Acquisitions and Divestitures

2015

For the year ended December 31, 2015, we paid cash for acquisitions, net of cash acquired, totaling $2.4 billion. We used the net proceeds of our $2.0 billion of senior notes issued in August of 2015 and cash on hand to finance the acquisition of SNL. All other acquisitions were funded with cash flows from operations. Acquisitions completed during the year ended December 31, 2015 by segment included:

S&P Capital IQ and SNL

•

On September 1, 2015 (the "Acquisition Date"), we acquired SNL Financial LC ("SNL") for $2.225 billion in cash, subject to working capital adjustments. SNL's results of operations have been included in our consolidated statements of income subsequent to the Acquisition Date. SNL is a global provider of news, data, and analytical tools to five sectors in the global economy: financial services, real estate, energy, media & communications, and metals & mining. SNL delivers information through its suite of web, mobile and direct data feed platforms that helps clients, including investment and commercial banks, investors, corporations, and regulators make decisions, improve efficiency, and manage risk.

Acquisition-Related Expenses

During the year ended December 31, 2015, the Company incurred approximately $37 million of acquisition-related costs related to the acquisition of SNL. These expenses are included in selling and general expenses in our consolidated statements of income.

Preliminary Allocation of Purchase Price

Our acquisition of SNL was accounted for using the purchase method. Under the purchase method, the excess of the purchase price over the fair value of the net assets acquired is allocated to goodwill and other intangibles. The goodwill recognized is largely attributable to anticipated operational synergies and growth opportunities as a result of the acquisition. The intangible assets, excluding goodwill and indefinite-lived intangibles, will be amortized over their anticipated useful lives between 10 and 18 years which will be determined when we finalize our purchase price allocation. The goodwill is expected to be deductible for tax purposes.

The following table presents the preliminary allocation of purchase price to the assets and liabilities of SNL as a result of the acquisition.



(in millions)
Current assets	$	23
Property, plant and equipment	19
Goodwill	1,563
Other intangible assets, net:
Databases and software	421
Customer relationships	162
Tradenames	185
Other intangibles	4
Other intangible assets, net	772
Other non-current assets	1
Total assets acquired	2,378
Current liabilities	(23		)
Unearned revenue	(117		)
Other non-current liabilities	(4		)
Total liabilities acquired	(144		)
Net assets acquired	$	2,234

The Company has performed a preliminary valuation analysis of the fair market value of assets and liabilities of the SNL Financial business. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation. The final allocation may include (1) changes in fair values of property, plant and equipment, (2) changes in allocations to intangible assets as well as goodwill and (3) other changes to assets and liabilities.

Supplemental Pro Forma Information

Supplemental information on an unaudited pro forma basis is presented below for the years ended December 31, 2015 and 2014 as if the acquisition of SNL occurred on January 1, 2014. The pro forma financial information is presented for comparative purposes only, based on estimates and assumptions, which the Company believes to be reasonable but not necessarily indicative of the consolidated financial position or results of operations in future periods or the results that actually would have been realized had this acquisition been completed at the beginning of 2015. The unaudited pro forma information includes intangible asset charges and incremental borrowing costs as a result of the acquisition, net of related tax, estimated using the Company's effective tax rate for continuing operations for the periods presented.



(in millions)	Year Ended December 31,
	2015		2014
Pro forma revenue	$	5,477	$	5,275
Pro forma net income (loss) from continuing operations	$	1,258	$	(251	)

C&C

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In July of 2015, we acquired the entire issued share capital of Petromedia Ltd and its operating subsidiaries (“Petromedia”), an independent provider of data, intelligence, news and tools to the global fuels market that offers a suite of products that provides clients with actionable data and intelligence that enable informed decisions, minimize risk and increase efficiency. We accounted for the acquisition of Petromedia using the purchase method of accounting. The acquisition of Petromedia is not material to our consolidated financial statements.

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In July of 2015, we acquired National Automobile Dealers Association's Used Car Guide (“UCG”), a leading provider of U.S. retail, trade-in and auction used-vehicle values. The acquisition of UCG expanded our analytical and modeling capabilities while deepening our presence in auto finance and auto insurance, and enriching retail solutions. We accounted for the acquisition of UCG using the purchase method of accounting. The acquisition of UCG is not material to our consolidated financial statements.

Following our acquisition of UCG, we made a contingent purchase price payment in 2015 for $5 million that has been reflected in the consolidated statement of cash flows as a financing activity.

For acquisitions during 2015 that were accounted for using the purchase method, the excess of the purchase price over the fair value of the net assets acquired is allocated to goodwill and other intangibles. Intangible assets recorded for all transactions are amortized using the straight-line method for periods not exceeding 18 years.

2014

For the year ended December 31, 2014, we paid cash for acquisitions, net of cash acquired, totaling $82 million. None of our acquisitions were material either individually or in the aggregate, including the pro forma impact on earnings. All acquisitions were funded with cash flows from operations. Acquisitions completed during the year ended December 31, 2014 by segment included:

S&P Ratings

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In October of 2014, we acquired BRC Investor Services S.A. (“BRC”), a Colombia-based ratings firm providing risk classifications of banks, financial services providers, insurance companies, corporate bonds and structured issues that will expand our presence in the Latin American credit markets. We accounted for the acquisition of BRC using the purchase method of accounting. The acquisition is not material to our consolidated financial statements.


•	Following CRISIL's acquisition of Coalition Development Ltd. ("Coalition") that occurred in July of 2012, we made a contingent purchase price payment in 2014 for $11 million that has been reflected in the consolidated statement of cash flows as a financing activity.

C&C

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In July of 2014, we acquired Eclipse Energy Group AS and its operating subsidiaries (“Eclipse”), which provides a comprehensive suite of data and analytics products on the European natural gas and liquefied natural gas markets as well as a range of advisory services leveraging Eclipse’s knowledge base, data capabilities, and modeling suite of products. This transaction complements our North American natural gas capabilities, which we obtained from our Bentek Energy LLC acquisition in 2011. We accounted for the acquisition of Eclipse using the purchase method of accounting. The acquisition of Eclipse is not material to our consolidated financial statements.

S&P DJ Indices

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In March of 2014, we acquired the intellectual property of a family of Broad Market Indices (“BMI”) from Citigroup Global Markets Inc. The BMI provides a broad measure of the global equities markets which includes approximately 11,000 companies in more than 52 countries covering both developed and emerging markets. We accounted for the acquisition of the intellectual property on a cost basis and it was not material to our consolidated financial statements.

For acquisitions during 2014 that were accounted for using the purchase method, the excess of the purchase price over the fair value of the net assets acquired is allocated to goodwill and other intangibles. Intangible assets recorded for all transactions are amortized using the straight-line method for periods not exceeding 7 years. None of the goodwill acquired from our acquisitions during 2014 will be deductible for tax purposes.

2013

For the year ended December 31, 2013, we paid cash for acquisitions, net of cash acquired, totaling $273 million. None of our acquisitions were material either individually or in the aggregate, including the pro forma impact on earnings. All acquisitions were funded with cash flows from operations. Acquisitions completed during the year ended December 31, 2013 by segment included:

S&P DJ Indices

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In December of 2013, we purchased the intellectual property rights to a range of commodities indices developed by Goldman Sachs as well as a limited-use license to promote the commodities indices using the Goldman Sachs Commodity Index trademarks. The commodities indices provide us with a leading benchmark that measures general price movements and inflation in the world economy. We accounted for the acquisition of the intellectual property on a cost basis.

S&P Ratings

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In June of 2013, we made a voluntary open offer to purchase up to an additional 22.23% of the total equity shares outstanding in CRISIL Limited ("CRISIL"), our majority owned Indian credit rating agency within our S&P Ratings segment. In August of 2013, at the conclusion of the tender offer period, we acquired approximately 11 million equity shares representing 15.07% of CRISIL's total outstanding equity shares for $214 million, increasing our ownership percentage in CRISIL to 67.84% from 52.77%.

Following CRISIL's acquisition of Coalition that occurred in July of 2012, we made a contingent purchase price payment in 2013 for $12 million that has been reflected in the consolidated statement of cash flows as a financing activity.

Intangible assets recorded for all transactions during 2013 are considered intangible assets with indefinite lives which are not amortized, but instead are tested for impairment annually during the fourth quarter each year or more frequently if events or changes in circumstances indicate that the asset might be impaired.

Goodwill consists primarily of intangible assets that do not qualify for separate recognition, including assembled workforce, noncontractual relationships and agreements. The goodwill is not expected to be deductible for tax purposes.

Non-cash investing activities

Liabilities assumed in conjunction with the acquisition of businesses are as follows:



(in millions)	Years ended December 31,
	2015		2014		2013
Fair value of assets acquired	$	2,576	$	67	$	—
Cash paid (net of cash acquired)	2,401		52		—
Liabilities assumed ¹	$	175	$	15	$	—

¹2013 acquisitions did not result in any liabilities assumed.

Divestitures - Continuing Operations

During the year ended December 31, 2015, we recorded a pre-tax gain of $11 million within other (income) loss in the consolidated statement of income related to the sale of our interest in a legacy McGraw Hill Construction investment.

In the fourth quarter of 2015, we began exploring strategic alternatives for J.D. Power, included in our C&C segment. We committed to and initiated an active program to sell J.D. Power in its current state that we believe is probable in the next year. As a result, we have classified the assets and liabilities of J.D. Power as held for sale in our consolidated balance sheet as of December 31, 2015. The anticipated disposal does not represent a strategic shift that will have a major effect on operations and financial results, therefore, it is not classified as a discontinued operation.

The components of assets and liabilities held for sale related to J.D. Power in the consolidated balance sheet consist of the following:



(in millions)	December 31,
	2015
Accounts receivable, net	$	58
Goodwill	75
Other intangible assets, net	335
Other assets	35
Assets of a business held for sale	$	503

Accounts payable and accrued expenses	$	42
Unearned revenue	64
Other liabilities	100
Liabilities of a business held for sale	$	206

The operating profit of J.D. Power for the years ending December 31, 2015, 2014 and 2013 is as follows:



(in millions)	Years ended December 31,
	2015		2014		2013
J.D. Power operating profit	$	53	$	44	$	35

During the year ended December 31, 2014, we completed the following dispositions that resulted in a net pre-tax loss of $9 million, which was included in other (income) loss in the consolidated statement of income:

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On July 31, 2014, we completed the sale of the Company's aircraft to Harold W. McGraw III, then Chairman of the Company's Board of Directors and former President and CEO of the Company for a purchase price of $20 million. During the second quarter of 2014, we recorded a non-cash impairment charge of $6 million within other (income) loss in our consolidated statement of income as a result of the pending sale. See Note 13 — Related Party Transactions for further information.

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On June 30, 2014, we completed the sale of our data center to Quality Technology Services, LLC which owns, operates and manages data centers. Net proceeds from the sale of $58 million were received in July of 2014. The sale included all of the facilities and equipment on the south campus of our East Windsor, New Jersey location, inclusive of the rights and obligations associated with an adjoining solar power field. The sale resulted in an expense of $3 million recorded within other (income) loss in our consolidated statement of income, which is in addition to the non-cash impairment charge we recorded in the fourth quarter of 2013.

During the year ended December 31, 2013, we completed the following dispositions that resulted in a net pre-tax gain of $24 million, which was included in other (income) loss in the consolidated statement of income:


•	On September 30, 2013, we completed the sale of Financial Communications, which was part of our S&P Capital IQ segment.


•	On August 27, 2013, CRISIL sold its 49% equity interest in India Index Services & Products Ltd. This investment was held within our S&P Ratings segment.


•	On August 1, 2013, we completed the sale Aviation Week within our C&C segment to Penton, a privately held business information company.

Additionally, S&P Capital IQ closed several of their non-core businesses during 2013.

Discontinued Operations

On November 3, 2014, we completed the sale of McGraw Hill Construction, which has historically been part of the C&C segment, to Symphony Technology Group for $320 million in cash. We recorded an after-tax gain on the sale of $160 million, which is included in discontinued operations, net in the consolidated statement of income for the year ended December 31, 2014. We used the after-tax proceeds from the sale to make selective acquisitions, investments, share repurchases and for general corporate purposes.

On March 22, 2013, we completed the sale of MHE to investment funds affiliated with Apollo Global Management, LLC for a purchase price of $2.4 billion in cash. We recorded an after-tax gain on the sale of $589 million, which is included in discontinued operations, net in the consolidated statement of income for the year ended December 31, 2013. We used the after-tax proceeds from the sale to pay down short-term debt for the special dividend paid in 2012, to make selective acquisitions, investments, share repurchases and for general corporate purposes.

The key components of income from discontinued operations for the years ended December 31, 2014 and 2013 consist of the following:



(in millions)	Years ended December 31,
	2014		2013
Revenue	$	139	$	441
Expenses	110		436
Operating income	29		5
Interest expense, net	—		2
Income before taxes on income	29		3
Provision for taxes on income	11		—
Income from discontinued operations, net of tax	18		3
Pre-tax gain on sale from discontinued operations	289		888
Provision for taxes on gain on sale	129		299
Gain on sale of discontinued operations, net of tax	160		589
Discontinued operations, net	178		592
Less: net loss attributable to noncontrolling interests	—		(1		)
Income from discontinued operations attributable to McGraw Hill Financial, Inc. common shareholders	$	178	$	593

Results from discontinued operations for the year ended December 31, 2014 included the after-tax gain on sale of McGraw Hill Construction of $160 million.

Results from discontinued operations for the year ended December 31, 2013 included the after-tax gain on sale of MHE of $589 million.