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, 2001
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 16, 2001 there were approximately 195.2 million shares of common stock
(par value $1.00 per share) outstanding.
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
-------
Consolidated Statement of Income for
the three months ended March 31, 2001 and 2000 3
Consolidated Balance Sheet at March 31, 2001,
December 31, 2000 and March 31, 2000 4-5
Consolidated Statement of Cash Flows for the three 6
months ended March 31, 2001 and 2000
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Operating
------ Results and Financial Condition 11-13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
Part II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 14
------
Item 6. Exhibits and Reports on Form 8-K 15-16
------
Part I
Financial Information
Item 1. Financial Statements
---------------------
The McGraw-Hill Companies, Inc.
-------------------------------
Consolidated Statement of Income
-------------------------------
Three Months Ended March 31, 2001 and 2000
------------------------------------------
2001 2000
----------- -----------
(in thousands, except
per-share data)
Operating revenue $ 846,397 $ 784,214
Expenses:
Operating 412,462 378,642
Selling and general 321,570 291,508
Depreciation and amortization 74,353 59,197
----------- -----------
Total expenses 808,385 729,347
Other income - net 12,024 25,039
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Income from operations 50,036 79,906
Interest expense - net 16,880 9,345
----------- -----------
Income before taxes on income 33,156 70,561
Provision for taxes on income 12,765 27,166
----------- -----------
Income before cumulative adjustment 20,391 43,395
Cumulative change in accounting, net of tax (Note 10) - (68,122)
----------- -----------
Net income / (loss) $ 20,391 $ (24,727)
=========== ===========
Earnings per common share
Basic
Income before cumulative adjustment $ 0.11 $ 0.22
Net income / (loss) $ 0.11 $ (0.13)
Diluted
Income before cumulative adjustment $ 0.10 $ 0.22
Net income / (loss) $ 0.10 $ (0.13)
Average number of common
shares outstanding: (Note 9)
Basic 193,957 194,391
Diluted 195,963 196,104
The McGraw-Hill Companies, Inc.
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Consolidated Balance Sheet
--------------------------
March 31, Dec. 31, March 31,
2001 2000 2000
---------- ----------- ----------
(In thousands)
ASSETS
Current assets:
Cash and equivalents $22,723 $ 3,171 $ 6,812
Accounts receivable (net of allowance
for doubtful accounts and sales
returns) (Note 4) 866,078 1,095,118 786,047
Inventories (Note 4) 435,766 388,947 344,948
Deferred income taxes 196,313 192,789 149,297
Prepaid and other current assets (Note 5) 151,830 121,665 123,117
--------- --------- ---------
Total current assets 1,672,710 1,801,690 1,410,221
--------- --------- ---------
Prepublication costs (net of accumulated
amortization) (Note 4) 530,766 518,031 454,833
Investments and other assets:
Investment in Rock-McGraw, Inc. - at
equity 98,332 95,862 88,268
Prepaid pension expense 172,623 159,598 127,870
Other 221,275 226,910 201,091
---------- --------- ---------
Total Investment and other assets 492,230 482,370 417,229
---------- --------- ---------
Property and equipment - at cost 1,043,111 1,046,369 949,210
Less - accumulated depreciation 618,773 614,464 539,034
---------- --------- ---------
Net property and equipment 424,338 431,905 410,176
Goodwill and other intangible assets -
at cost (net of accumulated amortization) 1,758,758 1,697,448 1,201,342
---------- ---------- ----------
Total Assets $4,878,802 $4,931,444 $3,893,801
========== ========== ==========
The McGraw-Hill Companies, Inc.
-------------------------------
Consolidated Balance Sheet
--------------------------
March 31, Dec. 31, March 31,
2001 2000 2000
---------- ----------- ----------
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $244,475 $227,848 $139,976
Current portion of long-term debt - - 95,043
Accounts payable 278,584 313,286 218,782
Accrued liabilities 221,395 358,274 224,800
Income taxes currently payable 79,787 55,388 83,189
Unearned revenue 499,012 475,559 452,829
Other current liabilities (Note 5) 354,917 350,430 307,656
---------- ---------- ----------
Total current liabilities 1,678,170 1,780,785 1,522,275
---------- ---------- ----------
Other liabilities:
Long-term debt (Note 6) 876,319 817,529 353,175
Deferred income taxes 170,131 163,231 123,157
Accrued postretirement healthcare and
other benefits 176,985 178,525 186,593
Other non-current liabilities 228,532 230,330 195,132
---------- ---------- ----------
Total other liabilities 1,451,967 1,389,615 858,057
---------- ---------- ----------
Total liabilities 3,130,137 3,170,400 2,380,332
---------- ---------- ----------
Shareholders' equity (Note 7 & 8):
Capital stock 205,852 205,852 205,852
Additional paid-in capital 54,703 44,176 36,806
Retained income 2,077,971 2,105,145 1,813,438
Accumulated other comprehensive income (129,290) (110,358) (87,842)
---------- ---------- ----------
2,209,236 2,244,815 1,968,254
Less - common stock in treasury-at cost 441,808 470,903 440,091
Unearned compensation on restricted stock 18,763 12,868 14,694
---------- ---------- ----------
Total shareholders' equity 1,748,665 1,761,044 1,513,469
---------- ---------- ----------
Total Liabilities & Shareholders'
equity $4,878,802 $4,931,444 $3,893,801
========== ========== ==========
The McGraw-Hill Companies, Inc.
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Consolidated Statement of Cash Flows
------------------------------------
For The Three Months Ended March 31, 2001 and 2000
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2001 2000
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Cash flows from operating activities (In thousands)
- ---------------------------------------------
Net income / (loss) $20,391 $(24,727)
Cumulative change in accounting principle - 68,122
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation 22,624 21,180
Amortization of goodwill and intangibles 21,232 13,954
Amortization of prepublication costs 30,497 24,063
Gain on sale of Tower Group International - (16,587)
Gain on the sale of real estate (6,925) -
Provision for losses on accounts receivable 10,958 14,505
Other (3,114) (2,443)
Changes in assets and liabilities net of effect of
acquisitions and dispositions:
Decrease in accounts receivable 222,051 149,312
Increase in inventories (45,985) (55,098)
Increase in prepaid and other current assets (30,389) (34,325)
Decrease in accounts payable and accrued expenses (176,101) (205,724)
Increase in unearned revenue 13,690 28,583
Increase / (decrease) in other current liabilities 28,369 (7,234)
Increase / (decrease) in interest and income taxes
currently payable 32,025 19,916
Increase in deferred income taxes 709 658
Net change in other assets and liabilities (11,669) (10,416)
- --------------------------------------------------- --------- ---------
Cash provided by / (used for) operating activities 128,363 (16,261)
- --------------------------------------------------- --------- ---------
Investing activities
- -------------------------
Investment in prepublication costs (37,190) (35,845)
Purchases of property and equipment (19,862) (16,377)
Acquisition of businesses and equity interests (107,794) -
Disposition of property, equipment and businesses 10,587 139,150
- --------------------------------------------------- --------- ---------
Cash (used for) / provided by investing activities (154,259) 86,928
- --------------------------------------------------- --------- ---------
Financing activities
- ---------------------------------------------------
Additions to / (repayments of) short-term debt - net 75,688 53,414
Dividends paid to shareholders (47,565) (45,648)
Repurchase of treasury shares (5,451) (78,611)
Exercise of stock options 25,045 2,115
Other (100) (888)
- --------------------------------------------------- --------- ---------
Cash provided by financing activities 47,617 (69,618)
- --------------------------------------------------- --------- ---------
Effect of exchange rate fluctuations on cash (2,169) (726)
--------- ---------
Net change in cash and equivalents 19,552 323
Cash and equivalents at beginning of period 3,171 6,489
- --------------------------------------------------- --------- ---------
Cash and equivalents at end of period $22,723 $6,812
========= =========
The McGraw-Hill Companies, Inc.
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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, 2001 and 2000 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, 2000.
Certain prior year amounts have been reclassified for comparability purposes.
2. The following table is a reconciliation of the company's net income to
comprehensive income for the three month period ended March 31:
2001 2000
----------- -----------
(in thousands, except
per-share data)
Net income / (loss) $ 20,391 $ (24,727)
Other comprehensive income, net of tax:
Foreign currency translation adjustments (18,932) (111)
----------- -----------
Total other comprehensive income (18,932) (111)
----------- -----------
Comprehensive income $ 1,459 $(24,838)
=========== ===========
3. The company has three reportable segments: McGraw-Hill Education,
Financial Services, and Information and Media Services. McGraw-Hill
Education provides educational and reference materials for all levels, from
pre-school to lifelong learning, for students and professionals. The
financial services segment consists of Standard & Poor's operations, which
provide a wide range of financial information, credit ratings and analysis
globally. The information and media services segment includes business and
professional media offering information, insight and analysis.
The McGraw-Hill Companies, Inc.
-------------------------------
Notes to Financial Statements
-----------------------------
Operating profit by segment is the primary basis for the chief operating
decision maker of the company, the CEO Council, to evaluate the performance
of each segment. A summary of operating results by segment for the three
months ended March 31, 2001 and 2000 follows:
2001 2000
------------------- --------------------
Operating Operating
Revenue Profit Revenue Profit
-------- --------- --------- ---------
(in thousands)
McGraw-Hill Education $307,758 $(57,831) $236,362 $(38,396)
Financial Services 345,181 106,608 304,688 87,980
Information and Media Services 193,458 13,672 243,164 49,106
-------------------------------- -------- -------- -------- --------
Total operating segments 846,397 62,449 784,214 98,690
General corporate expense - (12,413) - (18,784)
Interest expense - net - (16,880) - (9,345)
-------------------------------- --------- --------- -------- --------
Total company $ 846,397 $ 33,156* $784,214 $70,561*
========= ========= ======== ========
*Income before taxes on income and cumulative adjustment.
4. The allowance for doubtful accounts and sales returns, the components of
inventory and the accumulated amortization of prepublication costs were as
follows:
March 31, Dec. 31, March 31,
2001 2000 2000
---------- ---------- ----------
(In thousands)
Allowance for doubtful accounts $136,391 $ 137,741 $127,131
========== =========== ==========
Allowance for sales returns $101,036 $ 118,522 $ 87,677
========== =========== ==========
Inventories:
Finished goods $365,969 $ 324,852 $282,694
Work-in-process 23,598 24,231 29,758
Paper and other materials 46,199 39,864 32,496
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Total inventories $435,766 $ 388,947 $344,948
========== =========== ==========
Accumulated amortization of
prepublication costs $697,643 $ 757,034 $540,096
========== =========== ==========
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 $222.4 million of matched purchase and sale
commitments atMarch 31, 2001. Only those transactions not closed at the
settlement date are reflected in the balance sheet as receivables and
payables.
The McGraw-Hill Companies, Inc.
-------------------------------
Notes to Financial Statements
-----------------------------
6. A summary of long-term debt follows:
March 31, Dec. 31, March 31,
2001 2000 2000
---------- ---------- ----------
(In thousands)
9.43% Notes due 2000 $ - $ - $ 95,043
Commercial paper supported by
Bank revolving credit agreement 874,560 815,600 350,000
Other 1,759 1,929 3,175
---------- ---------- ----------
Total long-term debt 876,319 817,529 448,218
Less: Current portion of long-term debt - - (95,043)
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$876,319 $817,529 $353,175
========== ========== ==========
7. Common shares reserved for issuance for conversions and stock based awards
were as follows:
March 31, Dec. 31, March 31,
2001 2000 2000
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$1.20 convertible preference stock
at the rate of 13.2 shares for each
share of preference stock 17,846 17,846 17,846
Stock based awards 22,617,323 23,474,142 15,554,930
---------- ---------- ----------
22,635,169 23,491,988 15,572,776
========== ========== ==========
8. Cash dividends per share declared during the three months ended March 31,
2001 and 2000 were as follows:
2001 2000
---- ----
Common stock $.245 $.235
Preference stock .300 .300
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, 2001 and 2000 follows:
2001 2000
---------- ----------
(In thousands)
Average number of common shares outstanding 193,957 194,391
Effect of stock options and other dilutive securities 2,006 1,713
---------- ----------
Average number of common shares outstanding including
effect of dilutive securities 195,963 196,104
========== ==========
Restricted performance shares outstanding at March 31, 2001 of 451,000 were
not included in the computation of diluted earnings per common shares
because the necessary vesting conditions have not yet been met.
10.The company adopted Staff Accounting Bulletin No. 101 (SAB 101), Revenue
Recognition in Financial Statements, effective January 1, 2000. In
consideration of the views expressed in SAB 101, the company modified its
revenue recognition policies for various service contracts. Under SAB 101,
the company recognizes revenue relating to agreements where it provides
more than one service based upon the fair value to the customer rather than
recognizing revenue based on the level of service effort to fulfill such
contracts. The cumulative impact of the accounting change at January 1,
2000 was $68.1 million, net of tax of $46.7 million. The total amount of
this cumulative adjustment that was recognized during the quarter ended
March 31, 2001 is $0.4 million.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The new standard was effective January
1, 2001. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities, requiring companies to
recognize all derivatives as either assets or liabilities on their balance
sheet and measuring them at fair value. The adoption of SFAS No. 133 had no
material impact on the company's financial statements.
Item 2. Management's Discussion and Analysis of Operating Results and
- ------- -------------------------------------------------------------
Financial Condition
-------------------
Operating Results - Comparing Three Months Ended March 31, 2001 and 2000
- ------------------------------------------------------------------------
Consolidated Review
- -------------------
The Segment Review that follows is incorporated herein by reference.
Operating revenue for the first quarter grew 7.9% over prior year's first
quarter to $846.4 million. The revenue increase reflects the strong start in
education and the solid performance of Standard & Poor's Credit Market Services,
offset somewhat by declines in advertising revenue. Net income was $20.4
million, an increase of $45.1 million. In January 2001, the Company purchased
Mayfield Publishing and the results of this operation are reflected in the
McGraw-Hill Education segment. Net income also includes $6.9 million related to
a gain on the sale of real estate, 2 cents diluted earnings per share, and is
recorded in other income. The first quarter also reflects the results of the
Tribune Education Company and Landoll, Inc. ("Tribune Education") acquisition,
which occurred in September 2000. Their operating results are reflected in the
McGraw-Hill Education segment. In February 2000, Tower Group International was
divested and an after-tax gain of $10.2 million, or 5 cents per diluted share,
was recorded. In January 2000, the Company adopted Staff Accounting Bulletin No.
101 (SAB 101), Revenue Recognition in Financial Statements, and recognized a
cumulative adjustment of $68.1 million, net of tax, or 35 cents per diluted
share.
The first quarter represents the Company's smallest quarter due to the
seasonal aspect of the Company's educational publishing operations.
Total expenses in 2001 increased 10.8% due to new and acquired products and
services in addition to increases in normal recurring expenses.
Net interest expenses increased 80.6% to $16.9 million from $9.3 million in
the first quarter of 2000. The primary reason for the increase is higher
debt levels due to acquisitions, primarily Tribune Education. The average
interest rate on commercial paper borrowing increased from 5.9% in 2000 to
6.2% in 2001.
The provision for taxes as a percent of income before taxes is 38.5%, the
same as that in 2000.
Segment Review
- --------------
McGraw-Hill Education's revenue increased 30.2% over the prior year's first
quarter to $307.8 million. The segment's operating results include the results
from Tribune Education and Mayfield Publishing, acquired in September 2000 and
January 2001, respectively.
SRA/McGraw-Hill suffered from comparison to 2000, where California had
significant purchases. The Wright Group/McGraw-Hill was added as a sixth
division of the School Education group in 2001, and is a publisher of innovative
supplementary products for the early childhood, elementary and remedial markets.
Macmillan/McGraw-Hill continues to perform well with its social studies program.
Glencoe/McGraw-Hill benefited from buying by North Carolina. CTB/McGraw-Hill had
an excellent quarter with its TerraNova program. The Higher Education Group had
a solid start on front list sales. Revenue increased at the Professional Book
operation in part from the introduction of the 15th edition of Harrison's
Principles of InternalMedicine. International Publishing grew revenue on
the performance of the Asia-Pacific,Latin America, Europe, and Ibero
groups. The operating loss for the McGraw-Hill Education segment increased $19.4
million to $57.8 million, reflecting the impact of the segment's seasonal
operating loss for spending in preparation of its selling period, and the impact
of the acquisitions.
Financial Services' revenue increased 13.3% to $345.2 million and operating
profit increased 21.2% to $106.6 million over 2000 first quarter results.
Standard & Poor's Credit Market Services revenue and operating profit
experienced double digit increases as new issue dollar volume in the U.S. bond
market increased 19.2% and European bond insurance increased 19.4%. Strong
growth in Structured Finance, Corporate Finance and Financial Services, as well
as solid growth in Public Finance, contributed to the results. International
revenue and revenue from non-traditional products grew at significantly faster
rates than the domestic traditional business. Standard & Poor's Information
Services showed revenue increase from retail markets, index services, and S&P
Compustat. Internet redistribution services continued to benefit from the strong
sales of quote feeds and analytical commentary to financial websites and
redistributors. Operating profit declined due to investment in web facilities
and services, and continued investment in managed funds. Softness in the
secondary municipal bond market and foreign exchange markets also negatively
impacted operating profit.
Information and Media Services' revenue decreased $49.7 million, or 20.4%,
to $193.5 million from 2000 first quarter results. Operating profit decreased
$35.4 million, or 72.2%, over 2000 first quarter to $13.7 million. Included in
2000 revenue was $18.6 million from Tower Group International, which negatively
impacted the year to year growth comparison by 6.6%. Included in the operating
profit for the segment for 2000 was the gain on the sale of Tower Group
International representing $16.6 million ($10.2 million after tax, or 5 cents
per diluted share). The divestiture of Tower Group International negatively
impacted the year to year growth in operating profit by 13.2%. A slowdown in the
advertising market negatively impacted both the Business-to-Business Group and
Broadcasting.
At Business Week, advertising pages in the first quarter were off 30.1%
according to the Publishers Information Bureau. Aviation Week was impacted by
the soft advertising market and the absence of the Singapore airshow. The
Construction Information Group declined due to investment in electronic
products, softness in advertising, and timing at Sweet's. Platts produced solid
gains in the first quarter as volatility in the petroleum market increased the
demand for information. The Healthcare Information Group showed declines due to
reduced advertising spending.
Broadcasting had a difficult comparison to 2000 first quarter, due to the
lack of political advertising and the Super Bowl in 2001. National time sales
were down substantially, as well.
Financial Condition
- -------------------
The Company continues to maintain a strong financial position. Cash
provided by operating activities in the first quarter totaled $128.4 million
compared to a use of $16.3 million a year ago. The change in cash provided by
operating activities primarily relates to a decrease in accounts receivable.
Total debt increased $75 million since year end, reflecting acquisition
activity, seasonal spending on inventory and prepublication costs, and dividend
payments, somewhat offset by tax refunds. 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, 2001 totaled $1.093 billion, an
increase of $74 million from December 31, 2000. The commercial paper borrowings
are supported by two revolving credit agreements, each with the same 11 domestic
and international banks, consisting of a $625 million, five-year revolving
credit facility and a $625 million, 364-day revolving credit facility. At March
31, 2001, there were no borrowings under either facility. 80%, or $874.6
million, of the commercial paper borrowings outstanding are classified as
long-term.
Under a shelf registration that became effective with the Securities and
Exchange Commission in 1990, the Company can issue an additional $250 million of
debt securities. The new debt could be used to replace a portion of the
commercial paper borrowings with longer-term securities when and if interest
rates are attractive and markets are favorable.
Gross accounts receivable of $1.1 billion decreased $247.9 million from the
end of 2000 primarily from the impact of the seasonality of the educational
publishing business. Inventories increased $46.8 million from the end of 2000 to
$435.8 million as the Company prepares itself for the school and higher
education publishing selling season later this year and because of the Mayfield
Publishing acquisition.
Net prepublication costs increased $12.7 million from the end of 2000 to
$530.8 million due to spending for school, higher education, children's and
professional publishing titles. Prepublication cost spending in the first
quarter totaled $37.2 million, an increase of $1.4 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 $19.9 million, $3.5 million
higher than the prior year. Spending is expected to increase over the remainder
of the year as a result of the Tribune Education and Mayfield acquisitions.
The Board of Directors approved a 4.3% increase in the quarterly common
stock dividend to $0.245 per share. In 1999, the Board of Directors authorized a
stock repurchase program of up to 15 million shares. The repurchased shares will
be used for general corporate purpose, 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 depending on
market conditions. Approximately 6.4 million shares have been repurchased under
this program.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------ -----------------------------------------------------------
The Company has no material changes to the disclosure made on this
matter in the Company's report on Form 10-K for the year ended
December 31, 2000.
Part II
Other Information
Item 1. 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 6. Exhibits and Reports on Form 8-K Page Number
- ------ -------------------------------- -----------
(a) Exhibits
(12) Computation of ratio of earnings to fixed charges 16
(b) Reports on Form 8-K
No reports were filed during the period covered
by this report
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 /s/
-------------------- --------------------------------
Robert J. Bahash
Executive Vice President
and Chief Financial Officer
Date: By /s/
-------------------- -------------------------------
Kenneth M. Vittor
Executive Vice President
and General Counsel
Date: By /s/
-------------------- --------------------------------
Talia M. Griep
Senior Vice President
and Corporate Controller
Exhibit (12)
The McGraw-Hill Companies, Inc.
-------------------------------
Computation of Ratio of Earnings to Fixed Charges
-------------------------------------------------
Periods Ended March 31, 2001
----------------------------
Three Twelve
Months Months
--------- ---------
(In thousands)
Earnings
Earnings from continuing operations
Before income taxes expense (Note) $ 30,686 $ 719,873
Fixed charges 27,842 100,932
--------- ---------
Total Earnings $ 58,528 $ 820,805
========= =========
Fixed Charges (Note)
Interest $ 17,816 $ 64,129
Portion of rental payments deemed to be
interest 10,026 36,803
--------- ---------
Total Fixed Charges $ 27,842 $ 100,932
========= =========
Ratio of Earnings to Fixed Charges 2.1x 8.1x
<FN>
(Note) For purposes of computing the ratio of earnings to fixed charges,
"earnings from continuing operations before income taxes expense"
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
three month and twelve month period ended March 31, 2001 includes
a $6.9 million pre-tax gain on the sale of real estate.
</FN>