UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the

 

Securities Exchange Act of 1934

 

Date of Report: February 12, 2015

 

McGRAW HILL FINANCIAL, INC.

 

(Exact Name of Registrant as specified in its charter)

 

New York   1-1023   13-1026995
(State or other   (Commission   (IRS Employer
jurisdiction of   File No.)   Identification No.)
incorporation or        
organization)        

 

1221 Avenue of the Americas, New York, New York 10020

(Address of Principal Executive Offices) (Zip Code)

 

(212) 512-2000

(Registrant’s telephone number, including area code)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 
 

 

Item 2.02 and 7.01.   Results of Operations and Financial Condition and Regulation FD Disclosure

 

On February 12, 2015, McGraw Hill Financial, Inc. (“the Registrant”) issued an earnings release containing a discussion of the Registrant’s results of operations and financial condition for the fourth quarter and fiscal year ended December 31, 2014, as well as certain guidance for 2015.

 

The earnings release is attached as Exhibit 99 to this Form 8-K and is incorporated in this Item 2.02 and Item 7.01 by reference. Pursuant to general instruction B.2 to Form 8-K, the information furnished pursuant to Items 2.02 and 7.01, including Exhibit 99, shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section.

 

The information in this Form 8-K shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

 

Item 9.01.   Financial Statements and Exhibits .

 

(d) Exhibits. The following exhibit is furnished with this report:

 

(99) Earnings Release of the Registrant, dated February 12, 2015

 

 
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 8-K Report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  McGraw Hill Financial, Inc.
   
    /s/ Scott L. Bennett  
    By:     Scott L. Bennett
      Senior Vice President, Associate General
      Counsel and Secretary

 

Dated:  February 12, 2015

 

 
 

 

INDEX TO EXHIBITS

 

Exhibit Number

 

(99) Earnings Release of the Registrant, dated February 12, 2015

 

 

 

 

Exhibit 99

 

 

McGRAW HILL FINANCIAL REPORTS

4th QUARTER AND FULL-YEAR 2014 RESULTS

 

The Company Delivered Strong Revenue from Continuing Operations in Both 4th Quarter and Full-Year 2014

 

4th Quarter and Full-Year Revenue Each Increased 7%

 

As a Result of Recent Legal and Regulatory Settlements, Diluted EPS from Continuing Operations Decreased to $(3.71) in the 4th Quarter and Decreased to $(1.08) for the Full Year

 

Adjusted Diluted EPS from Continuing Operations Increased 23% to $0.95 in 4th Quarter and 20% to $3.88 for the Full Year

 

Introduces 2015 Adjusted Diluted EPS Guidance of $4.35 to $4.45

 

The Company Declares New Annualized Dividend of $1.32 Per Share

 

New York, NY, February 12, 2015 – McGraw Hill Financial, Inc. (NYSE: MHFI) today reported fourth quarter and full-year 2014 results. The Company reported fourth quarter 2014 revenue of $1.29 billion, an increase of 7% compared to the same period last year. Largely reflecting the impact of recent legal settlements, fourth quarter net income and diluted earnings per share from continuing operations were losses of $(1,009) million and $(3.71), respectively. For the full year, revenue increased 7% to $5.05 billion and net income and diluted earnings per share from continuing operations were $(293) million and $(1.08), respectively. Every business delivered increased revenue in 2014.

 

Excluding the impact of charges related to legal and regulatory settlements and restructuring, adjusted net income from continuing operations for the quarter increased 22% to $264 million, and adjusted diluted earnings per share from continuing operations increased 23% to $0.95. For the full year, adjusted net income from continuing operations increased 19% to $1,073 million and adjusted diluted earnings per share from continuing operations increased 20% to $3.88.

 

“2014 was an important year for the Company. We completed the portfolio rationalization of media businesses, resolved significant legal and regulatory matters, added talented new leaders to our senior management team, and delivered solid business performance," said Doug Peterson, President and Chief Executive Officer of McGraw Hill Financial. He continued, “There is much more to be accomplished. We will continue to focus on creating growth and driving performance, including enhancing our customers' experiences, extending our international capabilities, tightly managing our expense base, and delivering strong financial performance, all while striving to operate with the highest levels of independence, objectivity, regulatory compliance, and operational discipline."

 

Page 1
 

 

Margin Improvement: Adjusted operating profit margin for the Company increased 280 basis points to 35.9%, marking the third consecutive year of greater than 100 basis-point improvements.

 

Resolved Significant Legal and Regulatory Matters: The Company and Standard & Poor’s Ratings Services recently entered into a settlement agreement with the U.S. Department of Justice and the Attorneys General of 19 states and the District of Columbia announced on February 3, 2015. The Company reached a separate settlement with the California Public Employees’ Retirement System (“CalPERS”) to resolve a lawsuit relating to three structured investment vehicles. In addition, Standard & Poor’s Ratings Services reached settlements with the U.S. Securities and Exchange Commission and the Attorneys General of New York and Massachusetts which were announced on January 21, 2015. These settlements resulted in a charge of $1.5 billion in the fourth quarter.

 

Restructuring Actions: Restructuring actions across the Company resulted in fourth quarter pre-tax charges of $41 million. The Company remains committed to achieving productivity gains in its pursuit of creating growth and driving performance.

 

Outlook: The Company is introducing 2015 revenue guidance of mid single-digit growth and adjusted diluted EPS guidance of $4.35 to $4.45.

 

Standard & Poor’s Ratings Services: 2014 revenue increased 8% to $2.45 billion. Operating profit decreased to $(583) million. Adjusted operating profit increased 13% to $1,074 million compared to 2013. For the third straight year, adjusted operating profit margin increased more than 100 basis points, rising 190 basis points to 43.8%.

 

Fourth quarter 2014 revenue increased 8% to $618 million and operating profit decreased to $(1,313) million due to legal and regulatory settlements and restructuring charges. Adjusted operating profit increased 18% to $261 million. The adjusted operating profit margin increased to 42.2% in the quarter.

 

Transaction revenue increased 12% to $288 million during the quarter primarily due to increased demand for corporate ratings, particularly U.S. investment-grade and public finance ratings.

 

Non-transaction revenue increased 4% in the fourth quarter and represented 53% of Standard & Poor’s Ratings’ total revenue compared to 55% for the same period last year. Non-transaction growth was driven primarily by annual fees (predominantly frequent-issuer relationship fees and surveillance). Rating Evaluation Service revenue also increased as a result of increased merger and acquisition activity.

 

Page 2
 

 

In the fourth quarter domestic revenue increased 15% and international revenue increased 1%. International revenue represented 47% of Standard & Poor’s Ratings’ total fourth quarter revenue.

 

S&P Capital IQ: Full-year 2014 revenue increased 6% to $1.24 billion. Excluding ongoing portfolio rationalization, organic revenue growth was 7%. Operating profit increased 21% to $228 million. Adjusted operating profit grew 18% to $237 million.

 

Revenue increased 5% to $318 million in the fourth quarter of 2014. Excluding ongoing portfolio rationalization, organic revenue growth was 6%. Quarterly operating profit increased 42% to $56 million. Adjusted operating profit increased 31% to $62 million.

 

In the fourth quarter, three key products, S&P Capital IQ Desktop, RatingsXpress ® and Ratings Direct ® were the drivers of growth. S&P Capital IQ’s international revenue increased 5% to $112 million in the fourth quarter and represented 35% of the business unit’s total revenue.

 

S&P Dow Jones Indices: 2014 revenue increased 12% to $552 million. Operating profit increased 30% to $347 million. Adjusted operating profit attributable to the Company increased 35% to $259 million.

 

Revenue increased 8% to $140 million in the fourth quarter of 2014. Quarterly operating profit increased 83% to $87 million. Adjusted operating profit attributable to the Company increased 87% to $64 million. As a reminder, adjusted operating profit in the fourth quarter of 2013 included a $26 million non-cash impairment charge associated with an intangible asset acquired through the formation of the S&P Dow Jones Indices LLC joint venture.

 

There were three primary drivers of revenue growth during the quarter. First, exchange-traded derivative licensing fees increased as a result of a volatility-led resurgence in trading activity. Second, assets under management (AUM) in exchange-traded funds based on S&P Dow Jones Indices increased 25% to $832 billion at the end of the fourth quarter compared with the end of 2013. More than half of this increase was the result of unit creation, or inflows. Third, mutual fund AUM based upon S&P Dow Jones Indices increased 17%, surpassing $1 trillion for the first time.

 

Commodities & Commercial Markets : For 2014, revenue increased 6% to $893 million. Organic revenue, excluding the acquisition of Eclipse and the divestiture of Aviation Week in 2013, increased 9%. Operating profit improved 3% to $290 million. Adjusted operating profit improved 10% to $306 million.

 

Revenue increased 8% to $236 million in the fourth quarter of 2014. Organic revenue, excluding the acquisition of Eclipse, increased 7%. Operating profit improved 9% to $72 million in the fourth quarter of 2014. Adjusted operating profit improved 4% to $76 million in the fourth quarter, compared to the same period last year.

 

Page 3
 

 

Platts delivered high single-digit organic revenue growth in both the fourth quarter and for the full year. Petroleum grew high single digits in the quarter and the full year, while Metals & Agriculture delivered the greatest rate of revenue growth in the quarter at 42%, reflecting recent investments in this sector.

 

J.D. Power recorded low single-digit revenue growth in the quarter and high single-digit revenue growth for the full year. Growth in the fourth quarter was largely due to the auto business.

 

Adjusted Unallocated Expense : Adjusted unallocated expense includes corporate center functions and certain non-performance related items such as excess real estate. Adjusted unallocated expense decreased 1% to $41 million in the fourth quarter. Full-year 2014 adjusted unallocated expense increased 7% to $152 million primarily as a result of charges in the second quarter related to the sale of a data center and the corporate aircraft.

 

Adjustments to Continuing Operations: During the fourth quarter, there were $1.593 billion of charges primarily related to legal and regulatory settlements:

 

- $687.5 million to resolve legal matters with the U.S. Department of Justice;

 

- $687.5 million to resolve legal matters with the Attorneys General of 19 states and the District of Columbia;

 

- $125 million to resolve the CalPERS lawsuit;

 

- $17 million in additional charges associated with the settlements with the U.S. Securities and Exchange Commission and the Attorneys General of New York and Massachusetts;

 

- $35 million associated with settlements of other private litigation stemming from the financial crisis; and

 

- $41 million of restructuring charges associated with productivity improvements, approximately half of which was in Standard & Poor's Ratings Services.

 

Provision for Income Taxes: The Company's effective tax rate from continuing operations in 2014 was 453.7% due to the portion of legal settlements that are not tax deductible. The adjusted effective tax rate from continuing operations in 2014 was 33.1% representing a reduction of 80 basis points versus 2013.

 

Dividend: The Board of Directors of McGraw Hill Financial approved the regular quarterly cash dividend on the Company’s common stock. The quarterly dividend will increase from $0.30 to $0.33 per share. The dividend will be payable on March 11, 2015, to shareholders of record on February 25, 2015. The new annualized dividend rate is $1.32 per share.

 

The Company has paid a dividend each year since 1937 and is one of fewer than 25 companies in the S&P 500 that has increased its dividend annually for at least the last 42 years.

 

Page 4
 

 

Return of Capital: Return of capital to shareholders in 2014, in the form of share repurchases and dividends, was $688 million. During the fourth quarter, the Company did not repurchase any shares of common stock. The Company has approximately 45.6 million shares remaining under the existing share repurchase authorization from the Board of Directors. In 2015, the Company anticipates continuing its share repurchase program, subject to domestic cash availability and market conditions.

 

Balance Sheet and Cash Flow : Cash and short-term investments at the end of the fourth quarter were $2.5 billion, up from $1.6 billion at the end of 2013. The majority of the legal and regulatory settlements listed above will be paid in the first quarter of 2015. For full year 2014, free cash flow from continuing operations was $1.0 billion, an increase of $443 million from 2013.

 

Comparison of Adjusted Information to U.S. GAAP Information: Adjusted diluted earnings per share, adjusted diluted earnings per share from continuing operations, adjusted net income, adjusted operating profit and margin, adjusted expense, adjusted unallocated expense, and free cash flow are non-GAAP financial measures contained in this earnings release that are derived from the Company's continuing operations. This information is provided in order to allow investors to make meaningful comparisons of the Company's operating performance between periods and to view the Company's business from the same perspective as Company management. These non-GAAP measures may be different than similar measures used by other companies. Reconciliations for the differences between non-GAAP measures used in this earnings release and comparable financial measures calculated in accordance with U.S. GAAP are attached as Exhibits 5 and 8.

 

Conference Call/Webcast Details: The Company's senior management will review fourth quarter and full-year 2014 results on a conference call scheduled for this morning, February 12, 2015, at 8:30 a.m. ET. This call is open to all interested parties. Additional information presented on the conference call may be made available on the Company's Investor Relations Website at http://investor.mhfi.com .

 

The Webcast will be available live and in replay at http://investor.mhfi.com/phoenix.zhtml?c=96562&p=irol-EventDetails&EventId=5184265. (Please copy and paste URL into Web browser.)

 

Telephone access is available. Domestic participants may call (888) 391-6568; international participants may call +1 (415) 228-4733 (long distance charges will apply). The passcode is "MHFI" and the conference leader is Douglas Peterson. A recorded telephone replay will be available approximately two hours after the conference call concludes and will remain available until March 12, 2015. To access the replay domestic participants may call (800) 839-1156; international participants may call +1 (402) 998-0972 (long distance charges will apply). No passcode is required.

 

Forward-Looking Statements : This press release contains “forward-looking statements,” as defined in the Private Securities Litigation Reform Act of 1995. These statements, which express management’s current views concerning future events, trends, contingencies or results, appear at various places throughout this report and use words like “anticipate,” “assume,” “believe,” “continue,” “estimate,” “expect,” “forecast,” “future,” “intend,” “plan,” “potential,” “predict,” “project,” “strategy,” “target” and similar terms, and future or conditional tense verbs like “could,” “may,” “might,” “should,” “will” and “would.” For example, we may use forward-looking statements when addressing topics such as: the outcome of contingencies; future actions by regulators; changes in our business strategies and methods of generating revenue; the development and performance of our services and products; the expected impact of acquisitions and dispositions; our effective tax rates; and our cost structure, dividend policy, cash flows or liquidity.

 

Page 5
 

 

Forward-looking statements are subject to inherent risks and uncertainties. Factors that could cause actual results to differ materially from those expressed or implied in our forward-looking statements include, among other things:

 

• the rapidly evolving regulatory environment, in the United States and abroad, affecting Standard & Poor’s Ratings Services, Platts, S&P Dow Jones Indices, S&P Capital IQ and our other businesses, including new and amended regulations and our compliance therewith;
• the outcome of litigation, government and regulatory proceedings, investigations and inquiries;
• worldwide economic, financial, political and regulatory conditions;
• the health of debt and equity markets, including credit quality and spreads, the level of liquidity and future debt issuances;
• the level of interest rates and the strength of the credit and capital markets in the U.S. and abroad;
• the demand and market for credit ratings in and across the sectors and geographies where we operate;
• concerns in the marketplace affecting our credibility or otherwise affecting market perceptions of the integrity or utility of independent credit agency ratings;
• our ability to maintain adequate physical, technical and administrative safeguards to protect the security of confidential information and data, and the potential of a system or network disruption that results in regulatory penalties, remedial costs and/or improper disclosure of confidential information or data;
• the effect of competitive products and pricing;
• consolidation in our end-customer market;
• the impact of cost-cutting pressures across the financial services industry;
• a decline in the demand for credit risk management tools by financial institutions;
• the level of success of new product development and global expansion;
• the level of merger and acquisition activity in the U.S. and abroad;
• the volatility of the energy marketplace;
• the health of the commodities markets;
• the impact of cost-cutting pressures and reduced trading in oil and other commodities markets;
• the level of our future cash flows;
• our ability to make acquisitions and dispositions and to integrate, and realize expected synergies, savings or benefits from, the businesses we acquire;
• the level of our capital investments;
• the level of restructuring charges we incur;
• the strength and performance of the domestic and international automotive markets;

 

Page 6
 

 

• our ability to successfully recover should we experience a disaster or other business continuity problem, such as a hurricane, flood, earthquake, terrorist attack, pandemic, security breach, cyber attack, power loss, telecommunications failure or other natural or man-made disaster;
• changes in applicable tax or accounting requirements;
• the impact on our net income caused by fluctuations in foreign currency exchange issues; and
• our exposure to potential criminal sanctions or civil remedies if we fail to comply with foreign and U.S. laws and regulations that are applicable in the domestic and international jurisdictions in which we operate, including sanctions laws relating to countries such as Iran, Russia, Cuba, Sudan and Syria, anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act of 2010, local laws prohibiting corrupt payments to government officials, as well as import and export restrictions.

 

The factors above are not exhaustive. The Company and its subsidiaries operate in a dynamic business environment in which new risks may emerge frequently. Accordingly, we caution readers not to place undue reliance on the above forward-looking statements, which speak only as of the dates on which they are made. The Company undertakes no obligation to update or revise any forward-looking statement to reflect events or circumstances arising after the date on which it is made. Further information about our businesses, including information about factors that could materially affect our results of operations and financial condition, is contained in the Company’s filings with the SEC, including Item 1a, Risk Factors , in our most recently filed Annual Report on Form 10-K.

 

About McGraw Hill Financial: McGraw Hill Financial is a leading financial intelligence company providing the global capital and commodity markets with independent benchmarks, credit ratings, portfolio and enterprise risk solutions, and analytics. The Company's iconic brands include Standard & Poor's Ratings Services, S&P Capital IQ, S&P Dow Jones Indices, Platts, CRISIL, and J.D. Power. The Company has approximately 17,000 employees in 30 countries. Additional information is available at www.mhfi.com .

 

Investor Relations: http://investor.mhfi.com

 

Get news direct from McGraw Hill Financial via RSS:

 

http://investor.mhfi.com/phoenix.zhtml?c=96562&p=rssSubscription&t=&id=&

 

Contact:

 

Investor Relations:

 

Chip Merritt

 

Vice President, Investor Relations

 

(212) 512-4321 (office)

 

chip.merritt@mhfi.com

 

News Media:

 

Jason Feuchtwanger

 

Director, Corporate Media Relations

 

(212) 512-3151 (office)

 

jason.feuchtwanger@mhfi.com

 

Page 7
 

 

Exhibit 1

 

McGraw Hill Financial

Condensed Consolidated Statements of Income

Periods ended December 31, 2014 and 2013

 

(dollars in millions, except per share data)

 

(unaudited) Three Months Twelve Months
    2014     2013     %
Change 		    2014     2013     %
Change 		 
                                     
Revenue   $ 1,290     $ 1,206     7%     $ 5,051     $ 4,702     7%  
Expenses   2,438     899     N/M     4,929     3,332     48%  
Other loss   —     36     N/M     9     12     (25)%  
Operating (loss) profit (a)   (1,148 )   271     N/M     113     1,358     (92)%  
Interest expense, net   19     14     36%     59     59     (1)%  
(Loss) income from continuing operations before taxes on income   (1,167 )   257     N/M     54     1,298     (96)%  
(Benefit) provision for taxes on income   (183 )   75     N/M     245     425     (42)%  
(Loss) income from continuing operations   (984 )   182     N/M     (191 )   874     N/M  
Income from discontinued operations (b)   3     6     (41)%     18     3     N/M  
Gain on sale of discontinued operations   160     —     N/M     160     589     (73)%  
Discontinued operations, net of tax   163     6     N/M     178     592     (70)%  
Net (loss) income   (821 )   188     N/M     (13 )   1,466     N/M  
Less: net income attributable to noncontrolling interests - continuing   (25 )   (17 )   52%     (102 )   (91 )   12%  
Less: net loss attributable to noncontrolling interests - discontinued   —     —     N/M     —     1     N/M  
Net (loss) income attributable to McGraw Hill Financial, Inc.   $ (846 )   $ 171     N/M     $ (115 )   $ 1,376     N/M  
                                     
Amounts attributable to McGraw Hill Financial, Inc. common shareholders:                                    
(Loss) income from continuing operations   $ (1,009 )   $ 165     N/M     $ (293 )   $ 783     N/M  
Income from discontinued operations   163     6     N/M     178     593     (70)%  
Net (loss) income   $ (846 )   $ 171     N/M     $ (115 )   $ 1,376     N/M  
                                     
Earnings (loss) per share attributable to McGraw Hill Financial, Inc. common shareholders:                                    
(Loss) income from continuing operations:                                    
Basic   $ (3.71 )   $ 0.61     N/M     $ (1.08 )   $ 2.85     N/M  
Diluted   $ (3.71 )   $ 0.60     N/M     $ (1.08 )   $ 2.80     N/M  
Income from discontinued operations:                                    
Basic   $ 0.60     $ 0.02     N/M     $ 0.66     $ 2.16     (70)%  
Diluted   $ 0.60     $ 0.02     N/M     $ 0.66     $ 2.12     (69)%  
Net (loss) income:                                    
Basic   $ (3.11 )   $ 0.63     N/M     $ (0.42 )   $ 5.01     N/M  
Diluted   $ (3.11 )   $ 0.62     N/M     $ (0.42 )   $ 4.91     N/M  
                                     
Weighted-average number of common shares outstanding:                                    
Basic   271.7     270.4           271.5     274.5        
Diluted   271.7     278.0           271.5     279.8        
                                     

N/M - not meaningful

Note - % change in the tables throughout the exhibits are calculated off of the actual number, not the rounded number presented.

(a) Includes legal and regulatory settlements of $1.6 billion in the three and twelve months ended December 31, 2014. The twelve months ended December 31, 2013 includes $77 million of legal settlements.
(b) In the fourth quarter of 2014, the Company sold McGraw Hill Construction, which historically was included in our Commodities & Commercial segment. As a result, this business has been reflected as a discontinued operation for all periods presented.

  

 
 

  

Exhibit 2

 

McGraw Hill Financial

Condensed Consolidated Balance Sheets

December 31, 2014 and 2013

 

(dollars in millions)

  

(unaudited)   2014       2013    
                 
Assets:                
Cash and equivalents   $ 2,497       $ 1,542    
Other current assets   1,469       1,399    
Total current assets   3,966       2,941    
Property and equipment, net   206       249    
Goodwill and other intangible assets, net   2,391       2,442    
Asset for pension benefits   28       261    
Other non-current assets   180       168    
Total assets   $ 6,771       $ 6,061    
                 
Liabilities and Equity:                
Unearned revenue   1,323       1,268    
Other current liabilities (a)   2,644       1,104    
Long-term debt   799       799    
Pension, other postretirement benefits and other non-current liabilities   656       736    
Total liabilities   5,422       3,907    
Redeemable noncontrolling interest   810       810    
Total equity   539       1,344    
Total liabilities and equity   $ 6,771       $ 6,061    
                 

  

(a) Includes a liability of $1.6 billion related to legal and regulatory settlements as of December 31, 2014.

  

 
 

 

Exhibit 3

 

McGraw Hill Financial

Condensed Consolidated Statements of Cash Flows

Years ended December 31, 2014 and 2013

 

(dollars in millions)

  

(unaudited)   2014       2013    
                 
Operating Activities:                
Net (loss) income from continuing operations   $ (191 )     $ 874    
Adjustments to reconcile income from continuing operations to cash provided by operating activities from continuing operations:                
Depreciation (including amortization of technology projects)   86       86    
Amortization of intangibles   48       51    
Stock-based compensation   100       96    
Other (a)   1,433       161    
Net changes in operating assets and liabilities   (267 )     (486 )  
Cash provided by operating activities from continuing operations   1,209       782    
                 
Investing Activities:                
Capital expenditures   (92 )     (117 )  
Acquisitions, net of cash acquired   (71 )     (47 )  
Proceeds from dispositions   83       51    
Changes in short-term investments   15       (17 )  
Cash used for investing activities from continuing operations   (65 )     (130 )  
                 
Financing Activities:                
Additions to short-term debt, net   —       (457 )  
Dividends paid to shareholders   (326 )     (308 )  
Dividends and other payments paid to noncontrolling interests   (84 )     (75 )  
Purchase of CRISIL shares   —       (214 )  
Repurchase of treasury shares   (362 )     (978 )  
Exercise of stock options, excess tax benefits from share-based payments and other   310       289    
Cash used for financing activities from continuing operations   (462 )     (1,743 )  
Effect of exchange rate changes on cash from continuing operations   (65 )     (1 )  
Cash provided by (used for) continuing operations   617       (1,092 )  
Cash provided by discontinued operations   338       1,874    
     Net change in cash and equivalents   955       782    
     Cash and equivalents at beginning of year   1,542       760    
     Cash and equivalents at end of year   $ 2,497       $ 1,542    
                 

 

(a) Includes $1.6 billion related to legal and regulatory settlements for the year ended December 31, 2014.

  

 
 

  

Exhibit 4

 

McGraw Hill Financial

Operating Results by Segment

Periods ended December 31, 2014 and 2013

 

(dollars in millions)

 

(unaudited) Three Months Twelve Months
                                     
    Revenue     Revenue  
    2014     2013     % Change     2014     2013     % Change  
                                     
S&P Ratings Services   $ 618     $ 574     8%     $ 2,455     $ 2,274     8%  
S&P Capital IQ   318     301     5%     1,237     1,170     6%  
S&P Dow Jones Indices   140     130     8%     552     493     12%  
Commodities & Commercial Markets   236     220     8%     893     841     6%  
Intersegment Elimination   (22 )   (19 )   (15)%     (86 )   (76 )   (13)%  
Total revenue   $ 1,290     $ 1,206     7%     $ 5,051     $ 4,702     7%  
                                     
                                     
    Expenses     Expenses  
    2014     2013     % Change     2014     2013     % Change  
                                     
S&P Ratings Services (a)   $ 1,931     $ 363     N/M     $ 3,038     $ 1,392     N/M  
S&P Capital IQ   262     261     —%     1,009     981     3%  
S&P Dow Jones Indices   53     83     (35)%     205     227     (10)%  
Commodities & Commercial Markets   164     154     7%     603     561     8%  
Intersegment Elimination   (22 )   (19 )   (15)%     (86 )   (76 )   (13)%  
Total expenses   $ 2,388     $ 842     N/M     $ 4,769     $ 3,085     55%  
                                     
                                     
    Operating (Loss) Profit     Operating (Loss) Profit  
    2014     2013     % Change     2014     2013     % Change  
                                     
S&P Ratings Services (a)   $ (1,313 )   $ 211     N/M     $ (583 )   $ 882     N/M  
S&P Capital IQ   56     40     42%     228     189     21%  
S&P Dow Jones Indices   87     47     83%     347     266     30%  
Commodities & Commercial Markets   72     66     9%     290     280     3%  
Total operating segments   (1,098 )   364     N/M     282     1,617     (83)%  
Unallocated expense   (50 )   (93 )   (46)%     (169 )   (259 )   (35)%  
Total operating (loss) profit   $ (1,148 )   $ 271     N/M     $ 113     $ 1,358     (92)%  
                                     

N/M - not meaningful

(a) Includes legal and regulatory settlements of $1.6 billion in the three and twelve months ended December 31, 2014. The twelve months ended December 31, 2013 includes $77 million of legal settlements.

  

 
 

 

Exhibit 5

 

McGraw Hill Financial

Operating Results by Segment - Reported vs. Performance

Periods ended December 31, 2014 and 2013

 

(dollars in millions)

 

(unaudited)   2014     2013     % Change  
    Reported   Non-GAAP
Adjustments 		  Performance     Reported   Non-GAAP
Adjustments 		  Performance     Reported   Performance  
                                                   
  Three Months
S&P Ratings Services   $ (1,313 )   $ 1,574   a $ 261       $ 211     $ 10   d $ 220       N/M   18%  
S&P Capital IQ   56     5   b 62       40     8   d 47       42%   31%  
S&P Dow Jones Indices   87     —     87       47     —     48       83%   82%  
Commodities & Commercial Markets   72     4   b 76       66     7   d 73       9%   4%  
Segment operating (loss) profit   (1,098 )   1,583     485       364     25     388       N/M   25%  
Unallocated expense   (50 )   10   b (41 )     (93 )   52   e (41 )     (46)%   (1)%  
Operating (loss) profit   (1,148 )   1,593     444       271     77     347       N/M   28%  
Interest expense, net   19     —     19       14     —     14       36%   36%  
(Loss) income before taxes on income   (1,167 )   1,593     425       257     77     333       N/M   28%  
(Benefit) provision for taxes on income   (183 )   320     136       75     26     101       N/M   35%  
(Loss) income from continuing operations   (984 )   1,273     289       182     51     233       N/M   24%  
Income from discontinued operations   163     (163 )   —       6     (6 )   —       N/M   —%  
Net (loss) income   (821 )   1,110     289       188     45     233       N/M   24%  
Less: NCI net income - continuing   (25 )   —     (25 )     (17 )   —     (17 )     52%   52%  
Net (loss) income - continuing   (1,009 )   1,273     264       165     51     216       N/M   22%  
Net income - discontinued   163     (163 )   —       6     (6 )   —       N/M   —%  
Net (loss) income attributable to MHFI   $ (846 )   $ 1,110     $ 264       $ 171     $ 45     $ 216       N/M   22%  
                                                   
Diluted (loss) earnings per share - continuing   $ (3.71 )   $ 4.66     $ 0.95   f   $ 0.60     $ 0.18     $ 0.78       N/M   23%  
Diluted (loss) earnings per share - total   $ (3.11 )   $ 4.06     $ 0.95   f   $ 0.62     $ 0.16     $ 0.78       N/M   23%  
                                                   
  Twelve Months
S&P Ratings Services   $ (583 )   $ 1,657   a $ 1,074       $ 882     $ 70   d $ 952       N/M   13%  
S&P Capital IQ   228     9   b 237       189     12   d 201       21%   18%  
S&P Dow Jones Indices   347     4   c 351       266     —     266       30%   32%  
Commodities & Commercial Markets   290     16   b 306       280     (2 ) d 278       3%   10%  
Segment operating profit   282     1,686     1,968       1,617     80     1,697       (83)%   16%  
Unallocated expense   (169 )   16   b (152 )     (259 )   117   e (142 )     (35)%   7%  
Operating profit   113     1,702     1,815       1,358     197     1,555       (92)%   17%  
Interest expense, net   59     —     59       59     —     59       (1)%   (1)%  
Income before taxes on income   54     1,702     1,756       1,298     197     1,495       (96)%   17%  
Provision for taxes on income   245     336     581       425     82     506       (42)%   15%  
(Loss) income from continuing operations   (191 )   1,366     1,175       874     115     989       N/M   19%  
Income from discontinued operations   178     (178 )   —       592     (592 )   —       (70)%   —%  
Net (loss) income   (13 )   1,188     1,175       1,466     (477 )   989       N/M   19%  
Less: NCI net income - continuing   (102 )   —     (102 )     (91 )   4     (87 )     12%   18%  
Less: NCI net income - discontinued   —     —     —       1     (1 )   —       N/M   —%  
Net (loss) income - continuing   (293 )   1,366     1,073       783     119     902       N/M   19%  
Net income - discontinued   178     (178 )   —       593     (593 )   —       (70)%   —%  
Net (loss) income attributable to MHFI   $ (115 )   $ 1,188     $ 1,073       $ 1,376     $ (474 )   $ 902       N/M   19%  
                                                   
Diluted (loss) earnings per share - continuing   $ (1.08 )   $ 4.96     $ 3.88   f   $ 2.80     $ 0.43     $ 3.22       N/M   20%  
Diluted (loss) earnings per share - total   $ (0.42 )   $ 4.30     $ 3.88   f   $ 4.91     $ (1.69 )   $ 3.22       N/M   20%  

N/M - not meaningful

Note - Totals presented may not sum across due to rounding.

(a) Includes restructuring charges and legal and regulatory settlements of $1.6 billion for the three and twelve months ended December 31, 2014.
(b) Includes restructuring charges for the three and twelve months ended December 31, 2014.
(c) Includes professional fees largely related to corporate development activities for the year ended December 31, 2014.
(d) The three and twelve months ended December 31, 2013 include restructuring charges across all segments and, additionally, the twelve months primarily includes a gain on the sale of an equity investment held by CRISIL and legal settlements of approximately $77 million at S&P Ratings Services; a loss on the sale of Financial Communications at S&P Capital IQ; and a gain on the sale of Aviation Week at Commodities & Commercial Markets.
(e) The three and twelve months ended December 31, 2013 include a $36 million non-cash impairment charge related to the sale of a data center and $13 million related to terminating various leases. The twelve months ended December 31, 2013 also includes costs necessary to enable the separation of MHE and reduce our cost structure of $64 million.
(f) Diluted weighted-average shares outstanding of 276.2 million were used to calculate adjusted diluted EPS for the three and twelve months ended December 31, 2014. This amount includes securities that had an antidilutive effect to reported diluted EPS due to a loss from continuing operations.

 

 

 
 

 

Exhibit 6

 

McGraw Hill Financial

Subscription / Non-Transaction vs. Non-Subscription / Transaction Revenue

Periods ended December 31, 2014 and 2013

 

(dollars in millions)

 

(unaudited)   Subscription / Non-Transaction     Non-Subscription / Transaction  
    2014     2013     % Change     2014     2013     % Change  
                                     
    Three Months  
S&P Ratings Services (a)   $ 330     $ 317     4%     $ 288     $ 257     12%  
S&P Capital IQ (b)   286     270     6%     32     31     2%  
S&P Dow Jones Indices (c)   29     27     10%     111     103     7%  
Commodities & Commercial Markets (d)   148     136     10%     88     84     4%  
Intersegment elimination   (22 )   (19 )   (15)%     —     —        
Total revenue   $ 771     $ 731     6%     $ 519     $ 475     9%  
                                     
    Twelve Months  
S&P Ratings Services (a)   $ 1,326     $ 1,239     7%     $ 1,129     $ 1,035     9%  
S&P Capital IQ (b)   1,118     1,056     6%     119     114     4%  
S&P Dow Jones Indices (c)   111     103     8%     441     390     13%  
Commodities & Commercial Markets (d)   576     527     9%     317     314     1%  
Intersegment elimination   (86 )   (76 )   (13)%     —     —        
Total revenue   $ 3,045     $ 2,849     7%     $ 2,006     $ 1,853     8%  
                                     
(a) Non-transaction revenue is primarily related to annual fees for frequent issuer programs and surveillance, while transaction revenue is related to ratings of publicly-issued debt, bank loan ratings and corporate credit estimates. Non-transaction revenue also includes an intersegment revenue elimination, which mainly consists of the royalty of $20 million and $77 million for the three and twelve months ended December 31, 2014, respectively and $18 million and $72 million for the three and twelve months ended December 31, 2013, respectively, charged to S&P Capital IQ for the rights to use and distribute content and data developed by S&P Ratings.
(b) Subscription revenue is related to credit ratings-related information products, S&P Capital IQ Desktop, investment research products and other data subscriptions, while non-subscription revenue is related to certain advisory, pricing and analytical services.
(c) Subscription revenue is related to data subscriptions, which support index fund management, portfolio analytics and research, while non-subscription revenue relates to fees based on assets underlying exchange-traded funds, as well as certain advisory, pricing and analytical services.
(d) Subscription revenue at Platts is related to real-time news, market data, and price assessments, along with other information products, while non-subscription revenue is related to licensing of its proprietary market price data and price assessments to commodity exchanges, conference sponsorship, consulting engagements and events. Subscription revenue at J.D. Power is related to information products primarily serving the automotive market, while non-subscription revenue is related to syndicated and proprietary research studies, advertising, consulting engagements and events.

 

 
 

 

Exhibit 7

 

McGraw Hill Financial

Domestic vs. International Revenue

Periods ended December 31, 2014 and 2013

 

(dollars in millions)

 

(unaudited)   Domestic     International  
    2014     2013     % Change     2014     2013     % Change  
                                     
    Three Months  
S&P Ratings Services   $ 328     $ 287     15%     $ 290     $ 287     1%  
S&P Capital IQ   206     194     6%     112     107     5%  
S&P Dow Jones Indices   113     99     14%     27     31     (13)%  
Commodities & Commercial Markets   105     103     2%     131     117     12%  
Intersegment elimination   (11 )   (9 )   (19)%     (11 )   (10 )   (12)%  
Total revenue   $ 741     $ 674     10%     $ 549     $ 532     3%  
                                     
    Twelve Months  
S&P Ratings Services   $ 1,305     $ 1,214     8%     $ 1,150     $ 1,060     8%  
S&P Capital IQ   809     767     5%     428     403     6%  
S&P Dow Jones Indices   440     385     14%     112     108     4%  
Commodities & Commercial Markets   401     394     2%     492     447     10%  
Intersegment elimination   (44 )   (37 )   (18)%     (42 )   (39 )   (8)%  
Total revenue   $ 2,911     $ 2,723     7%     $ 2,140     $ 1,979     8%  
                                     

 

 
 

 

Exhibit 8

 

McGraw Hill Financial

Non-GAAP Financial Information

Periods ended December 31, 2014 and 2013

 

(dollars in millions)

 

Computation of Free Cash Flow

 

(unaudited)   Twelve Months  
    2014     2013    
Cash provided by operating activities from continuing operations   $ 1,209     $ 782    
Capital expenditures   (92 )   (117 )  
Dividends and other payments paid to noncontrolling interests   (84 )   (75 )  
Free cash flow   $ 1,033     $ 590    
               

 

  McGraw Hill Financial Organic Revenue

 

(unaudited)   Three Months     Twelve Months  
    2014     2013     % Change     2014     2013     % Change  
Total revenue   $ 1,290     $ 1,206     7%     $ 5,051     $ 4,702     7%  
C&C acquisitions and divestitures (Eclipse and Aviation Week)   (1 )   —           (3 )   (26 )      
S&P Capital IQ product closures and divestitures   —     (2 )         (2 )   (15 )      
Total Adjusted Revenue   $ 1,289     $ 1,204     7%     $ 5,046     $ 4,661     8%  
                                     

 

Adjusted S&P Capital IQ Revenue

 

(unaudited)   Three Months     Twelve Months  
    2014     2013     % Change     2014     2013     % Change  
S&P Capital IQ revenue   $ 318     $ 301     5%     $ 1,237     $ 1,170     6%  
Product closures and divestitures   —     (2 )         (2 )   (15 )      
Adjusted S&P Capital IQ Revenue   $ 318     $ 299     6%     $ 1,235     $ 1,155     7%  
                                     

 

Adjusted Commodities & Commercial Markets Revenue

 

(unaudited)   Three Months     Twelve Months  
    2014     2013     % Change     2014     2013     % Change  
C&C revenue   $ 236     $ 220     8%     $ 893     $ 841     6%  

Acquisitions and divestitures (Eclipse and Aviation Week)

  (1 )   —           (3 )   (26 )      
Adjusted C&C Revenue   $ 235     $ 220     7%     $ 890     $ 815     9%  
                                     

 

Adjusted S&P Dow Jones Indices Net Operating Profit

 

(unaudited)   Three Months     Twelve Months  
    2014     2013     % Change     2014     2013     % Change  
Adjusted operating profit   $ 87     $ 48     82%     $ 351     $ 266     32%  
Income attributable to NCI   23     13           92     73        
Adjusted Net Operating Profit   $ 64     $ 35     87%     $ 259     $ 193     35%