McGraw Hill Companies, Inc

McGraw Hill Companies, Inc
A Strategic Management Case Study 9/17/2018 © 2014, Tony Gauvin,UMFK

Overview Company Overview A Brief history of McGraw Hill
Existing Mission and Vision Existing Strategies Current Issues New Mission and Vision External Assessment Industry analysis Opportunities and threats EFE Matrix CPM Matrix Internal Assessment Organizational Structure Strengths and weaknesses Financial Condition IFE Matrix Strategy Formulation SWOT Matrix Space Matrix BCG Matrix IE Matrix Grand Strategy Matrix Matrix Analysis QSPM Matrix Strategic Plan for the Future Objectives Strategies Implementation Issues EPS/EBIT Projected Financials Strategic Evaluation Balanced Score Card McGraw-Hill Update 9/17/2018 © 2014, Tony Gauvin,UMFK

Company History 1888: James H. McGraw purchases the American Journal of Railway Appliances , while John A. Hill becomes the editor of Locomotive Engineer. 1899:McGraw incorporates McGraw Publishing Co. and acquires Electrical World magazine. 1902:Hill Publishing Co. is incorporated in New York City. 1907:McGraw publishes its first engineering handbook, the Standard Handbook for Electrical Engineers. 1909: James McGraw and John Hill form McGraw-Hill Book Co. to publish scientific and technical books. They toss a coin to determine whose name will appear on the door of their new company, with the loser becoming president. 1916:Hill dies at the age of 57. 1917: Initially McGraw's and Hill's magazines were kept separate, but after Hill's death the magazine segments are merged with McGraw-Hill Book Co. to form McGraw-Hill Publishing Co., with McGraw as president.. 1925:McGraw turns the presidency over to Edward Caldwell. 9/17/2018 © 2014, Tony Gauvin,UMFK

Company History 1927: Establishes its college department to increase sales and find new authors at various universities and engineering schools. 1928: Malcom Muir becomes president of the company, with McGraw remaining chairman. Purchases A.W. Shaw Co. of Chicago, extending McGraw-Hill into the field of business books and magazines. 1929: Two months before the stock market crash, McGraw-Hill starts Business Week magazine, which expresses concerns about the US's economic health. The company's stock begins trading on the New York Stock Exchange. 1930: Launches four new magazines and opens a book depository and office in San Francisco, California. 1937: Muir leaves the presidency of McGraw-Hill to run Newsweek, and James H. McGraw, Jr. becomes president as well as chairman of the board. 1953: Donald C. McGraw, brother of Curtis, becomes president. Acquires Platt's Petroleum Information Services.. 9/17/2018 © 2014, Tony Gauvin,UMFK

Company History 1959: Revenues exceed $100 million.
1960: Edward Booher becomes president. Expands its international book operations by publishing locally written books in Toronto, Canada and London, England. 1961: purchases F.W. Dodge Corp., information provider to the construction industry. 1963:McGraw-Hill foreign language publishing unit is established. Webster Publishing Co. is acquired, marking the company's entry into the elementary and high school textbook markets. 1964: It merges with F.W. Dodge Corp. to form McGraw-Hill, Inc. The reorganization creates a single corporation with 3 operating divisions: book publishing, the Dodge complex, and magazines and news services 1965: Acquires the California Test Bureau, strengthening its educational services. 1966: Acquires the law publisher Shepard's Citations, Inc., and Standard & Poor's Corp., financial information services. 1967: Expands into Mexico with Libros McGraw-Hill de Mexico, SpA. 1968: New president is Shelton Fisher, whose goal is to change the perception of McGraw-Hill from an old-fashioned publisher of trade magazines to a dynamic media giant. 9/17/2018 © 2014, Tony Gauvin,UMFK

Company History 1969: Nikkei-McGraw-Hill is established in Japan.
1970: Acquires the publishing division of Ryerson Press in Canada. 1972: Acquires four television stations. Launches its first on-line product, Chemical Week Newswire Daily. 1975: Harold W. McGraw, Jr. becomes president and CEO. 1980: Revenues pass $1 billion. 1983: Joseph L. Dionne becomes president and CEO, and Harold McGraw, Jr. remains chairman. 1985: Reorganizes, changing from a media to a market-focused orientation. 1986: Spends $2 billion to acquire 14 businesses. 1988: Acquires Random House's college division for $200 million. 1990: Discontinues two of its on-line services, McGraw-Hill News and Standard & Poor's News. Implements an electronic textbook publishing system that allows teachers to custom design textbooks, the results being printed, bound, and shipped within 48 hours. 1992: Reorganizes its trade publications and newsletters in a new Publications Services Group. 1995: To reflect its expanded portfolio, McGraw-Hill Inc. changes its name to The McGraw-Hill Companies Inc. 9/17/2018 © 2014, Tony Gauvin,UMFK

Company History 1996:McGraw-Hill sells its legal publishing firm, Shepard's, to the Times Mirror company in exchange for the latter's college textbook publishing group, making McGraw-Hill the largest educational publisher. 1998: The McGraw family resumes leadership of the company when Harold W. (Terry) McGraw III succeeds Joe Dionne as CEO. 1999: The Company pays Pearson plc $46 million to acquire medical publisher Appleton & Lange Inc 2000: Harold McGraw III is elected chairman. . 2002: M-H's Education division acquires Open University Press, based in Buckingham, England. 2003: Despite difficult economic conditions, earnings grow nearly 20% to $687 million on sales that near the $5 billion mark. 2004: M-H subsidiaries such as Platts and Standard & Poor's establish branches in China in preparation for the firm's push into the country 2005: Westlake Village, Calif.-based marketing information provider J.D. Powers and Associates is acquired. 9/17/2018 © 2014, Tony Gauvin,UMFK

Actual Mission The McGraw-Hill Companies' mission is to provide essential information and insight (2) that help individuals, markets and societies (1, 3) perform to their highest potential. The McGraw-Hill Companies accomplishes this by meeting three enduring and sustainable global needs: The need for Capital (5) The need for Knowledge, Education and Training The need for Business Information and Transparency Fundamental to meeting these needs is conducting our business responsibly and in a manner that ensures maximum shareholder value by improving the economic, social and environmental well-being of the communities that we serve (6). Our commitment to corporate responsibility (8) and sustainability is an integral part of the way we do business and is how each of us conducts ourselves everyday Customers Products or services Markets Technology Concern for survival, growth, and profitability Philosophy Self-concept Concern for public image Concern for employees 9/17/2018 © 2014, Tony Gauvin,UMFK

Current Strategies In 2011, we plan to continue our focus on the following strategies to increase our growth and relevance and to maintain our position as a leading “Knowledge Economy” company: Leveraging existing capabilities to grow organically, particularly through developing a broad range of digital products and services Growing globally by leveraging our position in developed markets and by pursuing opportunities in key developing countries Continuing to consider selective acquisitions that complement our existing business capabilities Expanding and refining the use of technology in all segments to improve performance, market penetration and productivity Continuing to contain costs 9/17/2018 © 2014, Tony Gauvin,UMFK

Current Issues In 2011…restructuring?
After over a century of acquisitions McGraw Hill Companies has 9 different brands divided into 4 Strategic Business Units S&P Credit ratings and Indices MH Financial Capital IQ MH Education I&M Platts Broadcasting Construction J.D Powers Aviation Week In 2011…restructuring? Sold Business Week Selling Broadcasting Possible split into two companies 9/17/2018 © 2014, Tony Gauvin,UMFK

A new Vision and Mission
9/17/2018 © 2014, Tony Gauvin,UMFK

To be the number one media publishing company in the world.
New Vision To be the number one media publishing company in the world. 9/17/2018 © 2014, Tony Gauvin,UMFK

New Mission The McGraw-Hill Companies' mission is to world’s best (7) provider of essential information and insight (2) that help individuals, markets and societies (1, 3) perform to their highest potential. The McGraw-Hill Companies accomplishes this by meeting four enduring and sustainable global needs: The need for Capital (5) The need for Knowledge, Education and Training The need for Business Information and Transparency The need for advanced information technologies to increase reach and effectiveness of information (4) Fundamental to meeting these needs is conducting our business responsibly and in a manner that ensures maximum shareholder value by improving the economic, social and environmental well-being of the communities that we serve (6). Our commitment to corporate responsibility (8) ,sustainability and our employees (9)is an integral part of the way we do business and is how each of us conducts ourselves everyday. Customers Products or services Markets Technology Concern for survival, growth, and profitability Philosophy Self-concept Concern for public image Concern for employees 9/17/2018 © 2014, Tony Gauvin,UMFK

Industry Analysis McGraw-Hill Companies is a holding company consisting of many subsidiaries operating in different Industries Common Thread Information  Digital Education  Global & Digital Financial Growing Global Economy 9/17/2018 © 2014, Tony Gauvin,UMFK

Growing Global Economy

Increased Globalization

Opportunities Student enrollment from elementary through high school is projected to reach about 60.5 million by 2017. Enrollment in degree-granted institutions are expected to grow 13% approximately 20.1 million 2017. The total state new adoption market is expected to increase from 500 million in 2009 to between 925 million and 975 million in 2010. Foreign student enrollment at American higher education institutions has increased 4 % for the second year in a row. Young consumers are relying more on PDA’s and portable digital devices to provide them with reading material and entertainment. The U.S. college new textbook market is approximately $4.3 billion and is expected to grow about 5%-7% in 2010. Post education in China and India is expected to increase by 8% More individual investors are looking for quality ratings of financial products at a reasonable price. 29 states are currently not using the adaption process to purchase books meaning books are being purchased independently by local districts or individual schools. 9/17/2018 © 2014, Tony Gauvin,UMFK

Threats Apple, Sony, Barnes and Noble, and Google have all entered the electronic reader market. Pearson Inc. has agreed to provide digital content to the Apple I pad. Expanding their flexibility between different companies. More college book stores are incorporating textbook rental programs, which reduces the amount of book purchase from publishers. Due to changes in federal, state and local funding education funding has decreased. Pearson has agreed to acquire American Choice, a leader in research based strategies to help schools, districts, and states improve student achievement. Pearson operation profit increase 79% from half year of 2009 to half year of 2010. Pearson sales increased by 9% from half year of 2009 to half year of 2010. Pearson’s My lab and e-college digital learning, homework, assessment programs increased in enrollment by 36% to 3.5 million. The U.S. Kindle store now has more than 460,000 books, an increase from 250,000 last year 2008. Unethical practices on Wall Street. 9/17/2018 © 2014, Tony Gauvin,UMFK

Book Publishing Comparison

Organizational Chart 1 CEO, President and Chairman,
1 Assistant to the President, 12 Subsidiary and SBU Presidents, 6 Executive VP’s 3 Senior VP’s 5 VP’s 9/17/2018 © 2014, Tony Gauvin,UMFK

Strengths Restructuring plans will include a realignment of selected business operating within McGraw-Hill’s education segment. Net income increased to $830 billion in 2010 from $730 billion in 2009. Product-related selling and general expenses decreased 10.1% due to cost containment initiatives at McGraw-Hill Education. A pre-tax gain of $10.5 million on the sales of Business Week in 2009. Combined printing, paper and distribution prices for manufacturing, which represent 17.2% of total operating-related expenses, decreased 0.4%. Digital growth was driven by the continued success of the homework management product line, which included new releases on the improved and enhanced connect platform. The number of capital IQ clients at Dec 31, 2009 increased 9.9% from the prior year. In 2020, McGraw-Hill is projecting capital expenditures in the range of $90 million to $100 million largely due to increased technology spending. 9/17/2018 © 2014, Tony Gauvin,UMFK

Weaknesses Revenue flat over last 2 years.
Exchange rate had a 70.4 million and 9.5 million unfavorable impact on revenue and profit. 13.8 million pre-tax loss on the sale on Vista Research, Inc. 2009 revenue includes the negative impact of the transition of a number of syndicated studies to an online service platform at information and media. McGraw-Hill education revenue and operating declined 9.55% and 14.1% respectively primarily due to lower state adoptions sales at our school education group. Financial services revenue and operating profit decline 1.7% and 5.3% due to continued weakness in structured finance and restructures in investment research product. Information and media revenue declined 10.2% driven by advertising weakness across all of our media properties and reduced sales in our automotive studies. Revenue in professional market flat as weakness in consumer environment had a negative effect on sale of some print product lines. International sales flat with strong demand for higher education products across most market offsets by lower school sales in some regions. $1.8 billion in goodwill on balance sheet. 9/17/2018 © 2014, Tony Gauvin,UMFK

Segments The operations consist of four business segments: Standard & Poor’s (“S&P”), McGraw-Hill Financial (“MH Financial”), McGraw-Hill Education (“MHE”) and McGraw-Hill Information & Media (“I&M”). • S&P provides independent global credit ratings, credit risk evaluations, and ratings-related information research to investors, corporations, governments, financial institutions, investment managers and advisors globally. • MH Financial provides comprehensive value-added financial data, information, indices and research services to investors, corporations, governments, financial institutions, investment managers and advisors globally. • MHE is one of the premier global educational publishers. This segment consists of two operating groups: the School Education Group (“SEG”), serving the elementary and high school (“el-hi”) markets, and the Higher Education, Professional and International Group (“HPI”), serving the college, professional, international and adult education markets. • I&M includes business, professional and broadcast media, offering information, insight and analysis; and consists of two operating groups, the Business-to-Business Group (including such brands as Platts, J.D. Power and Associates (“JDPA”), McGraw-Hill Construction and Aviation Week) and the Broadcasting Group, which operates nine television stations, four ABC affiliated and five Azteca America affiliated stations. 9/17/2018 © 2014, Tony Gauvin,UMFK

Segment information 9/17/2018 © 2014, Tony Gauvin,UMFK S&P $ 1,695.4
Revenue Operating Profit (in millions) 2010 2009 2008 S&P $ 1,695.4 1,537.3 1,583.0 762.4 712.2 749.3 MH Financial 1,188.5 1,121.8 1,113.5 314.9 301.9 321.1 MHE 2,433.1 2,387.8 2,638.9 363.4 276.0 321.4 I&M 907.5 953.9 1,061.9 160.4 92.7 92.0 Intersegment elimination (56.2 ) (49.0 (42.2 – Total operating segments 6,168.3 5,951.8 6,355.1 1,601.1 1,382.8 1,483.8 General corporate expense (180.0 (127.0 (109.1 Total Company 1,421.1 1 1,255.8 1,374.7 Revenue Long-lived Assets Years ended December 31 December 31, (in millions) 2010 2009 2008 United States $ 4,367.4 4,226.4 4,579.4 2,715.0 2,881.5 European region 987.2 963.7 1,020.5 566.5 220.4 Asia 499.4 467.8 438.8 162.9 133.2 Rest of the world 314.3 293.9 316.4 79.3 77.1 Total 6,168.3 5,951.8 6,355.1 3,523.7 3,312.2 9/17/2018 © 2014, Tony Gauvin,UMFK

5 Year Financial Review 9/17/2018 © 2014, Tony Gauvin,UMFK
(in millions, except per share data and number of employees) 2010 2009 2008 2007 2006 Income statement data: Revenue $ 6,168.3 5,951.8 6,355.1 6,772.3 6,255.1 Segment operating profit 1,601.1 1,382.8 1,483.8 1,836.7 1,589.9 Income before taxes on income 1,339.4 1 1,178.9 2 1,299.1 3 1,636.3 4 1,413.5 5 Provision for taxes on income 487.5 429.1 479.7 609.0 522.6 Net income attributable to The McGraw-Hill Companies, Inc. 828.1 730.5 799.5 1,013.6 882.2 Earnings per common share: Basic 2.68 2.34 2.53 3.01 2.47 Diluted 2.65 2.33 2.51 2.94 2.40 Dividends per share 0.94 0.90 0.88 0.82 0.73 Operating statistics: Return on average equity 40.4 % 45.7 54.1 46.6 30.3 Income before taxes on income as a percent of revenue 21.7 19.8 20.4 24.2 22.6 Net income as a percent of revenue 13.4 12.6 12.9 15.2 14.2 Balance sheet data: Working capital 613.7 484.4 (228.0 ) (314.6 (210.1 Total assets 7,046.6 6,475.3 6,080.1 6,391.4 6,042.9 Total debt 1,198.3 1,197.8 1,267.6 1,197.4 2.7 Equity 2,291.4 1,929.2 1,352.9 1,677.8 2,730.0 Number of employees 20,755 21,077 21,649 21,171 20,214 9/17/2018 © 2014, Tony Gauvin,UMFK

Ratios & Net worth 9/17/2018 © 2014, Tony Gauvin,UMFK Method Values
Growth Rate Percent McGraw-Hill Industry S&P 500 Sales (Qtr vs year ago qtr) -2.50 2.40 14.50 Net Income (YTD vs YTD) NA Net Income (Qtr vs year ago qtr) -3.30 -9.30 47.20 Sales (5-Year Annual Avg.) 0.54 6.94 8.31 Net Income (5-Year Annual Avg.) -0.39 7.35 8.76 Dividends (5-Year Annual Avg.) 7.33 7.22 5.70 Profit Margin Percent Gross Margin 69.5 53.6 39.8 Pre-Tax Margin 22.0 -328.2 18.2 Net Profit Margin 14.0 10.5 13.2 5Yr Gross Margin (5-Year Avg.) 61.4 57.3 Liquidity Ratios Debt/Equity Ratio 0.43 1.00 Current Ratio 1.2 1.4 1.3 Quick Ratio 1.1 0.9 Profitability Ratios Return On Equity 39.3 22.3 26.0 Return On Assets 12.5 -25.1 8.9 Return On Capital 20.6 12.4 11.8 Return On Equity (5-Year Avg.) 42.2 23.3 23.8 Return On Assets (5-Year Avg.) 13.7 8.7 8.0 Return On Capital (5-Year Avg.) 22.8 13.1 10.8 Efficiency Ratios Income/Employee 42,228 30,125 126,905 Revenue/Employee 301,155 277,054 1 Mil Receivable Turnover 5.6 8.3 15.4 Inventory Turnover 6.6 8.2 Method Values Stockholder’s Equity $2,210 Net Income * 5 $4,120 (Share Price/EPS) * NI $12,626 # Of Shares * Share Price $12,376 Method Average $7,838 9/17/2018 © 2014, Tony Gauvin,UMFK

Strategic Formulation
Photo by: Andres Rodriguez 9/17/2018 © 2014, Tony Gauvin,UMFK

Alternative Strategies
SO Strategies Add 300 sales reps in China and India (S2, O7). Form an alliance with Kindle to provide textbooks electronically (S6, O5). WO Strategies Add 300 sales reps for schools in the United States (W5, O9). Increase marketing efforts in China and Eastern Europe by $300M per year (W2, O7). ST Strategies Form an alliance with Kindle to provide textbooks electronically (S6, T9). WT Strategies Product textbooks that “self destruct” (W1, T3). 9/17/2018 © 2014, Tony Gauvin,UMFK

Space Matrix Possible Strategies Market Penetration Markey Development
Product Development Diversification Integration 9/17/2018 © 2014, Tony Gauvin,UMFK

Grand Strategy Matrix Possible Strategies Market Penetration
Markey Development Product Development Related Diversification Integration 9/17/2018 © 2014, Tony Gauvin,UMFK

Segment Data SBU % Revenue % Profit Relative Market Share Growth rate
IFE Score EFE Score S&P 27% 48.6% 1 4% 2.9 3.2 MHF 19% 19.7% 0.09 11% 2.8 2.2 MHE 39% 22.7% 0.26 8% 2.3 2.4 I&M 15% 10% 0.05 3% ? 9/17/2018 © 2014, Tony Gauvin,UMFK

BCG MHF MHE S&P Possible Strategies Possible Strategies I&M
Market Penetration Markey Development Product Development Integration MHF Possible Strategies Market Penetration Market Development Product Development Divestiture MHE S&P I&M 9/17/2018 © 2014, Tony Gauvin,UMFK

IE Matrix Possible Strategies Possible Strategies Market Penetration
Markey Development Product Development Integration Possible Strategies Market Penetration Product Development 9/17/2018 © 2014, Tony Gauvin,UMFK

Matrix Summary S&P Alternative Strategies IE SPACE GRAND BCG COUNT
Forward Integration x 4 Backward Integration Horizontal Integration Market Penetration Market Development Product Development Related Diversification 2 Unrelated Diversification 1 Retrenchment Divestiture Liquidation 9/17/2018 © 2014, Tony Gauvin,UMFK

Matrix Summary Other SBU’s
Alternative Strategies IE SPACE GRAND BCG COUNT Forward Integration x 2 Backward Integration Horizontal Integration Market Penetration 4 Market Development Product Development 3 Related Diversification Unrelated Diversification 1 Retrenchment Divestiture Liquidation 9/17/2018 © 2014, Tony Gauvin,UMFK

Strategic Selection Source http://www.partnerslaw.net/page8.htm

Decision Point TOO Many SBU’s with TOO many Options
Focus on McGraw-Hill Education 40% of revenue, 22% of profit Growth rate 8% (2nd highest of SBU’s) Use IE matrix recommendation for MHE Market Penetration SO 1 & WO 1 Product development SO 2 9/17/2018 © 2014, Tony Gauvin,UMFK

Strategic Plan for the future
Recommendation Add 300 sales reps in China and India for $21 million. (SO 1) Add 150 sales reps for primary and secondary schools in the United States for $25 million. (WO 1) Add 150 sales reps for Higher Education in the United States for $25 million. (WO 1) Form an alliance with Kindle to provide textbooks electronically for $100 million (SO 2) 9/17/2018 © 2014, Tony Gauvin,UMFK

3 Year Objectives Increase Sales in M&H Education
20-25% in year one 15% gain in years two and three Increase Number of Digital (vs Print) Education products offered 25% in year one 40-50 % in year two 65% in year three 9/17/2018 © 2014, Tony Gauvin,UMFK

Strategic Implementation

EPS/EBIT Amount Needed: $171M Stock Price: $42.82 Shares Outstanding: 293 Interest Rate: 5% Tax Rate: 36% Reality Check: McGraw Hill has $1.5 billion in cash…no need to borrow or sell stock; will pay additional expenses from cash flow 9/17/2018 © 2014, Tony Gauvin,UMFK

Projected Financial Performance
First year Forecast Revenues increase by $552.8m Increase Sales in MHE School education by 20% $1,109.4m * 0.20= $221.9m Increase Sales in MHE Higher Equation & International by 25% $1,323.7m * = $330.9m Expenses Additional Sales expenses $71m 300 International $50k/year = $15m 300 US $100k/year = $30m Sales training = $12m Additional Marketing expenses $14M Additional R&D Expenses of $100m 9/17/2018 © 2014, Tony Gauvin,UMFK

Projected Income Statement
(in thousands, except per share data) 2008 2009 2010 2011(projected) Revenue Product $2,582,553 $2,362,235 $2,411,293 $2,964,093 Additional $552.8 M Service $3,772,502 $3,589,547 $3,757,038 same Total Revenue $6,355,055 $5,951,782 $6,168,331 $6,721,131 Expenses Operating-related expenses $1,181,322 $1,132,302 $1,080,092 $1,427,708 CGS + $100m R&D $1,337,108 $1,253,705 $1,265,936 Total Operating-related Expenses $2,518,430 $2,386,007 $2,346,028 $2,693,644 Selling and General Expenses $2,283,595 $2,141,251 $2,262,203 $2,333,203 additional $71m Depreciation $119,849 $112,764 $104,504 Same Amortization of intangibles $58,497 $52,720 $45,595 Total Expenses $4,980,371 $4,692,742 $4,758,330 $5,176,946 Other (income) loss – $3,304 ($11,058) -$2,600 avg of past 3 years Income from Operations $1,374,684 $1,255,736 $1,421,059 $1,544,185 Interest expense, net $75,624 $76,867 $81,643 Income before Taxes on Income $1,299,060 $1,178,869 $1,339,416 $1,462,842 Provision for taxes on income $479,695 $429,108 $487,547 $532,474 Net income $819,365 $749,761 $851,869 $930,177 Less: net income attributable to noncontrolling interests ($19,874) ($19,259) ($23,806) -$23,806 Net income attributable to The McGraw-Hill Companies, Inc. $799,491 $730,502 $828,063 $953,983 Earnings per Common Share Basic $2.53 $2.34 $2.68 $3.08 Diluted $2.51 $2.33 $2.65 $3.06 Average number of Common Shares Outstanding 315,559 312,223 309,379 318,687 313,296 312,220 Dividend Declared Per Common Share $0.88 $0.90 $0.94 $0.98 $650,791.72 Retained earnings 9/17/2018 © 2014, Tony Gauvin,UMFK

Projected Balance Sheet
Liabilities and Equity Current Liabilities: Accounts payable $301,828 $396,480 Same Accrued royalties $114,157 $114,466 Accrued compensation and contributions to retirement plans $450,673 $503,019 Income taxes currently payable $17,086 $23,685 Unearned revenue $1,115,357 $1,205,744 Other current liabilities $452,853 $437,480 Total current liabilities $2,451,954 $2,680,874 Long-term debt $1,197,791 $1,197,965 Pension and other postretirement benefits $511,683 $436,476 Other non-current liabilities $384,645 $439,855 Total liabilities $4,546,073 $4,755,170 Commitments and Contingencies (NOTE 13) Equity Common stock, $1 par value: authorized – 600,000,000 shares; issued – 411,709,328 shares in 2010 and 2009 $411,709 same Additional paid-in capital $5,125 $67,018 $67,108 Retained income $6,522,613 $7,056,628 $7,707,420 add reatined earnings Accumulated other comprehensive loss ($343,017) ($367,379) Less: common stock in treasury – at cost: 2010 – 104,087,656 shares; 2009 – 96,368,589 shares (4,749,143 ($4,957,680) Total equity – controlling interests $1,847,287 $2,210,296 $2,861,178 Total equity – noncontrolling interests $81,890 $81,095 Total Liabilities and Equity $6,475,250 $7,046,561 $7,697,443 9/17/2018 © 2014, Tony Gauvin,UMFK

Projected Balance Sheet
(in thousands, except share data) 2009 2010 2011 (Projected) Assets Current Assets: Cash and equivalents $1,209,927 $1,525,596 $1,552,596 Fudge Short-term investments $24,602 $22,156 Accounts receivable (net of allowance for doubtful accounts and sales returns: 2010 – $275,894; 2009 – $276,110) $969,662 $990,573 $1,190,573 add $200M Inventories: Finished goods $290,415 $265,408 $305,219 add 15% Work-in-process $3,858 $2,521 $2,899 Paper and other materials $6,956 $7,173 $8,249 Total inventories, net $301,229 $275,102 $316,367 Deferred income taxes $278,414 $281,689 Prepaid and other current assets $152,562 $199,495 Total current assets $2,936,396 $3,294,611 $3,562,448 Prepublication Costs (net of accumulated amortization: 2010 – $1,089,263; 2009 – $1,005,114) $460,843 $364,984 Property and Equipment – At Cost Land $14,281 $14,427 Buildings and leasehold improvements $598,472 $600,377 Equipment and furniture $957,697 $998,749 Total property and equipment $1,570,450 $1,613,553 Less – accumulated depreciation ($990,654) ($1,064,786) Property and equipment, net $579,796 $548,767 Goodwill $1,690,507 $1,886,963 $2,170,007 Other intangible assets, net $538,735 $663,882 $763,882 New Kindle Technology Other non-current assets $268,973 $287,354 Total Assets $6,475,250 $7,046,561 $7,697,443 9/17/2018 © 2014, Tony Gauvin,UMFK

Projected Financial ratios
Growth Rate Percent McGraw-Hill 2010 McGraw-Hill 2011 Sales (Qtr vs year ago qtr) -2.50 8.64% Net Income (Qtr vs year ago qtr) -3.30 9.21% Profit Margin Percent Gross Margin 69.5 60% Pre-Tax Margin 22.0 23% Net Profit Margin 14.0 14% Liquidity Ratios Debt/Asset Ratio 0.54 0..62 Current Ratio 1.2 1.30 Quick Ratio 1.1 1.18 Profitability Ratios Return On Equity 39.3 32% Return On Assets 12.5 12% Efficiency Ratios Income/Employee 42,228 44,787 Revenue/Employee 301,155 323,550 Inventory Turnover 6.6 8.0 9/17/2018 © 2014, Tony Gauvin,UMFK

Primary Responsibility
Balanced Score Card Area of Objectives Measure or Target Time Expectation Primary Responsibility Technology 1 Adaption % of digital Products Produced Yearly CIO 2. Employee user acceptance Survey Employees 1 Quality and service training On site and webinars Yearly EVP, Human resources 2 Employee Satisfaction Survey Yearly EVP, Human resources Marketing/Coustomers 1. Sales Revenues by segment Quarterly VP, Communications and Marketing 2. Customer Satisfaction Business Ethics/Natural Environment 1 Waste reduction volume of recyclable materials Quarterly SVP Global Sustainability 2 Ethics Training # of ethics training sessions Financial 1 Cash Flow Free Cash < $500M CFO 2 Ratio analysis better than Industry Avg, CFO 9/17/2018 © 2014, Tony Gauvin,UMFK

The New McGraw Hill McGRAW HILL FINANCIAL McGraw Hill Education
S&P ratings Capital IQ S&P Indices Platt’s J.D Power’s McGraw Hill Construction McGraw Hill Education 2013 Privately held corporation – Limited access to information..must file request 5 Segments PreK-12 Higher ED Professional Assessment International 9/17/2018 © 2014, Tony Gauvin,UMFK

References 2010 McGraw Hill 10-K
The McGraw-Hill Companies, Inc. (2010). In D. Jacques & P. Kepos (Eds.), International Directory of Company Histories (Vol. 115). Detroit: St. James Press. McGraw-Hill Companies Inc. (2013). In Notable Corporate Chronologies. Detroit: Gale. McGraw-Hills Companies- 20w1, Case notes, Forest David The McGraw-Hill Companies, Inc. – 2011, Vijaya Narapareddy, Univeristy of Denver, published in Strategic Management, Concepts and Cases 14th edition, Fred David McGraw–hill.com The McGraw-Hill Companies, Inc., Company Profile, DataMonitor, December 3, 2010 Report from MHP 2011 Annual Shareholder’s Meeting 9/17/2018 © 2014, Tony Gauvin,UMFK

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