UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
- - --- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994 or
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
- - --- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-1023
McGRAW-HILL, 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
------------------
Not Applicable
- - ---------------------------------------------------------------------
(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
----------- -----------
Number of shares of Common Stock (par value $1.00 per share)
outstanding as of October 31, 1994: 49,659,784.
PART I
Financial Information
McGraw-Hill, Inc.
-----------------
Consolidated Statement of Income
--------------------------------
Periods Ended September 30, 1994 and 1993
-----------------------------------------
Three Months Nine Months
-------------------- ----------------------
1994 1993 1994 1993
--------- --------- ---------- ----------
(In thousands, except per-share data)
Operating revenue $ 855,517 $ 554,969 $2,063,570 $1,512,823
Expenses:
Operating 430,420 284,837 1,047,917 778,920
Selling and general 263,537 180,406 731,525 527,207
--------- --------- ---------- ----------
Total expenses 693,957 465,243 1,779,442 1,306,127
Share of profit of
Macmillan/McGraw-Hill
joint venture (Note 3) - 37,489 - 28,376
Unusual charges related to
acquisition of additional 50% of
Macmillan/McGraw-Hill School
Publishing Company (Note 3) - (229,800) - (229,800)
Other income - net 6,002 1,722 14,636 8,238
--------- --------- ---------- ----------
Income/(loss) from operations 167,562 (100,863) 298,764 13,510
Interest expense - net (14,224) (7,941) (38,270) (23,952)
--------- --------- ---------- ----------
Income/(loss) before taxes on income 153,338 (108,804) 260,494 (10,442)
Provision for taxes on income 63,176 (16,936) 107,324 22,999
--------- --------- ---------- ----------
Net income/(loss) $ 90,162 $ (91,868) $ 153,170 $ (33,441)
========= ========= ========== ==========
Earnings/(loss) per common share $ 1.82 $ (1.87) $ 3.09 $ (0.68)
========= ========= ========== ==========
Average number of common
shares outstanding 49,537 49,132 49,487 49,152
-2-
Financial Information (cont'd)
McGraw-Hill, Inc.
-----------------
Consolidated Balance Sheet
--------------------------
Sept. 30, Dec. 31, Sept. 30,
1994 1993 1993
---------- ---------- ----------
(In thousands)
ASSETS
Current assets:
Cash and equivalents $ 26,978 $ 47,953 $ 51,164
Accounts receivable (net of allowance
for doubtful accounts) (Note 4) 845,754 711,919 821,018
Receivable from broker-dealers and
dealer banks (Note 5) 73,307 19,136 17,757
Inventories (Note 4) 232,842 215,228 250,675
Prepaid income taxes 92,743 92,912 83,238
Prepaid and other current assets 38,987 44,634 45,118
---------- ---------- ----------
Total current assets 1,310,611 1,131,782 1,268,970
---------- ---------- ----------
Prepublication costs (net of accumulated
amortization) (Note 4) 271,591 285,445 272,752
Investments and other assets:
Investment in Rock-McGraw, Inc. - at
equity 56,263 53,077 52,317
Prepaid pension expense 95,945 87,655 84,717
Other 149,148 159,861 162,645
---------- ---------- ----------
Total investments and other assets 301,356 300,593 299,679
---------- ---------- ----------
Property and equipment - at cost 780,795 753,452 737,499
Less - accumulated depreciation 432,631 408,126 396,842
---------- ---------- ----------
Net property and equipment 348,164 345,326 340,657
Goodwill and other intangible assets - at
cost (net of accumulated amortization) 982,330 1,021,017 1,029,461
---------- ---------- ----------
$3,214,052 $3,084,163 $3,211,519
========== ========== ==========
-3-
Financial Information (cont'd)
McGraw-Hill, Inc.
-----------------
Consolidated Balance Sheet
--------------------------
Sept. 30, Dec. 31, Sept. 30,
1994 1993 1993
---------- ---------- ----------
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 131,580 $ 170,780 $ 198,135
Accounts payable 164,400 178,466 180,864
Payable to broker-dealers and dealer
banks (Note 5) 72,937 18,695 17,070
Accrued liabilities 170,361 182,156 161,725
Income taxes currently payable 115,170 42,783 92,753
Unearned revenue 223,132 248,036 230,814
Other current liabilities 254,422 227,979 246,013
---------- ---------- ----------
Total current liabilities 1,132,002 1,068,895 1,127,374
---------- ---------- ----------
Other liabilities:
Long-term debt (Note 6) 758,083 757,567 888,825
Deferred income taxes 113,081 119,548 80,711
Accrued postretirement healthcare and
other benefits 192,854 190,985 188,060
Other non-current liabilities 109,651 124,160 124,707
---------- ---------- ----------
Total other liabilities 1,173,669 1,192,260 1,282,303
---------- ---------- ----------
Total liabilities 2,305,671 2,261,155 2,409,677
---------- ---------- ----------
Shareholders' equity (Note 7):
Capital stock 51,474 51,475 51,475
Additional paid-in capital 68,747 63,512 61,834
Retained income 901,529 834,250 817,429
Foreign currency translation adjustments (25,841) (28,577) (27,033)
---------- ---------- ----------
995,909 920,660 903,705
Less - common stock in treasury-at cost 78,043 87,687 91,591
unearned compensation on
restricted stock 9,485 9,965 10,272
---------- ---------- ----------
Total shareholders' equity 908,381 823,008 801,842
---------- ---------- ----------
$3,214,052 $3,084,163 $3,211,519
========== ========== ==========
-4-
Financial Information (cont'd)
McGraw-Hill, Inc.
-----------------
Consolidated Statement of Cash Flows
------------------------------------
For The Nine Months Ended September 30, 1994 And 1993
-----------------------------------------------------
1994 1993
--------- ---------
(In thousands)
Cash flows from operating activities
- - ------------------------------------
Net income/(loss) $ 153,170 $ (33,441)
Adjustments to reconcile net income/(loss) to
cash provided by operating activities:
Unusual charges related to acquisition of additional 50%
of MacMillan/McGraw-Hill School Publishing Company - 229,800
Depreciation 47,312 38,286
Amortization of goodwill and intangibles 28,193 17,718
Amortization of prepublication costs 102,733 28,224
Provision for losses on accounts receivable 49,923 52,373
Undistributed share of profit of MacMillan/McGraw-Hill
School Publishing Company - (26,318)
Other (1,790) 13
Changes in assets and liabilities net of effect of
acquisitions and dispositions:
Increase in accounts receivable (184,173) (20,765)
Increase in inventories (16,876) (17,688)
Decrease in accounts payable and accrued expenses (26,767) (10,805)
Increase/(decrease) in interest and income taxes payable 72,590 (20,965)
Net change in other assets and liabilities 5,352 (13,844)
- - --------------------------------------------------- --------- ---------
Cash provided by operating activities 229,667 222,588
- - --------------------------------------------------- --------- ---------
Investing activities
- - --------------------
Purchases of property and equipment (54,751) (27,598)
Investment in prepublication costs (88,517) (31,942)
Acquisition of businesses and equity interests (717) (323,085)
Disposition of property and equipment 4,680 787
Other 2,655 -
- - --------------------------------------------------- --------- ---------
Cash used for investing activities (136,650) (381,838)
- - --------------------------------------------------- --------- ---------
Financing activities
- - --------------------
Dividends paid to shareholders (85,891) (83,772)
Debt for purchase of Macmillan/McGraw-Hill - 337,500
Repayment of commercial paper and other short-term debt (39,523) (67,806)
Exercise of stock options 11,401 12,834
Other 21 (1,570)
- - --------------------------------------------------- --------- ---------
Cash (used for)/provided by financing activities (113,992) 197,186
- - --------------------------------------------------- --------- ---------
Net change in cash and equivalents (20,975) 37,936
Cash and equivalents at beginning of period 47,953 13,228
- - --------------------------------------------------- --------- ---------
Cash and equivalents at end of period $ 26,978 $ 51,164
========= =========
-5-
Financial Information (cont'd)
McGraw-Hill, Inc.
-----------------
Notes to Financial Statements
-----------------------------
1. The financial information in this report has not been audited, but in the
opinion of management is based on estimates which include all adjustments
(consisting only of normal recurring adjustments) considered necessary to
present fairly such information. The operating results for the three and
nine month periods ended September 30, 1994 and 1993 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, 1993.
Certain prior year amounts have been reclassified for comparability
purposes.
2. Operating profit by segment is total operating revenue less expenses which
are deemed to be related to the unit's operating revenue. A summary of
operating results by segment for the three months and nine months ended
September 30, 1994 and 1993 follows:
1994 1993 (Note)
--------------------- ---------------------
Operating Operating
Revenue Profit Revenue Profit
--------- --------- --------- ---------
(In thousands)
Three Months
- - ------------
Educational and Professional
Publishing $ 483,212 $ 116,695 $ 190,949 $ 39,539
Financial Services 179,552 49,410 173,855 48,267
Information and Media Services 192,753 16,438 190,165 15,627
- - ------------------------------ --------- --------- --------- ---------
Total operating segments 855,517 182,543 554,969 103,433
Share of profit of Macmillan/
McGraw-Hill joint venture - - - 37,489
Unusual charges related to
acquisition of additional 50%
of Macmillan/McGraw-Hill School
Publishing Company - - - (229,800)
General corporate expense - (14,981) - (11,985)
Interest expense - net - (14,224) - (7,941)
- - ------------------------------ --------- --------- --------- ---------
Total company $ 855,517 $ 153,338* $ 554,969 $(108,804)*
========= ========= ========= =========
<FN>
*Income/(loss) before taxes on income.
</FN>
-6-
Financial Information (cont'd)
McGraw-Hill, Inc.
-----------------
Notes to Financial Statements
-----------------------------
1994 1993 (Note)
---------------------- ---------------------
Operating Operating
Revenue Profit Revenue Profit
---------- --------- ---------- ---------
(In thousands)
Nine Months
- - ----------
Educational and Professional
Publishing $ 918,345 $ 112,668 $ 419,493 $ 39,173
Financial Services 557,092 161,449 517,855 150,761
Information and Media Services 588,133 64,198 575,475 60,378
- - ------------------------------ ---------- --------- ---------- ---------
Total operating segments 2,063,570 338,315 1,512,823 250,312
Share of profit of Macmillan/
McGraw-Hill joint venture - - - 28,376
Unusual charges related to
acquisition of additional 50%
of Macmillan/McGraw-Hill School
Publishing Company - - - (229,800)
General corporate expense - (39,551) - (35,378)
Interest expense - net - (38,270) - (23,952)
- - ------------------------------ ---------- --------- ---------- ---------
Total company $2,063,570 $ 260,494* $1,512,823 $ (10,442)*
========== ========= ========== =========
<FN>
*Income/(loss) before taxes on income.
Note: Revenue and operating profit by segment for the 1993 periods have
been restated to reflect the combining of the Broadcasting and Information
and Publications Services segments and Tower Group International operations
into one segment, Information and Media Services.
</FN>
-7-
Financial Information (cont'd)
McGraw-Hill, Inc.
-----------------
Notes to Financial Statements
-----------------------------
3. On October 4, 1993, the company purchased the additional 50% interest in
the Macmillan/McGraw-Hill School Publishing Company for $337.5 million in
cash. The company now owns 100% of Macmillan/McGraw-Hill and it is
consolidated in McGraw-Hill's operations from the date of acquisition of
the additional 50% interest. Prior to the acquisition of the additional 50%
interest, the company accounted for its 50% interest under the equity
method. The acquisition was reflected in the company's September 30, 1993
balance sheet. In connection with the purchase of the additional 50%
interest, the Company recorded unusual charges totaling $229.8 million
($160.8 million net of tax benefits or $3.27 per share) in the quarter
ended September 30, 1993. The unusual charges consisted of $199.8 million
primarily to adjust the company's original investment to values established
in the purchase transaction. The charge was allocated primarily to
goodwill and intangibles. The company also recorded a provision of $30
million relating to the consolidation of certain functions of
Macmillan/McGraw-Hill and the company's book publishing operations.
The following pro forma information presents the consolidated results of
operations of the company for the three and nine month periods ended
September 30, 1993 as if the acquisition of the additional 50% of
Macmillan/McGraw-Hill had occurred at the beginning of 1993, after giving
effect to certain adjustments, including amortization of goodwill and other
intangibles, increased interest expense from debt issued to fund the
acquisition and related income tax effects. The pro forma results exclude
the total non-recurring charge of $160.8 million after tax, but includes
its effect on amortization. Pro forma results for the three months are:
operating revenue $850.1 million; net income $88.2 million and earnings per
common share $1.79 and for the nine months are: operating revenue $2,039.5
million; net income $139.2 million and earnings per common share $2.83.
These pro forma results are not necessarily indicative of those that would
have occurred had the acquisition taken place at the beginning of 1993.
4. The allowance for doubtful accounts, the components of inventory and the
accumulated amortization of prepublication costs were as follows:
Sept. 30, Dec. 31, Sept. 30,
1994 1993 1993
--------- --------- ---------
(In thousands)
Allowance for doubtful accounts $ 79,069 $ 79,461 $ 82,645
========= ========= =========
Inventories:
Finished goods $ 149,559 $ 166,584 $ 155,439
Work-in-process 61,441 29,259 71,689
Paper and other materials 21,842 19,385 23,547
--------- --------- ---------
Total inventories $ 232,842 $ 215,228 $ 250,675
========= ========= =========
Accumulated amortization of
prepublication costs $ 335,164 $ 282,052 $ 377,130
========= ========= =========
-8-
Financial Information (cont'd)
McGraw-Hill, Inc.
-----------------
Notes to Financial Statements
-----------------------------
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 $433 million of matched purchase and sale commitments at
September 30, 1994. Only those transactions not closed at the settlement
date are reflected in the balance sheet as receivables and payables.
6. A summary of long-term debt follows:
Sept. 30, Dec. 31, Sept. 30,
1994 1993 1993
--------- --------- ---------
(In thousands)
9.43% senior notes due 2000 $ 250,000 $ 250,000 $ 250,000
Commercial paper supported by
bank revolving credit agreement 500,000 500,000 500,000
Other 8,119 7,930 138,886
--------- --------- ---------
758,119 757,930 888,886
Less: portion included in other
current liabilities 36 363 61
--------- --------- ---------
Total long-term debt $ 758,083 $ 757,567 $ 888,825
========= ========= =========
7. Common shares reserved for issuance, for conversions and for the
exercise of stock options were as follows:
Sept. 30, Dec. 31, Sept. 30,
1994 1993 1993
--------- --------- ---------
$1.20 convertible preference stock
at the rate of 3.3 shares
for each share of preference stock 4,996 5,277 5,277
Exercise of stock options 1,820,590 2,054,087 2,180,931
--------- --------- ---------
1,825,586 2,059,364 2,186,208
========= ========= =========
8. Cash dividends per share declared during the periods were as follows:
Three Months Nine Months
------------- -------------
1994 1993 1994 1993
---- ---- ----- -----
Common stock $.58 $.57 $1.74 $1.71
Preference stock .30 .30 .90 .90
-9-
Financial Information (cont'd)
Management's Discussion and Analysis of Operating
-------------------------------------------------
Results and Financial Condition
-------------------------------
Operating Results - Comparing Periods Ended September 30, 1994 and 1993
- - -----------------------------------------------------------------------
The company acquired its partner's 50% interest in the Macmillan/McGraw-
Hill School Publishing Company on October 4, 1993. In connection with the
purchase, the company recorded unusual charges of $229.8 million ($160.8
million net of tax benefits, or $3.27 per share) in the third quarter of
1993. The charges consisted of $199.8 million primarily to adjust the
company's original investment to values established in the purchase
transaction and a provision of $30 million relating to the consolidation
of certain functions of Macmillan/McGraw-Hill and the company's book
publishing operations. Macmillan/McGraw-Hill was reflected as a
consolidated subsidiary in the company's September 30, 1993 balance sheet.
The company now owns 100% of the former joint venture company, renamed
the McGraw-Hill School Publishing Company in 1994. School Publishing's
operations are consolidated in the company's segment results in 1994 in the
Educational and Professional Publishing segment. 1993's results reflect
the company's 50% equity share of the former joint venture's results.
Three Months
- - ------------
Consolidated Review
- - -------------------
Operating revenue for the quarter grew $300.5 million, or 54.2%, to $855.5
million. $270.0 million of the revenue increase reflects the consolidation
of School Publishing. The remainder of the revenue increase is primarily
in international Spanish language publishing, Financial Services and
Broadcasting. Net income, before 1993's unusual charge, increased 30.8% to
$90.2 million, reflecting full ownership of School Publishing, and improved
results at Broadcasting and Financial Information Services, offsetting
declines at Business Week and the Construction Information Group. Earnings
per share were $1.82 versus $1.40 before unusual charges last year. After
unusual charges, there was a net loss in 1993 of $91.9 million, or $1.87
per share.
Total expenses in 1994 increased $228.7 million, or 49.2%, reflecting
the inclusion of School Publishing. Excluding School Publishing, the
company's expenses increased 8.5% due primarily to volume increases
in certain market focus groups, some cost increases, a write-down in
Canada for discontinuing a legal information service and expenses
associated with corporate initiatives and market studies.
-10-
Financial Information (cont'd)
Net interest expense increased $6.3 million due primarily to increased
borrowings associated with the acquisition of the additional 50% of the
school publishing joint venture and an increase in the average borrowing
rate.
The provision for taxes as a percent of income before taxes was 41.2%
in the 1994 quarter and 43.0% in 1993, excluding the impact of the tax
benefits resulting from last year's unusual charges. The variance in
the rate primarily reflects the impact in 1993 of the increase in the
corporate federal income tax rate from 34% to 35% that was enacted in
last year's third quarter retroactive to January 1, 1993.
Segment Review
- - --------------
Revenue for the Educational and Professional Publishing segment increased
$292.3 million, due largely to the inclusion of School Publishing revenues
of $270 million. Revenue increases were also reported by College,
Shepard's and international book publishing, primarily Ibero-America, with
increases also in Asia and Europe. Operating profit for the segment
increased sharply reflecting the inclusion of School Publishing. School
Publishing's revenues declined from last year due to a less favorable
adoption cycle in 1994, but 1993's profit level was maintained due to cost
containment measures. Excluding School Publishing, the combined operating
results of the company's other publishing units declined from last year due
mainly to the company's $3.7 million share of a write-down by its Canadian
subsidiary, McGraw-Hill Ryerson, for discontinuing CanCite, a service
providing citations and case law in Canada. College and international
publishing operating profit, excluding Canada, improved while Shepard's
declined, largely due to timing. The company is proceeding with plans to
consolidate certain functions of School Publishing and its other book
publishing operations. This consolidation is expected to generate annual
savings of more than $10 million, which began to be realized to a limited
extent in the third quarter. The majority of the integration savings will
begin to be realized next year.
Financial Services' revenue grew $5.7 million, or 3.3%, and operating
profit increased $1.1 million, or 2.4%. Financial Information Services
revenues and operating profits increased, led by MMS International, J.J.
Kenny's evaluation and information services and S&P Compustat. The S&P
Ratings Group gained in revenue despite a sharp decline in new bond
issuance volume, particularly in the corporate and municipal sectors.
Growth in revenue resulted from international, structured finance and new
products for non-capital markets. Planned investments in new products and
services reduced the Ratings Group's profits modestly for the quarter.
Information and Media Services revenue increased $2.6 million, or 1.4%, led
by Broadcasting with strong automotive and political advertising. Business
Week revenue and operating profit declined, reflecting a decline in
advertising pages resulting from softness in some advertising sectors,
while most of the company's other magazines improved. Tower Group
International improved as a result of acquisitions and volume
-11-
Financial Information (cont'd)
increases while the Construction Information Group' profits declined due to
continued soft market conditions. The company announced in October that
its Denver broadcasting station, KMGH-TV, will change network affiliations
in 1995 from CBS to ABC.
Nine Months
- - -----------
Consolidated Review
- - -------------------
For the first nine months of the year, operating revenue of $2.1 billion
was $550.7 million, or 36.4%, ahead of 1993. $459.4 million of the revenue
increase reflects the consolidation of School Publishing. Excluding the
impact of School Publishing, revenues increased $91.3 million, or 6.0%.
Net income, before last year's unusual charges, increased 20.3% to $153.2
million reflecting full ownership of School Publishing, gains in Financial
Services and improved results in Broadcasting. Earnings per share were
$3.09 versus $2.59 last year, excluding last year's unusual charges. After
unusual charges, there was a net loss in 1993 of $33.4 million, or $0.68
per share.
Total expenses in 1994 increased $473.3 million, or 36.2%, reflecting
the inclusion of School Publishing. Excluding School Publishing, expenses
increased 6.9% due primarily to volume increases in certain market focus
groups and some cost increases.
Net interest expense increased $14.3 million due primarily to increased
borrowings associated with the acquisition of the additional 50% of the
school publishing joint venture and an increase in the average borrowing
rate.
The provision for taxes as a percent of income before taxes was 41.2%
in 1994 versus 41.9% in 1993, excluding the impact of the tax benefits
resulting from last year's unusual charges. The decline in the rate
primarily reflects the full year impact in 1994 of a reduction in the
state effective tax rate as a result of merging some subsidiaries.
Segment Review
- - --------------
Educational and Professional Publishing revenue increased $498.9
million due largely to the inclusion of School Publishing revenues of
$459.4 million. Revenues for the company's other publishing operations
increased $39.5 million, or 9.4%, primarily at international and Shepard's,
as well as growth at College and medical publishing. Operating profit
increased $73.5 million to $112.7 million primarily reflecting the
inclusion of School Publishing. Despite School Publishing's decline in
revenue resulting from the less favorable adoption cycle in 1994, operating
results improved reflecting reduced costs.
-12-
Financial Information (cont'd)
Financial Services' revenue increased $39.2 million, or 7.6%, and operating
profit increased $10.7 million, or 7.1%. Financial Information Services
had gains in revenue and operating profit, largely at equity investor
services, J.J. Kenny evaluations and information services and MMS
International. Despite declines in new bond issuance, year to date
revenues for the S&P Ratings Group increased, reflecting continued
global expansion and new ratings initiatives. Operating profit was flat
with last year reflecting continued investments in new products and
services.
Information and Media Services revenue increased $12.7 million, or
2.2%, and operating profit improved $3.8 million, or 6.3%. Strong results
in Broadcasting and Tower Group International and increased profits in
computer and science and technology publications offset declines at
Business Week and the Construction Information Group.
Financial Condition - September 30, 1994 versus December 31, 1993
- - -----------------------------------------------------------------
The company continues to maintain a strong financial position with cash
flow from operations of $229.7 million, an increase of $7.1 million from
last year. Total debt was $889.7 million, a decline of $39.0 million from
year-end and $197.3 million less than at September 30, 1993.
Commercial paper borrowings at September 30, 1994 totaled $626.0 million, a
decline of $41.7 million from December 31, 1993. Commercial paper debt is
supported by a $800 million revolving credit agreement with a group of
banks terminating in November 1999. $500 million of the company's
commercial paper borrowings have been classified as long-term. There are no
amounts outstanding under the revolving credit agreement.
Under a shelf registration which became effective with the Securities and
Exchange Commission in mid-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.
Accounts receivable before reserves of $924.8 million increased $133.4
million from the end of 1993, due primarily to the seasonal nature of some
of the company's businesses, particularly the publishing operations.
Inventories at September 30 increased $17.6 million to $232.8 million from
the end of 1993 due to the seasonal buildup for the annual Sweet's Files.
Net prepublication costs at September 30 declined $13.9 million to $271.6
million from December 31, 1993 as amortization expense of $102.7 million
exceeded 1994 year to date spending of $88.5 million.
-13-
Financial Information (cont'd)
Purchases of property and equipment during the first nine months totaled
$54.8 million, including $13.5 million for the purchase of a building which
houses some of the company's Financial Information Services' units in New
York and $6 million related to leasehold improvements and equipment
purchases for the move of the company's school publishing operations in New
York. The increase from last year also reflects the impact of capital
expenditures for School Publishing. The remainder of the capital
expenditures are primarily for computer equipment for the market focus
groups.
-14-
Other Information (cont'd)
Item 6. Exhibits and Report on Form 8-K
----------------------------------------
a) Exhibits
--------
(12) Computation of ratio of earnings to fixed charges.
(27) Financial Data Schedule
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 hereunto duly authorized.
McGRAW-HILL, INC.
--------------------------------
Date: 11/09/94 By Robert J. Bahash
------------------ ------------------------------
Robert J. Bahash
Executive Vice President
and Chief Financial Officer
Date: 11/09/94 By Thomas J. Kilkenny
------------------ ------------------------------
Thomas J. Kilkenny
Vice President and Controller
Date: 11/10/94 By Robert N. Landes
------------------ ------------------------------
Robert N. Landes
Executive Vice President,
Secretary and General Counsel
-15-
Exhibit (12)
McGraw-Hill, Inc.
-----------------
Computation of Ratio of Earnings to Fixed Charges
-------------------------------------------------
Periods Ended September 30, 1994
--------------------------------
Nine Twelve
Months Months
--------- ---------
(In thousands)
Earnings
Earnings from continuing operations
before income tax expense (Note)...... $ 256,897 $ 332,342
Fixed charges........................... 65,022 81,055
Capitalized interest.................... (266) (363)
--------- ---------
Total Earnings....................... $ 321,653 $ 413,034
========= =========
Fixed Charges (Note)
Interest expense........................ $ 40,947 $ 54,340
Portion of rental payments deemed to be
interest.............................. 24,075 26,715
--------- ---------
Total Fixed Charges.................. $ 65,022 $ 81,055
========= =========
Ratio of Earnings to Fixed Charges 4.9x 5.1x
<FN>
(Note) For purposes of computing the ratio of earnings to fixed charges,
"earnings from continuing operations before income taxes" excludes
undistributed equity in income of less than 50%-owned companies. "Fixed
charges" consist of (1) interest on debt and capital leases, and (2) the
portion of the company's rental expense deemed representative of the
interest factor in rental expense.
</FN>
-16-