UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K For the fiscal year ended December 31, 2001 Commission File Number 1-1023 THE McGRAW-HILL COMPANIES, INC. ---------------------------------------------------------- (Exact name of registrant as specified in its charter) NEW YORK 13-1026995 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1221 AVENUE OF THE AMERICAS, NEW YORK, N.Y. 10020 - ------------------------------------------- -------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 512-2000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ----------------------- Common stock - $1 par value New York Stock Exchange Pacific Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None ---------------- (Title of class) Indicate by check mark 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 --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definite proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X --- The aggregate market value of voting stock held by nonaffiliates of the registrant as of February 15, 2002, was $ 12,169,417,580. The number of shares of common stock of the registrant outstanding as of February 15, 2002 was 193,421,321 shares. Part I, Part II and Part IV incorporate information by reference from the Annual Report to Shareholders for the year ended December 31, 2001. Part III incorporates information by reference from the definitive proxy statement mailed to shareholders March 25, 2002 for the annual meeting of shareholders to be held on April 24, 2002.
TABLE OF CONTENTS ----------------- PART I ----------- <TABLE> <CAPTION> Item Page - ---- ---- <S> <C> 1. Business........................................................................................ 1 2. Properties...................................................................................... 2 - 3 3. Legal proceedings............................................................................... 4 4. Submission of matters to a vote of security holders ............................................ 4 Executive officers of the registrant............................................................ 5 PART II ----------- 5. Market for the registrant's common stock and related stockholder matters........................ 6 6. Selected financial data......................................................................... 6 7. Management's discussion and analysis of financial condition and results of operations........... 6 7A. Market Risk..................................................................................... 6 8. Consolidated financial statements and supplementary data........................................ 6 9. Changes in and disagreements with accountants on accounting and financial disclosure............ 6 PART III ---------- 10. Directors and executive officers of the registrant.............................................. 7 11. Executive compensation.......................................................................... 7 12. Security ownership of certain beneficial owners and management.................................. 7 13. Certain relationships and related transactions.................................................. 7 PART IV --------- 14. Exhibits, financial statement schedules, and reports on Form 8-K................................ 8 - 11 Signatures.......................................................................................... 12 - 14 Exhibits........................................................................................ 15 - 18 Consent of Independent Auditors - Ernst & Young LLP............................................. 19 Supplementary schedule.............................................................................. 20 </TABLE>
PART I Item 1. Business The Registrant, incorporated in December 1925, serves business, professional and educational markets around the world with information products and services. Key markets include finance, business, education, construction, medical and health, aerospace and defense. As a multimedia publishing and information company, the Registrant employs a broad range of media, including books, magazines, newsletters, software, on-line data services, CD-ROMs, facsimile and television broadcasting. Most of the Registrant's products and services face substantial competition from a variety of sources. The Registrant's 17,135 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 20, containing textual material of the Registrant's 2001 Annual Report to Shareholders. 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, 2001 at the end of each year, are included in Exhibit (13), on pages 44 and 45 in the Registrant's 2001 Annual Report to Shareholders and is hereby incorporated by reference. 1
Item 2. Properties The Registrant leases office facilities at 335 locations: 263 are in the United States. In addition, the Registrant owns real property at 14 locations: 11 are in the United States. The principal facilities of the Registrant are as follows: <TABLE> <CAPTION> OWNED SQUARE OR FEET LOCATIONS LEASED (THOUSANDS) BUSINESS UNIT <S> <C> <C> <C> DOMESTIC New York, NY leased 876 Various Units: 1221 Ave of the Americas New York, NY leased 946 Standard & Poor's: 55 Water New York, NY leased 518 Various Units: 2 Penn Plaza (See Below) Hightstown, NJ owned Office and Data Center 424 Various Units Warehouse 406 Leased to non-McGraw-Hill tenant Blacklick (Gahanna), OH owned Various units Book Distr. Ctr. 558 Office 73 Desoto, TX 220 E Danieldale Book Dist. Ctr. leased 382 MHE Distribution Dallas, TX 420 E Danielsale leased MHE Distribution Assembly Plant 408 Office 10 Dubuque, IA owned Higher Education Office 108 Warehouse 273 Grove City, OH Warehouse leased 305 School Columbus, OH owned 162 Glencoe, SRA, New Media, MHE Other Monterey, CA owned Office 195 Corp/CTB Warehouse 20 Corp/CTB Englewood, CO owned Office 127 Corp/Compustat/ Warehouse 5 Financial Services/Healthcare Pub. Lexington, MA leased Front 57 Various units Rear 75 & non-McGraw-Hill subtenant </TABLE> 2
<TABLE> <S> <C> <C> <C> Burr Ridge IL leased 130 Various publishing units Denver, CO owned 88 Broadcasting Indianapolis, IN owned 54 Broadcasting Indianapolis, IN leased 127 CTB Washington, DC leased 73 Various operating units Chicago, IL leased 151 Various operating units and McGraw-Hill subtenants Mather, CA leased 56 CTB FOREIGN Whitby, Canada owned Office 80 McGraw-Hill Ryerson, Book Distribution Ctr. 80 non-McGraw-Hill tenant Maidenhead, England leased 83 McGraw-Hill International (U.K.) Ltd. Jurong, Singapore owned 30 Various Units Jurong, Singapore leased 91 Various Publishing Units </TABLE> During the first quarter of 2001, we sold the owned facility at 29 Hartwell Ave in Lexington, Massachusetts. In July 2001, we leased an additional floor at 2 Penn Plaza, totaling 58,770 square feet. The lease will be through the period ending March 31, 2020. During the third quarter of 2001, we sold the owned facility at Western Avenue in Chicago, Illinois. During the fourth quarter of 2001, we bought the formerly leased TV station facility in Indianapolis, Indiana. 3
Item 3. Legal Proceedings In Registrant's Form 10-Q for the quarter ended June 30, 2001, Registrant reported that a summons was served on June 20, 2001 in an action brought by L'Association Francaise des Porteurs d'Emprunts Russes (AFPER) against Standard & Poor's SA (an indirect subsidiary of the Registrant) in the Court of First Instance of Paris, France. In this suit, AFPER, a group of holders of pre-Revolutionary Russian bonds, makes claims against Standard & Poor's and another rating agency for lack of diligence and prudence in their ratings of Russia and Russian debt. AFPER alleges that, by failing to take into account the post-Revolutionary repudiation of pre-Revolutionary Czarist debt by the Soviet government in rating Russia and new issues of Russian debt beginning in 1996, the rating agencies enabled the Russian Federation to issue new debt without repaying the old obligations of the Czarist government. Alleging joint and several liability, AFPER seeks damages of 17.85 billion francs (approximately $2.38 billion), plus 50,000 francs (approximately $7,000) under certain provisions of the French Code of Civil Procedure and legal costs. The Registrant believes that the allegations lack legal or factual merit and intends to vigorously contest the action. 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. 4
Executive Officers of Registrant <TABLE> <CAPTION> Name Age Position ---- --- -------- <S> <C> <C> Harold McGraw III 53 Chairman of the Board President and Chief Executive Officer Robert J. Bahash 56 Executive Vice President and Chief Financial Officer Barbara B. Maddock 51 Executive Vice President, Organizational Effectiveness Deven Sharma 46 Executive Vice President, Global Strategy Kenneth M. Vittor 52 Executive Vice President and General Counsel Peter Watkins 54 Executive Vice President, Information Management and Chief Technology Officer Scott L. Bennett 52 Senior Vice President, Associate General Counsel and Secretary Glenn S. Goldberg 43 Senior Vice President, Corporate Affairs and Assistant to the Chairman, President and Chief Executive Officer Talia M. Griep 39 Senior Vice President, Corporate Controller Frank J. Kaufman 57 Senior Vice President, Taxes Frank D. Penglase 61 Senior Vice President, Treasury Operations </TABLE> All of the above executive officers of the Registrant have been full-time employees of the Registrant for more than five years except for Peter Watkins and Deven Sharma. Mr. Watkins, prior to becoming an officer of the Registrant on February 1, 2000, was executive vice president and chief information officer for the Canadian Imperial Bank of Commerce for two and one-half years. Prior to that he was with Ernst & Young Canada for ten years. 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. 5
PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters The approximate number of holders of the Company's common stock as of February 15, 2002 was 5,122. <TABLE> <CAPTION> 2001 2000 ---- ---- <S> <C> <C> Dividends per share of common stock: $.245 per quarter in 2001 $0.98 $.235 per quarter in 2000 $0.94 </TABLE> Information concerning other matters is incorporated herein by reference from Exhibit (13), from page 52 & 53 of the 2001 Annual Report to Shareholders. Item 6. Selected Financial Data Incorporated herein by reference from Exhibit (13), from the 2001 Annual Report to Shareholders, page 54 and page 55. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Incorporated herein by reference from Exhibit (13), from the 2001 Annual Report to Shareholders, pages 23 to 36. Item 7A. Market Risk Incorporated herein by reference from Exhibit (13), from the 2001 Annual Report to Shareholders, page 36. Item 8. Consolidated Financial Statements and Supplementary Data Incorporated herein by reference from Exhibit (13), from the 2001 Annual Report to Shareholders, pages 37 to 50 and pages 52 to 53. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None 6
PART III Item 10. Directors and Executive Officers of the Registrant Information concerning directors is incorporated herein by reference from the Registrant's definitive proxy statement dated March 25, 2002 for the annual meeting of shareholders to be held on April 24, 2002. Item 11. Executive Compensation Incorporated herein by reference from the Registrant's definitive proxy statement dated March 25, 2002 for the annual meeting of shareholders to be held on April 24, 2002. Item 12. Security Ownership of Certain Beneficial Owners and Management Incorporated herein by reference from the Registrant's definitive proxy statement dated March 25, 2002 for the annual meeting of shareholders to be held April 24, 2002. Item 13. Certain Relationships and Related Transactions Incorporated herein by reference from the Registrant's definitive proxy statement dated March 25, 2002 for the annual meeting of shareholders to be held April 24, 2002. 7
PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) 1. Financial Statements. 2. Financial Statement Schedules. The McGraw-Hill Companies Index to Financial Statements And Financial Statement Schedules <TABLE> <CAPTION> Reference ----------------------- Annual Report Form to Share- 10-K holders (page) ---- -------------- <S> <C> <C> Data incorporated by reference from Annual Report to Shareholders: Report of Independent Auditors......................................... 51 Consolidated balance sheet at December 31, 2001 and 2000............... 38-39 Consolidated statement of income for each of the three years in the period ended December 31, 2001................................ 37 Consolidated statement of cash flows for each of the three years in the period ended December 31, 2001.................................... 40 Consolidated statement of shareholders' equity for each of the three years in the period ended December 31, 2001....................... 41 Notes to consolidated financial statements............................. 42-50 Quarterly financial information........................................ 52-53 Consent of Independent Auditors........................................ 19 Consolidated schedule for each of the three years in the period ended December 31, 2001 II - Reserves for doubtful accounts and sales returns................ 20 </TABLE> 8
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, 2001 are hereby incorporated by reference in Exhibit (13). With the exception of the pages listed in the above index, the 2001 Annual Report to Shareholders is not to be deemed filed as part of Item 14 (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. 9
(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 incorporated by reference from Registrant's Form 10-K for the year ended December 31, 1996. (10)* Registrant's Executive Deferred Compensation Plan, incorporated by reference from Registrant's Form SE filed March 28, 1991 in connection with Registrant's Form 10-K for the year ended December 31, 1990. (10)* Registrant's Senior Executive Severance Plan, incorporated by reference from Registrant's Form 10-K for the year ended December 31, 2000. (10) 364-Day Credit Agreement dated as of August 14, 2001 among the Registrant, the lenders listed therein, and The Chase Manhattan Bank, as administrative agent, incorporated by reference from the Registrant's Form 8-K dated August 17, 2001. (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
(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 2001 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. - ---------- * These exhibits relate to management contracts or compensatory plan arrangements. 11
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 12, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on March 12, 2002 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 eleven 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 12
/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 /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 13
/s/ James H. Ross ------------------------------------------ James H. Ross Director /s/ Edward B. Rust, Jr. ------------------------------------------ Edward B. Rust, Jr. Director /s/ Sidney Taurel ------------------------------------------ Sidney Taurel Director 14
Table of Contents ----------------- EXHIBITS AND FINANCIAL STATEMENTS ---------------------------------- <TABLE> <CAPTION> EXHIBIT PAGE - ------- ---- <S> <C> (12) Computation of Ratio of Earnings to Fixed Charges............................................... 15-16 (13) Registrant's 2001 Annual Report to Shareholders................................................. - (21) Subsidiaries of Registrant...................................................................... 17-18 (23) Consent of Ernst & Young LLP Independent Auditors............................................... 19 Schedule II Reserves for Doubtful Accounts and Sales Returns............................................. 20 </TABLE>