most of his professional career with the Ford Motor Company where, most recently, he was Vice President, Human Resources.
PART II
Item 5.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
The approximate number of record holders of the Company's common stock as of February 15, 2003 was 5,115.
Information concerning other matters is incorporated herein by reference from Exhibit (13), from page 69 of the 2002 Annual Report to Shareholders.
Item 6.
Item 6. Selected Financial Data
Incorporated herein by reference from Exhibit (13), from the 2002 Annual Report to Shareholders, page 70 and page 71.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Incorporated herein by reference from Exhibit (13), from the 2002 Annual Report to Shareholders, pages 27 to 46.
Item 7A.
Item 7A. Market Risk
Incorporated herein by reference from Exhibit (13), from the 2002 Annual Report to Shareholders, pages 45 to 46.
Item 8.
Item 8. Consolidated Financial Statements and Supplementary Data
Incorporated herein by reference from Exhibit (13), from the 2002 Annual Report to Shareholders, pages 47 to 66 and page 69.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
Information concerning directors is incorporated herein by reference from the Registrant's definitive proxy statement dated March 24, 2003 for the annual meeting of shareholders to be held on April 30, 2003.
Item 11.
Item 11. Executive Compensation
Incorporated herein by reference from the Registrant's definitive proxy statement dated March 24, 2003 for the annual meeting of shareholders to be held on April 30, 2003.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference from the Registrant's definitive proxy statement dated March 24, 2003 for the annual meeting of shareholders to be held April 30, 2003.
The following table details the Registrant's equity compensation plans approved by its security holders:
2003 Proxy
Equity Compensation Plan Information
(1) Included in this amount are 298,812 shares reserved for issuance under the Director Deferred Stock Ownership Plan. The remaining 10,827,428 shares are reserved for issuance under the 1993 Employee Stock Incentive Plan and the 2002 Stock Incentive Plan for Performance Stock, Restricted Stock, Other Stock-Based Awards, Stock Options and Stock Appreciation Rights.
(2) The shares reserved under the 1993 Employee Stock Incentive Plan were calculated as the aggregate of (i) 18,990,978 shares (previously approved by the shareholders of the Company on April 28, 1993 and April 30, 1997) and (ii) 4.9% of the number of issued and outstanding shares as of the shareholder record date for the Annual Meeting of Shareholders held on April 26, 2000. The shares reserved under the 2002 Stock Incentive Plan were calculated as 4.9% of the number of issued and outstanding shares as of the shareholder record date for the Annual Meeting of Shareholders held on April 24, 2002.
Item 13.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference from the Registrant's definitive proxy statement dated March 24, 2003 for the annual meeting of shareholders to be held April 30, 2003.
Item 14.
Item 14. Controls and Procedures
As of December 31, 2002, an evaluation was performed under the supervision and with the participation of the Company's management, including the CEO and CFO, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of December 31, 2002. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to December 31, 2002.
Item 15.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements.
2. Financial Statement Schedules. The McGraw-Hill Companies And Financial Statement Schedules
Reference ------------------------- Annual Report Form to Share- 10-K holders (page) ---- --------------
Data incorporated by reference from Annual Report to Shareholders:
Report of Independent Auditors............... 68 Consolidated balance sheet at December 31, 2002 and 2001.............. 48-49 Consolidated statement of income for each of the three years in the period ended December 31, 2002...... 47 Consolidated statement of cash flows for each of the three years in the period ended December 31, 2002.......... 50 Consolidated statement of shareholders' equity for each of the three years in the period ended December 31, 2002...... 51 Notes to consolidated financial statements.............................. 52-66 Quarterly financial information.............. 69
Consent of Independent Auditors.............. 49
Consolidated schedule for each of the three years in the period ended December 31, 2002
II - Reserves for doubtful accounts and sales returns............. 51
All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto.
The financial statements listed in the above index which are included in the Annual Report to Shareholders for the year ended December 31, 2002 are hereby incorporated by reference in Exhibit (13). With the exception of the pages listed in the above index, the 2002 Annual Report to Shareholders is not to be deemed filed as part of Item 15 (a)(1).
(a) (3) Exhibits.
(2) Stock Purchase Agreement, dated as of June 22, 2000, among Tribune Company and Registrant, incorporated by reference from the Registrant's Form 8-K dated June 30, 2000.
(3) Articles of Incorporation of Registrant incorporated by reference from Registrant's Form 10-K for the year ended December 31, 1995 and Form 10-Q for the quarter ended June 30, 1998.
(3) By-laws of Registrant incorporated by reference from Registrant's Form 10-Q for the quarter ended March 31, 2000.
(10) Indenture dated as of June 15, 1990 between the Registrant, as issuer, and the Bank of New York, as trustee, incorporated by reference from Registrant's Form SE filed August 3, 1990 in connection with Registrant's Form 10-Q for the quarter ended June 30, 1990.
(10) Instrument defining the rights of security holders, certificate setting forth the terms of the Registrant's Medium-Term Notes, Series A, incorporated by reference from Registrant's Form SE filed November 15, 1990 in connection with Registrant's Form 10-Q for the quarter ended September 30, 1990.
(10) Rights Agreement dated as of July 29, 1998 between Registrant and Mellon Investor Services, incorporated by reference from Registrant's Form 8A filed August 3, 1998.
(10)* Restricted Performance Share Award dated January 2, 1997, incorporated by reference from Registrant's Form 10-K for the year ended December 31, 1996.
(10) Indemnification Agreements between Registrant and each of its directors and certain of its executive officers relating to said directors' and executive officers' services to the Registrant, incorporated by reference from Registrant's Form SE filed March 27, 1987 in connection with Registrant's Form 10-K for the year ended December 31, 1986.
(10)* Registrant's 1983 Stock Option Plan for Officers and Key Employees, incorporated by reference from Registrant's Form SE filed March 29, 1990 in connection with Registrant's Form 10-K for the year ended December 31, 1989.
(10)* Registrant's 1987 Key Employee Stock Incentive Plan, incorporated by reference from Registrant's Form 10-K for the year ended December 31, 1993.
(10)* Registrant's Amended and Restated 1993 Employee Stock Incentive Plan, incorporated by reference from Registrant's Proxy Statement dated March 23, 2000.
(10)* Registrant's 2002 Stock Incentive Plan, incorporated by reference from Registrant's Form 10-Q for the quarter ended June 30, 2002.
(10)* Registrant's Amended and Restated 1996 Key Executive Short Term Incentive Compensation Plan, incorporated by reference from Registrant's Proxy Statement dated March 23, 2000.
(10)* Registrant's Key Executive Short-Term Incentive Deferred Compensation Plan.
(10)* Registrant's Executive Deferred Compensation Plan, incorporated by reference from Registrant's Form SE filed March 28, 1991 in connection with Registrant's Form 10-K for the year ended December 31, 1990.
(10)* Registrant's Senior Executive Severance Plan.
(10) 364-Day Credit Agreement dated as of July 23, 2002 among the Registrant, the lenders listed therein, and JP Morgan Chase Bank, as administrative agent, incorporated by reference from the Registrant's Form 8-K/A dated August 1, 2002.
(10) Five-Year Credit Agreement dated as of August 15, 2000 among the Registrant, the lenders listed therein, and The Chase Manhattan Bank, as a administrative agent, incorporated by reference from the Registrant's Form 8-K dated August 21, 2000.
(10)* Registrant's Employee Retirement Account Plan Supplement, incorporated by reference from Registrant's Form SE filed March 28, 1991 in connection with Registrant's Form 10-K for the year ended December 31, 1990.
(10)* Registrant's Employee Retirement Plan Supplement, incorporated by reference from Registrant's Form SE filed March 28, 1991 in connection with Registrant's Form 10-K for the year ended December 31, 1990.
(10)* Registrant's Savings Incentive Plan Supplement, incorporated by reference from Registrant's Form SE filed March 28, 1991 in connection with Registrant's Form 10-K for the year ended December 31, 1990.
(10)* Registrant's Senior Executive Supplemental Death, Disability & Retirement Benefits Plan, incorporated by reference from Registrant's Form SE filed March 26, 1992 in connection with Registrant's Form 10-K for the year ended December 31, 1991.
(10)* Registrant's 1993 Stock Payment Plan for Directors, incorporated by reference from Registrant's Proxy Statement dated March 21, 1993.
(10)* Resolutions Terminating Registrant's 1993 Stock Payment Plan for Directors, as adopted on January 31, 1996, incorporated by reference from Registrant's Form 10-K for the year ended December 31, 1996.
(10)* Resolutions amending certain of Registrant's equity and compensation plans, as adopted on February 23, 2000, with respect to definitions of "Cause" and "Change of Control" contained therein, incorporated by reference from Registrant's Form 10-K for the year ended December 31, 2000.
(10)* Registrant's Director Retirement Plan, incorporated by reference from Registrant's Form SE filed March 29, 1990 in connection with Registrant's Form 10-K for the year ended December 31, 1989.
(10)* Resolutions Freezing Existing Benefits and Terminating Additional Benefits under Registrant's Directors Retirement Plan, as adopted on January 31, 1996, incorporated by reference from Registrant's Form 10-K for the year ended December 31, 1996.
(10)* Registrant's Director Deferred Compensation Plan, incorporated by reference from Registrant's Form 10-K for the year ended December 31, 1993.
(10)* Director Deferred Stock Ownership Plan, incorporated by reference from Registrant's Proxy Statement dated March 21, 1996.
(12) Computation of ratio of earnings to fixed charges.
(13) Registrant's 2002 Annual Report to Shareholders. Such Report, except for those portions thereof which are expressly incorporated by reference in this Form 10-K, is furnished for the information of the Commission and is not deemed "filed" as part of this Form 10-K.
(21) Subsidiaries of the Registrant.
(23) Consent of Ernst & Young LLP, Independent Auditors.
(b) Reports on Form 8-K.
No report on Form 8-K was filed by the Registrant in the last quarter covered by this Form 10-K.
(99) Annual certifications of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.
- ---------------- * These exhibits relate to management contracts or compensatory plan arrangements.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.
The McGraw-Hill Companies, Inc. - ------------------------------- Registrant
By: /s/ Kenneth M. Vittor ------------------------------- Kenneth M. Vittor Executive Vice President and General Counsel March 13, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on March 13, 2003 on behalf of Registrant by the following persons who signed in the capacities as set forth below under their respective names. Registrant's board of directors is comprised of twelve members and the signatures set forth below of individual board members, constitute at least a majority of such board.
/s/ Harold McGraw III ------------------------------- Harold McGraw III Chairman, President and Chief Executive Officer
/s/ Robert J. Bahash ------------------------------- Robert J. Bahash Executive Vice President and Chief Financial Officer
/s/ Talia M. Griep ------------------------------- Talia M. Griep Senior Vice President and Corporate Controller
/s/ Pedro Aspe ------------------------------- Pedro Aspe Director
/s/ Sir Winfried F.W. Bischoff ------------------------------- Sir Winfried F.W. Bischoff Director
------------------------------- Douglas N. Daft Director
/s/ Vartan Gregorian ------------------------------- Vartan Gregorian Director
/s/ Linda Koch Lorimer ------------------------------- Linda Koch Lorimer Director
/s/ Robert P. McGraw ------------------------------- Robert P. McGraw Director
/s/ Lois Dickson Rice ------------------------------- Lois Dickson Rice Director
/s/ James H. Ross ------------------------------- James H. Ross Director
/s/ Edward B. Rust, Jr. ------------------------------- Edward B. Rust, Jr. Director
------------------------------- Kurt L. Schmoke Director
/s/ Sidney Taurel ------------------------------- Sidney Taurel Director
ANNUAL CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Harold W. McGraw III, certify that:
1. I have reviewed this annual report on Form 10-K of The McGraw-Hill Companies, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
ANNUAL CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: 3/13/03
/s/ Harold W. McGraw III ----------------------------- Harold W. McGraw III Chairman, President and Chief Executive Officer
ANNUAL CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert J. Bahash, certify that:
1. I have reviewed this annual report on Form 10-K of The McGraw-Hill Companies, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
ANNUAL CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6 The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: 3/13/03
/s/ Robert J. Bahash ----------------------------- Robert J. Bahash Executive Vice President and Chief Financial Officer
EXHIBITS AND FINANCIAL STATEMENTS