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, computers and communications, 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 16,220 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. All 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 4 to 21 and pages 24 to 25 (textual material) of the Registrant's 1996 Annual Report to Shareholders.
Information as to Industry Segments - -----------------------------------
The relative contribution of the industry segments of the Registrant and its subsidiaries to operating revenue and operating profit and geographic information for the three years ended December 31, 1996 and the identifiable assets of each segment at the end of each year, are included in Exhibit (13), on pages 39 to 40 in the Registrant's 1996 Annual Report to Shareholders and is hereby incorporated by reference.
Item 2.

Item 2. Properties - ------- ----------
The Registrant leases office facilities at 389 locations: 290 are in the United States. In addition, the Registrant owns real property at 25 locations: 22 are in the United States. The principal facilities of the Registrant are as follows:
The Registrant's major lease covers space in its headquarters building in New York City. The building is owned by Rock-McGraw, Inc., a corporation in which the Registrant and Rockefeller Group, Inc. are the sole shareholders. The Registrant occupies approximately 830,000 square feet of the rentable space under a 30-year lease expiring June 30, 2002, which includes renewal options for two additional 15-year periods. In addition, the Registrant subleases for its own account approximately 708,000 square feet of space for periods up to 25 years.
The largest complex owned by the Registrant is located in Hightstown, NJ which houses the offices for accounting operations, data processing services, other service departments and a warehouse. The Registrant has consolidated its domestic book distribution operations by consolidating the distribution operations in Blue Ridge Summit, PA and Hightstown, NJ to Westerville and Blacklick, OH. The company also has a warehouse in Dubuque, IA that was acquired with the Times Mirror Higher Education Group in October 1996. The warehouse in Hightstown, NJ is leased to a tenant. The warehouse in Blue Ridge Summit, PA is vacant.
The Registrant leases approximately 75 percent of a building in Burr Ridge, Illinois. The building is owned by Burr Ridge Parkway Limited Partnership, in which the Registrant has a 50 percent ownership interest. The leased space is occupied by the higher education business that was acquired by the Registrant in October, 1996 from Times Mirror. The Registrant has the option to sell its interest in the limited partnership in January 1998 to Times Mirror for $10.5 million.
PART II
Other Information
Item 3.

Item 3. Legal Proceedings - ------- -----------------
In Item 1 of Part II of Registrant's Form 10-Q for the quarter ended June 30, 1996, Registrant reported that a Complaint had been filed on June 11, 1996 in the United States Bankruptcy Court, Central District of California, in an action captioned County of Orange v. McGraw-Hill Companies, Inc., ------------------------------- ----------------- d/b/a Standard & Poor's (Case No. SA 94-22272-JR; Adversary No. SA ----------------------- 96-01624- JR). The Complaint alleges that Standard & Poor's breached its contracts with Orange County, was professionally negligent and aided and abetted the County's officers in breaching their fiduciary duty by, inter alia, ----- ----
assigning unduly high ratings to debt instruments issued by the County and by failing to advise the County's Board of Supervisors of the illegal acts being committed by the County's officers. On October 17, 1996, the United States District Court, Central District of California, granted Registrant's motion to withdraw the Bankruptcy Court reference. The action was transferred to the United States District Court for the Central District of California (Case No. SA CV 96-765-GLT) upon the filing on December 4, 1996 of the Bankruptcy Court's ruling on Registrant's motion to dismiss the Complaint. In that ruling, the Bankruptcy Court granted Registrant's motion to dismiss the County's aiding and abetting claim, but denied it as to the breach of contract and professional negligence claims. The Bankruptcy Court's ruling will be reviewed de novo by the District Court. The -- ---- Registrant continues to believe that the allegations of the Complaint lack merit and intends to vigorously contest the action.
Item 4.

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.
Executive Officers of 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 Barbara B. Maddock and Jeffrey Williams.
Ms. Maddock, prior to her becoming an officer of the Registrant on August 1, 1994, was Senior Vice President, Human Resources for Cigna Healthcare from July 1993 through July 1994. Previously, she was with Philip Morris Companies, Inc. where she held a number of Human Resources positions from 1980 through 1993.
Mr. Williams, prior to his becoming an officer of the Registrant on September 25, 1996, was with Morgan Stanley for 17 years where he held numerous senior management positions, most recently in the Investment Banking Department as Managing Director, Global Telecommunications and Media since 1991.
PART II
Item 5.

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, 1997 was 5,655.
Note: The dividends per share of common stock reflect a 2-for-1 stock split approved by the Board of Directors on January 31, 1996. All prior periods have been restated to reflect the split.
Information concerning other matters is incorporated herein by reference from Exhibit (13), from page 48 of the 1996 Annual Report to Shareholders.
Item 6.

Item 6. Selected Financial Data - ------- -----------------------
Incorporated herein by reference from Exhibit (13), from the 1996 Annual Report to Shareholders, page 46 and page 47.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and - ------- --------------------------------------------------------------- Results of Operations ---------------------
Incorporated herein by reference from Exhibit (13), from the 1996 Annual Report to Shareholders, pages 26 to 32.
Item 8.

Item 8. Consolidated Financial Statements and Supplementary Data - ------- --------------------------------------------------------
Incorporated herein by reference from Exhibit (13), from the 1996 Annual Report to Shareholders, pages 33 to 44 and page 48.
Item 9.

Item 10. Directors and Executive Officers of the Registrant - -------- --------------------------------------------------
Information concerning directors is incorporated herein by reference from the Registrant's definitive proxy statement dated March 25, 1997 for the annual meeting of shareholders to be held on April 30, 1997.
Item 11.

Item 11. Executive Compensation - -------- ----------------------
Incorporated herein by reference from the Registrant's definitive proxy statement dated March 25, 1997 for the annual meeting of shareholders to be held on April 30, 1997.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management - -------- --------------------------------------------------------------
Incorporated herein by reference from the Registrant's definitive proxy statement dated March 25, 1997 for the annual meeting of shareholders to be held April 30, 1997.
Item 13.

Item 13. Certain Relationships and Related Transactions - -------- ----------------------------------------------
Incorporated herein by reference from the Registrant's definitive proxy statement dated March 25, 1997 for the annual meeting of shareholders to be held April 30, 1997.
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. - -------- -----------------------------------------------------------------
(a) 1. Financial Statements. ---------------------
2. Financial Statement Schedules. ------------------------------ The McGraw-Hill Companies And Financial Statement Schedules
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, 1996 are hereby incorporated by reference in Exhibit (13). With the exception of the pages listed in the above index, the 1996 Annual Report to Shareholders is not to be deemed filed as part of Item 14 (a)(1).
(a) (3)Exhibits.
(2) Exchange Agreement dated as of July 3, 1996 between The Times Mirror Company, Mosby-Year Book, Inc., and The McGraw-Hill Companies, Inc., as amended as of October 15, 1996, incorporated by reference from Registrant's Form 8-K filed October 29, 1996.
(3) Articles of Incorporation of Registrant incorporated by reference from Registrant's Form 10-K for the year ended December 31, 1995.
(3) By-laws of Registrant.
(4) 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.
(4) Instrument defining the rights of security holders, certificate setting forth the terms of the Registrant's 9.43% Notes due 2000, 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.
(4) 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 October 25, 1989 between Registrant and Manufacturers Hanover Trust Company, incorporated by reference from Registrant's Form SE dated October 26, 1989 in connection with Registrant's Form 8-A.
(10)* Restricted Stock Award Agreement dated December 4, 1987 incorporated by reference from Registrant's Form SE filed March 30, 1988 in connection with Registrant's Form 10-K for the year ended December 31, 1987.
(10)* Restricted Performance Share Award dated January 2, 1997.
(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 1993 Key Employee Stock Incentive Plan, incorporated by reference from Registrant's Form 10-K for the year ended December 31, 1993.
(10)* Registrant's 1996 Key Executive Short Term Incentive Compensation Plan, incorporated by reference from Registrant's Proxy Statement dated March 21, l996.
(10)* Registrant's Key Executive Short-Term Incentive Deferred Compensation Plan.
(10)* Registrant's Executive Deferred Compensation Plan, incorporated by reference from Registrant's Form SE filed March 28, 1991 in connection with Registrant's Form 10-K for the year ended December 31, 1990.
(10)* Registrant's Senior Executive Severance Plan, incorporated by reference from Registrant's Form SE filed March 29, 1989 in connection with Registrant's Form 10-K for the year ended December 31, 1988.
(10) Credit Agreement dated as of February 13, 1997 among the Registrant, the Banks' signatory thereto, and The Chase Manhattan Bank, as administrative agent incorporated by reference from Registrant's Form 8-K filed February 19, 1997.
(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.
(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)* Resolutions Freezing Existing Benefits and Terminating Additional Benefits under Registrant's Directors Retirement Plan, as adopted on January 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 1996 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 by the Registrant on October 29, 1996. Item 2 and Item 7 were reported in said report on Form 8-K.
---------------- * These exhibits relate to management contracts or compensatory plan arrangements.
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 Senior Vice President and General Counsel March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on March 26, 1997 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 sixteen members and the signatures set forth below of individual board members, constitute at least a majority of such board.
/s/ Joseph L. Dionne ------------------------------------------ Joseph L. Dionne Chairman and Chief Executive Officer Director
/s/ Harold McGraw III ------------------------------------------ Harold McGraw III President and Chief Operating Officer Director
/s/ Robert J. Bahash ------------------------------------------ Robert J. Bahash Executive Vice President and Chief Financial Officer
/s/ Thomas J. Kilkenny ------------------------------------------ Thomas J. Kilkenny Vice President and Controller
/s/ Pedro Aspe ------------------------------------------ Pedro Aspe Director
/s/ Vartan Gregorian ------------------------------------------- Vartan Gregorian Director
/s/ John T. Hartley ------------------------------------------- John T. Hartley Director
/s/ George B. Harvey ------------------------------------------- George B. Harvey Director
/s/ Richard H. Jenrette ------------------------------------------- Richard H. Jenrette Director
/s/ Don Johnston ------------------------------------------- Don Johnston Director
/s/ Peter O. Lawson-Johnston ------------------------------------------- Peter O. Lawson-Johnston Director
/s/ Linda Koch Lorimer ------------------------------------------- Linda Koch Lorimer Director
/s/ Robert P. McGraw -------------------------------------------- Robert P. McGraw Director
/s/ Lois D. Rice -------------------------------------------- Lois D. Rice Director
/s/ Paul J. Rizzo -------------------------------------------- Paul J. Rizzo Director
/s/ James H. Ross -------------------------------------------- James H. Ross Director
/s/ Sidney Taurel -------------------------------------------- Sidney Taurel Director
/s/ Alva O. Way -------------------------------------------- Alva O. Way Director
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 ----------------------
EXHIBITS AND FINANCIAL STATEMENTS
TO
ANNUAL REPORT FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1996
UNDER
THE SECURITIES EXCHANGE ACT OF 1934 -----------------------------------
THE McGRAW-HILL COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) -----------------
EXHIBITS AND FINANCIAL STATEMENTS ----------------------------------