MCGRAW HILL FINANCIAL INC 10-K 2008
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For the fiscal year ended December 31, 2007
For the transition period from to
Commission file number 1-1023
THE MCGRAW-HILL COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Registrants telephone number, including area code (212) 512-2000
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to section 12(g) of the Act:
(Title of class)
(Title of class)
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. þ Yes o No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes þ No
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. þYes oNo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12-b-2 of the Act). o Yes þ No
The aggregate market value of voting stock held by non-affiliates of the Registrant as of the last business day of the second fiscal quarter ended June 30, 2007, was $23,070,469,142, based on the closing price of the common stock as reported on the New York Stock Exchange of $68.08 per common share. For purposes of this calculation, it is assumed that directors, executive officers and beneficial owners of more than 10% of the registrant outstanding stock are affiliates.
The number of shares of common stock of the Registrant outstanding as of February 15, 2008 was 322,785,554 shares.
Part I, Part II and Part III incorporate information by reference from the Annual Report to Shareholders for the year ended December 31, 2007. Part III incorporates information by reference from the definitive proxy statement mailed to shareholders March 20, 2008 for the annual meeting of shareholders to be held on April 30, 2008.
TABLE OF CONTENTS
Item 1. Business
The McGraw-Hill Companies, Inc. (the Registrant or the Company), incorporated in December 1925, is a leading global information services provider serving the financial services, education and business information markets with a wide range of information products and services. Additional markets include energy, construction, aerospace and defense, and marketing information services. The Company serves its customers through a broad range of distribution channels, including printed books, magazines and newsletters, online via Internet Websites and digital platforms, through wireless and traditional on-air broadcasting, and through a variety of conferences and trade shows.
The Registrants 21,171 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, trademark, and other agreements, which are essential to such a business, the Registrant is able to collect, compile, and disseminate this information. The Companys books and magazines are printed by third parties. The Registrants principal raw material is paper, and the Registrant has assured sources of supply, at competitive prices, adequate for its business needs.
Descriptions of the Companys principal products, broad services and markets, and significant achievements are hereby incorporated by reference from Exhibit (13), pages 24 and 25, containing textual material of the Registrants 2007 Annual Report to Shareholders.
The Registrant has an investor kit available online and in print that includes the current (and prior years) Annual Report, Proxy Statement, Form 10-Qs, Form 10-K, all filings through EDGAR with the Securities and Exchange Commission, the current earnings release and information with respect to the Dividend Reinvestment and Direct Stock Purchase Program. For online access go to www.mcgraw-hill.com/investor_relations and click on Digital Investor Kit. Requests for printed copies, free of charge, can be e-mailed to email@example.com or mailed to Investor Relations, The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY 10020-1095. You can call Investor Relations toll free at 866-436-8502. International callers may dial 212-512-2192.
The Registrant has adopted a Code of Ethics for the Companys Chief Executive Officer and Senior Financial Officers that applies to its chief executive officer, chief financial officer, and chief accounting officer. To access such code, go to the Corporate Governance section of the Companys Investor Relations Web site at www.mcgraw-hill.com/investor_relations. Any waivers that may in the future be granted from such Code will be posted at such Web site address. In addition to its Code of Ethics for the Chief Executive Officer and Senior Financial Officers noted above, the following topics may be found on the Registrants Web site at the above Web site address:
The foregoing documents are also available in print, free of charge, to any shareholder who requests them. Requests for printed copies may be e-mailed to firstname.lastname@example.org or mailed to the Corporate Secretary, The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY 10020-1095.
You may also read and copy materials that the Company has filed with the Securities and Exchange Commission (SEC) at the SECs public reference room located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information on the public reference room. In addition, the Companys filings with the Commission are available to the public on the Commissions Web site at www.sec.gov. Several years of SEC filings
are also available at the Companys Investor Relations Web site. Go to www.mcgraw-hill.com/investor_relations and click on the SEC Filings link.
The Company has filed the required certifications under Section 302 of the Sarbanes-Oxley Act of 2002 as Exhibits (31.1) and (31.2) to its annual report on Form 10-K for the fiscal year ended December 31, 2007. In addition the Company has filed the required certifications under Section 906 of the Sarbanes-Oxley Act of 2002 as Exhibit (32) to its annual report on Form 10-K for the fiscal year ended December 31, 2007. After the 2008 Annual Meeting of Shareholders, the Company intends to file with the New York Stock Exchange (NYSE) the CEO certification regarding the Companys compliance with the NYSEs corporate governance listing standards as required by NYSE rule 303A.12. Last year, the Company filed this CEO certification with the NYSE on May 17, 2007.
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, 2007, are included in Exhibit (13), on pages 63 and 64 in the Registrants 2007 Annual Report to Shareholders and is hereby incorporated by reference.
Item 1a. Risk Factors
As required the Company is providing the following cautionary statements which identify factors that could cause the Companys actual results to differ materially from historical and expected results. It is not possible to foresee or identify all such factors. Investors should not consider this list an exhaustive statement of all risks and uncertainties.
Item 1b. Unresolved Staff Comments
Item 2. Properties
The Registrant leases office facilities at 230 locations: 117 are in the United States. In addition, the Registrant owns real property at 22 locations, of which 10 are in the United States. The principal facilities of the Registrant are as follows:
In October 2007 the Company moved from a leased facility in Dubuque, Iowa to a new owned facility.
During 2007, leased domestic properties decreased slightly due to expirations and lease buyouts.
Item 3. Legal Proceedings
A writ of summons was served on The McGraw-Hill Companies, SRL and on The McGraw-Hill Companies, SA (both indirect subsidiaries of the Company) (collectively, Standard & Poors) on September 29, 2005 and October 7, 2005, respectively, in an action brought in the Tribunal of Milan, Italy by Enrico Bondi (Bondi), the Extraordinary Commissioner of Parmalat Finanziaria S.p.A. and Parmalat S.p.A. (collectively, Parmalat). Bondi has brought numerous other lawsuits in both Italy and the United States against entities and individuals who had dealings with Parmalat. In this suit, Bondi claims that Standard & Poors, which had issued investment grade ratings on Parmalat until shortly before Parmalats collapse in December 2003, breached its duty to issue an independent and professional rating and negligently and knowingly assigned inflated ratings in order to retain Parmalats business. Alleging joint and several liability, Bondi claims damages of euros 4,073,984,120 (representing the value of bonds issued by Parmalat and the rating fees paid by Parmalat) with interest, plus damages to be ascertained for Standard & Poors alleged complicity in aggravating Parmalats financial difficulties and/or for having contributed in bringing about Parmalats indebtedness towards its bondholders, and legal fees. The Company believes that Bondis allegations and claims for damages lack legal or factual merit. Standard & Poors filed its answer, counterclaim and third-party claims on March 16, 2006 and will continue to vigorously contest the action.
In a separate proceeding, the prosecutors office in Parma, Italy is conducting an investigation into the bankruptcy of Parmalat. In June 2006, the prosecutors office issued a Note of Completion of an Investigation (Note of Completion) concerning allegations, based on Standard & Poors investment grade ratings of Parmalat, that individual Standard & Poors rating analysts conspired with Parmalat insiders and rating advisors to fraudulently or negligently cause the Parmalat bankruptcy. The Note of Completion was served on eight Standard & Poors rating analysts. While not a formal charge, the Note of Completion indicates the prosecutors intention that the named rating analysts should appear before a judge in Parma for a preliminary hearing, at which hearing the judge will determine whether there is sufficient evidence against the rating analysts to proceed to trial. No date has been set for the preliminary hearing. On July 7, 2006, a defense brief was filed with the Parma prosecutors office on behalf of the rating analysts. The Company believes that there is no basis in fact or law to support the allegations against the rating analysts, and they will be vigorously defended by the subsidiaries involved.
The Company has learned that on August 9, 2007 a pro se action titled Blomquist v. Washington Mutual, et al., was filed in the District Court for the Northern District of California against numerous financial institutions, government agencies and individuals, including the Company and Mr. Harold McGraw III, the CEO of the Company, alleging various state and federal claims. The claims against the Company and Mr. McGraw concern Standard & Poors ratings of subprime mortgage-backed securities. An amended Complaint was filed in the Blomquist action on September 10, 2007 which added two other rating agencies as defendants. On February 19, 2008 the Company was served with the Complaint. In addition, the Company has learned that on August 28, 2007 a putative shareholder class action titled Reese v. Bahash, was filed in the District Court for the District of Columbia against Mr. Robert Bahash, the CFO of the Company, alleging claims under the federal securities laws and state tort law concerning Standard & Poors ratings, particularly its ratings of subprime mortgage-backed securities. Mr. Bahash has not been served with the Complaint. On February 11, 2008, the District Court in the Reese matter entered an order appointing a lead plaintiff in that action and permitting plaintiffs to amend the Complaint on or before April 16, 2008 to add additional defendants. The Company believes both Complaints to be without merit and intends to vigorously defend in the event that service is effected.
In addition, in the normal course of business both in the United States and abroad, the Company and its subsidiaries are defendants in numerous legal proceedings and are involved, from time to time, in governmental and self-regulatory agency proceedings, which may result in adverse judgments, damages, fines or penalties. Also, various governmental and self-regulatory agencies regularly make inquiries and conduct investigations concerning compliance with applicable laws and regulations. Based on information currently known by the Companys management, the Company does not believe that any pending legal, governmental or self-regulatory proceedings or investigations will result in a material adverse effect on its financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Registrants security holders during the last quarter of the period covered by this Report.
Executive Officers of the Registrant
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 Davis.
Mr. Davis, prior to becoming an officer of the Registrant on November 1, 2006 was a managing director at Novantas LLC, where he was responsible for the capital markets, asset management, and commercial and private banking practices. Prior to his tenure at Novantas, he was a partner at Booz Allen Hamilton.
Mr. Marcus, prior to becoming an officer of the Registrant on January 19, 2005, was Senior Vice President, Enterprise Systems, with responsibility for systems development across the Company. Prior to that, he was Vice President, Business Operations and Technology for Platts.
Mr. Murphy, prior to becoming an officer of the Registrant on July 22, 2002, spent most of his professional career with the Ford Motor Company where, most recently, he was Vice President, Human Resources.
Mr. Stafford, prior to becoming an officer of the Registrant on February 2, 2006, was Associate General Counsel in the Companys Legal Department.
Item 5. Market for the Registrants Common Stock and Related Stockholder Matters and Issuer Purchases of Equity Securities
On February 15, 2008, the closing price of the Registrants common stock was $40.94 per share as reported on the New York Stock Exchange. The approximate number of record holders of the Registrants common stock as of February 15, 2008 was 7,474.
On January 24, 2006 the Board of Directors approved a stock repurchase program authorizing the purchase of up to 45 million shares, which was approximately 12.1% of the total shares of the Companys outstanding common stock as of January 24, 2006. As of December 31, 2006, 20 million shares remained available under the 2006 repurchase program. On January 31, 2007 the Board of Directors approved a new stock repurchase program authorizing the purchase of up to 45 million additional shares, which was approximately 12.7% of the total shares of the Companys outstanding common stock as of January 31, 2007. In 2007, the Company repurchased 37 million shares, including the 20 million shares remaining under the 2006 program and 17 million shares from the 2007 program. As of December 31, 2007, 28 million shares remained available under the 2007 repurchase program. The repurchase program has no expiration date. The repurchased shares may be used for general corporate purposes, including the issuance of shares in connection with 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.
The following table provides information on purchases made by the Company of its outstanding common stock during the fourth quarter of 2007 pursuant to the stock repurchase program authorized by the Board of Directors on January 31, 2007 (column c). In addition to purchases under the 2007 stock repurchase program, the number of shares in column (a) includes: 1) shares of common stock that are tendered to the Registrant to satisfy the employees tax withholding obligations in connection with the vesting of awards of restricted performance shares (such shares are repurchased by the Registrant based on their fair market value on the vesting date), and 2) shares of the Registrant deemed surrendered to the Registrant to pay the exercise price and to satisfy the employees tax withholding obligations in connection with the exercise of employee stock options. There were no other share repurchases during the quarter outside the stock repurchases noted below:
Information concerning the high and low stock price of the Registrants common stock on the New York Stock Exchange is incorporated herein by reference from Exhibit (13), from page 82 of the 2007 Annual Report to Shareholders.
A performance graph that compares the Registrants cumulative total shareholder return during the previous five years with a performance indicator of the overall market (i.e., S&P 500), and the Registrants peer group is incorporated herein by reference from Exhibit (13), from page 2 of the 2007 Annual Report to Shareholders.
Item 6. Selected Financial Data
Incorporated herein by reference from Exhibit (13), from the 2007 Annual Report to Shareholders, pages 80 and 81.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
Incorporated herein by reference from Exhibit (13), from the 2007 Annual Report to Shareholders, pages 24 to 52.
Item 7a. Quantitative and Qualitative Disclosure about Market Risk
Incorporated herein by reference from Exhibit (13), from the 2007 Annual Report to Shareholders, page 51.
Item 8. Consolidated Financial Statements and Supplementary Data
Incorporated herein by reference from Exhibit (13), from the 2007 Annual Report to Shareholders, pages 53 to 79.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9a. Controls and Procedures
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Companys reports filed with the Securities and Exchange Commission (SEC) is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to the Companys management, including its Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosure.
As of December 31, 2007, an evaluation was performed under the supervision and with the participation of the Companys management, including the CEO and CFO, of the effectiveness of the design and operation of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) under the U.S. Securities Exchange Act of 1934). Based on that evaluation, the Companys management, including the CEO and CFO, concluded that the Companys disclosure controls and procedures were effective as of December 31, 2007.
Managements Annual Report on Internal Control Over Financial Reporting
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (Section 404) and as defined in Rules 13a-15(f) under the U.S. Securities Exchange Act of 1934, management is required to provide the following report on the Companys internal control over financial reporting:
There have been no changes in the Companys internal control over financial reporting during the most recent quarter that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
Item 9b. Other Information
Equity Compensation Plans Information
The McGraw-Hill Companies
Index to Financial Statements,
Financial Statement Schedules and Exhibits
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, 2007 are hereby incorporated by reference in Exhibit (13). With the exception of the pages listed in the above index, the 2007 annual report to shareholders is not to be deemed filed as part of Item 15 (a)(1).
THE McGRAW-HILL COMPANIES, INC.
SCHEDULE II RESERVES FOR DOUBTFUL ACCOUNTS AND SALES RETURNS
(Thousands of dollars)
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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on February 29, 2008 on behalf of Registrant by the following persons who signed in the capacities as set forth below under their respective names. Registrants board of directors is comprised of twelve members and the signatures set forth below of individual board members, constitute at least a majority of such board.