10-Q 1 mhfi-2016331xq1.htm 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016
OR

¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
Commission File Number: 1-1023
McGraw Hill Financial, Inc.
(Exact name of registrant as specified in its charter)

New York | 13-1026995
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)
55 Water Street, New York, New York | 10041
(Address of principal executive offices) | (Zip Code)

Registrant’s telephone number, including area code: 212-438-1000

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES þ NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES þ NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.

þ Large accelerated filer | o Accelerated filer | o Non-accelerated filer | o Smaller reporting company
| (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ¨ NO þ
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

Class | Shares Outstanding | Date
Common stock (par value $1.00 per share) | 264.6 million | April 15, 2016

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McGraw Hill Financial, Inc.
INDEX

| Page Number
PART I. FINANCIAL INFORMATION |
Item 1. Financial Statements (Unaudited) |
Report of Independent Registered Public Accounting Firm | 3
Consolidated Statements of Income for the three months ended March 31, 2016 and 2015 | 4
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and 2015 | 5
Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015 | 6
Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015 | 7
Consolidated Statement of Equity for the three months ended March 31, 2016 | 8
Notes to the Consolidated Financial Statements | 9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) | 27
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 43
Item 4. Controls and Procedures | 43
PART II. OTHER INFORMATION |
Item 1. Legal Proceedings | 44
Item 1a. Risk Factors | 44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 44
Item 5. Other Information | 44
Item 6. Exhibits | 46
Signatures | 47

2

Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of McGraw Hill Financial, Inc.
We have reviewed the consolidated balance sheet of McGraw Hill Financial, Inc. (and subsidiaries) (the "Company") as of March 31, 2016, the related consolidated statements of income, comprehensive income and cash flows for the three-month periods ended March 31, 2016 and 2015, and the related consolidated statement of equity for the three-month period ended March 31, 2016. These financial statements are the responsibility of the Company’s management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of McGraw Hill Financial, Inc. (and subsidiaries) as of December 31, 2015, and the related consolidated statements of income, comprehensive income, equity, and cash flows for the year then ended (not presented herein) and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated February 11, 2016.
/s/ ERNST & YOUNG LLP
New York, New York
April 26, 2016
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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
McGraw Hill Financial, Inc.
Consolidated Statements of Income
(Unaudited)

(in millions, except per share amounts) | Three Months Ended
| March 31,
| 2016 |  | 2015
Revenue | $ | 1,341 |  |  | $ | 1,273 |
Expenses: |  |  |
Operating-related expenses | 457 |  |  | 410 |
Selling and general expenses | 330 |  |  | 329 |
Depreciation | 18 |  |  | 22 |
Amortization of intangibles | 24 |  |  | 11 |
Total expenses | 829 |  |  | 772 |
Operating profit | 512 |  |  | 501 |
Interest expense, net | 40 |  |  | 16 |
Income before taxes on income | 472 |  |  | 485 |
Provision for taxes on income | 149 |  |  | 156 |
Net income | 323 |  |  | 329 |
Less: net income attributable to noncontrolling interests | (29 | ) |  | (26 | )
Net income attributable to McGraw Hill Financial, Inc. | $ | 294 |  |  | $ | 303 |
Earnings per share attributable to McGraw Hill Financial, Inc. common shareholders: |  |  |
Net income: |  |  |
Basic | $ | 1.11 |  |  | $ | 1.11 |
Diluted | $ | 1.10 |  |  | $ | 1.10 |
Weighted-average number of common shares outstanding: |  |  |
Basic | 265.0 |  |  | 273.5 |
Diluted | 267.2 |  |  | 276.3 |
Actual shares outstanding at period end | 264.5 |  |  | 273.6 |
Dividend declared per common share | $ | 0.36 |  |  | $ | 0.33 |

See accompanying notes to the unaudited consolidated financial statements.
4

McGraw Hill Financial, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)

(in millions) | Three Months Ended
| March 31,
| 2016 |  | 2015
Net income | $ | 323 |  |  | $ | 329 |
Other comprehensive income: |  |  |
Foreign currency translation adjustment | 14 |  |  | (82 | )
Income tax effect | — |  |  | — |
| 14 |  |  | (82 | )
Pension and other postretirement benefit plans | 4 |  |  | 3 |
Income tax effect | (1 | ) |  | (1 | )
| 3 |  |  | 2 |
Unrealized gain on forward exchange contracts | 3 |  |  | 1 |
Income tax effect | — |  |  | — |
| 3 |  |  | 1 |
Comprehensive income | 343 |  |  | 250 |
Less: comprehensive income attributable to nonredeemable noncontrolling interests | (3 | ) |  | (1 | )
Less: comprehensive income attributable to redeemable noncontrolling interests | (26 | ) |  | (25 | )
Comprehensive income attributable to McGraw Hill Financial, Inc. | $ | 314 |  |  | $ | 224 |

See accompanying notes to the unaudited consolidated financial statements.
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McGraw Hill Financial, Inc.
Consolidated Balance Sheets

(in millions) | March 31, 2016 |  | December 31, 2015
| (Unaudited) |  |
ASSETS |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 1,600 |  |  | $ | 1,481 |
Accounts receivable, net of allowance for doubtful accounts: 2016 - $33; 2015 - $37 | 978 |  |  | 991 |
Deferred income taxes | 110 |  |  | 109 |
Prepaid and other current assets | 189 |  |  | 212 |
Assets of businesses held for sale | 571 |  |  | 503 |
Total current assets | 3,448 |  |  | 3,296 |
Property and equipment, net of accumulated depreciation: 2016 - $570; 2015 - $585 | 251 |  |  | 270 |
Goodwill | 2,869 |  |  | 2,882 |
Other intangible assets, net | 1,488 |  |  | 1,522 |
Other non-current assets | 205 |  |  | 213 |
Total assets | $ | 8,261 |  |  | $ | 8,183 |
LIABILITIES AND EQUITY |  |  |
Current liabilities: |  |  |
Accounts payable | $ | 168 |  |  | $ | 206 |
Accrued compensation and contributions to retirement plans | 193 |  |  | 383 |
Short-term debt | 472 |  |  | 143 |
Unearned revenue | 1,458 |  |  | 1,421 |
Other current liabilities | 488 |  |  | 549 |
Liabilities of businesses held for sale | 203 |  |  | 206 |
Total current liabilities | 2,982 |  |  | 2,908 |
Long-term debt | 3,469 |  |  | 3,468 |
Pension and other postretirement benefits | 267 |  |  | 276 |
Other non-current liabilities | 353 |  |  | 368 |
Total liabilities | 7,071 |  |  | 7,020 |
Redeemable noncontrolling interest (Note 8) | 920 |  |  | 920 |
Commitments and contingencies (Note 12) |  |  |
Equity: |  |  |
Common stock | 412 |  |  | 412 |
Additional paid-in capital | 422 |  |  | 475 |
Retained income | 7,838 |  |  | 7,636 |
Accumulated other comprehensive loss | (580 | ) |  | (600 | )
Less: common stock in treasury | (7,870 | ) |  | (7,729 | )
Total equity — controlling interests | 222 |  |  | 194 |
Total equity — noncontrolling interests | 48 |  |  | 49 |
Total equity | 270 |  |  | 243 |
Total liabilities and equity | $ | 8,261 |  |  | $ | 8,183 |

See accompanying notes to the unaudited consolidated financial statements.
6

McGraw Hill Financial, Inc.
Consolidated Statements of Cash Flows
(Unaudited)

(in millions) | Three Months Ended
| March 31,
| 2016 |  | 2015
Operating Activities: |  |  |
Net income | $ | 323 |  |  | $ | 329 |
Adjustments to reconcile net income to cash provided by (used for) operating activities from continuing operations: |  |  |
Depreciation | 18 |  |  | 22 |
Amortization of intangibles | 24 |  |  | 11 |
Provision for losses on accounts receivable | 3 |  |  | — |
Deferred income taxes | (1 | ) |  | 61 |
Stock-based compensation | 14 |  |  | 18 |
Other | 31 |  |  | 33 |
Changes in operating assets and liabilities, net of effect of acquisitions and dispositions: |  |  |
Accounts receivable | (7 | ) |  | (69 | )
Prepaid and other current assets | (19 | ) |  | (10 | )
Accounts payable and accrued expenses | (274 | ) |  | (305 | )
Unearned revenue | 39 |  |  | 48 |
Accrued legal and regulatory settlements | (108 | ) |  | (1,559 | )
Other current liabilities | 22 |  |  | (17 | )
Net change in prepaid/accrued income taxes | 99 |  |  | 88 |
Net change in other assets and liabilities | (31 | ) |  | 1 |
Cash provided by (used for) operating activities from continuing operations | 133 |  |  | (1,349 | )
Investing Activities: |  |  |
Capital expenditures | (16 | ) |  | (16 | )
Acquisitions, net of cash acquired | (7 | ) |  | (2 | )
Changes in short-term investments | (1 | ) |  | (1 | )
Cash used for investing activities from continuing operations | (24 | ) |  | (19 | )
Financing Activities: |  |  |
Additions to short-term debt, net | 329 |  |  | 365 |
Dividends paid to shareholders | (96 | ) |  | (94 | )
Dividends and other payments paid to noncontrolling interests | (33 | ) |  | (30 | )
Repurchase of treasury shares | (226 | ) |  | (110 | )
Exercise of stock options | 31 |  |  | 57 |
Excess tax benefits from share-based payments | 6 |  |  | 32 |
Cash provided by financing activities from continuing operations | 11 |  |  | 220 |
Effect of exchange rate changes on cash from continuing operations | (1 | ) |  | (44 | )
Cash provided by (used for) continuing operations | 119 |  |  | (1,192 | )
Discontinued Operations: |  |  |
Cash used for operating activities | — |  |  | (129 | )
Cash used for discontinued operations | — |  |  | (129 | )
Net change in cash and cash equivalents | 119 |  |  | (1,321 | )
Cash and cash equivalents at beginning of period | 1,481 |  |  | 2,497 |
Cash and cash equivalents at end of period | $ | 1,600 |  |  | $ | 1,176 |

See accompanying notes to the unaudited consolidated financial statements.
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McGraw Hill Financial, Inc.
Consolidated Statement of Equity
(Unaudited)

(in millions) | Common Stock $1 par |  | Additional Paid-in Capital |  | Retained Income |  | Accumulated Other Comprehensive Loss |  | Less: Treasury Stock |  | Total MHFI Equity |  | Noncontrolling Interests |  | Total Equity
Balance as of December 31, 2015 | $ | 412 |  |  | $ | 475 |  |  | $ | 7,636 |  |  | $ | (600 | ) |  | $ | 7,729 |  |  | $ | 194 |  |  | $ | 49 |  |  | $ | 243 |
Comprehensive income 1 |  |  |  |  | $ | 294 |  |  | 20 |  |  |  |  | 314 |  |  | 3 |  |  | 317 |
Dividends |  |  |  |  | (96 | ) |  |  |  |  |  | (96 | ) |  | (4 | ) |  | (100 | )
Share repurchases |  |  |  |  |  |  |  |  |  | 200 |  |  | (200 | ) |  |  |  | (200 | )
Employee stock plans, net of tax benefit |  |  | (53 | ) |  |  |  |  |  | (59 | ) |  | 6 |  |  |  |  | 6 |
Change in redemption value of redeemable noncontrolling interest |  |  |  |  | 4 |  |  |  |  |  |  | 4 |  |  |  |  | 4 |
Balance as of March 31, 2016 | $ | 412 |  |  | $ | 422 |  |  | $ | 7,838 |  |  | $ | (580 | ) |  | $ | 7,870 |  |  | $ | 222 |  |  | $ | 48 |  |  | $ | 270 |

1 | Excludes $26 million attributable to our redeemable noncontrolling interest.

See accompanying notes to the unaudited consolidated financial statements.
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McGraw Hill Financial, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)

1. | Nature of Operations and Basis of Presentation

McGraw Hill Financial, Inc. (together with its consolidated subsidiaries, "McGraw Hill Financial," the “Company,” “we,” “us” or “our”) is a leading benchmarks and ratings, analytics, data and research provider serving the global capital, commodities and commercial markets. The capital markets include asset managers, investment banks, commercial banks, insurance companies, exchanges and issuers; the commodities markets include producers, traders and intermediaries within energy, metals, petrochemicals and agriculture; and the commercial markets include professionals and corporate executives within automotive, financial services, insurance and marketing / research information services.
Our operations consist of four reportable segments: Standard & Poor’s Ratings Services (“S&P Ratings”), S&P Global Market Intelligence, S&P Dow Jones Indices ("S&P DJ Indices") and Commodities & Commercial Markets (“C&C”).

• | S&P Ratings is an independent provider of credit ratings, research and analytics to investors, issuers and market participants.

• | S&P Global Market Intelligence is a global provider of multi-asset-class data, research and analytical capabilities, which integrate cross-asset analytics and desktop services.

• | S&P DJ Indices is a global index provider that maintains a wide variety of valuation and index benchmarks for investment advisors, wealth managers and institutional investors.

• | C&C consists of business-to-business companies specializing in commercial and commodities markets that deliver their customers access to high-value information, data, analytic services and pricing and quality benchmarks.

In April of 2016, we entered into a definitive agreement to sell J.D. Power, included within our C&C segment, for $1.1 billion to XIO Group, a global alternative investments firm headquartered in London. In the fourth quarter of 2015, we began exploring strategic alternatives for J.D. Power and initiated an active program to sell the business. The assets and liabilities of J.D. Power have been classified as held for sale in our consolidated balance sheet as of March 31, 2016 and December 31, 2015.
In February of 2016, we entered into a definitive agreement to sell Standard & Poor’s Securities Evaluations, Inc. ("SPSE") and Credit Market Analysis ("CMA"), two businesses within our S&P Global Market Intelligence segment, to Intercontinental Exchange, an operator of global exchanges, clearing houses and data services. The sale is subject to extended regulatory anti-trust review and is expected to close shortly after completion of this extended review. As a result, we have classified the assets and liabilities of SPSE and CMA as held for sale in our consolidated balance sheet as of March 31, 2016.
The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Therefore, the financial statements included herein should be read in conjunction with the financial statements and notes included in our Form 10-K for the year ended December 31, 2015 (our “Form 10-K”). Certain prior-year amounts have been reclassified to conform with current presentation.
In the opinion of management, all normal recurring adjustments considered necessary for a fair statement of the results of the interim periods have been included. The operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the full year.
Our critical accounting estimates are disclosed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Form 10-K. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, allowance for doubtful accounts, valuation of long-lived assets, goodwill and other intangible assets, pension plans, incentive compensation and stock-based compensation, income taxes, contingencies and redeemable noncontrolling interests. Since the date of our Form 10-K, there have been no material changes to our critical accounting policies and estimates.
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2. | Acquisitions and Divestitures

Acquisitions
During the three months ended March 31, 2016, Platts, included within our C&C segment, acquired Commodity Flow, a specialist technology and business intelligence service for the global waterborne commodity and energy markets. The purchase helps extend Platts trade flow analytical capabilities and complements its existing shipping services. We accounted for the acquisition of Commodity Flow using the purchase method of accounting. The acquisition of Commodity Flow was integrated into our C&C segment and is not material to our consolidated financial statements.
During the three months ended March 31, 2015, we did not complete any material acquisitions.
Divestitures
During the three months ended March 31, 2016 and 2015, we did not complete any dispositions.
Businesses Held for Sale
In April of 2016, we entered into a definitive agreement to sell J.D. Power, included within our C&C segment, for $1.1 billion to XIO Group, a global alternative investments firm headquartered in London. In the fourth quarter of 2015, we began exploring strategic alternatives for J.D. Power and initiated an active program to sell the business. The assets and liabilities of J.D. Power have been classified as held for sale in our consolidated balance sheet as of March 31, 2016 and December 31, 2015.
In February of 2016, we entered into a definitive agreement to sell SPSE and CMA, two businesses within our S&P Global Market Intelligence segment, to Intercontinental Exchange, an operator of global exchanges, clearing houses and data services. The sale is subject to extended regulatory anti-trust review and is expected to close shortly after completion of this extended review. As a result, we have classified the assets and liabilities of SPSE and CMA as held for sale in our consolidated balance sheet as of March 31, 2016.
The components of assets and liabilities of businesses held for sale in the consolidated balance sheets consist of the following:

(in millions) | March 31, |  | December 31,
| 2016 |  | 2015
Accounts receivable, net | $ | 76 |  |  | $ | 58 |
Goodwill | 133 |  |  | 75 |
Other intangible assets, net | 309 |  |  | 335 |
Other assets | 53 |  |  | 35 |
Assets of a business held for sale | $ | 571 |  |  | $ | 503 |
Accounts payable and accrued expenses | $ | 30 |  |  | $ | 42 |
Unearned revenue | 70 |  |  | 64 |
Other liabilities | 103 |  |  | 100 |
Liabilities of a business held for sale | $ | 203 |  |  | $ | 206 |

The operating profit of our businesses held for sale for the three months ending March 31, 2016 and 2015 is as follows:

(in millions) | Three Months Ended March 31,
| 2016 |  | 2015
Operating profit | $ | 24 |  |  | $ | 16 |

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3. | Income Taxes

The effective income tax rate was 31.5% and 32.1% for the three months ended March 31, 2016 and March 31, 2015, respectively. The decrease in the effective income tax rate was due to the resolution of tax audits and lower non-U.S. taxes.
At the end of each interim period, we estimate the annual effective tax rate and apply that rate to our ordinary quarterly earnings. The tax expense or benefit related to significant, unusual or extraordinary items that will be separately reported or reported net of their related tax effect, and are individually computed, is recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws or rates or tax status is recognized in the interim period in which the change occurs.
As of March 31, 2016 and December 31, 2015, the total amount of federal, state and local, and foreign unrecognized tax benefits was $120 million, exclusive of interest and penalties. We recognize accrued interest and penalties related to unrecognized tax benefits in interest expense and operating-related expense, respectively. In addition, as of March 31, 2016 and December 31, 2015, we had $34 million and $31 million, respectively, of accrued interest and penalties associated with unrecognized tax benefits.
Based on the current status of income tax audits, we believe that the total amount of unrecognized tax benefits may significantly decrease in the next twelve months. Although the ultimate resolution of our tax audits is unpredictable, the resulting change in our unrecognized tax benefits could have a material impact on our results of operations and/or cash flows.

4. | Debt

(in millions) | March 31, 2016 |  | December 31, 2015
5.9% Senior Notes, due 2017 1 | $ | 400 |  |  | 399 |
2.5% Senior Notes, due 2018 2 | 398 |  |  | 398 |
3.3% Senior Notes, due 2020 3 | 695 |  |  | 695 |
4.0% Senior Notes, due 2025 4 | 690 |  |  | 690 |
4.4% Senior Notes, due 2026 5 | 890 |  |  | 890 |
6.55% Senior Notes, due 2037 6 | 396 |  |  | 396 |
Commercial paper | 322 |  |  | 143 |
Revolving line of credit | 150 |  |  | — |
Total debt | 3,941 |  |  | 3,611 |
Less: short-term debt including current maturities | 472 |  |  | 143 |
Long-term debt | $ | 3,469 |  |  | $ | 3,468 |

1 | Interest payments are due semiannually on April 15 and October 15, and as of March 31, 2016, the unamortized debt discount and issuance costs are less than $1 million.

2 | Interest payments are due semiannually on February 15 and August 15, and as of March 31, 2016, the unamortized debt discount and issuance costs total $2 million.

3 | Interest payments are due semiannually on February 14 and August 14, and as of March 31, 2016, the unamortized debt discount and issuance costs total $5 million.

4 | Interest payments are due semiannually on June 15 and December 15, and as of March 31, 2016, the unamortized debt discount and issuance costs total $10 million.

5 | Interest payments are due semiannually on February 15 and August 15, and as of March 31, 2016, the unamortized debt discount and issuance costs total $10 million.

6 | Interest payments are due semiannually on May 15 and November 15, and as of March 31, 2016, the unamortized debt discount and issuance costs total $4 million.

The fair value of our long-term debt borrowings was $3.7 billion and $3.6 billion as of March 31, 2016 and December 31, 2015, respectively, and was estimated based on quoted market prices.
We have the ability to borrow a total of $1.2 billion through our commercial paper program, which is supported by our revolving $1.2 billion five-year credit agreement (our “credit facility”) that we entered into on June 30, 2015. This credit facility will terminate on June 30, 2020. Commercial paper borrowings outstanding as of March 31, 2016 and December 31, 2015 totaled $322 million and $143 million, respectively with an average interest rate and term of 0.91% and 24 days and 0.95% and 17 days, respectively. Our revolving line of credit outstanding as of March 31, 2016 totaled $150 million with an interest rate of 1.68% and residual
11

term of 25 days. There were no amounts outstanding on the revolving line of credit as of December 31, 2015. As of March 31, 2016, we can borrow approximately $728 million in additional funds under our credit facility.
We pay a commitment fee of 10 to 20 basis points for our credit facility, depending on our indebtedness to cash flow ratio, whether or not amounts have been borrowed, and currently pay a commitment fee of 15 basis points. The interest rate on borrowings under our credit facility is, at our option, calculated using rates that are primarily based on either the prevailing London Inter-Bank Offer Rate, the prime rate determined by the administrative agent or the Federal Funds Rate. For certain borrowings under this credit facility, there is also a spread based on our indebtedness to cash flow ratio added to the applicable rate.
Our credit facility contains certain covenants. The only financial covenant requires that our indebtedness to cash flow ratio, as defined in our credit facility, is not greater than 4 to 1, and this covenant level has never been exceeded.

5. | Derivative Instruments

Cash Flow Hedges
Our exposure to market risk includes changes in foreign exchange rates. We have operations in foreign countries where the functional currency is primarily the local currency. For international operations that are determined to be extensions of the parent company, the U.S. dollar is the functional currency. We typically have naturally hedged positions in most countries from a local currency perspective with offsetting assets and liabilities. As of March 31, 2016 and December 31, 2015, we have entered into foreign exchange forward contracts to hedge the effect of adverse fluctuations in foreign currency exchange rates. We do not enter into any derivative financial instruments for speculative purposes.
During the three months ended March 31, 2016, we entered into a series of foreign exchange forward contracts to hedge a portion of our Indian Rupee exposure through the fourth quarter of 2016. These contracts are intended to offset the impact of movement of exchange rates on future operating costs and are scheduled to mature at the end of each quarter during 2016. The changes in the fair value of these contracts are initially reported in accumulated other comprehensive loss in our consolidated balance sheet and are subsequently reclassified into selling and general expenses in the same period that the hedge contract matures. As of March 31, 2016, we estimate that $2 million of the net gains related to derivatives designated as cash flow hedges recorded in other comprehensive income (loss) is expected to be reclassified into earnings within the next twelve months. There was no hedge ineffectiveness for the three months ended March 31, 2016.
As of March 31, 2016 and 2015, the aggregate notional value of our outstanding foreign currency forward contracts was $112 million and $59 million, respectively.
The following table provides information on the location and fair value amounts of our cash flow hedges as of March 31, 2016 and December 31, 2015:

(in millions) Balance Sheet Location |  | March 31, 2016 |  | December 31, 2015
Prepaid and other current assets 1 | Foreign exchange forward contracts | $ | 4 |  |  | $ | 1 |

1 | We use the income approach to measure the fair value of our forward currency forward contracts. The income approach uses pricing models that rely on observable inputs such as forward rates, and therefore are classified as level 2.

The following table provides information on the location and amounts of pre-tax gains (losses) on our cash flow hedges for the three months ended March 31:

(in millions) | Gain Recognized in Accumulated Other Comprehensive Loss (effective portion) |  | Location of Gain Reclassified from Accumulated Other Comprehensive Loss into Income (effective portion) |  | Gain Reclassified from Accumulated Other Comprehensive Loss into Income (effective portion)
Cash flow hedges - designated as hedging instruments | 2016 |  | 2015 |  |  |  | 2016 |  | 2015
Foreign exchange forward contracts | $ | 3 |  |  | $ | 1 |  |  | Selling and general expenses |  | $ | 1 |  |  | $ | — |

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The activity related to the change in unrealized (losses) gains in accumulated other comprehensive loss was as follows for the three months ended March 31:

(in millions) | 2016 |  | 2015
Net unrealized losses on cash flow hedges, net of taxes, beginning of period | $ | (1 | ) |  | $ | (1 | )
Change in fair value, net of tax | 4 |  |  | 1 |
Reclassification into earnings, net of tax | (1 | ) |  | — |
Net unrealized gains on cash flow hedges, net of taxes, end of period | $ | 2 |  |  | $ | — |

6. | Employee Benefits

We maintain a number of active defined contribution retirement plans for our employees. The majority of our defined benefit plans are frozen. As a result, no new employees will be permitted to enter these plans and no additional benefits for current participants in the frozen plans will be accrued.
We have supplemental benefit plans that provide senior management with supplemental retirement, disability and death benefits. Certain supplemental retirement benefits are based on final monthly earnings. In addition, we sponsor voluntary 401(k) plans under which we may match employee contributions up to certain levels of compensation as well as profit-sharing plans under which we contribute a percentage of eligible employees' compensation to the employees' accounts.
We also provide certain medical, dental and life insurance benefits for active and retired employees and eligible dependents. The medical and dental plans and supplemental life insurance plan are contributory, while the basic life insurance plan is noncontributory. We currently do not prefund any of these plans.
We recognize the funded status of our defined benefit retirement and postretirement plans in the consolidated balance sheets, with a corresponding adjustment to accumulated other comprehensive loss, net of taxes. The amounts in accumulated other comprehensive loss represent unrecognized actuarial losses and unrecognized prior service costs. These amounts will be subsequently recognized as net periodic benefit (credit) cost pursuant to our accounting policy for amortizing such amounts.
The components of net periodic benefit (credit) cost for our retirement plans and postretirement plans for the three months ended March 31 are as follows:

(in millions) | Retirement Plans |  | Postretirement Plans
| 2016 |  | 2015 |  | 2016 |  | 2015
Service cost | $ | 1 |  |  | $ | 2 |  |  | $ | — |  |  | $ | — |
Interest cost | 20 |  |  | 24 |  |  | 1 |  |  | 1 |
Expected return on plan assets | (31 | ) |  | (32 | ) |  | — |  |  | — |
Amortization of actuarial loss | 4 |  |  | 5 |  |  | — |  |  | — |
Net periodic benefit (credit) cost | $ | (6 | ) |  | $ | (1 | ) |  | $ | 1 |  |  | $ | 1 |

As discussed in our Form 10-K, we changed certain discount rate assumptions and our expected return on assets assumption for our retirement plans, which became effective on January 1, 2016. In addition, at the end of 2015, we changed our approach used to measure service and interest costs on all of our retirement plans. For 2015, we measured service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation. For 2016, we elected to measure service and interest costs by applying the specific spot rates along that yield curve to the plans' liability cash flows. We also updated the assumed mortality rates to reflect life expectancy improvements. The effect of the assumption changes for the three months ended March 31, 2016 resulted in a decrease in net periodic benefit cost of approximately $5 million.
In the first quarter of 2016, we contributed $3 million to our retirement plans and expect to make additional required contributions of approximately $4 million to our retirement plans during the remainder of the year. We may elect to make additional non-required contributions depending on investment performance and the pension plan status in the remaining nine months of 2016.
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7. | Stock-Based Compensation

We issue stock-based incentive awards to our eligible employees and Directors under the 2002 Employee Stock Incentive Plan and a Director Deferred Stock Ownership Plan. The 2002 Employee Stock Incentive Plan permits the granting of nonqualified stock options, stock appreciation rights, performance stock, restricted stock and other stock-based awards.
Stock-based compensation for the three months ended March 31 is as follows:

(in millions) | 2016 |  | 2015
Stock option expense 1 | $ | 2 |  |  | $ | 6 |
Restricted stock and unit awards expense | 12 |  |  | 12 |
Total stock-based compensation expense | $ | 14 |  |  | $ | 18 |

1 | There were a minimal amount of stock options granted in 2015. During 2015, the Company stopped granting stock options.

Total unrecognized compensation expense related to unvested restricted stock and unit awards as of March 31, 2016 was $48 million, which is expected to be recognized over a weighted average period of 1.4 years.

8. | Equity

Stock Repurchases
On December 4, 2013, the Board of Directors approved a share repurchase program authorizing the purchase of 50 million shares, which was approximately 18% of the total shares of our outstanding common stock at that time.
In any period, share repurchase transactions could result in timing differences between the recognition of those repurchases and their settlement for cash. This could result in a difference between the cash used for financing activities related to common stock repurchased and the comparable change in equity.
Share repurchases for the three months ended March 31 were as follows:

(in millions, except average price) | 2016 |  | 2015
Total number of shares purchased | 2.2 |  |  | 1.1 |
Average price paid per share 1 | $ | 91.98 |  |  | $ | 104.31 |
Total cash utilized 1 | $ | 200 |  |  | $ | 110 |

1 | In December of 2015, 0.3 million shares were repurchased for approximately $26 million, which settled in January of 2016. Cash used for financing activities only reflects those shares which settled during the three months ended March 31, 2016 resulting in $226 million of cash used to repurchase shares.

Our purchased shares may be used for general corporate purposes, including the issuance of shares for stock compensation plans and to offset the dilutive effect of the exercise of employee stock options. As of March 31, 2016, approximately 33.3 million shares remained available under the current share repurchase program which has no expiration date and purchases under this program may be made from time to time on the open market and in private transactions, depending on market conditions.
Redeemable Noncontrolling Interests
The agreement with the minority partners of our S&P Dow Jones Indices LLC contains redemption features whereby interests held by minority partners are redeemable either (i) at the option of the holder or (ii) upon the occurrence of an event that is not solely within our control. Specifically, under the terms of the operating agreement of S&P Dow Jones Indices LLC, after December 31, 2017, CME Group and CME Group Index Services LLC ("CGIS") will have the right at any time to sell, and we are obligated to buy, at least 20% of their share in S&P Dow Jones Indices LLC. In addition, in the event there is a change of control of the Company, for the 15 days following a change in control, CME Group and CGIS will have the right to put their interest to us at the then fair value of CME Group's and CGIS' minority interest.
If interests were to be redeemed under this agreement, we would generally be required to purchase the interest at fair value on the date of redemption. This interest is presented on the consolidated balance sheets outside of equity under the caption “Redeemable noncontrolling interest” with an initial value based on fair value for the portion attributable to the net assets we acquired, and based
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on our historical cost for the portion attributable to our S&P Index business. We adjust the redeemable noncontrolling interest each reporting period to its estimated redemption value, but never less than its initial fair value, considering a combination of an income and market valuation approach. Our income and market valuation approaches may incorporate Level 3 fair value measures for instances when observable inputs are not available, including assumptions related to expected future net cash flows, long-term growth rates, the timing and nature of tax attributes, and the redemption features. Any adjustments to the redemption value will impact retained income.
Noncontrolling interests that do not contain such redemption features are presented in equity.
Changes to redeemable noncontrolling interest during the three months ended March 31, 2016 were as follows:

(in millions) |
Balance as of December 31, 2015 | $ | 920 |
Net income attributable to noncontrolling interest | 26 |
Distributions payable to noncontrolling interest | (22 | )
Redemption value adjustment | (4 | )
Balance as of March 31, 2016 | $ | 920 |

Accumulated Other Comprehensive Loss
The following table summarizes the changes in the components of accumulated other comprehensive loss for the three months ended March 31, 2016:

(in millions) | Foreign Currency Translation Adjustment |  | Pension and Postretirement Benefit Plans |  | Unrealized Gain (Loss) on Forward Exchange Contracts |  | Accumulated Other Comprehensive Loss
Balance as of December 31, 2015 | $ | (193 | ) |  | $ | (406 | ) |  | $ | (1 | ) |  | $ | (600 | )
Other comprehensive income before reclassifications | 14 |  |  | — |  |  | 4 |  |  | 18 |
Reclassifications from accumulated other comprehensive loss to net earnings | — |  |  | 3 |  | 1 |  | (1 | ) | 2 |  | 2 |
Net other comprehensive income | 14 |  |  | 3 |  |  | 3 |  |  | 20 |
Balance as of March 31, 2016 | $ | (179 | ) |  | $ | (403 | ) |  | $ | 2 |  |  | $ | (580 | )

1 | See Note 6 — Employee Benefits for additional details of items reclassed from accumulated other comprehensive loss to net earnings.

2 | See Note 5 — Derivative Instruments for additional details of items reclassed from accumulated other comprehensive loss to net earnings.

The net actuarial loss and prior service cost related to pension and other postretirement benefit plans included in other comprehensive income is net of a tax provision of $1 million for the three months ended March 31, 2016.

9. | Earnings Per Share

Basic earnings per common share (“EPS”) is computed by dividing net income attributable to the common shareholders of the Company by the weighted-average number of common shares outstanding. Diluted EPS is computed in the same manner as basic EPS, except the number of shares is increased to include additional common shares that would have been outstanding if potential common shares with a dilutive effect had been issued. Potential common shares consist primarily of stock options and restricted performance shares calculated using the treasury stock method.
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The calculation for basic and diluted EPS for the three months ended March 31 is as follows:

(in millions, except per share amounts) | 2016 |  | 2015
Amounts attributable to McGraw Hill Financial, Inc. common shareholders: |  |  |
Net income | $ | 294 |  |  | $ | 303 |
Basic weighted-average number of common shares outstanding | 265.0 |  |  | 273.5 |
Effect of stock options and other dilutive securities | 2.2 |  |  | 2.8 |
Diluted weighted-average number of common shares outstanding | 267.2 |  |  | 276.3 |
Earnings per share attributable to McGraw Hill Financial, Inc. common shareholders: |  |  |
Net income: |  |  |
Basic | $ | 1.11 |  |  | $ | 1.11 |
Diluted | $ | 1.10 |  |  | $ | 1.10 |

We have certain stock options and restricted performance shares that are potentially excluded from the computation of diluted EPS. The effect of the potential exercise of stock options is excluded when the average market price of our common stock is lower than the exercise price of the related option during the period or when a net loss exists because the effect would have been antidilutive. Additionally, restricted performance shares are excluded because the necessary vesting conditions had not been met or when a net loss exists. For the three months ended March 31, 2016, there were a minimal amount of stock options excluded, and for the three months ended March 31, 2015, there were no stock options excluded. Restricted performance shares outstanding of 0.9 million and 1.4 million as of March 31, 2016 and 2015, respectively, were excluded.

10. | Restructuring

During 2015, we continued to evaluate our cost structure and further identified cost savings associated with streamlining our management structure and our decision to exit non-strategic businesses. The resulting restructuring plan consisted of a company-wide workforce reduction of approximately 550 positions and is further detailed below. The charges for the restructuring plan are classified as selling and general expenses within the consolidated statements of income and the reserves are included in other current liabilities in the consolidated balance sheets.
In certain circumstances, reserves are no longer needed because of efficiencies in carrying out the plans or because employees previously identified for separation resigned from the Company and did not receive severance or were reassigned due to circumstances not foreseen when the original plans were initiated. In these cases, we reverse reserves through the consolidated statements of income during the period when it is determined they are no longer needed.
The initial restructuring charge recorded and the ending reserve balance as of March 31, 2016 by segment is as follows:

| 2015 Restructuring Plans
(in millions) | Initial Charge Recorded |  | Ending Reserve Balance
S&P Ratings | $ | 18 |  |  | $ | 13 |
S&P Global Market Intelligence | 31 |  |  | 19 |
C&C | 3 |  |  | 1 |
Corporate | 11 |  |  | 9 |
Total | $ | 63 |  |  | $ | 42 |

The ending reserve balance for the 2015 restructuring plan was $50 million as of December 31, 2015. For the three months ended March 31, 2016, we have reduced the reserve for the 2015 restructuring plan by $8 million.

11. | Segment and Related Information

We have four reportable segments: S&P Ratings, S&P Global Market Intelligence, S&P DJ Indices and C&C. Our Chief Executive Officer is our chief operating decision-maker and evaluates performance of our segments and allocates resources based primarily
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on operating profit. Segment operating profit does not include unallocated expense or interest expense as these are costs that do not affect the operating results of our segments.
A summary of operating results by segment for the three months ended March 31 is as follows:

| 2016 |  | 2015
(in millions) | Revenue |  | Operating Profit |  | Revenue |  | Operating Profit
S&P Ratings 1 | $ | 552 |  |  | $ | 262 |  |  | $ | 606 |  |  | $ | 291 |
S&P Global Market Intelligence 2 | 407 |  |  | 81 |  |  | 320 |  |  | 63 |
S&P DJ Indices 3 | 151 |  |  | 101 |  |  | 143 |  |  | 95 |
C&C 4 | 254 |  |  | 102 |  |  | 225 |  |  | 85 |
Intersegment elimination 5 | (23 | ) |  | — |  |  | (21 | ) |  | — |
Total operating segments | 1,341 |  |  | 546 |  |  | 1,273 |  |  | 534 |
Unallocated expense | — |  |  | (34 | ) |  | — |  |  | (33 | )
Total | $ | 1,341 |  |  | $ | 512 |  |  | $ | 1,273 |  |  | $ | 501 |

1 | Operating profit for 2016 and 2015 includes a benefit related to legal settlement insurance recoveries $15 million and $35 million, respectively, partially offset by legal settlement charges of $3 million and $29 million, respectively. Operating profit for 2016 and 2015 also includes amortization of intangibles from acquisitions of $1 million.

2 | Operating profit for 2016 includes a technology related impairment charge of $24 million. Operating profit for 2016 and 2015 also includes amortization of intangibles from acquisitions of $19 million and $6 million, respectively.

3 | Operating profit for 2016 and 2015 includes amortization of intangibles from acquisitions of $1 million.

4 | Operating profit for 2016 includes disposition-related costs of $3 million. Operating profit for 2016 and 2015 also includes amortization of intangibles from acquisitions of $3 million.

5 | Revenue for S&P Ratings and expenses for S&P Global Market Intelligence include an intersegment royalty charged to S&P Global Market Intelligence for the rights to use and distribute content and data developed by S&P Ratings.

The following provides revenue by geographic region for the three months ended March 31:

(in millions) | 2016 |  | 2015
U.S. | $ | 840 |  |  | $ | 765 |
European region | 297 |  |  | 307 |
Asia | 137 |  |  | 128 |
Rest of the world | 67 |  |  | 73 |
Total | $ | 1,341 |  |  | $ | 1,273 |

See Note 2 — Acquisitions and Divestitures for additional actions that impacted the segment operating results.

12. | Commitments and Contingencies

Related Party Agreements
In June of 2012, we entered into a new license agreement (the "License Agreement") with the holder of S&P Dow Jones Indices LLC noncontrolling interest, CME Group, which replaced the 2005 license agreement between S&P DJ Indices and CME Group. Under the terms of the License Agreement, S&P Dow Jones Indices LLC receives a share of the profits from the trading and clearing of CME Group's equity index products. During the three months ended March 31, 2016, S&P Dow Jones Indices LLC earned $22 million of revenue under the terms of the License Agreement. The entire amount of this revenue is included in our consolidated statement of income and the portion related to the 27% noncontrolling interest is removed in net income attributable to noncontrolling interests.
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Legal & Regulatory Matters
In the normal course of business both in the United States and abroad, the Company, its subsidiary Standard & Poor’s Financial Services LLC (“S&P LLC”) and some of its other subsidiaries are defendants in numerous legal proceedings and are often the subject of government and regulatory proceedings, investigations and inquiries. Many of these proceedings, investigations and inquiries relate to the ratings activity of S&P Ratings brought by issuers and alleged purchasers of rated securities. In addition, various government and self-regulatory agencies frequently make inquiries and conduct investigations into our compliance with applicable laws and regulations, including those related to ratings activities and antitrust matters. Any of these proceedings, investigations or inquiries could ultimately result in adverse judgments, damages, fines, penalties or activity restrictions, which could adversely impact our consolidated financial condition, cash flows, business or competitive position.
The Company believes that it has meritorious defenses to the pending claims and potential claims in the matters described below and is diligently pursuing these defenses, and in some cases working to reach an acceptable negotiated resolution. However, in view of the uncertainty inherent in litigation and government and regulatory enforcement matters, we cannot predict the eventual outcome of these matters or the timing of their resolution, or in most cases reasonably estimate what the eventual judgments, damages, fines, penalties or impact of activity restrictions may be. As a result, we cannot provide assurance that the outcome of the matters described below will not have a material adverse effect on our consolidated financial condition, cash flows, business or competitive position. As litigation or the process to resolve pending matters progresses, as the case may be, we will continue to review the latest information available and assess our ability to predict the outcome of such matters and the effects, if any, on our consolidated financial condition, cash flows, business and competitive position, which may require that we record liabilities in the consolidated financial statements in future periods.
S&P Ratings
Financial Crisis Litigation
The Company and its subsidiaries continue to defend civil cases brought by private and public plaintiffs arising out of ratings activities prior to and during the global financial crisis of 2008-2009. Discovery in these cases is ongoing. We can provide no assurance that we will not be obligated to pay significant amounts in order to resolve these matters on terms deemed acceptable. At this time, however, we are unable to reasonably estimate the range of such additional amounts, if any.
U.S. Securities and Exchange Commission
As a nationally recognized statistical rating organization registered with the SEC under Section 15E of the Securities Exchange Act of 1934, S&P Ratings is in ongoing communication with the staff of the SEC regarding compliance with its extensive obligations under the federal securities laws. Although S&P Ratings seeks to promptly address any compliance issues that it detects or that the staff of the SEC raises, there can be no assurance that the SEC will not seek remedies against S&P Ratings for one or more compliance deficiencies.
Trani Prosecutorial Proceeding
The prosecutor in the Italian city of Trani has obtained criminal indictments against several current and former S&P Ratings managers and ratings analysts for alleged market manipulation, and against Standard & Poor’s Credit Market Services Europe under Italy’s vicarious liability statute, for having allegedly failed to properly supervise the ratings analysts and prevent them from committing market manipulation. The prosecutor’s theories are based on various actions by S&P Ratings taken with respect to Italian sovereign debt between May of 2011 and January of 2012. Trial commenced in February of 2015 and is ongoing. Apart from criminal penalties that might be imposed following a conviction, such conviction could also lead to civil damages claims and other sanctions against Standard & Poor's Credit Market Services Europe or the Company. Such claims and sanctions cannot be quantified at this stage.
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Shareholder Derivative Actions
In August of 2015, two purported shareholders commenced a putative derivative action on behalf of the Company in New York State Supreme Court titled Retirement Plan for General Employees of the City of North Miami Beach and Robin Stein v. Harold McGraw III, et al. The complaint asserts claims for, inter alia, breach of fiduciary duty, waste of corporate assets, and mismanagement against the board of directors, certain former directors of the Company, and three former S&P Ratings employees. Plaintiffs seek recovery from the defendants based on allegations that S&P Ratings’ credit ratings practices for certain residential mortgage-backed securities and collateralized debt obligations misrepresented the credit risks of those securities, allegedly resulting in losses to the Company. The Company and the individual defendants filed motions to dismiss the complaint in October of 2015. Plaintiffs filed an opposition in December of 2015, and the Company and the individual defendants filed their reply on January 8, 2016.
On January 28, 2016, a different purported shareholder commenced a separate putative derivative action on behalf of the Company in New York State Supreme Court titled L.A. Grika v. Harold McGraw III, et al. The allegations in the complaint are substantially similar to those in the North Miami Beach matter described above. The complaint asserts claims for, inter alia, breach of fiduciary duty, aiding and abetting breaches of fiduciary duty, unjust enrichment, contribution and indemnification against Harold McGraw III, Douglas L. Peterson, and nine former S&P Ratings employees. The case was transferred to the judge presiding over the North Miami Beach action. The Company intends to oppose the shareholder's attempt to pursue this lawsuit.
On April 22, 2016, the court held a status conference for both the North Miami and Grika actions and set a briefing schedule for any motions to dismiss in the Grika action. The court has not yet scheduled a date for oral argument on the motions to dismiss in either the North Miami or the Grika actions.
The City of Swan
Australian government municipal councils filed suit against the Company and S&P International LLC in a representative action in April of 2013 in connection with alleged investment losses in eight synthetic collateralized debt obligations (“CDOs”) rated by S&P Ratings. These same CDOs were at issue in an earlier lawsuit brought by the plaintiffs against its investment advisor, Lehman Brothers Australia (“LBA”), in which the plaintiffs secured a judgment against LBA, which is now in liquidation. The plaintiffs claim total losses of AUD$327 million from these investments and are seeking recovery from both LBA and the Company. On February 19, 2016, the Company reached a settlement with the plaintiffs to resolve the claims in this action. Under the settlement, the Company agreed to and made a payment of AUD$144 million. The federal court approved the settlement on April 12, 2016.
Commodities & Commercial Markets
McGraw Hill Construction
Under the terms of an asset purchase agreement with Skyline HoldCo LLC (“Skyline”) related to Skyline’s purchase of the McGraw Hill Construction business from the Company in November of 2014, the Company agreed to retain liability with respect to the litigation captioned, Reed Construction Data Inc. v. The McGraw-Hill Companies, Inc. et al., 09 Civ. 8578 (JPO), in the United States District Court for the Southern District of New York, and any action instituted at any time by the parties thereto arising from substantially the same set of facts and circumstances.
Reed Construction Data filed this action in the U.S. District Court for the Southern District of New York in October of 2009, asserting a number of claims under various state and federal laws against the Company relating to alleged misappropriation and unfair competition by McGraw Hill Construction and seeking an unspecified amount of damages. In September of 2010, the Court granted the Company’s motion to dismiss some of the claims. In September of 2014, the Court granted summary judgment to the Company on all of Reed’s remaining claims with the exception of the unfair competition claim. In October of 2014, the parties submitted a joint stipulation to the Court agreeing to dismiss both Reed’s unfair competition claim and the Company’s counterclaims without prejudice to reinstatement in the event of a successful appeal of Reed’s dismissed claims. On January 7, 2016, the Second Circuit Court of Appeals affirmed the District Court’s grant of summary judgment.

13. | Recently Issued or Adopted Accounting Standards

In March of 2016, the Financial Accounting Standards Board ("FASB") issued guidance to simplify several aspects of accounting for share-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding requirements, as well as classification in the statement of cash flows. The guidance is effective for reporting periods beginning after December 15, 2016; however, early adoption is permitted. We are currently evaluating the impact of the adoption of this guidance will have on our consolidated financial statements.
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In February of 2016, the FASB issued guidance that amends accounting for leases. Under the new guidance, a lessee will recognize assets and liabilities but will recognize expenses similar to current lease accounting. The guidance is effecting for reporting periods beginning after December 15, 2018; however early adoption is permitted. The new guidance must be adopted using a modified retrospective approach to each prior reporting period presented with various optional practical expedients. We are currently evaluating the impact of the adoption of this guidance will have on our consolidated financial statements.
In January of 2016, the FASB issued guidance to enhance the reporting model for financial instruments, which includes amendments to address certain aspects of recognition, measurement, presentation and disclosure. The guidance is effective for reporting periods beginning after December 15, 2017. We do not expect this guidance to have a significant impact on our consolidated financial statements.
In November of 2015, the FASB issued guidance to simplify the presentation of deferred income taxes. The guidance requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This guidance is effective for reporting periods beginning after December 15, 2016; however, early adoption is permitted. We do not expect the adoption of this guidance to have a significant impact on our consolidated financial statements.
In September of 2015, the FASB issued guidance intended to simplify the accounting for measurement-period adjustments made to provisional amounts recognized in a business combination. The guidance eliminates the requirement to retrospectively account for those adjustments. The guidance was effective on January 1, 2016, and the adoption of this guidance did not have a significant impact on our consolidated financial statements.
In February of 2015, the FASB issued guidance that requires management to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. The guidance was effective on January 1, 2016, and the adoption of this guidance did not have a significant impact on our consolidated financial statements.
In January of 2015, the FASB issued guidance that eliminates the concept of reporting extraordinary items, but retains current presentation and disclosure requirements for an event or transaction that is of an unusual nature or of a type that indicates infrequency of occurrence. Transactions that meet both criteria would now also follow such presentation and disclosure requirements. The guidance was effective on January 1, 2016, and the adoption of this guidance did not have a significant impact on our consolidated financial statements.
In August of 2014, the FASB issued guidance that requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date the financial statements are issued and provide related disclosures. This guidance is effective for reporting periods beginning after December 15, 2016; however, early adoption is permitted. We do not expect the adoption of this guidance to have a significant impact on our consolidated financial statements.
In May of 2014, the FASB and the International Accounting Standards Board (“IASB”) issued jointly a converged standard on the recognition of revenue from contracts with customers which is intended to improve the financial reporting of revenue and comparability of the top line in financial statements globally. The core principle of the new standard is for the recognition of revenue to depict the transfer of goods or services to customers in amounts that reflect the payment to which the company expects to be entitled in exchange for those goods or services. The new standard will also result in enhanced revenue disclosures, provide guidance for transactions that were not previously addressed comprehensively and improve guidance for multiple-element arrangements. In August of 2015, the FASB issued guidance deferring the effective date of the new revenue standard by one year. The new guidance will be effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. In March of 2016, the FASB issued guidance to clarify the implementation guidance on principal versus agent considerations. The effective date for this guidance is the same as the effective date for the new revenue standard, which is reporting periods beginning after December 15, 2017. While we will continue with our evaluation process, initially, we believe this guidance may have an impact on the accounting for certain proprietary consulting arrangements in our C&C segment as well as the accounting for certain integrated desktop service revenue arrangements offered in our S&P Global Market Intelligence segment.
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14. | Condensed Consolidating Financial Statements

On May 26, 2015, we issued $700 million of 4.0% senior notes due in 2025. On August 18, 2015, we issued $2.0 billion of senior notes, consisting of $400 million of 2.5% senior notes due in 2018, $700 million of 3.3% senior notes due in 2020 and $900 million of 4.4% senior notes due in 2026.
The senior notes described above are fully and unconditionally guaranteed by Standard & Poor's Financial Services LLC, a 100% owned subsidiary of the Company. The following condensed consolidating financial statements present the results of operations, financial position and cash flows of McGraw Hill Financial, Inc., Standard & Poor's Financial Services LLC, and the Non-Guarantor Subsidiaries of McGraw Hill Financial, Inc. and Standard & Poor's Financial Services LLC, and the eliminations necessary to arrive at the information for the Company on a consolidated basis.

| Statement of Income
| Three Months Ended March 31, 2016
| (Unaudited)
(in millions) | McGraw Hill Financial, Inc. |  | Standard & Poor's Financial Services LLC |  | Non-Guarantor Subsidiaries |  | Eliminations |  | McGraw Hill Financial Inc. Consolidated
Revenue | $ | 171 |  |  | $ | 342 |  |  | $ | 859 |  |  | $ | (31 | ) |  | $ | 1,341 |
Expenses: |  |  |  |  |  |  |  |  |
Operating-related expenses | 26 |  |  | 139 |  |  | 323 |  |  | (31 | ) |  | 457 |
Selling and general expenses | 17 |  |  | 35 |  |  | 278 |  |  | — |  |  | 330 |
Depreciation | 9 |  |  | 2 |  |  | 7 |  |  | — |  |  | 18 |
Amortization of intangibles | — |  |  | — |  |  | 24 |  |  | — |  |  | 24 |
Total expenses | 52 |  |  | 176 |  |  | 632 |  |  | (31 | ) |  | 829 |
Operating profit | 119 |  |  | 166 |  |  | 227 |  |  | — |  |  | 512 |
Interest expense (income), net | 42 |  |  | — |  |  | (2 | ) |  | — |  |  | 40 |
Non-operating intercompany transactions | 74 |  |  | (5 | ) |  | (497 | ) |  | 428 |  |  | — |
Income before taxes on income | 3 |  |  | 171 |  |  | 726 |  |  | (428 | ) |  | 472 |
Provision for taxes on income | — |  |  | 57 |  |  | 92 |  |  | — |  |  | 149 |
Equity in net income of subsidiaries | 791 |  |  | 71 |  |  | — |  |  | (862 | ) |  | — |
Net income | $ | 794 |  |  | $ | 185 |  |  | $ | 634 |  |  | $ | (1,290 | ) |  | $ | 323 |
Less: net income attributable to noncontrolling interests | — |  |  | — |  |  | — |  |  | (29 | ) |  | (29 | )
Net income attributable to McGraw Hill Financial, Inc. | $ | 794 |  |  | $ | 185 |  |  | $ | 634 |  |  | $ | (1,319 | ) |  | $ | 294 |
Comprehensive income | $ | 802 |  |  | $ | 185 |  |  | $ | 646 |  |  | $ | (1,290 | ) |  | $ | 343 |

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| Statement of Income
| Three Months Ended March 31, 2015
| (Unaudited)
(in millions) | McGraw Hill Financial, Inc. |  | Standard & Poor's Financial Services LLC |  | Non-Guarantor Subsidiaries |  | Eliminations |  | McGraw Hill Financial Inc. Consolidated
Revenue | $ | 156 |  |  | $ | 543 |  |  | $ | 601 |  |  | $ | (27 | ) |  | $ | 1,273 |
Expenses: |  |  |  |  |  |  |  |  |
Operating-related expenses | 31 |  |  | 192 |  |  | 214 |  |  | (27 | ) |  | 410 |
Selling and general expenses | 66 |  |  | 25 |  |  | 238 |  |  | — |  |  | 329 |
Depreciation | 10 |  |  | 5 |  |  | 7 |  |  | — |  |  | 22 |
Amortization of intangibles | 1 |  |  | — |  |  | 10 |  |  | — |  |  | 11 |
Total expenses | 108 |  |  | 222 |  |  | 469 |  |  | (27 | ) |  | 772 |
Operating profit | 48 |  |  | 321 |  |  | 132 |  |  | — |  |  | 501 |
Interest expense (income), net | 17 |  |  | — |  |  | (1 | ) |  | — |  |  | 16 |
Non-operating intercompany transactions | 58 |  |  | 32 |  |  | (98 | ) |  | 8 |  |  | — |
(Loss) income before taxes on income | (27 | ) |  | 289 |  |  | 231 |  |  | (8 | ) |  | 485 |
Provision for taxes on income | 4 |  |  | 87 |  |  | 65 |  |  | — |  |  | 156 |
Equity in net income of subsidiaries | 408 |  |  | 67 |  |  | — |  |  | (475 | ) |  | — |
Net Income | 377 |  |  | 269 |  |  | 166 |  |  | (483 | ) |  | 329 |
Less: net income attributable to noncontrolling interests | — |  |  | — |  |  | — |  |  | (26 | ) |  | (26 | )
Net income attributable to McGraw Hill Financial, Inc. | $ | 377 |  |  | $ | 269 |  |  | $ | 166 |  |  | $ | (509 | ) |  | $ | 303 |
Comprehensive income | $ | 373 |  |  | $ | 269 |  |  | $ | 94 |  |  | $ | (486 | ) |  | $ | 250 |

22

| Balance Sheet
| March 31, 2016
| (Unaudited)
(in millions) | McGraw Hill Financial, Inc. |  | Standard & Poor's Financial Services LLC |  | Non-Guarantor Subsidiaries |  | Eliminations |  | McGraw Hill Financial Inc. Consolidated
ASSETS |  |  |  |  |  |  |  |  |
Current assets: |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 171 |  |  | $ | — |  |  | $ | 1,429 |  |  | $ | — |  |  | $ | 1,600 |
Accounts receivable, net of allowance for doubtful accounts | 122 |  |  | 166 |  |  | 690 |  |  | — |  |  | 978 |
Intercompany receivable | 206 |  |  | 1,782 |  |  | 1,727 |  |  | (3,715 | ) |  | — |
Deferred income taxes | 74 |  |  | 10 |  |  | 26 |  |  | — |  |  | 110 |
Prepaid and other current assets | 69 |  |  | 16 |  |  | 104 |  |  | — |  |  | 189 |
Assets of businesses held for sale | 16 |  |  | — |  |  | 555 |  |  | — |  |  | 571 |
Total current assets | 658 |  |  | 1,974 |  |  | 4,531 |  |  | (3,715 | ) |  | 3,448 |
Property and equipment, net of accumulated depreciation | 127 |  |  | 1 |  |  | 123 |  |  | — |  |  | 251 |
Goodwill | 17 |  |  | — |  |  | 2,843 |  |  | 9 |  |  | 2,869 |
Other intangible assets, net | — |  |  | — |  |  | 1,487 |  |  | 1 |  |  | 1,488 |
Investments in subsidiaries | 4,990 |  |  | 671 |  |  | 7,265 |  |  | (12,926 | ) |  | — |
Intercompany loans receivable | 17 |  |  | 371 |  |  | 1,745 |  |  | (2,133 | ) |  | — |
Other non-current assets | 68 |  |  | 19 |  |  | 118 |  |  | — |  |  | 205 |
Total assets | $ | 5,877 |  |  | $ | 3,036 |  |  | $ | 18,112 |  |  | $ | (18,764 | ) |  | $ | 8,261 |
LIABILITIES AND EQUITY |  |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |  |
Accounts payable | $ | 59 |  |  | $ | 23 |  |  | $ | 86 |  |  | $ | — |  |  | $ | 168 |
Intercompany payable | 2,191 |  |  | 646 |  |  | 878 |  |  | (3,715 | ) |  | — |
Accrued compensation and contributions to retirement plans | 88 |  |  | 10 |  |  | 95 |  |  | — |  |  | 193 |
Short-term debt | 472 |  |  | — |  |  | — |  |  | — |  |  | 472 |
Unearned revenue | 269 |  |  | 212 |  |  | 977 |  |  | — |  |  | 1,458 |
Other current liabilities | 202 |  |  | (40 | ) |  | 326 |  |  | — |  |  | 488 |
Liabilities of businesses held for sale | 82 |  |  | — |  |  | 121 |  |  | — |  |  | 203 |
Total current liabilities | 3,363 |  |  | 851 |  |  | 2,483 |  |  | (3,715 | ) |  | 2,982 |
Long-term debt | 3,469 |  |  | — |  |  | — |  |  | — |  |  | 3,469 |
Intercompany loans payable | 20 |  |  | — |  |  | 2,112 |  |  | (2,132 | ) |  | — |
Pension and postretirement benefits | 218 |  |  | — |  |  | 49 |  |  | — |  |  | 267 |
Other non-current liabilities | (25 | ) |  | 86 |  |  | 292 |  |  | — |  |  | 353 |
Total liabilities | 7,045 |  |  | 937 |  |  | 4,936 |  |  | (5,847 | ) |  | 7,071 |
Redeemable noncontrolling interest |  |  |  |  |  |  | 920 |  |  | 920 |
Equity: |  |  |  |  |  |  |  |  |
Common stock | 412 |  |  | — |  |  | 2,336 |  |  | (2,336 | ) |  | 412 |
Additional paid-in capital | (240 | ) |  | 126 |  |  | 11,174 |  |  | (10,638 | ) |  | 422 |
Retained income | 6,844 |  |  | 1,973 |  |  | (12 | ) |  | (967 | ) |  | 7,838 |
Accumulated other comprehensive loss | (314 | ) |  | — |  |  | (311 | ) |  | 45 |  |  | (580 | )
Less: common stock in treasury | (7,870 | ) |  | — |  |  | (12 | ) |  | 12 |  |  | (7,870 | )
Total equity - controlling interests | (1,168 | ) |  | 2,099 |  |  | 13,175 |  |  | (13,884 | ) |  | 222 |
Total equity - noncontrolling interests | — |  |  | — |  |  | 1 |  |  | 47 |  |  | 48 |
Total equity | (1,168 | ) |  | 2,099 |  |  | 13,176 |  |  | (13,837 | ) |  | 270 |
Total liabilities and equity | $ | 5,877 |  |  | $ | 3,036 |  |  | $ | 18,112 |  |  | $ | (18,764 | ) |  | $ | 8,261 |

23

| Balance Sheet
| December 31, 2015
(in millions) | McGraw Hill Financial, Inc. |  | Standard & Poor's Financial Services LLC |  | Non-Guarantor Subsidiaries |  | Eliminations |  | McGraw Hill Financial Inc. Consolidated
ASSETS |  |  |  |  |  |  |  |  |
Current assets: |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 167 |  |  | $ | — |  |  | $ | 1,314 |  |  | $ | — |  |  | $ | 1,481 |
Accounts receivable, net of allowance for doubtful accounts | 116 |  |  | 319 |  |  | 556 |  |  | — |  |  | 991 |
Intercompany receivable | 208 |  |  | 1,872 |  |  | 1,273 |  |  | (3,353 | ) |  | — |
Deferred income taxes | 75 |  |  | 10 |  |  | 24 |  |  | — |  |  | 109 |
Prepaid and other current assets | 120 |  |  | 13 |  |  | 80 |  |  | (1 | ) |  | 212 |
Assets of businesses held for sale | 4 |  |  | — |  |  | 499 |  |  | — |  |  | 503 |
Total current assets | 690 |  |  | 2,214 |  |  | 3,746 |  |  | (3,354 | ) |  | 3,296 |
Property and equipment, net of accumulated depreciation | 141 |  |  | 3 |  |  | 126 |  |  | — |  |  | 270 |
Goodwill | 17 |  |  | 40 |  |  | 2,816 |  |  | 9 |  |  | 2,882 |
Other intangible assets, net | — |  |  | — |  |  | 1,522 |  |  | — |  |  | 1,522 |
Investments in subsidiaries | 4,651 |  |  | 659 |  |  | 7,316 |  |  | (12,626 | ) |  | — |
Intercompany loans receivable | 16 |  |  | 368 |  |  | 1,733 |  |  | (2,117 | ) |  | — |
Other non-current assets | 67 |  |  | 19 |  |  | 127 |  |  | — |  |  | 213 |
Total assets | $ | 5,582 |  |  | $ | 3,303 |  |  | $ | 17,386 |  |  | $ | (18,088 | ) |  | $ | 8,183 |
LIABILITIES AND EQUITY |  |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |  |
Accounts payable | $ | 71 |  |  | $ | 54 |  |  | $ | 81 |  |  | $ | — |  |  | $ | 206 |
Intercompany payable | 2,144 |  |  | 675 |  |  | 535 |  |  | (3,354 | ) |  | — |
Accrued compensation and contributions to retirement plans | 127 |  |  | 89 |  |  | 167 |  |  | — |  |  | 383 |
Short-term debt | 143 |  |  | — |  |  | — |  |  | — |  |  | 143 |
Unearned revenue | 254 |  |  | 586 |  |  | 582 |  |  | (1 | ) |  | 1,421 |
Other current liabilities | 191 |  |  | 65 |  |  | 293 |  |  | — |  |  | 549 |
Liabilities of businesses held for sale | 80 |  |  | — |  |  | 126 |  |  | — |  |  | 206 |
Total current liabilities | 3,010 |  |  | 1,469 |  |  | 1,784 |  |  | (3,355 | ) |  | 2,908 |
Long-term debt | 3,468 |  |  | — |  |  | — |  |  | — |  |  | 3,468 |
Intercompany loans payable | 21 |  |  | — |  |  | 2,096 |  |  | (2,117 | ) |  | — |
Pension and postretirement benefits | 230 |  |  | — |  |  | 46 |  |  | — |  |  | 276 |
Other non-current liabilities | (25 | ) |  | 98 |  |  | 295 |  |  | — |  |  | 368 |
Total liabilities | 6,704 |  |  | 1,567 |  |  | 4,221 |  |  | (5,472 | ) |  | 7,020 |
Redeemable noncontrolling interest | — |  |  | — |  |  | — |  |  | 920 |  |  | 920 |
Equity: |  |  |  |  |  |  |  |  |
Common stock | 412 |  |  | — |  |  | 2,337 |  |  | (2,337 | ) |  | 412 |
Additional paid-in capital | (184 | ) |  | 1,179 |  |  | 10,174 |  |  | (10,694 | ) |  | 475 |
Retained income | 6,701 |  |  | 557 |  |  | 987 |  |  | (609 | ) |  | 7,636 |
Accumulated other comprehensive loss | (322 | ) |  | — |  |  | (322 | ) |  | 44 |  |  | (600 | )
Less: common stock in treasury | (7,729 | ) |  | — |  |  | (12 | ) |  | 12 |  |  | (7,729 | )
Total equity - controlling interests | (1,122 | ) |  | 1,736 |  |  | 13,164 |  |  | (13,584 | ) |  | 194 |
Total equity - noncontrolling interests | — |  |  | — |  |  | 1 |  |  | 48 |  |  | 49 |
Total equity | (1,122 | ) |  | 1,736 |  |  | 13,165 |  |  | (13,536 | ) |  | 243 |
Total liabilities and equity | $ | 5,582 |  |  | $ | 3,303 |  |  | $ | 17,386 |  |  | $ | (18,088 | ) |  | $ | 8,183 |

24

| Statement of Cash Flows
| Three Months Ended March 31, 2016
| (Unaudited)
(in millions) | McGraw Hill Financial, Inc. |  | Standard & Poor's Financial Services LLC |  | Non-Guarantor Subsidiaries |  | Eliminations |  | McGraw Hill Financial Inc. Consolidated
Operating Activities: |  |  |  |  |  |  |  |  |
Net income | $ | 794 |  |  | $ | 185 |  |  | $ | 634 |  |  | $ | (1,290 | ) |  | $ | 323 |
Adjustments to reconcile income from continuing operations to cash provided by (used for) operating activities from continuing operations: |  |  |  |  |  |  |  |  |
Depreciation | 9 |  |  | 2 |  |  | 7 |  |  | — |  |  | 18 |
Amortization of intangibles | — |  |  | — |  |  | 24 |  |  | — |  |  | 24 |
Provision for losses on accounts receivable | — |  |  | 1 |  |  | 2 |  |  | — |  |  | 3 |
Deferred income taxes | (1 | ) |  | — |  |  | — |  |  | — |  |  | (1 | )
Stock-based compensation | 4 |  |  | 3 |  |  | 7 |  |  | — |  |  | 14 |
Other | 3 |  |  | 3 |  |  | 25 |  |  | — |  |  | 31 |
Changes in operating assets and liabilities, net of effect of acquisitions and dispositions: |  |  |  |  |  |  |  |  |
Accounts receivable | (7 | ) |  | 153 |  |  | (153 | ) |  | — |  |  | (7 | )
Prepaid and current assets | (2 | ) |  | (3 | ) |  | (14 | ) |  | — |  |  | (19 | )
Accounts payable and accrued expenses | (89 | ) |  | (89 | ) |  | (96 | ) |  | — |  |  | (274 | )
Unearned revenue | 15 |  |  | (374 | ) |  | 398 |  |  | — |  |  | 39 |
Accrued legal and regulatory settlements | — |  |  | (108 | ) |  | — |  |  | — |  |  | (108 | )
Other current liabilities | (12 | ) |  | (19 | ) |  | 53 |  |  | — |  |  | 22 |
Net change in prepaid/accrued income taxes | 98 |  |  | — |  |  | 1 |  |  | — |  |  | 99 |
Net change in other assets and liabilities | (17 | ) |  | 30 |  |  | (44 | ) |  | — |  |  | (31 | )
Cash provided by (used for) operating activities from continuing operations | 795 |  |  | (216 | ) |  | 844 |  |  | (1,290 | ) |  | 133 |
Investing Activities: |  |  |  |  |  |  |  |  |
Capital expenditures | (4 | ) |  | (4 | ) |  | (8 | ) |  | — |  |  | (16 | )
Acquisitions, net of cash acquired | — |  |  | — |  |  | (7 | ) |  | — |  |  | (7 | )
Changes in short-term investments | — |  |  | — |  |  | (1 | ) |  | — |  |  | (1 | )
Cash used for investing activities from continuing operations | (4 | ) |  | (4 | ) |  | (16 | ) |  | — |  |  | (24 | )
Financing Activities: |  |  |  |  |  |  |  |  |
Additions to short-term debt, net | 329 |  |  | — |  |  | — |  |  | — |  |  | 329 |
Dividends paid to shareholders | (96 | ) |  | — |  |  | — |  |  | — |  |  | (96 | )
Dividends and other payments paid to noncontrolling interests | — |  |  | — |  |  | (33 | ) |  | — |  |  | (33 | )
Repurchase of treasury shares | (226 | ) |  | — |  |  | — |  |  | — |  |  | (226 | )
Exercise of stock options | 31 |  |  | — |  |  | — |  |  | — |  |  | 31 |
Excess tax benefits from share-based payments | 6 |  |  | — |  |  | — |  |  | — |  |  | 6 |
Intercompany financing activities | (838 | ) |  | 220 |  |  | (672 | ) |  | 1,290 |  |  | — |
Cash (used for) provided by financing activities from continuing operations | (794 | ) |  | 220 |  |  | (705 | ) |  | 1,290 |  |  | 11 |
Effect of exchange rate changes on cash from continuing operations | 7 |  |  | — |  |  | (8 | ) |  | — |  |  | (1 | )
Net change in cash and cash equivalents | 4 |  |  | — |  |  | 115 |  |  | — |  |  | 119 |
Cash and cash equivalents at beginning of period | 167 |  |  | — |  |  | 1,314 |  |  | — |  |  | 1,481 |
Cash and cash equivalents at end of period | $ | 171 |  |  | $ | — |  |  | $ | 1,429 |  |  | $ | — |  |  | $ | 1,600 |

25

| Statement of Cash Flows
| Three Months Ended March 31, 2015
| (Unaudited)
(in millions) | McGraw Hill Financial, Inc. |  | Standard & Poor's Financial Services LLC |  | Non-Guarantor Subsidiaries |  | Eliminations |  | McGraw Hill Financial Inc. Consolidated
Operating Activities: |  |  |  |  |  |  |  |  |
Net income | $ | 377 |  |  | $ | 269 |  |  | $ | 166 |  |  | $ | (483 | ) |  | $ | 329 |
Adjustments to reconcile income net income to cash provided by (used for) operating activities from continuing operations: |  |  |  |  |  |  |  |  |
Depreciation | 10 |  |  | 5 |  |  | 7 |  |  | — |  |  | 22 |
Amortization of intangibles | 1 |  |  | — |  |  | 10 |  |  | — |  |  | 11 |
Provision for losses on accounts receivable | — |  |  | (3 | ) |  | 3 |  |  | — |  |  | — |
Deferred income taxes | 61 |  |  | — |  |  | — |  |  | — |  |  | 61 |
Stock-based compensation | 5 |  |  | 5 |  |  | 8 |  |  | — |  |  | 18 |
Other | 3 |  |  | 23 |  |  | 7 |  |  | — |  |  | 33 |
Changes in operating assets and liabilities, net of effect of acquisitions and dispositions: |  |  |  |  |  |  |  |  |
Accounts receivable | 11 |  |  | (22 | ) |  | (58 | ) |  | — |  |  | (69 | )
Prepaid and current assets | 2 |  |  | (6 | ) |  | (6 | ) |  | — |  |  | (10 | )
Accounts payable and accrued expenses | (124 | ) |  | (68 | ) |  | (113 | ) |  | — |  |  | (305 | )
Unearned revenue | 3 |  |  | 15 |  |  | 30 |  |  | — |  |  | 48 |
Accrued legal and regulatory settlements | — |  |  | (1,559 | ) |  | — |  |  | — |  |  | (1,559 | )
Other current liabilities | 5 |  |  | (18 | ) |  | (4 | ) |  | — |  |  | (17 | )
Net change in prepaid/accrued income taxes | (23 | ) |  | — |  |  | 111 |  |  | — |  |  | 88 |
Net change in other assets and liabilities | 94 |  |  | 10 |  |  | (103 | ) |  | — |  |  | 1 |
Cash provided by (used for) operating activities from continuing operations | 425 |  |  | (1,349 | ) |  | 58 |  |  | (483 | ) |  | (1,349 | )
Investing Activities: |  |  |  |  |  |  |  |  |
Capital expenditures | (7 | ) |  | (2 | ) |  | (7 | ) |  | — |  |  | (16 | )
Acquisitions, net of cash acquired | — |  |  | — |  |  | (2 | ) |  | — |  |  | (2 | )
Changes in short-term investments | — |  |  | — |  |  | (1 | ) |  | — |  |  | (1 | )
Cash used for investing activities from continuing operations | (7 | ) |  | (2 | ) |  | (10 | ) |  | — |  |  | (19 | )
Financing Activities: |  |  |  |  |  |  |  |  |
Additions to short-term debt, net | 365 |  |  | — |  |  | — |  |  | — |  |  | 365 |
Dividends paid to shareholders | (94 | ) |  | — |  |  | — |  |  | — |  |  | (94 | )
Dividends and other payments paid to noncontrolling interests | — |  |  | — |  |  | (30 | ) |  | — |  |  | (30 | )
Repurchase of treasury shares | (110 | ) |  | — |  |  | — |  |  | — |  |  | (110 | )
Exercise of stock options | 57 |  |  | — |  |  | — |  |  | — |  |  | 57 |
Excess tax benefits from share-based payments | 32 |  |  | — |  |  | — |  |  | — |  |  | 32 |
Intercompany financing activities | (1,983 | ) |  | 1,351 |  |  | 149 |  |  | 483 |  |  | — |
Cash (used for) provided by financing activities from continuing operations | (1,733 | ) |  | 1,351 |  |  | 119 |  |  | 483 |  |  | 220 |
Effect of exchange rate changes on cash from continuing operations | (7 | ) |  | — |  |  | (37 | ) |  | — |  |  | (44 | )
Cash (used for) provided by continuing operations | (1,322 | ) |  | — |  |  | 130 |  |  | — |  |  | (1,192 | )
Discontinued Operations: |  |  |  |  |  |  |  |  |
Cash used for operating activities | — |  |  | — |  |  | (129 | ) |  | — |  |  | (129 | )
Cash used for discontinued operations | — |  |  | — |  |  | (129 | ) |  | — |  |  | (129 | )
Net change in cash and cash equivalents | (1,322 | ) |  | — |  |  | 1 |  |  | — |  |  | (1,321 | )
Cash and cash equivalents at beginning of period | 1,402 |  |  | — |  |  | 1,095 |  |  | — |  |  | 2,497 |
Cash and cash equivalents at end of period | $ | 80 |  |  | $ | — |  |  | $ | 1,096 |  |  | $ | — |  |  | $ | 1,176 |

26

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)
The following Management's Discussion and Analysis (“MD&A”) provides a narrative of the results of operations and financial condition of McGraw Hill Financial, Inc. (together with its consolidated subsidiaries, "McGraw Hill Financial," the “Company,” “we,” “us” or “our”) for the three months ended March 31, 2016. The MD&A should be read in conjunction with the consolidated financial statements, accompanying notes and MD&A included in our Form 10-K for the year ended December 31, 2015 (our “Form 10-K”), which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The MD&A includes the following sections:

• | Overview

• | Results of Operations — Comparing the Three Months Ended March 31, 2016 and 2015

• | Liquidity and Capital Resources

• | Reconciliation of Non-GAAP Financial Information

• | Critical Accounting Estimates

• | Recently Issued or Adopted Accounting Standards

• | Forward-Looking Statements

OVERVIEW
We are a leading benchmarks and ratings, analytics, data and research provider serving the global capital, commodities and commercial markets. The capital markets include asset managers, investment banks, commercial banks, insurance companies, exchanges, and issuers; the commodities markets include producers, traders and intermediaries within energy, metals, petrochemicals and agriculture; and the commercial markets include professionals and corporate executives within automotive, financial services, insurance and marketing / research information services.
Our operations consist of four reportable segments: Standard & Poor’s Ratings Services (“S&P Ratings”), S&P Global Market Intelligence, S&P Dow Jones Indices ("S&P DJ Indices") and Commodities & Commercial Markets (“C&C”).

• | S&P Ratings is an independent provider of credit ratings, research and analytics, offering investors, issuers and market participants information, ratings and benchmarks.

• | S&P Global Market Intelligence is a global provider of multi-asset-class data, research and analytical capabilities, which integrate cross-asset analytics and desktop services.

• | S&P DJ Indices is a global index provider that maintains a wide variety of valuation and index benchmarks for investment advisors, wealth managers and institutional investors.

• | C&C consists of business-to-business companies specializing in commercial and commodities markets that deliver their customers access to high-value information, data, analytic services and pricing and quality benchmarks.

In April of 2016, we entered into a definitive agreement to sell J.D. Power, included within our C&C segment, for $1.1 billion to XIO Group, a global alternative investments firm headquartered in London. In the fourth quarter of 2015, we began exploring strategic alternatives for J.D. Power and initiated an active program to sell the business. The assets and liabilities of J.D. Power have been classified as held for sale in our consolidated balance sheet as of March 31, 2016 and December 31, 2015.
In February of 2016, we entered into a definitive agreement to sell Standard & Poor’s Securities Evaluations, Inc. ("SPSE") and Credit Market Analysis ("CMA"), two businesses within our S&P Global Market Intelligence segment, to Intercontinental Exchange, an operator of global exchanges, clearing houses and data services. The sale is subject to extended regulatory anti-trust review and is expected to close shortly after completion of this extended review. As a result, we have classified the assets and liabilities of SPSE and CMA as held for sale in our consolidated balance sheet as of March 31, 2016.
On April 27, 2016, pending shareholder approval, the Company will be re-branded S&P Global. This name better leverages the Company's rich heritage as a financial data and analytics brand while signaling that we have a strong global footprint and brand portfolio.
27

Key results for the three months ended March 31 are as follows:

(in millions, except per share amounts) | 2016 |  | 2015 |  | % Change 1
Revenue | $ | 1,341 |  |  | $ | 1,273 |  |  | 5%
Operating profit 2 | $ | 512 |  |  | $ | 501 |  |  | 2%
Operating margin % | 38 | % |  | 39 | % |  |
Diluted earnings per share from continuing operations | $ | 1.10 |  |  | $ | 1.10 |  |  | —%

1 | % changes in the tables throughout the MD&A are calculated off of the actual number, not the rounded number presented.

2 | Operating profit for 2016 includes a benefit related to legal settlement insurance recoveries of $15 million, partially offset by legal settlement charges of $3 million, a technology related impairment charge of $24 million, and disposition-related costs of $3 million. Operating profit for 2015 includes a benefit related to legal settlement insurance recoveries $35 million, partially offset by legal settlement charges of $29 million. Operating profit for 2016 and 2015 also includes amortization of intangibles from acquisitions of $24 million and $11 million, respectively.

Revenue increased 5% driven by increases at S&P Global Market Intelligence, C&C and S&P DJ Indices, partially offset by a decrease at S&P Ratings. Excluding the favorable impact of revenue from acquisitions of 6 percentage points and the unfavorable impact of foreign exchange rates of 1 percentage point, revenue remained unchanged. Revenue growth at S&P Global Market Intelligence was favorably impacted by the acquisition of SNL Financial ("SNL") in September of 2015 and annualized contract value growth primarily driven by the S&P Capital IQ Desktop and Global Risk Services. The revenue increase at C&C was primarily driven by continued demand for Platts’ proprietary content as annualized contract values increased, and the acquisition of Used Car Guide ("UCG") at J.D. Power in July of 2015. Revenue growth at S&P DJ Indices is primarily due to higher volumes for exchange-traded derivatives, partially offset by lower average levels of assets under management for exchange traded funds ("ETFs"). These revenue increases were partially offset by a decrease at S&P Ratings primarily driven by reduced market issuance in the U.S. and European region.
Operating profit increased 2% primarily driven by revenue growth at S&P Global Market Intelligence, C&C and S&P DJ Indices. Excluding the unfavorable impact of a technology related impairment charge of 5 percentage points, higher amortization of intangibles from acquisitions of 2 percentage points and disposition-related costs of less than 1 percentage point, partially offset by the favorable impact of insurance recoveries of 1 percentage point, operating profit increased 9%.
Our Strategy
Our vision is to be the leading provider of transparent and independent benchmarks and ratings, analytics, data and research in the global capital, commodities and corporate markets. Our mission is to promote sustainable growth in these markets by providing customers with essential intelligence and superior service. We seek to accomplish our mission and vision within the framework of our core values of fairness, integrity and transparency. We intend to deliver our products and services through customer-centric distribution channels that enable mission-critical decisions in our core customer sets of investment management, investment banking, commercial banking, insurance, specialty financial institutions and corporates.
We are aligning our efforts against two key strategic priorities: creating growth and driving performance.
Creating Growth

• | We will strive to drive global growth by focusing on executing our strategic initiatives, strengthening core capabilities and collaborating across businesses.

Driving Performance

• | We will strive to deliver operational excellence, manage and mitigate risk and enhance leadership and accountability.

There can be no assurance that we will achieve success in implementing any one or more of these strategies as a variety of factors could unfavorably impact operating results, including prolonged difficulties in the global credit markets and a change in the regulatory environment affecting our businesses.
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RESULTS OF OPERATIONS — COMPARING THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
Consolidated Review

(in millions) | 2016 |  | 2015 |  | % Change
Revenue | $ | 1,341 |  |  | $ | 1,273 |  |  | 5%
Total Expenses: |  |  |  |  |
Operating-related expenses | 457 |  |  | 410 |  |  | 11%
Selling and general expenses | 330 |  |  | 329 |  |  | 1%
Depreciation and amortization | 42 |  |  | 33 |  |  | 28%
Total expenses | 829 |  |  | 772 |  |  | 7%
Operating profit | 512 |  |  | 501 |  |  | 2%
Interest expense, net | 40 |  |  | 16 |  |  | N/M
Provision for taxes on income | 149 |  |  | 156 |  |  | (5)%
Net income | 323 |  |  | 329 |  |  | (2)%
Less: net income attributable to noncontrolling interests | (29 | ) |  | (26 | ) |  | 10%
Net income attributable to McGraw Hill Financial, Inc. | $ | 294 |  |  | $ | 303 |  |  | (3)%

N/M - not meaningful
Revenue
The following table provides consolidated revenue information for the three months ended March 31:

(in millions) | 2016 |  | 2015 |  | % Change
Revenue | $ | 1,341 |  |  | $ | 1,273 |  |  | 5%
Subscription / Non-transaction revenue | $ | 883 |  |  | $ | 761 |  |  | 16%
Asset linked fees | $ | 86 |  |  | $ | 92 |  |  | (6)%
Non-subscription / Transaction revenue | $ | 372 |  |  | $ | 420 |  |  | (11)%
% of total revenue: |  |  |  |  |
Subscription / Non-transaction revenue | 66 | % |  | 60 | % |  |
Asset linked fees | 6 | % |  | 7 | % |  |
Non-subscription / Transaction revenue | 28 | % |  | 33 | % |  |
U.S. revenue | $ | 840 |  |  | $ | 765 |  |  | 10%
International revenue: |  |  |  |  |
European region | 297 |  |  | 307 |  |  | (3)%
Asia | 137 |  |  | 128 |  |  | 7%
Rest of the world | 67 |  |  | 73 |  |  | (7)%
Total international revenue | $ | 501 |  |  | $ | 508 |  |  | (1)%
% of total revenue: |  |  |  |  |
U.S. revenue | 63 | % |  | 60 | % |  |
International revenue | 37 | % |  | 40 | % |  |

Subscription / non-transaction revenue increased 16% primarily from growth in S&P Global Market Intelligence's average contract values driven by an expansion in new and existing accounts as well as continued demand for Platts’ proprietary content. Asset linked fees decreased 6% driven by lower average assets under management for ETFs. Non-subscription / transaction revenue decreased 11% primarily due to a decline at S&P Ratings driven by reduced market issuance in the U.S. and European region, partially offset by higher volumes for exchange traded derivatives at S&P DJ Indices. Subscription / non-transaction revenue growth was also favorably impacted by the acquisitions of SNL and UCG in September of 2015 and July of 2015, respectively. See “Segment Review” below for further information.
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The unfavorable impact of foreign exchange rates reduced revenue by 1 percentage point. This impact refers to constant currency comparisons estimated by recalculating current year results of foreign operations using the average exchange rate from the prior year. The unfavorable impact of foreign exchange rates on revenue primarily related to S&P Ratings and was driven by the weakening of the Euro to the U.S. dollar.
Total Expenses
The following tables provide an analysis by segment of our operating-related expenses and selling and general expenses for the three months ended March 31:

(in millions) | 2016 |  | 2015 |  | % Change
| Operating- related expenses |  | Selling and general expenses |  | Operating- related expenses |  | Selling and general expenses |  | Operating- related expenses |  | Selling and general expenses
S&P Ratings 1 | $ | 195 |  |  | $ | 87 |  |  | $ | 184 |  |  | $ | 121 |  |  | 6% |  | (28)%
S&P Global Market Intelligence 2 | 171 |  |  | 131 |  |  | 143 |  |  | 103 |  |  | 20% |  | 26%
S&P DJ Indices | 35 |  |  | 14 |  |  | 30 |  |  | 16 |  |  | 11% |  | (7)%
C&C 3 | 79 |  |  | 67 |  |  | 74 |  |  | 59 |  |  | 8% |  | 13%
Intersegment eliminations 4 | (23 | ) |  | — |  |  | (21 | ) |  | — |  |  | (10)% |  | N/M
Total segments | 457 |  |  | 298 |  |  | 410 |  |  | 299 |  |  | 11% |  | —%
Unallocated expense | — |  |  | 32 |  |  | — |  |  | 30 |  |  | N/M |  | 5%
Total | $ | 457 |  |  | $ | 330 |  |  | $ | 410 |  |  | $ | 329 |  |  | 11% |  | 1%

N/M - not meaningful

1 | In 2016 and 2015, selling and general expenses include a benefit related to legal settlement insurance recoveries $15 million and $35 million, respectively, partially offset by legal settlement related of $3 million and $29 million, respectively.

2 | In 2016, selling and general expenses include a technology related impairment charge of $24 million.

3 | In 2016, selling and general expenses include disposition-related costs of $3 million.

4 | Intersegment elimination relates to a royalty charged to S&P Global Market Intelligence for the rights to use and distribute content and data developed by S&P Ratings.

Operating-Related Expenses
Operating-related expenses increased 11%. Increases at S&P Global Market Intelligence were primarily driven by the acquisition of SNL in September of 2015. Increases at S&P Ratings were due to higher compensation costs related to additional headcount, primarily in the second half of 2015.
Intersegment eliminations primarily relate to a royalty charged to S&P Global Market Intelligence for the rights to use and distribute content and data developed by S&P Ratings.
Selling and General Expenses
Selling and general expenses increased 1%. Excluding the unfavorable impact of a technology related impairment charge of 7 percentage points and disposition-related costs of 1 percentage point, partially offset by the favorable impact of insurance recoveries of 2 percentage points, selling and general expenses decreased 6%. Decreases at S&P Ratings driven by lower incentive costs and reduced legal fees following the resolution of a number of significant legal matters were partially offset by increases at C&C and S&P Global Market Intelligence. Increases at S&P Global Market Intelligence were primarily driven by the acquisition of SNL in September of 2015. Increases at C&C were due to higher compensation costs at Platts and J.D. Power primarily related to additional headcount. The additional headcount at J.D. Power was driven by the acquisition of Used Car Guide in July of 2015.
Depreciation and Amortization
Depreciation and amortization increased compared to the first quarter of 2015 due to higher intangible asset amortization in 2016 from the acquisition of SNL in September of 2015 and the acquisition of Used Car Guide in July of 2015.
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Operating Profit
We consider operating profit to be an important measure for evaluating our operating performance and we evaluate operating profit for each of the reportable business segments in which we operate.
We internally manage our operations by reference to “segment operating profit” with economic resources allocated primarily based on segment operating profit. Segment operating profit is defined as operating profit before unallocated expense. Segment operating profit is one of the key metrics we use to evaluate operating performance. Segment operating profit is not, however, a measure of financial performance under U.S. GAAP, and may not be defined and calculated by other companies in the same manner.
The tables below reconcile segment operating profit to total operating profit for the three months ended March 31:

(in millions) | 2016 |  | 2015 |  | % Change
S&P Ratings 1 | $ | 262 |  |  | $ | 291 |  |  | (10)%
S&P Global Market Intelligence 2 | 81 |  |  | 63 |  |  | 29%
S&P DJ Indices 3 | 101 |  |  | 95 |  |  | 6%
C&C 4 | 102 |  |  | 85 |  |  | 20%
Total segment operating profit | 546 |  |  | 534 |  |  | 2%
Unallocated expense | (34 | ) |  | (33 | ) |  | 2%
Total operating profit | $ | 512 |  |  | $ | 501 |  |  | 2%

1 | Operating profit for 2016 and 2015 includes a benefit related to legal settlement insurance recoveries $15 million and $35 million, respectively, partially offset by legal settlement charges of $3 million and $29 million, respectively. Operating profit for 2016 and 2015 also includes amortization of intangibles from acquisitions of $1 million.

2 | Operating profit for 2016 includes a technology related impairment charge of $24 million. Operating profit for 2016 and 2015 also includes amortization of intangibles from acquisitions of $19 million and $6 million, respectively.

3 | Operating profit for 2016 and 2015 includes amortization of intangibles from acquisitions of $1 million.

4 | Operating profit for 2016 includes disposition-related costs of $3 million. Operating profit for 2016 and 2015 also includes amortization of intangibles from acquisitions of $3 million.

Segment Operating Profit — Increased 2% as compared to the first quarter of 2015. Excluding the unfavorable impact of a technology related impairment charge of 4 percentage points, higher amortization of intangibles related to acquisitions of 2 percentage points and disposition-related costs of less than 1 percentage point, partially offset by the favorable impact of insurance recoveries of 1 percentage point, segment operating profit increased 8%. Revenue growth at S&P Global Market Intelligence, C&C and S&P DJ Indices were the primary drivers for the increase. See “Segment Review” below for further information.
Unallocated Expense — These expenses, included in selling and general expenses, mainly include costs for corporate center functions, select initiatives and unoccupied office space. Unallocated expense increased $1 million or 2% as compared to the first quarter of 2015.
Foreign exchange rates had a favorable impact on operating profit of 2 percentage points. This impact refers to constant currency comparisons and the remeasurement of monetary assets and liabilities. Constant currency impacts are estimated by re-calculating current year results of foreign operations using the average exchange rate from the prior year. Remeasurement impacts are based on the variance between current-year and prior-year foreign exchange rate fluctuations on assets and liabilities denominated in currencies other than the individual businesses functional currency.
Interest Expense, net
Net interest expense increased compared to the first quarter of 2015 primarily as a result of higher interest expense related to the $700 million of senior notes issued in the second quarter of 2015 and the $2.0 billion of senior notes issued in the third quarter of 2015.
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Provision for Income Taxes
The effective income tax rate was 31.5% and 32.1% for the three months ended March 31, 2016 and March 31, 2015, respectively. The decrease in the effective income tax rate was due to the resolution of tax audits and lower non-U.S. taxes.
Segment Review
Standard & Poor's Ratings Services
Credit ratings are one of several tools that investors can use when making decisions about purchasing bonds and other fixed income investments. They are opinions about credit risk and our ratings express our opinion about the ability and willingness of an issuer, such as a corporation or state or city government, to meet its financial obligations in full and on time. Our credit ratings can also relate to the credit quality of an individual debt issue, such as a corporate or municipal bond, and the relative likelihood that the issuer may default.
S&P Ratings differentiates its revenue between transaction and non-transaction. Transaction revenue primarily includes fees associated with:

• | ratings related to new issuance of corporate and government debt instruments, and structured finance debt instruments;

• | bank loan ratings; and

• | corporate credit estimates, which are intended, based on an abbreviated analysis, to provide an indication of our opinion regarding creditworthiness of a company which does not currently have an S&P Ratings credit rating.

Non-transaction revenue primarily includes fees for surveillance of a credit rating, annual fees for customer relationship-based pricing programs, fees for entity credit ratings and global research and analytics. Non-transaction revenue also includes an intersegment royalty charged to S&P Global Market Intelligence for the rights to use and distribute content and data by S&P Ratings. Royalty revenue for the three months ended March 31, 2016 and March 31, 2015 was $22 million and $20 million, respectively.
The following table provides revenue and segment operating profit information for the three months ended March 31:

(in millions) | 2016 |  | 2015 |  | % Change
Revenue | $ | 552 |  |  | $ | 606 |  |  | (9)%
Non-transaction revenue | $ | 327 |  |  | $ | 317 |  |  | 3%
Transaction revenue | $ | 225 |  |  | $ | 289 |  |  | (22)%
% of total revenue: |  |  |  |  |
Non-transaction revenue | 59 | % |  | 52 | % |  |
Transaction revenue | 41 | % |  | 48 | % |  |
U.S. revenue | $ | 330 |  |  | $ | 352 |  |  | (6)%
International revenue | $ | 222 |  |  | $ | 254 |  |  | (12)%
% of total revenue: |  |  |  |  |
U.S. revenue | 60 | % |  | 58 | % |  |
International revenue | 40 | % |  | 42 | % |  |
Operating profit 1 | $ | 262 |  |  | $ | 291 |  |  | (10)%
Operating margin % | 47 | % |  | 48 | % |  |

1 | Operating profit for 2016 and 2015 includes a benefit related to legal settlement insurance recoveries $15 million and $35 million, respectively, partially offset by legal settlement charges of $3 million and $29 million, respectively. Operating profit for 2016 and 2015 also includes amortization of intangibles from acquisitions of $1 million.

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Revenue decreased 9%, which includes the unfavorable impact of foreign exchange rates that reduced revenue by 1 percentage point. Transaction revenue decreased driven by reduced market issuance in the U.S. and European region, primarily impacting corporate bond ratings revenue, infrastructure ratings revenue and structured finance revenue. These decreases were partially offset by growth in U.S. bank loan ratings revenue. Non-transaction revenue grew primarily due to growth in surveillance fees, increases at CRISIL, mainly within the risk and analytics sector, and growth in medium-term note and commercial paper programs. These increases were partially offset by a decrease in Ratings Evaluation Service activity and lower entity credit ratings activity driven by a decline in new issuers.
Operating profit decreased 10%. Excluding the favorable impact of insurance recoveries partially offset by legal settlement related charges of 2 percentage points, operating profit decreased 12%. This decrease is primarily due to the decrease in revenue as discussed above and higher compensation costs related to additional headcount, primarily in the second half of 2015. These decreases were partially offset by lower incentive costs and reduced legal fees following the resolution of a number of significant legal matters. Foreign exchange rates had an unfavorable impact on operating profit of less than one percentage point.
Issuance Volumes
We monitor issuance volumes as an indicator of trends in transaction revenue streams within S&P Ratings. Issuance volumes noted within the discussion that follows are based on the domicile of the issuer. Issuance volumes can be reported in two ways: by “domicile” which is based on where an issuer is located or where the assets associated with an issue are located, or based on “marketplace” which is where the bonds are sold. The following tables depict changes in issuance levels as compared to the prior year, based on a composite of Thomson Financial, Harrison Scott Publications, Dealogic and S&P Ratings' internal estimates.

| First Quarter Compared to Prior Year
Corporate Issuance | U.S. |  | Europe
High-yield issuance | (61)% |  | (68)%
Investment-grade | (13)% |  | (3)%
Total new issue dollars — corporate issuance | (23)% |  | (13)%

• | Corporate issuance in the U.S. and Europe was down in the quarter as both high-yield and investment-grade issuance decreased primarily due to market volatility, driven mainly by weakness in China and in commodity prices along with widening credit spreads due to the U.S. Federal Reserve's December interest rate increase.

| First Quarter Compared to Prior Year
Structured Finance | U.S. |  | Europe
Asset-backed securities (“ABS”) | (31)% |  | 4%
Structured Credit | (71)% |  | (32)%
Commercial mortgage-backed securities (“CMBS”) | (29)% |  | (36)%
Residential mortgage-backed securities (“RMBS”) | (44)% |  | 6%
Covered bonds | * |  | 12%
Total new issue dollars — structured finance | (40)% |  | 7%

* | Represents no activity in 2016 and 2015.

• | ABS issuance in the U.S. was down driven by a decline in credit card transactions. ABS issuance in Europe was up as a result of favorable spreads and investors looking for diversification.

• | Issuance was down in the U.S. and European Structured Credit markets driven by lower availability of leveraged loans and overall market volatility.

• | CMBS issuance in the U.S. was down with the mix reflecting a lower proportion of single borrower transactions. European CMBS issuance was also down, although from a low 2015 base.

• | RMBS volume in the U.S. was down driven by minimal activity in the private label securities market. The increase in the European RMBS volume was driven primarily by one large issuance in the quarter.

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• | Covered bond issuance (which are debt securities backed by mortgages or other high-quality assets that remain on the issuer's balance sheet) in Europe was up in the quarter with banks and financial institutions taking advantage of attractive lower rates driven by The European Central Bank's purchase program.

For a further discussion of the legal and regulatory environment see Note 12 – Commitments and Contingencies to the consolidated financial statements of this Form 10-Q.
S&P Global Market Intelligence
S&P Global Market Intelligence's portfolio of capabilities are designed to help the financial community track performance, generate better investment returns (alpha), identify new trading and investment ideas, perform risk analysis, and develop mitigation strategies.
S&P Global Market Intelligence includes the following business lines:

• | Global Risk Services — commercial arm that sells Standard & Poor's Ratings Services' credit ratings and related data, analytics and research, which includes subscription-based offerings, RatingsDirect® and RatingsXpress®;

• | Financial Data & Analytics — a product suite that provides data, analytics and third-party research for global finance professionals, which includes the S&P Capital IQ Desktop, SNL, Leveraged Commentary & Data and integrated bulk data feeds that can be customized, which include QuantHouse, S&P Securities Evaluations, CUSIP and Compustat; and

• | Research & Advisory — a comprehensive source of market research for financial professionals, which includes Global Market Intelligence and Equity Research Services.

The following table provides revenue and segment operating profit information for the three months ended March 31:

(in millions) | 2016 |  | 2015 |  | % Change
Revenue | $ | 407 |  |  | $ | 320 |  |  | 27%
Subscription revenue | $ | 375 |  |  | $ | 287 |  |  | 31%
Non-subscription revenue | 32 |  |  | 33 |  |  | (5)%
% of total revenue: |  |  |  |  |
Subscription revenue | 92 | % |  | 90 | % |  |
Non-subscription revenue | 8 | % |  | 10 | % |  |
U.S. revenue | $ | 280 |  |  | $ | 212 |  |  | 32%
International revenue | $ | 127 |  |  | $ | 108 |  |  | 18%
% of total revenue: |  |  |  |  |
U.S. revenue | 69 | % |  | 66 | % |  |
International revenue | 31 | % |  | 34 | % |  |
Operating profit 1 | $ | 81 |  |  | $ | 63 |  |  | 29%
Operating margin % | 20 | % |  | 20 | % |  |

1 | Operating profit for 2016 includes a technology related impairment charge of $24 million. Operating profit for 2016 and 2015 also includes amortization of intangibles from acquisitions of $19 million and $6 million, respectively.

Revenue increased 27% with revenue favorably impacted by 21 percentage points from the acquisition of SNL. Excluding the acquisition of SNL, revenue growth was primarily driven by increases in annualized contract values in the S&P Capital IQ Desktop, RatingsXpress® and RatingsDirect® from new and existing customers. These increases were partially offset by declines in the equity research business. The unfavorable impact of foreign exchange rates reduced revenue by less than 1 percentage point. The number of users on the S&P Capital IQ Desktop and the number of customers at RatingsXpress® continued to grow in the quarter. RatingsXpress® also continued to benefit from increased compliance requirements which have created a greater need for alternative tools. Both domestic and international revenue across all regions increased, and international revenue represented approximately 31% of S&P Global Market Intelligence's total revenue. International revenue growth across all regions was driven by sales growth of the S&P Capital IQ Desktop and RatingsXpress®in Europe and Asia, and the favorable impact of the acquisition of SNL.
34

Operating profit increased 29%. Excluding the unfavorable impact of a technology related impairment charge of 34 percentage points and amortization of intangibles from acquisitions of 18 percentage points, operating profit increased 81%. This increase is due to revenue growth and the favorable impact of foreign exchange rates of 15 percentage points, partially offset by higher compensation costs and increased technology costs related to the acquisition of SNL. Excluding the acquisition of SNL, expenses decreased compared to the first quarter of 2015 driven by lower compensation costs primarily due to a reduction in headcount and the favorable impact of foreign exchange rates.
In February of 2016, we entered into a definitive agreement to sell SPSE and CMA, two businesses within our S&P Global Market Intelligence segment, to Intercontinental Exchange, an operator of global exchanges, clearing houses and data services. The sale is subject to extended regulatory anti-trust review and is expected to close shortly after completion of this extended review. As a result, we have classified the assets and liabilities of SPSE and CMA as held for sale in our consolidated balance sheet as of March 31, 2016.
S&P Dow Jones Indices
S&P DJ Indices is a global index provider that maintains a wide variety of indices to meet an array of investor needs. S&P DJ Indices’ mission is to provide transparent benchmarks to help with decision making, collaborate with the financial community to create innovative products and provide investors with tools to monitor world markets.
S&P DJ Indices generates subscription revenue and transaction revenue but primarily derives revenue from asset linked fees based on the S&P and Dow Jones Indices. Specifically, S&P DJ Indices generates revenue from the following sources:

• | Investment vehicles — such as ETFs, which are based on the S&P Dow Jones Indices' benchmarks and generate revenue through fees based on assets and underlying funds;

• | Exchange traded derivatives — which generate royalties based on trading volumes of derivatives contracts listed on various exchanges;

• | Index-related licensing fees — which are either fixed or variable annual and per-issue fees for over-the-counter derivatives and retail-structured products; and

• | Data and customized index subscription fees — which support index fund management, portfolio analytics and research.

35

The following table provides revenue and segment operating profit information for the three months ended March 31:

(in millions) | 2016 |  | 2015 |  | % Change
Revenue | $ | 151 |  |  | $ | 143 |  |  | 5%
Asset linked fees | $ | 86 |  |  | $ | 92 |  |  | (6)%
Subscription revenue | $ | 32 |  |  | $ | 29 |  |  | 8%
Transaction revenue | $ | 33 |  |  | $ | 22 |  |  | 51%
% of total revenue: |  |  |  |  |
Asset linked fees | 57 | % |  | 64 | % |  |
Subscription revenue | 21 | % |  | 20 | % |  |
Transaction revenue | 22 | % |  | 15 | % |  |
U.S. revenue | $ | 125 |  |  | $ | 114 |  |  | 10%
International revenue | $ | 26 |  |  | $ | 29 |  |  | (12)%
% of total revenue: |  |  |  |  |
U.S. revenue | 83 | % |  | 80 | % |  |
International revenue | 17 | % |  | 20 | % |  |
Operating profit 1 | $ | 101 |  |  | $ | 95 |  |  | 6%
Less: net operating profit attributable to noncontrolling interests | 26 |  |  | 25 |  |  |
Net operating profit | $ | 75 |  |  | $ | 70 |  |  | 5%
Operating margin % | 67 | % |  | 67 | % |  |
Net operating margin % | 49 | % |  | 49 | % |  |

1 | Operating profit for 2016 and 2015 includes amortization of intangibles from acquisitions of $1 million.

Revenue at S&P DJ Indices increased 5%, primarily driven by higher volumes for exchange-traded derivatives, partially offset by lower average levels of assets under management ("AUM") for ETFs. Average AUM for ETFs declined 5% to $774 billion compared to the first quarter of 2015 primarily driven by the impact of lower equity prices. However, ending AUM in the first quarter of 2016 increased 2% to $828 billion compared to ending AUM of $810 billion in the first quarter of 2015. The unfavorable impact of foreign exchange rates reduced revenue by less than 1 percentage point.
Operating profit grew 6%. Excluding amortization of intangibles related to acquisitions of less than 1 percentage point, operating profit increased 5%. This increase was primarily due to revenue growth, partially offset by increased compensation costs due to additional headcount. Foreign exchange rates had a favorable impact on operating profit of 1 percentage point.
Commodities & Commercial Markets
C&C consists of business-to-business companies specializing in the commodities and commercial markets that deliver their customers access to high-value information, data, analytic services and pricing and quality benchmarks. C&C includes the following brands:

• | Platts — provides essential price data, analytics, and industry insight that enable commodities markets to perform with greater transparency and efficiency; and

• | J.D. Power — provides essential consumer intelligence to help businesses measure, understand, and improve the key performance metrics that drive growth and profitability.

The C&C business is driven by the need for high-value information and transparency in a variety of industries. C&C seeks to deliver premier content that is deeply embedded in customer workflows and decision making processes.
C&C's revenue is generated primarily through the following sources:
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• | Subscription revenue — subscriptions to our real-time news, market data and price assessments, along with other information products, primarily serving the energy and the automotive industry; and

• | Non-subscription revenue — primarily from licensing of our proprietary market price data and price assessments to commodity exchanges, syndicated and proprietary research studies, commercial-oriented data and analytics, conference sponsorship, consulting engagements, and events.

The following table provides revenue and segment operating profit information for the three months ended March 31:

(in millions) | 2016 |  | 2015 |  | % Change
Revenue | $ | 254 |  |  | $ | 225 |  |  | 13%
Subscription revenue | $ | 172 |  |  | $ | 149 |  |  | 16%
Non-subscription revenue | $ | 82 |  |  | $ | 76 |  |  | 8%
% of total revenue: |  |  |  |  |
Subscription revenue | 68 | % |  | 66 | % |  |
Non-subscription revenue | 32 | % |  | 34 | % |  |
U.S. revenue | $ | 116 |  |  | $ | 98 |  |  | 19%
International revenue | $ | 138 |  |  | $ | 127 |  |  | 8%
% of total revenue: |  |  |  |  |
U.S. revenue | 46 | % |  | 43 | % |  |
International revenue | 54 | % |  | 57 | % |  |
Operating profit 1 | $ | 102 |  |  | $ | 85 |  |  | 20%
Operating margin % | 40 | % |  | 38 | % |  |

1 | Operating profit for 2016 includes disposition-related costs of $3 million. Operating profit for 2016 and 2015 also includes amortization of intangibles from acquisitions of $3 million.

Revenue grew 13% primarily due to continued demand for Platts’ proprietary content. This growth was driven mainly by continued demand for Platts’ market data and price assessment products, led by petroleum. Additionally, growth has been driven by the continued licensing of our proprietary market price data and price assessments to various commodity exchanges. Platts' revenue was also favorably impacted by the acquisition of Petromedia Ltd and its operating subsidiaries in July of 2015. J.D. Power also contributed to the revenue increase primarily due to the acquisition of UCG in July of 2015, an increase in auto consulting engagements in the U.S. and China, and growth in data and analytics revenue. The unfavorable impact of foreign exchange rates reduced revenue by less than 1 percentage point.
Operating profit increased 20%. Excluding the unfavorable impact of disposition costs of 1 percentage point, operating profit increased 21%. This increase is primarily due to the increase in revenue and the favorable impact of foreign exchange rates of 3 percentage points, partially offset by higher compensation costs at Platts and J.D. Power primarily related to additional headcount and higher outside consulting fees related to new initiatives at Platts. The additional headcount at J.D. Power was driven by the acquisition of UCG in July of 2015.
In April of 2016, we entered into a definitive agreement to sell J.D. Power for $1.1 billion to XIO Group, a global alternative investments firm headquartered in London. In the fourth quarter of 2015, we began exploring strategic alternatives for J.D. Power and initiated an active program to sell the business. The assets and liabilities of J.D. Power have been classified as held for sale in our consolidated balance sheet as of March 31, 2016 and December 31, 2015.
For a further discussion of the legal and regulatory environment see Note 12 – Commitments and Contingencies to the consolidated financial statements of this Form 10-Q.
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LIQUIDITY AND CAPITAL RESOURCES
We continue to maintain a strong financial position. Our primary source of funds for operations is cash from our businesses and our core businesses have been strong cash generators. Cash on hand, cash flows from operations and availability under our existing credit facility are expected to be sufficient to meet any additional operating and recurring cash needs into the foreseeable future. We use our cash for a variety of needs, including among others: ongoing investments in our businesses, strategic acquisitions, share repurchases, dividends, repayment of debt, capital expenditures and investment in our infrastructure.
Cash Flow Overview
Cash and cash equivalents were $1,600 million as of March 31, 2016, an increase of $119 million from December 31, 2015, and consisted of approximately 10% of domestic cash and 90% of cash held abroad. Typically, cash held outside the U.S. is anticipated to be utilized to fund international operations or to be reinvested outside of the U.S., as a significant portion of our opportunities for growth in the coming years is expected to be abroad. In the event funds from international operations are needed to fund operations in the U.S., we would be required to accrue for and pay taxes in the U.S. to repatriate these funds.
The following table provides cash flow information for the three months ended March 31:

(in millions) | 2016 |  | 2015 |  | % Change
Net cash provided by (used for): |  |  |  |  |
Operating activities from continuing operations | $ | 133 |  |  | $ | (1,349 | ) |  | N/M
Investing activities from continuing operations | $ | (24 | ) |  | $ | (19 | ) |  | 26%
Financing activities from continuing operations | $ | 11 |  |  | $ | 220 |  |  | (95)%

N/M - not meaningful
In the first three months of 2016, free cash flow increased to $84 million compared to $(1,395) million in the first three months of 2015. The increase is primarily due to the increase in cash provided by (used for) operating activities as discussed below. Free cash flow is a non-GAAP financial measure and reflects our cash flow provided by (used for) operating activities less capital expenditures and dividends and other payments paid to noncontrolling interests. Capital expenditures include purchases of property and equipment and additions to technology projects. See “Reconciliation of Non-GAAP Financial Information” below for a reconciliation of cash flow provided by operating activities, the most directly comparable U.S. GAAP financial measure, to free cash flow and free cash flow excluding certain items.
Operating activities
Cash provided by operating activities was $133 million for the first three months of 2016 compared to cash used for operating activities of $1,349 million for the first three months of 2015. The increase is mainly due to the payment of legal and regulatory settlements in 2015.
Investing activities
Our cash outflows from investing activities are primarily for acquisitions and capital expenditures, while cash inflows are primarily proceeds from dispositions.
Cash used for investing activities increased to $24 million for the first three months of 2016 as compared to $19 million in the first three months of 2015, primarily due to cash paid for acquisitions in 2016. See Note 2 — Acquisitions and Divestitures for further discussion.
Financing activities
Our cash outflows from financing activities consist primarily of share repurchases, dividends to shareholders and repayments of short-term and long-term debt, while cash inflows are primarily attributable to the borrowing of short-term and long-term debt and proceeds from the exercise of stock options.
Cash provided by financing activities was $11 million in the first three months of 2016 as compared to $220 million in the first three months of 2015. The decrease is primarily attributable to an increase in cash used for share repurchases in 2016 .
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During the first three months of 2016, we used cash to repurchase 2.4 million shares for $226 million. In December of 2015, we purchased 0.3 million shares for approximately $26 million, which settled in January of 2016. During the first three months of 2015, we used cash to repurchase 1.1 million shares for $110 million.
Discontinued Operations
Cash used for operating activities from discontinued operations of $129 million in the first three months of 2015 relates to the tax payment on the gain on sale of McGraw Hill Construction which was sold in the fourth quarter of 2014.
Additional Financing
We have the ability to borrow a total of $1.2 billion through our commercial paper program, which is supported by our revolving $1.2 billion five-year credit agreement (our “credit facility”) that we entered into on June 30, 2015. This credit facility will terminate on June 30, 2020. Commercial paper borrowings outstanding as of March 31, 2016 and December 31, 2015 totaled $322 million and $143 million, respectively with an average interest rate and term of 0.91% and 24 days and 0.95% and 17 days, respectively. Our revolving line of credit outstanding as of March 31, 2016 totaled $150 million with an interest rate of 1.68% and residual term of 25 days. There were no amounts outstanding on the revolving line of credit as of December 31, 2015. As of March 31, 2016, we can borrow approximately $728 million in additional funds under our credit facility.
We pay a commitment fee of 10 to 20 basis points for our credit facility, depending on our indebtedness to cash flow ratio, whether or not amounts have been borrowed, and currently pay a commitment fee of 15 basis points. The interest rate on borrowings under our credit facility is, at our option, calculated using rates that are primarily based on either the prevailing London Inter-Bank Offer Rate, the prime rate determined by the administrative agent or the Federal Funds Rate. For certain borrowings under this credit facility, there is also a spread based on our indebtedness to cash flow ratio added to the applicable rate.
Our credit facility contains certain covenants. The only financial covenant requires that our indebtedness to cash flow ratio, as defined in our credit facility, is not greater than 4 to 1, and this covenant level has never been exceeded.
Dividends
On January 27, 2016, the Board of Directors approved an increase in the quarterly common stock dividend from $0.33 per share to $0.36 per share.
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION
Free cash flow is a non-GAAP financial measure and reflects our cash flow provided by (used for) operating activities less capital expenditures and dividends and other payments paid to noncontrolling interests. Capital expenditures include purchases of property and equipment and additions to technology projects. Our cash flow provided by operating activities is the most directly comparable U.S. GAAP financial measure to free cash flow. Additionally, we have considered certain items in evaluating free cash flow, which are included in the table below.
We believe the presentation of free cash flow and free cash flow excluding certain items allows our investors to evaluate the cash generated from our underlying operations in a manner similar to the method used by management. We use free cash flow to conduct and evaluate our business because we believe it typically presents a more conservative measure of cash flows since capital expenditures and dividends and other payments paid to noncontrolling interests are considered a necessary component of ongoing operations. Free cash flow is useful for management and investors because it allows management and investors to evaluate the cash available to us to service debt, make strategic acquisitions and investments, repurchase stock and fund ongoing operational and working capital needs.
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The presentation of free cash flow and free cash flow excluding certain items are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. Free cash flow, as we calculate it, may not be comparable to similarly titled measures employed by other companies. The following table presents a reconciliation of our cash flow provided by operating activities to free cash flow excluding the impact of the items below for the three months ended March 31:

(in millions) | 2016 |  | 2015
Cash provided by (used for) operating activities from continuing operations | $ | 133 |  |  | $ | (1,349 | )
Capital expenditures | (16 | ) |  | (16 | )
Dividends and other payments paid to noncontrolling interests | (33 | ) |  | (30 | )
Free cash flow | 84 |  |  | (1,395 | )
Payment of legal and regulatory settlements | 108 |  |  | 1,559 |
Legal settlement insurance recoveries | — |  |  | (30 | )
Tax benefit from legal settlements | — |  |  | (28 | )
Free cash flow excluding above items | $ | 192 |  |  | $ | 106 |

CRITICAL ACCOUNTING ESTIMATES
Our accounting policies are described in Note 1 — Accounting Policies to the consolidated financial statements in our Form 10-K. As discussed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Form 10-K, we consider an accounting estimate to be critical if it required assumptions to be made that were uncertain at the time the estimate was made and changes in the estimate or different estimates could have a material effect on our results of operations. These critical estimates include those related to revenue recognition, allowance for doubtful accounts, valuation of long-lived assets, goodwill and other intangible assets, pension plans, incentive compensation and stock-based compensation, income taxes, contingencies and redeemable non-controlling interests. We base our estimates on historical experience, current developments and on various other assumptions that we believe to be reasonable under these circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that cannot readily be determined from other sources. There can be no assurance that actual results will not differ from those estimates. Since the date of our Form 10-K, there have been no changes to our critical accounting estimates.
RECENTLY ISSUED OR ADOPTED ACCOUNTING STANDARDS
See Note 13 – Recently Issued or Adopted Accounting Standards to the consolidated financial statements of this Form 10-Q for further information.
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FORWARD-LOOKING STATEMENTS
This report 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 in 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, management may use forward-looking statements when addressing topics such as: the outcome of contingencies; future actions by regulators; changes in the Company’s business strategies and methods of generating revenue; the development and performance of the Company’s services and products; the expected impact of acquisitions and dispositions; the Company’s effective tax rates; and the Company’s cost structure, dividend policy, cash flows or liquidity.
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 forward-looking statements include, among other things:

• | the impact of mergers, acquisitions or other business combinations, including the integration of SNL and the disposition of J.D. Power, the Company’s ability to successfully integrate acquired businesses, unexpected costs, charges or expenses resulting from any business combination, and any failure to attract and retain key employees or to realize the intended tax benefits of any business combination;

• | the health of debt and equity markets, including credit quality and spreads, the level of liquidity and future debt issuances;

• | 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 Global Market Intelligence and the Company’s other businesses, including new and amended regulations and the Company’s compliance therewith;

• | the outcome of litigation, government and regulatory proceedings, investigations and inquiries;

• | worldwide economic, financial, political and regulatory conditions;

• | the level of interest rates and the strength of the credit and capital markets in the United States and abroad;

• | the demand and market for credit ratings in and across the sectors and geographies where the Company operates;

• | concerns in the marketplace affecting the Company’s credibility or otherwise affecting market perceptions of the integrity or utility of independent credit ratings;

• | the Company’s 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 or improper disclosure of confidential information or data;

• | the effect of competitive products and pricing;

• | consolidation in the Company’s end-customer markets;

• | 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 developments and global expansion;

• | the level of merger and acquisition activity in the United States 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;

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• | the level of the Company’s future cash flows;

• | the Company’s ability to make acquisitions and dispositions and to integrate, and realize expected synergies, savings or benefits from the businesses it acquires;

• | the level of the Company’s capital investments;

• | the level of restructuring charges the Company incurs;

• | the strength and performance of the domestic and international automotive markets;

• | the Company’s ability to successfully recover should it experience a disaster or other business continuity problem from a hurricane, flood, earthquake, terrorist attack, pandemic, security breach, cyber-attack, power loss, telecommunications failure or other natural or man-made event;

• | changes in applicable tax or accounting requirements;

• | the impact on the Company’s revenue and net income caused by fluctuations in foreign currency exchange rates; and

• | the Company’s exposure to potential criminal sanctions or civil penalties if it fails to comply with foreign and U.S. laws and regulations that are applicable in the domestic and international jurisdictions in which it operates, including sanctions laws relating to countries such as Iran, Russia, Sudan and Syria, anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act of 2010, and local laws prohibiting corrupt payments to government officials, as well as import and export restrictions.

The factors noted above are not exhaustive. The Company and its subsidiaries operate in a dynamic business environment in which new risks emerge frequently. Accordingly, the Company cautions readers not to place undue reliance on any 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, except as required by applicable law. Further information about the Company’s businesses, including information about factors that could materially affect its results of operations and financial condition, is contained in the Company’s filings with the SEC, including the “Risk Factors” section in the Company’s most recently filed Annual Report on Form 10-K.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk includes changes in foreign exchange rates. We have operations in foreign countries where the functional currency is primarily the local currency. For international operations that are determined to be extensions of the parent company, the U.S. dollar is the functional currency. We typically have naturally hedged positions in most countries from a local currency perspective with offsetting assets and liabilities. As of March 31, 2016 and December 31, 2015, we entered into foreign exchange forward contracts to hedge the effect of adverse fluctuations in foreign currency exchange rates. We have not entered into any derivative financial instruments for speculative purposes. See Note 5 - Derivative Instruments to the consolidated financial statements of this Form 10-Q for further discussion.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed so that information required to be disclosed in our reports filed with the U.S. Securities and Exchange Commission (the “SEC”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.
As of March 31, 2016, an evaluation was performed under the supervision and with the participation of management, including the CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of March 31, 2016.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the most recent quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
See Note 12 – Commitments and Contingencies - Legal & Regulatory Matters to the consolidated financial statements of this Form 10-Q for information on our legal proceedings.
Item 1a. Risk Factors
Our Form 10-K contains detailed cautionary statements which identify all known material risks, uncertainties and other factors that could cause our actual results to differ materially from historical or expected results. There have been no material changes to the risk factors we have previously disclosed in Item 1a, Risk Factors, in our Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On December 4, 2013, the Board of Directors approved a share repurchase program authorizing the purchase of up to 50 million shares, which was approximately 18% of the Company's outstanding shares at that time. During the first quarter of 2016, we repurchased 2.2 million shares and, as of March 31, 2016, 33.3 million shares remained under our current repurchase program.
Repurchased shares may be used for general corporate purposes, including the issuance of shares for stock compensation plans and to offset the dilutive effect of the exercise of employee stock options. The 2013 repurchase program has no expiration date and purchases under this program may be made from time to time on the open market and in private transactions, depending on market conditions.
The following table provides information on our purchases of our outstanding common stock during the first quarter of 2016 pursuant to our current share repurchase program (column c). In addition to these purchases, the number of shares in column (a) include: 1) shares of common stock that are tendered to us to satisfy our employees’ tax withholding obligations in connection with the vesting of awards of restricted shares (we repurchase such shares based on their fair market value on the vesting date), and 2) our shares deemed surrendered to us to pay the exercise price and to satisfy our employees’ tax withholding obligations in connection with the exercise of employee stock options. There were no other share repurchases during the quarter outside the repurchases noted below.
(amounts in millions, except per share price)

Period |  | (a) Total Number of Shares Purchased |  | (b) Average Price Paid per Share |  | (c) Total Number of Shares Purchased as Part of Publicly Announced Programs |  | (d) Maximum Number of Shares that may yet be Purchased Under the Programs
Jan. 1 — Jan. 31, 2016 |  | — |  |  | $ | 95.54 |  |  | — |  |  | 35.5 |
Feb. 1 — Feb. 29, 2016 |  | 1.3 |  |  | 87.11 |  |  | 0.8 |  |  | 34.7 |
Mar. 1 — Mar. 31, 2016 |  | 1.4 |  |  | 94.58 |  |  | 1.4 |  |  | 33.3 |
Total — Qtr |  | 2.7 |  |  | $ | 91.04 |  |  | 2.2 |  |  | 33.3 |

Item 5. Other Information
IRAN THREAT REDUCTION AND SYRIA HUMAN RIGHTS ACT DISCLOSURE
Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which amended the Securities Exchange Act of 1934, an issuer is required to disclose in its annual or quarterly reports, as applicable, whether, during the reporting period, it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with individuals or entities designated pursuant to certain Executive Orders. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable laws and regulations.
Revenue during the first quarter of 2016 attributable to the transactions or dealings by the Company described below was approximately $190,456, with net profit from such sales being a fraction of the revenues.
During the first quarter of 2016, one of the Company’s divisions, a provider of energy-related information in over 150 countries, sold information and informational materials, which are generally exempt from U.S. economic sanctions, to thirteen
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subscribers that are owned or controlled, or appear to be owned or controlled, by the Government of Iran (the “GOI”), including one that was also designated by the Treasury Department’s Office of Foreign Assets Control (“OFAC”) pursuant to Executive Order 13382 for part of the first quarter. The Company, among other things, offers customers that subscribe to its publications access to proprietary data, analytics, and industry information that enable commodities markets to perform with greater transparency and efficiency. This division provided such data related to the energy and petrochemicals markets to the subscribers referenced above, generating revenue that was a de minimis portion of both the division's and the Company’s revenue. One of the subscribers is designated by OFAC as a GOI entity and was, until January 16, 2016, designated by OFAC pursuant to Executive Order 13382; seven are designated by OFAC as GOI entities; and five appear, based on publicly available information, to be owned or controlled by GOI entities. We believe that these transactions were permissible under U.S. sanctions pursuant to certain statutory and regulatory exemptions for the exportation of information and informational materials. The Company will continue to monitor its provision of products and services to these Iranian customers so that such activity continues to be permissible under U.S. sanctions.
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Item 6. Exhibits

(10.1) | Registrant's Senior Executive Severance Plan, amended and restated as of January 1, 2016
(10.2) | Registrant's 401(k) Savings and Profit Sharing Supplement, amended and restated as of January 1, 2016
(10.3) | Registrant’s 2002 Stock Incentive Plan, as amended and restated as of January 1, 2016
(10.4) | Registrant’s Key Executive Short Term Incentive Compensation Plan, as amended effective January 1, 2016
(10.5) | Form of Performance Share Unit Terms and Conditions
(10.6) | Form of Restricted Stock Unit Award Terms and Conditions
(10.7) | Letter Agreement dated February 18, 2016, with Imogen Dillon Hatcher regarding certain amendments to her Contract of Employment with McGraw-Hill International (U.K.) Limited, dated November 27, 2013
(10.8) | Separation Agreement and Release dated October 30, 2015 between the Company and Lucy Fato
(12) | Computation of Ratio of Earnings to Fixed Charges
(15) | Letter on Unaudited Interim Financials
(31.1) | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
(31.2) | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
(32) | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(101.INS) | XBRL Instance Document
(101.SCH) | XBRL Taxonomy Extension Schema
(101.CAL) | XBRL Taxonomy Extension Calculation Linkbase
(101.LAB) | XBRL Taxonomy Extension Label Linkbase
(101.PRE) | XBRL Taxonomy Extension Presentation Linkbase
(101.DEF) | XBRL Taxonomy Extension Definition Linkbase

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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

|  |  | McGraw Hill Financial, Inc.
|  |  | Registrant
Date: | April 26, 2016 | By: | /s/ Jack F. Callahan, Jr.
|  |  | Jack F. Callahan, Jr.
|  |  | Executive Vice President and Chief Financial Officer
Date: | April 26, 2016 | By: | /s/ Robert J. MacKay
|  |  | Robert J. MacKay
|  |  | Senior Vice President and Corporate Controller

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