EX-12 11 y50265exv12.htm EX-12: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EX-12
 

Exhibit (12)
THE McGRAW-HILL COMPANIES, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
                                         
    Years Ended December 31,  
    2007     2006     2005     2004     2003  
    (In thousands of dollars)  
Earnings
                                        
Earnings from continuing operations before income tax expense (a)(b)(c)(d)(e)
   $ 1,622,532     $ 1,404,823     $ 1,359,962     $ 1,168,905     $ 1,113,676  
Fixed charges (e)
     132,742       90,140       80,411       75,856       72,411  
 
                              
Total Earnings
   $ 1,755,274     $ 1,494,963     $ 1,440,373     $ 1,244,761     $ 1,186,087  
 
                              
 
                                        
Fixed Charges(e)
                                        
Interest expense
   $ 64,362     $ 26,637     $ 19,622     $ 15,641     $ 12,275  
Portion of rental payments deemed to be interest
     68,380       63,503       60,789       60,215       60,136  
 
                              
Total Fixed Charges
   $ 132,742     $ 90,140     $ 80,411     $ 75,856     $ 72,411  
 
                              
 
                                        
Ratio of Earnings to Fixed Charges:
     13.2x       16.6x       17.9x       16.4x       16.4x  
 
(a)   2007 includes the impact of the following items: $43.7 million pre-tax restructuring charge and a $17.3 million pre-tax gain on sale of the mutual fund data business.
 
(b)   2006 includes the impact of the following items: $31.5 million pre-tax restructuring charge and a $21.1 million pre-tax reduction in operating profit related to the transformation of Sweets from a primarily print catalogue to bundled print and online services. In 2006, as a result of the adoption of Financial Accounting Standards Board’s Statement No. 123(R), “Share Based Payment”, the Company incurred stock-based compensation expense of $136.2 million. Included in this expense is a one-time charge for the elimination of the Company’s restoration stock option program of $23.8 million. In 2005, stock-based compensation was $51.1 million.
 
(c)   2005 includes a $6.8 million pre-tax gain on sale of Corporate Value Consulting (CVC), a $5.5 million pre-tax loss on the sale of The Healthcare Information Group and a $23.2 million pre-tax restructuring charge.
 
(d)   2003 includes a $131.3 million pre-tax gain on the sale of 45% interest of Rock-McGraw, Inc.
 
(e)   For purposes of computing the ratio of earnings to fixed charges, “earnings from continuing operations before income tax expense” excludes undistributed equity in income of less than 50%-owned companies, primarily the Company’s earnings in its 45% interest in Rock-McGraw, Inc., which was sold in 2003. The Rock-McGraw earnings for year ended December 31, 2003 were $16.6 million. The Company did not have earnings from Rock-McGraw in 2007, 2006, 2005 and 2004. “Fixed charges” consist of (1) interest on debt and interest related to the sale leaseback of Rock-McGraw, Inc. (see Note 13 to the Company’s Consolidated Financial Statements for the year ended December 31, 2007), and (2) the portion of the Company’s rental expense deemed representative of the interest factor in rental expense.

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