1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K For the fiscal year ended December 31, 2000 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 28, 2001, was $11,437,135,559. The number of shares of common stock of the registrant outstanding as of February 28, 2001 was 194,915,339 shares. Part I, Part II and Part IV incorporate information by reference from the Annual Report to Shareholders for the year ended December 31, 2000. Part III incorporates information by reference from the definitive proxy statement mailed to shareholders March 26, 2001 for the annual meeting of shareholders to be held on April 25, 2001.
2 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 - 30 Consent of Independent Auditors - Ernst & Young LLP.................. 31 Financial Data Schedule.............................................. 32 - 35 Supplementary schedule ..................................................... 36 </TABLE>
3 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 16,761 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 23, containing textual material of the Registrant's 2000 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, 2000 at the end of each year, are included in Exhibit (13), on pages 46 and 47 in the Registrant's 2000 Annual Report to Shareholders and is hereby incorporated by reference. 1
4 Item 2. Properties The Registrant leases office facilities at 314 locations: 230 are in the United States. In addition, the Registrant owns real property at 15 locations: 12 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 --------- ------ ----------- ------------- DOMESTIC <S> <C> <C> <C> New York, NY leased 1,028 Various Units: 1221 Avenue of the Americas New York, NY leased 946 Standard & Poor's: 55 Water New York, NY leased 506 Various Units: 2 Penn Plaza (See Below) Hightstown, NJ owned Office and Data Center 490 Various Units Warehouse 412 Leased to non-McGraw-Hill tenant Blacklick (Gahanna), OH owned Various operating units Book Distr. Ctr. 558 Office 67 Desoto, TX Book Dist. Ctr. leased 382 School Dallas, TX leased 418 School Assembly Plant Dubuque, IA owned 107 Higher Education Office Warehouse 279 Grove City, OH Warehouse leased 305 School Columbus, OH owned 170 School Monterey, CA owned 215 CTB Englewood, CO owned 133 Financial Services Lexington, MA leased 132 Various operating units and non-McGraw-Hill subtenants Lexington, MA owned 53 Partially occupied with non-McGraw-Hill tenant Burr Ridge IL leased 122 Various publishing units Denver, CO owned 88 Broadcasting Indianapolis, IN leased 54 Broadcasting Indianapolis, IN leased 127 CTB Washington, DC leased 73 Various operating units </TABLE> 2
5 <TABLE> <S> <C> <C> <C> Chicago, IL leased 80 Various operating units and McGraw-Hill subtenants Mather, CA leased 56 CTB FOREIGN Whitby, Canada owned McGraw-Hill Ryerson, Ltd./ Office 80 non-McGraw-Hill tenant Book Distribution Ctr. 80 Maidenhead, England leased 85 McGraw-Hill International (U.K.) Ltd. Jurong, Singapore leased 30 Various Operating Units Office leased 91 Various Publishing Units </TABLE> During 2000, the divestiture of the Tower Group decreased the number of facilities by 75. The acquisition of Tribune Education during 2000 added approximately 40 facilities (1 owned). During the first quarter of 2001, we will be selling the owned facility at 29 Hartwell Ave in Lexington Massachusetts. Beginning July 2001, we will lease an additional floor at 2 Penn Plaza, totaling 58,770 square feet. The lease will be through the period ending March 31, 2020. 3
6 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, nor are 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. 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
7 Executive Officers of Registrant -------------------------------- <TABLE> <CAPTION> Name Age Position ---- --- -------- <S> <C> <C> Harold McGraw III 52 Chairman of the Board President and Chief Executive Officer Robert J. Bahash 55 Executive Vice President and Chief Financial Officer Barbara B. Maddock 50 Executive Vice President, Organizational Effectiveness John Negroponte 61 Executive Vice President, Global Markets Kenneth M. Vittor 51 Executive Vice President and General Counsel Peter Watkins 53 Executive Vice President, Information Management and Chief Technology Officer Scott L. Bennett 51 Senior Vice President, Associate General Counsel and Secretary Glenn S. Goldberg 42 Senior Vice President, Corporate Affairs and Assistant to the Chairman, President and Chief Executive Officer Frank J. Kaufman 56 Senior Vice President, Taxes Frank D. Penglase 60 Senior Vice President, Treasury Operations Talia M. Griep 38 Corporate Controller </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 John Negroponte and Peter Watkins. Mr. Negroponte, prior to his becoming an officer of the Registrant on September 2, 1997, was with the United States Diplomatic Corps for 37 years where he held numerous senior positions, including ambassador to Mexico, the Philippines, and Honduras. Mr. Watkins, prior to his 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. 5
8 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 28, 2001 was 5,246. <TABLE> <CAPTION> 2000 1999 ---- ---- <S> <C> <C> Dividends per share of common stock: $.235 per quarter in 2000 $0.94 $.215 per quarter in 1999 $0.86 </TABLE> Information concerning other matters is incorporated herein by reference from Exhibit (13), from page 53 of the 2000 Annual Report to Shareholders. Item 6. Selected Financial Data Incorporated herein by reference from Exhibit (13), from the 2000 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 2000 Annual Report to Shareholders, pages 26 to 38. Item 7A. Market Risk Incorporated herein by reference from Exhibit (13), from the 2000 Annual Report to Shareholders, page 38. Item 8. Consolidated Financial Statements and Supplementary Data Incorporated herein by reference from Exhibit (13), from the 2000 Annual Report to Shareholders, pages 39 to 51 and page 53. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None 6
9 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 26, 2001 for the annual meeting of shareholders to be held on April 25, 2001. Item 11. Executive Compensation Incorporated herein by reference from the Registrant's definitive proxy statement dated March 26, 2001 for the annual meeting of shareholders to be held on April 25, 2001. Item 12. Security Ownership of Certain Beneficial Owners and Management Incorporated herein by reference from the Registrant's definitive proxy statement dated March 26, 2001 for the annual meeting of shareholders to be held April 25, 2001. Item 13. Certain Relationships and Related Transactions Incorporated herein by reference from the Registrant's definitive proxy statement dated March 26, 2001 for the annual meeting of shareholders to be held April 25, 2001. 7
10 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............................................. 52 Consolidated balance sheet at December 31, 2000 and 1999............................................. 40-41 Consolidated statement of income for each of the three years in the period ended December 31, 2000..................................... 39 Consolidated statement of cash flows for each of the three years in the period ended December 31, 2000......................................... 42 Consolidated statement of shareholders' equity for each of the three years in the period ended December 31, 2000..................................... 43 Notes to consolidated financial statements............................................................. 44-51 Quarterly financial information............................................ 53 Consent of Independent Auditors............................................ 31 Consolidated schedule for each of the three years in the period ended December 31, 2000 II - Reserves for doubtful accounts and sales returns ............................................ 36 </TABLE> 8
11 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, 2000 are hereby incorporated by reference in Exhibit (13). With the exception of the pages listed in the above index, the 2000 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 ChaseMellon Shareholder Services, L.L.C., 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
12 (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. (10) 364-Day Credit Agreement dated as of August 15, 2000 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 21, 2000. (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. (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
13 (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 2000 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. (27) Financial Data Schedule. (b) Reports on Form 8-K. A report on Form 8-K was filed on October 27, 2000, and dated October 24, 2000. Item 9, Regulation of FD Disclosure, was reported. - ---------------- * These exhibits relate to management contracts or compensatory plan arrangements. 11
14 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, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on March 12, 2001 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 of the Board President and Chief Executive Officer Director /s/ Robert J. Bahash ------------------------------------------ Robert J. Bahash Executive Vice President and Chief Financial Officer 12
15 /s/ Talia M. Griep ------------------------------------------ Talia M. Griep Corporate Controller /s/ Pedro Aspe ------------------------------------------ Pedro Aspe Director /s/ Sir Winfried Bischoff ------------------------------------------- Sir Winfried Bischoff Director /s/ Vartan Gregorian ------------------------------------------- Vartan Gregorian Director /s/ George B. Harvey ------------------------------------------- George B. Harvey 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
16 /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
17 Table of Contents ----------------- EXHIBITS AND FINANCIAL STATEMENTS ---------------------------------- <TABLE> <CAPTION> EXHIBIT PAGE - ------- ---- <S> <C> (10.1) Registrant's Senior Executive Severance Plan.................................................... 15-23 (10.2) 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............................................................................ 24-26 (12) Computation of Ratio of Earnings to Fixed Charges............................................... 27-28 (13) Registrant's 2000 Annual Report to Shareholders................................................. - (21) Subsidiaries of Registrant...................................................................... 29-30 (23) Consent of Ernst & Young LLP Independent Auditors............................................... 31 (27) Financial Data Schedules........................................................................ 32-35 Schedule II Reserves for Doubtful Accounts and Sales Returns................................................... 36 </TABLE>