The McGraw-Hill Companies' CEO Hosts 2012 Annual Shareholders' Meeting (Transcript)

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McGraw-Hill Companies Inc. (MHP) April 25, 2012 11:00 AM ET


Harold Whittlesey McGraw - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Kenneth M. Vittor - Executive Vice President and General Counsel

Unknown Executive -

John Berisford - Executive Vice President of Human Resources

D. Edward Smyth - Executive Vice President of Corporate Affairs and Executive Assistant to the Chairman, Chief Executive Officer & President


Good morning, and welcome to The McGraw-Hill Companies 2012 Annual Shareholders' Meeting. The meeting is being conducted at McGraw-Hill's international headquarters in New York City. At this time, I would like to inform you that the call is being recorded for broadcast [Operator Instructions] This call is also being webcast from The McGraw-Hill Companies' website and will be available for replay about 2 hours after this meeting ends both by phone and on the web.

To do that, go to the company's homepage at, and click on the link for the Annual Shareholders' Meeting.

Harold Whittlesey McGraw

Thank you, and for being with us today. I would like to introduce you to the gentleman at the table on my right. That's Ken Vittor. He's the Executive Vice President and General Counsel of the corporation, and Ken joined McGraw-Hill in 1981, and he’s served as our General Counsel for the last 17 years.

Now it's my pleasure to introduce our Board of Directors. We have a world-class board, whose dedication, expertise and leadership are a tremendous sense of pride to the corporation, and I would kindly ask each of our directors to stand as I say their names and remain standing. And please, if you would, hold your applause until all of them are introduced.

First, Pedro Aspe, Co-Chairman, Evercore Partners, Chairman of Protego and the Former Finance Minister of Mexico; Sir Win Bischoff, Chairman of Lloyds Banking Group and the Chairman of the Financial Policy Committee; Linda Koch Lorimer, Vice President and Secretary, Yale University; Robert P. McGraw, Chairman and Chief Executive Officer, Averdale Holdings LLC; Hilda Ochoa-Brillembourg, President and Chief Executive Officer, Strategic Investment Group; Sir Michael Rake, Chairman, BT Group and Chairman of the McGraw-Hill Audit Committee; Edward Rust, Chairman, President and Chief Executive Officer, State Farm Insurance Company and the Lead Director for the McGraw-Hill Company; Kurt Schmoke, Dean of the Howard University School of Law and the former Mayor of Baltimore; Sidney Taurel, Chairman Emeritus, Eli Lilly and Company and Chairman of the Compensation and Leadership Development Committee; Dick Thornburgh, Vice Chairman, Corsair Capital LLC and former Vice Chairman, Credit Suisse. Our remaining director, William Green is Executive Chairman of Accenture; due to a prescheduled meeting, is at his own meeting in Ireland today and we miss him and he's unable to be with us, but I'm particularly pleased that Bill Green and Dick Thornburgh joined our board last year. They've already added immeasurably to the depth, knowledge and perspective of this strong board. We couldn't be more pleased to have them.

And finally, if I could ask Doug Daft, if you could stand. I also want to take this opportunity to thank our director who'll be retiring from the board after today's meeting and who has brought such extraordinary judgment and global insight as a member of the board for the past 9 years. We had the opportunity to say a very special thank you to Doug last night at a dinner. You just can't thank these people enough for their willingness to serve. So thank you, Doug Daft, Former Chairman and CEO of the Coca-Cola Company. Thank you for your incredible service and wish you and Delphine all the best in your retirement. Ladies and gentlemen, the Board of Directors.

Thank you very much. We also have a number of retired directors and executives that are with us this morning here, and I'd like to honor them and say a special thank you. And I'd ask them, as part of the recognition, if they would please stand. Our former Chairman and CEO, Joe Dionne. Joe? There you go. Vernon Alden, Lois Rice, James Ross, Bob Evanson, Henry Hirschberg, Steve Shepard and Tom Sullivan.

I've only introduced Ken Vittor. And now I'd like to introduce the other members of the senior management team, and I'd ask them to please stand and remain standing. Jack Callahan, Executive Vice President and Chief Financial Officer; John Berisford, Executive Vice President, Global Human Resources; Ted Smyth, Executive Vice President, Corporate Affairs and Executive Assistant to the Chairman, President and CEO; Charles Teschner, Executive Vice President, Global Strategy; Robert Bahash, President McGraw-Hill Education; Louis Eccleston, President S&P Capital IQ/S&P Indices; Glenn Goldberg, President, Commodities & Commercial markets; Doug Peterson, President Standard & Poor's Ratings. Thank you, gentlemen.

We will now proceed to the business of our annual meeting, the purpose of which is: one, to review the 2011 operations and to look at our prospect for 2012 and beyond; two, to elect 12 directors; three, to vote on the proposal to approve, on an advisory basis, the executive compensation program for the company's named executive officers; four, to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2012; five, to vote on a shareholder proposal requesting shareholder action by written consent; and six, to take up any other matters that may properly come before this meeting.

Ken Vittor will establish that this meeting is duly called, a quorum is present, that other formalities have been complied with. After he has done so, he will advise us that a quorum is present, we can proceed with the matters listed in item 2 of the agenda, which was distributed to everyone as you came in. Ken?

Kenneth M. Vittor

Thanks, Terry. Before we begin, let me provide certain cautionary remarks about forward-looking statements that may be made during this annual meeting. Except for historical information, the matters discussed during the meeting may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act, including projections, estimates and descriptions of future events. Any such statements are based on current expectations and current economic conditions and are subject to risks and uncertainties that may cause actual results to differ materially from the results anticipated in these forward-looking statements. We direct listeners and the audience to the cautionary statement contained in our Form 10-Ks, 10-Qs and other periodic reports filed with the United States Securities and Exchange Commission.

The Corporation Secretary, Mr. Scott Bennett, has advised me that we have certified list of shareholders of record as of the close of business on March 12, 2012, who are entitled to vote at this Annual Shareholders' Meeting. Such lists have been opened for inspection by shareholders.

We also have copies of the notice of meeting, proxy materials, annual reports and affidavits of mailing relating to this annual meeting. The affidavits will be filed with the records of the annual meeting.

The Board of Directors has designated 2 representatives of Computershare Trust Company to act as inspectors of election for the annual meeting. Representatives of Computershare Trust Company are present and have been duly sworn. Their oaths will be duly filed.

In addition, I'm advised by Mr. Bennett that shares of common stock representing approximately 88% of the outstanding shares of The McGraw-Hill Companies and representing more than the majority of the votes entitled to be cast at this annual meeting are represented either in person or by proxy.

Mr. Chairman, the annual meeting has been duly convened, a quorum is present and the business of the annual meeting should proceed.

Harold Whittlesey McGraw

Good. Thank you, Ken. We will now proceed with the election of directors and the other formal business items. Ballots will be distributed to those who want to vote in person on any of the proposals. We will vote on each proposal before taking up the next one. Time will be provided for specific questions relating to each of the proposals as they are introduced. Further time will be provided following the annual report on operations for questions on other matters.

I would request that all remarks concerning the formal business items be directed to the Chair. In order that remarks from the floor may be heard clearly by everyone, we have placed microphones on each side of the auditorium. I ask that each shareholder who wishes to ask a question or make a statement, use one of these microphone. If that's not convenient, we have a handheld microphone available. If you have a question or remark, please state your name and whether you're a shareholder yourself or that you represent a shareholder. As a matter of courtesy, please limit yourself to one question or remark until everyone who wishes to do so, has an opportunity to ask a question or make a statement.

The first item to be voted upon is the election of 12 directors. We present as nominees for the election of the directors the 12 persons named in the proxy statement dated March 16, 2012, the names of the 12 directors nominated for election are: Pedro Aspe, Sir Win Bischoff, William Green, Linda Koch Lorimer, Harold McGraw III, Robert McGraw, Hilda Ochoa-Brillembourg, Sir Michael Rake, Edward Rust, Kurt Schmoke, Sidney Taurel and Richard Thornburgh. The floor is now open for questions or comments regarding any of the election of the 12 directors.

By the way, those desiring ballots, please raise your hand and I would remind you that if you’ve already voted by proxy or by telephone or the Internet, it's not necessary to vote again.

Any questions on the directors? Okay. Since there's no further discussion on this proposal, I declare the voting closed on this item.

The second item to be voted upon is a proposal to approve, on an advisory basis, the executive compensation program for the company's named executive officers. The floor is now open for questions or comments on that. Good.

Since there are no further discussion on this proposal, I declare the voting closed on this item.

The third item to be voted upon is the ratification of the selection of Ernst & Young LLP as the company's independent registered public accounting firm for 2012. Ms. Denise Pelli and Mr. Ken Egan, partners of Ernst & Young and those that are responsible for The McGraw-Hill Companies’ account are present day at our meeting. They're available now if you have any questions about the selection of their firm as an independent registered public accounting firm or if you wish to ask them any question about the financial statements of The McGraw-Hill Company. The floor is now open for questions or comments here. Okay. Since there are no further discussion on this proposal, I declare the voting closed on this item.

The fourth item to be voted upon is the shareholder proposal requesting shareholder action by written consent. Now I understand that Mr. Ken Steiner is prepared to present this proposal, which is set forth on Page 74 of the proxy statement. I don't know if Mr. Steiner is here and would like to make that statement. Is Mr. Steiner here?

Kenneth Steiner

Yes, okay, thank you. My proposal is on Page 74 of the proxy statement, Shareholder Action by Written Consent. Resolve shareholders' request that our Board of Directors undertake such steps as making necessary to permit written consent by shareholders entitled to cast the minimum number of votes that would be necessary to authorize the action at a meeting in which all shareholders entitled to vote are present in voting. This includes written consent regarding issues that a board may not be in favor of.

Taking action by written consent in place of a meeting is a means shareholders can use to raise important matters outside the normal annual meeting cycle. This would include actions necessary and important to enhancing the value of our investment. We grant the owners the ability to act within their proper judgment to use their votes, if and when appropriate in a more timely fashion than is currently available. I believe that adoption of this proposal would further enhance good governance and is consistent with other changes made in the past in response to proposals that I have made and that others have made at this company and at other corporations across the country.

Therefore, I encourage our board to respond positively to this proposal to support improved corporate governance and financial performance, and I urge all my fellow shareholders to vote yes on proposal for shareholder action by written consent.

Harold Whittlesey McGraw

Okay. Thank you, Mr. Steiner. Well, the Board of Directors recommends a vote against this proposal. Detailed reasons for this recommendation are also laid out in the proxy statement that you received.

Now the board believes that this proposal is not necessary because the company amended its certificate of incorporation in 2011 to provide that special meetings of shareholders of the company may be called at the request of holders of 25% of the outstanding shares of the company's common stock. This provision then allows such holders to propose actions for shareholder consideration between annual meetings of the companies' shareholders. Other comments or questions from the floor on this proposal? Okay, so there is no further discussion on this proposal. I declare the voting closed on this item.

Okay, this concludes the voting on the formal business items. The ballots will now be collected. The votes will now be counted on these matters presented.

Okay. So thank you, and good morning, again. While the votes are being counted, we'll move on to the next part of the program. The plans that we've laid out for McGraw-Hill's future have all been built on a solid foundation of achievement and last year was no exception. In fact, 2011 was one of the best years in our 124-year history, including our 39th consecutive annual increase and our quarterly cash dividend for shareholders and continuing our share repurchase program where we repurchased 1.5 billion shares last year.

Our revenues, operating profit, earnings per share, all posted some very impressive results. And while the S&P 500 Index barely registered in the black last year, McGraw-Hill earned investors an impressive 27% total shareholder return, far outpacing the Index and far outpacing many other companies. In fact, our share price was higher than an average of our peers in both the education and in the financial information sectors, and the same was true with our earnings before interest and taxes.

Our earnings per share were also higher compared with our peers in the financial information space. Last year was also significant for a variety of development positively impacting our top and bottom line, and let me just list a few of them.

Our 2011 revenue was $6.2 billion, up 3% compared with the previous year. Our adjusted EPS was 9% compared with 2010. We made major progress, restructuring and realigning our benefits plans on our way to achieving cost savings of at least $100 million. We purchased again $1.5 billion in shares. We divested our Broadcasting Group so we could more focus on growth within the core portfolio. We expanded Platts' capabilities with strategic acquisitions, including BENTEK Energy, especially in the natural gas market and, Steel Business Briefing Group. We announced a new partnership with CME Group, that's the Chicago Mercantile Exchange, which we anticipate will close probably by midyear this year. The deal will help diversify our Index business, boosting our revenue stream by adding the Dow Jones Indices to our portfolio. It will be a joint venture, which McGraw-Hill will own 75% of. But by putting the S&P Indices with the Dow Jones Indices, what you're doing is you're taking the institutional investor indices with retail indices and you're getting the complementary nature of it, creating a very, very powerful platform on that.

We undertook several initiatives to expand Education's digital and global footprint.

And overall, 2011 was a banner year on many fronts and the record of achievement continues.

We just announced the results of the first quarter for 2012 and it was, I'm delighted to say, the best first quarter in our history in terms of revenue and earnings. Revenue increased 6% to $1.3 billion and adjusted net income from continuing operations was up 19% to $144 million. In McGraw-Hill Financial, on a pro forma basis, revenue was up 8% to $1 billion. And then operating profit rose 10% to $357 million.

For the company overall, our adjusted diluted earnings per share went up 30% to $0.51 and the results are particularly gratifying in light of the incredible effort that our employees are putting forward to prepare for the separation of the company by year end into 2 highly focused independent companies.

We can be proud of what the 24,000 employees of McGraw-Hill Companies are doing for you. It was the same kind of hard work and effort we've long known and deeply appreciated from our employees in every business and in every time zone around the world. And to all of them who did all of this, I salute them.

Thank you. Our ability to adapt to changing market conditions is a key reason why we've been so successful for so many years and why that success will continue in the future, and I’d now like to share a video with you about that future.


As you just saw, we're marrying our rich history with what, I believe, will be an even brighter future. And that future is bright indeed. And I want to share with you some of the incredible opportunities that we see ahead and the tremendous enthusiasm and energy that we're feeling as we create these 2 new companies: McGraw-Hill Financial and McGraw-Hill Education. Both companies share a common promise and they both share a common purpose. We're about helping customers find ways to succeed and to prosper in a rapidly changing world, where information is often conflicting, confounding and confusing. The bottom line is that we help make sense of it all.

To be clear, our mission is never nor never will be about us. It will always be about our customers and their markets. We're committed to helping our customers succeed in the knowledge economy that knows no borders and where everyone can prosper and reach their fullest potential, not just here, but around the globe.

At McGraw-Hill Financial, for example, it's not just about our product offerings -- our product offerings or the quality of the timeliness of the analytics. It's deeper than that. It's about the profoundly positive impact our products, services and solutions are having on society in general. That's because behind each bond rating, behind each index, behind each benchmark is a story of growth, promise and hope.

A good example is the whole investment area of -- regarding infrastructure, the overall infrastructure. Depending on which estimates you quote, the demand for infrastructure -- now this is the basic building block of any modern society, schools, highways, R&D centers, bridges, airports smart grids, dams, rail lines, seaports, water treatment facility, all those, all of this will run in the tens of trillions of dollars worldwide over the years ahead. That is how fast the world is growing up and how fast the need is. Having just returned from a trip from India, over the next 5 years, they're going to need to spend a minimum $1 trillion on infrastructure in their country to achieve the kind of growth to be able to do it.

So what's our story there? It's about Standard & Poor's rating a bond, so a school can be built in America or overseas and the next generation of students can be prepared for the future. It's about helping finance a smart grid, so energy is saved and the lights never go out. It's about a bond rating that we're currently doing to help build a seaport in Northern Peru to promote economic growth there or another bond rating that we're doing for a Mexican highway to help speed that country's supply chain so it becomes more prosperous.

It's about an S&P Index that helps investors move money to where it's most needed. It's about promoting more transparency and equity market so baby boomers' retirement funds are secure. It's about Platts' iron ore assessments for spot market, giving the global steelmaking industry greater transparency into the mining markets in Brazil, India and Australia. That transparency helps make residential and commercial construction doable, streamlining the manufacturing of industrial products and consumer durable [ph]. Taken together, it spurs economic growth, creates jobs, it creates prosperity and it creates a better standard of living. It's our goal. It's about thousands of stories of hope, progress and what can be as we see it as a noble purpose.

Capital flows are the lifeblood of any modern society and McGraw-Hill Financial will help keep it flowing. This is especially true with banks, which are undercapitalized these days and the world's capital markets are stepping in to fill that breach. And by the way, in the United States today, about 50% of the capital that's raised for growth comes from banks. The other 50% now comes from capital market, and it'll only grow. If you compare that to Europe at this point, of all the capital that's being drawn, 80% is coming from banks, 20% is coming from the capital market. What will that number be 5 years from now? 40%? 45%? It's only going to get bigger and bigger.

And given the increasing demand for capital, the question over the next few years will be how much further will all of that go? And when we think of the capital markets today, you have to span the globe. And yes, it's New York and London and Tokyo and Frankfurt. But today, it's also Jakarta, Shanghai, Seoul, Tel Aviv, Mumbai, Kuala Lumpur, São Paulo, Istanbul and other financial centers in many different time zones. And with many developing countries and emerging markets growing so rapidly, the role of the capital markets is obviously essential.

And what we're seeing, and what we're seeing taking place at a rapid pace, is the development of new local bond market literally around the world. It's what's happening in Tel Aviv. It's why India's expanding so rapidly. It's what's happening in Johannesburg. It's what's happening in Jakarta. And it's all these local bond market start cropping up trying to emulate exactly what's been taking place here and taking place in Europe. It means that we're sitting right in the middle of one of the biggest opportunities on the globe, and McGraw-Hill Financial will be uniquely qualified to help each of the world's capital and commodities market meet their needs. We're bringing a new level of judgment objectivity and analytical rigor that our customers need to make the right decision in today's complex and rapidly changing marketplace. We are there for them, and we're off to a great start, but that's not the whole story.

While we're helping our clients make the right kinds of decisions in the world financial market, McGraw-Hill Education is helping teachers, students, professionals make the right kind of decisions when it comes to preparing for the future, which is our future workforce, and the story here goes all about digital. I believe that the digitization of education represents the opportunity of the century. But you wouldn't know it talking to most people. More often than not, all we hear about are the stories of how the sad state of education and funding and curriculum and intense worry for the future. There's enough there in all that, but digitization makes it much more. And while the current condition steer us in the more negative way, I couldn't disagree more with the promise of the opportunity.

I'm extremely optimistic for the future of our education, why? Because at McGraw-Hill Education, we're seeing this digitization promise being fulfilled. Imagine a world in which information comes alive on a laptop, a tablet, an iPad, with rich content including 3D images, video and content and instructors and students can manipulate and personalize to make learning more engaging and relevant, and more importantly, more impactful and more fun.

Our products and solutions are already showing improvement outcomes for students and instructors. One product, McGraw-Hill Connect, has been shown to increase students' information retention rate by more than 20% as well as improving students' exam scores by a full letter grade.

In addition to the iPad announcement with Apple earlier this year, which made headlines and was very, very exciting in terms of how we're expanding that -- by the way, we now have 70 titles in the professional area in terms of science, medical engineering, all on iPad in all of this configuration with video and 3D and all that. We have 50 at Higher Ed. Last June, I had the opportunity to be with Steve Jobs and we talked about the whole secondary school area that nobody's doing anything for and we decided that we would do it together. And what we launched in November last year were 5 titles for the iPad for high school, titles like algebra, chemistry, biology and so forth. And to show you them and to get you them, they are just absolutely unbelievable programs.

One slight digression. I took chemistry when I was in school. I couldn't understand anything about it. I never knew why I took it. What am I ever going to do with this information? When I went on the board of ConocoPhillips and visited my first refinery, I went, oh, there it is. If I'd stayed, maybe I'd have been there.

Now, when I took a look at the chemistry application for the iPad that we did for high school, right there, right in front as you come in and all the design, there is a refinery. And you tap on it and it walks through the entire refinery pointing out all the things that you need to know and why you need to know them on that one. I'm just about 30 years too late or something.

We also announced through the University of Nebraska-Lincoln that we're developing the first ever full digital curriculum for their economics courses. It will use adaptive learning tools that determine a student's subject area strengths and weaknesses and it includes, again, video for each of the learning objectives, online assessments, interactive digital workbook, a revolutionary smart device app to deliver course on mobile devices. Now I know some call the whole economics, the dismal science. Forget that. We're bringing the study of economics to life in ways that makes it fresh, creative and very, very relevant.

We see tremendous growth potential in India, Brazil, China and in other countries around the globe where growing middle classes see education as their only means to give the next generation a chance to a better life, and we'll be there. Only a week ago, we announced that CTB/McGraw-Hill, our educational testing business, was selected by the Smarter Balanced Assessment Consortium, which is funded by the U.S. Department of Education, to develop the first set of core assessment state -- or assessments that states will be able to use in evaluating the progress of K-12 students. It's the largest contract of its kind to date and it's a huge step towards realizing the next generation of student assessment can become a reality. So instructors can tailor their teaching to student's individual needs, and in turn, students can reach their full potential. And I thank Ellen Haley over here and her team for the leadership provided in all of that.

Now none of this is going to happen in a vacuum. Our leadership in digital education is being recognized by numerous outside industry experts and independent organizations. This year, 4 of McGraw-Hill's digital offerings have been selected as finalist for the Software and Information Industry Association's prestigious 2012 CODiE awards, and that's an education technology. LearnSmart, Blackboard, Tegrity Campus and Practice Marketing are all in the running. We'll know the winner in about 2 weeks, but as far as I'm concerned, and most importantly, the impact that they're making on students, professionals and teachers alike and all of the cutting edge and dynamic capability, we've already won. And as I said before, I believe that this digitization of education represents the opportunity of the century, and we all need to be very hopeful and need to be very focused in terms of being a part of that.

As McGraw-Hill Education is formerly launched later this year as an independent company, they will be one of the market's commanding leaders with a brand name that's already universally recognized and respected for past accomplishments as well as being already well prepared for future achievement in a changing educational landscape that's limited only by our imagination and we're going to put every effort into making sure that the promise is there.

Finally, this is more difficult news to share with you. Two months ago, we've lost a highly valued colleague and friend. He was our ambassador to the financial community. In February, our Senior Vice President of Investor Relations, Don Rubin, passed away after only recently announcing his retirement. His distinguished career here at McGraw-Hill was 52 years long. He was a manager, a thought leader, a mentor and a beloved friend to all. And his legacy is here, one of growth, purpose, passion, trust and relevance. I had the distinct honor of working closely with Don for many, many of those years. And I would also like to acknowledge Celeste Hughes, who's the Senior Manager of Communications and Shareholder Relations who worked by his side for many of those years as well. Don was extremely fond of her.

In no small measure, the market holds our company today in the highest esteem it does, thanks to the integrity and transparency with which Don ran our Investor Relations program. With Don's passing, McGraw-Hill has lost a leader. And personally, we have lost a very close and dear friend. To Don's life and career at McGraw-Hill, we have this video.


Thank you. Thank you very much for that. Don's greatest legacy at McGraw-Hill, the company has established a scholarship program, a wonderful way to keep Don and tribute Don, in front of us for a lifetime. The company established a scholarship with the CUNY Graduate School of Journalism. And as many of you know, Steve Shepard is the Dean of the CUNY School of Journalism, our long-time editor-in-chief of BusinessWeek, and we couldn't be more proud of that association with Steve and with Don.

The endowment is a memorial to Don is a symbol of his extreme desire to pass the torch to the next generation of journalists after a lifetime of so many achievements, his company will never forget. And I can think of no better way to say goodbye to our dear friend than to say hello to future Rubin scholars in the lifetime ahead.

And again, Steve Shepard who I've already introduced will be monitoring this endowment fund and the students who'll be receiving these funds soon.

And of course, the Rubin family, Nancy, Alex, Laura and Karolann, thank you for coming today. We all join you in honoring Don. He'll be sorely missed at the company he loved.

Okay. So that's it, and finally, I look forward to each of you, the owners of McGraw-Hill, using in joining us as we continue to make this history come alive and to make the rich promise of everything that we're talking about be real.

Okay. The meeting is now open for questions or comments concerning any subject generally relating to the McGraw-Hill company. I will request that all questions and comments be directed to myself.

As before, in order that remarks and therefore may be heard clearly by everyone, we have placed microphones on both sides of the auditorium. And again, a handheld will be there if you so need it. I ask that everyone who wishes to ask a question or make a statement, also state your name and whether or not you're a shareholder or represent a shareholder. And again, as a matter of courtesy, we will go as rapidly as we can, and please limit yourself to one until we go, okay? We're open for any comments, questions, thoughts, whatever.

Question-and-Answer Session

Unknown Shareholder

It's Dick Reid [ph], retiree, former shareholder. First of all, congratulations on a very strong first quarter and also for the very moving tribute to my former boss, Don Rubin. I have 2 questions for you. The first involves the pension fund for retirees. I know there is a freeze on it for current employees. But for those of us retirees who still receive a pension, can you tell us if the pension fund is underfunded, fully funded or perhaps even overfunded?

Harold Whittlesey McGraw

Dick [ph], the announcement that we put out when we said that we were going to freeze, and that's sort of a technical human resource term, freeze the defined benefit pension plan, that's putting a mark that all new people will be going into defined contribution plan. But a matter of law, everybody that is in the defined benefit plan up to that point, okay, is in the defined benefit plan. It's fully funded, and there is absolutely no disruption in any of the pension systems. And we're making sure that both in terms of new employees going forward as well that it's clearly understood that it is a fully funded plan and it's a plan that all employees can count on.

Unknown Shareholder

The second question involves your partnership with Apple on e-books, text books for elementary and high schools on the iPad. As you know, the Justice Department has sued 5 publishers and Apple for colluding to fix prices on e-books and they came down pretty hard on the so-called agency model for pricing. How will that affect your arrangement with Apple for e-textbooks, and will you use the agency model for pricing?

Harold Whittlesey McGraw

No, and we're in a very different situation. We're not a part of any aspect of that. Our relationship with Apple is very straightforward. We're pricing at a very low price, essentially $15 for the curriculum. And because of the fact that you get a lot of scale and volume and kinds of factors that we're able to benefit from that and students will be able to benefit from the fact that they are able to get this material at a much lower price.

Unknown Shareholder

Philip Berman [ph], portfolio manager and shareholder. Some brief comments and questions. When you have a company where the company founder was a visionary, the succeeding family eventually must make difficult decisions, which may navigate the company in different directions in order to adjust and fully compete in an abruptly changing business environment. As a direct result of our Chairman, Terry McGraw, and our board now focusing on a more specifically strategic restructuring of MHP's eclectic esoteric brands, MHP is now positioned to extrapolate long-term shareholder growth and value, and the stock price will reflect that eventually and recalibrate it to a new higher level. The separation of the company has great potential to most definitively increase the dream of our late founder to make the MHP Education spin-off even a more dominant force in the education field, and each company alone can deploy cash in the more accretive and positive way. The great 2007 to 2009 recession has made MHP part of a select group of stocks you can use the old buy-and-sell and put away value strategy where you cannot do that with every stock. Now some questions. You currently serve on 2 of the most prestigious, admired company boards in the world, namely, UTX and COP. In view of the spin-offs, it looks like you're going to have some time on your hands. Are you planning to serve on any other corporate boards?

Harold Whittlesey McGraw

Do you want me to take that one, Phil [ph], in front of my Board of Directors? I plan on not serving on any additional public board at this time.

Unknown Shareholder

Okay, can you grandfather in Douglas Daft's directorship?

Harold Whittlesey McGraw

I'm sorry?

Unknown Shareholder

Can you grandfather in Douglas Daft's continued directorship?

Harold Whittlesey McGraw

What was that? I would love to. Doug might have some pushback on that. Doug grew up in Australia during World War II, joined Coca-Cola at 26 and became the only non-American to run as Chairman and CEO all of Coca-Cola. He has served for 9 years with distinction on this board. I think he wants to take a little bit of a pause and enjoy life a little.

Unknown Shareholder

Okay, since you are previously on the Business Roundtable, how do you now rate the recovery level, which I asked you 3 years ago and you gave me your opinion now, how do you rate that level before versus now?

Harold Whittlesey McGraw

Okay, and again...

Unknown Executive


Harold Whittlesey McGraw

My guess is that we'll probably grow somewhere around -- the United States will grow somewhere around 2%, maybe 2.5% this year. I don't see an awful lot more for 2013. I think that Europe, for example, is definitely in recession. When do they come out of that? That'll be -- that'll take time. It takes a while to get into some of these issues and it takes a while to get out of them. The thing that I'd focus on is the growth in areas like India, Brazil and China. I would look at the next 11. I'd look at Poland and Turkey. I'd look at Indonesia. I'd look at Thailand and Malaysia, and I would like to think that some of the advancements that we have seen in parts of Africa are also going to be there. So sure, there's a lot of troubled spots, but those areas are starting to show some enormous economic growth. And that's why when we talked about the capital markets, the promise in terms of being able to run this business is so global. The United States post-World War II is about 45% of world GDP. It controlled everything on that part. Today, or in the next 2 years or maybe 3 years, the United States will be 15%, 1-5 percent, of world GDP. And that's not because of the enumerator that's because of the denominator. That means the world is growing up so fast. And so both in terms of McGraw-Hill Financial being able to take advantage of those kind of global markets and the capital flows that lead to all of that kind of growth and prosperity and jobs and all those things, McGraw-Hill Education, through the digital process, has the exact same opportunity to be able to reach out on much more global scale. And again, as I was saying, as you increase middle classes and you have more people that want to prosper and do more, it's going to be education that’s going to be able to get them there. And so, for all of us, whether it's the infrastructure, whether it's education or whether it's 21st century skill sets, those are the critical elements in creating growth in a knowledge economy. So Phil [ph], those are -- I mean from a growth standpoint today and what tomorrow looks like, the future is bright, but we've got to get out of some of our past practices and we got to get into some better, more physical frame to help.

Unknown Shareholder

Okay, thank you. And incidentally, by the way, I took inorganic and organic chemistry in college. I loved it.

Harold Whittlesey McGraw

That's why you're more successful making all that money as an investment manager.

Robert Sherman

I'm Bob Sherman, shareholder. And like you, with chemistry, I don't understand digitalization at all. But I've been very impressed by the corporate governance of The McGraw-Hill Companies. When it moves over into McGraw-Hill Education, will those standards be maintained? Is it going to be similar one to the other?

Harold Whittlesey McGraw

Absolutely, Bob. And by the way, Bob is one of the greats in the music world, coming out of Carnegie and there he runs the Young Artists Showcase that played forever on WQXR and WMIC and has helped so many young people in terms of young musicians that come here and have no knowledge and capability of other things and training them and helping them in that way. And Bob, to your question, absolutely. When you talk about any individual or any company, it's about who they are, what they are, what they stand for, what they believe in, what their value structure is in all of that. And good corporate governance, in terms of how you go about the process and procedures of governing and making sure you get something done is critical, and that's why having a Board of Directors is so important because you have independent directors with lots of different expertise that are going to help and guide the management to make sure that we don't have any breakdowns in that kind of area. So good governance is very transparent and very needed. Thank you to that.

Anything else? Okay. If there are no other further questions, we will now proceed to the next order of business. I understand that the inspectors of election have now submitted their report to Secretary. Mr. Vittor, will you read that report?

Kenneth M. Vittor

The preliminary tally of votes by the inspectors of election shows that the 12 persons nominated as directors of The McGraw-Hill Companies Inc. have been elected. The proposal to approve on an advisory basis the executive compensation program for the company's named executive officers has been approved. Ernst & Young LLP has been approved in connection with the ratification of their appointment as the company's independent registered public accounting firm for 2012. And the shareholder proposal requesting shareholder action by written consent has not been approved. The certificate of inspectors of election will be filed with the records of the meeting and the final results will be available on or before May 1 in our SEC Form 8-K filing.

Harold Whittlesey McGraw

Okay, thanks, Ken. And let me take again a moment to thank all of our shareholders for your interest and for your guidance and thoughts in all of this. We clearly, in everything that we do and everything that we embark on, we do it together. Whether it's employees, whether it's boards, whether it's management, whether it's shareholders or other stakeholders, we do it together. And the number of shares voted and the support demonstrated for this slate of directors is very, very much appreciated. Okay. There are no -- being no other further business in force, I now entertain the motion that the meeting be adjourned.

John Berisford

I move the meeting be adjourned.

Harold Whittlesey McGraw

Thank you, John Berisford. You hit that line just perfect, okay. Now, what?

D. Edward Smyth


Harold Whittlesey McGraw

Well done, Ted Smyth, on that one. All in favor? Having no objections, I declare the meeting closed. Thank you, all, very much.


That concludes this morning's call. On behalf of The McGraw-Hill Companies, we thank you for participating, and wish you a good day.

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