News Column

MCGRAW HILL FINANCIAL INC - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations

February 7, 2014

The following Management 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, the "Company," "we," "us" or "our") for the years ended December 31, 2013 and 2012, respectively. The MD&A should be read in conjunction with the consolidated financial statements and accompanying notes included in this Form 10-K for the year ended December 31, 2013, 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



• Liquidity and Capital Resources

• Reconciliation of Non-GAAP Financial Information

• Critical Accounting Estimates

• Recently Issued or Adopted Accounting Standards

Certain of the statements below are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, any projections of future results of operations and cash flows are subject to substantial uncertainty. See Forward-Looking Statements on page 4 of this report.



OVERVIEW

We are a leading ratings, benchmarks and analytics provider serving the global capital, commodities and commercial markets. The capital markets include asset managers, banks, exchanges, issuers and financial advisors; the commodities markets include producers, traders and intermediaries within energy, metals, and agriculture; and the commercial markets include professionals and corporate executives within automotive, construction and marketing / research information services. Our operations consist of four reportable segments: Standard & Poor's Ratings ("S&P Ratings"), S&P Capital IQ, S&P Dow Jones Indices ("S&P DJ Indices") and Commodities & Commercial ("C&C"). • S&P Ratings is an independent provider of credit ratings, research and



analytics, offering investors and market participants information, ratings

and benchmarks.

• S&P Capital IQ 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 benchmarks.

On March 22, 2013, we completed the sale of McGraw-Hill Education ("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 income from discontinued operations, net of tax in the consolidated statement of income for the year ended December 31, 2013. We have used a portion of the after-tax proceeds from the sale to pay down short-term debt, for the special dividend paid in 2012, and to continue share repurchases. We intend to continue to use a portion of the after-tax proceeds to make selective acquisitions and investments. The completion of the sale was a key milestone in our Growth and Value Plan that we began in September of 2011. In addition to the sale, we were also successful in other Growth and Value Plan objectives, including, increased shareholder return, investments in targeted financial assets, divested selected non-core assets and reductions in our real estate portfolio. Increased Shareholder Return During the three years ended December 31, 2013, we have returned $4.4 billion to our shareholders through a combination of share repurchases, our quarterly dividend and a special dividend. 18



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We completed share repurchases of $2.8 billion and distributed regular quarterly dividends totaling approximately $900 million during the three years ended December 31, 2013. On December 6, 2012, our Board of Directors approved a special dividend in the amount of $2.50 per share on our common stock, payable on December 27, 2012 to shareholders of record on December 18, 2012. This returned an additional approximately $700 million to our shareholders. Also, on January 29, 2014, the Board of Directors approved an increase in the quarterly common stock dividend from $0.28 per share to $0.30 per share. Investments in Targeted Financial Assets / Divested Selected Non-Core Assets We continued to execute our strategy of exiting non-core assets while investing for growth in markets that have size and scale. During 2013, 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%.



In 2013, we also completed certain dispositions of our non-core assets that allow us to apply greater focus on our high-growth, high-margin benchmark businesses. • C&C - we completed the sale of Aviation Week to Penton, a privately held

business information company;

• S&P Capital IQ - we completed the sale of Financial Communications as well

as the closure of several non-core businesses.

During 2012, we completed several acquisitions that we believe position us for long-term growth across all our segments. • S&P DJ Indices - our transaction with CME Group, Inc. and CME Group Index



Services LLC to form a new company, S&P Dow Jones Indices LLC;

• S&P Capital IQ - Credit Market Analysis Limited, a provider of independent

data concerning the over-the-counter markets; QuantHouse, an independent

global provider of end-to-end systematic low-latency market data solutions; and R˛ Technologies, a provider of advanced risk and scenario-based analytics; • C&C - Kingsman SA, a privately-held, Switzerland-based provider of price information and analytics for the global sugar and biofuels markets;



• S&P Ratings - Coalition Development Ltd., a privately-held U.K. analytics

company.



On December 30, 2011, we completed the sale of our Broadcasting Group, previously included in our C&C segment.

Refer to Note 2 - Acquisitions and Divestitures to our consolidated financial statements for further discussion.

Key Results (in millions) Years ended December 31, % Change 1 2013 2012 2011 '13 vs '12 '12 vs '11 Revenue $ 4,875$ 4,450$ 3,954 10% 13% Operating profit $ 1,405$ 1,211$ 1,077 16% 12% % Operating margin 29 % 27 % 27 % Diluted EPS from continuing operations $ 2.90$ 2.37$ 2.00 22% 19%



1 % changes in the tables throughout the MD&A are calculated off of the actual

number, not the rounded number presented.

2013

S&P Ratings - Revenue and operating profit increased 12% and 18%, respectively. Revenue growth was driven by strong high-yield and investment grade corporate bond issuance in the U.S. in the first half of 2013 and in Europe for the full year driven by refinancing activity and increases in bank loan ratings and structured finance. Revenue growth in the first half of 2013 was partially offset by a decrease in U.S. corporate bond issuance in the second half of the year. Operating profit increased compared to 2012 primarily due to the increases in revenue, the gain on sale of an equity investment held by CRISIL and favorable foreign exchange rates. These increases were partially offset by increased compliance and regulatory costs, higher incentive costs due to improved performance, higher advertising expenses and the impact of CRISIL's acquisition of Coalition Development Ltd. in July of 2012. S&P Capital IQ - Revenue and operating profit increased 4% and 1%, respectively. The revenue increase was primarily attributable to growth at Capital IQ driven by market share gains and increased contract values for existing accounts and increases in our 19



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subscription base for RatingsXpress®. Operating profit benefited from revenue increases and lower expenses resulting from the closure of several non-core businesses, reduced outside consulting fees, lower restructuring costs and a favorable impact from foreign exchange rates. These increases to operating profit were partially offset by higher incentive costs due to increased performance, increased cost of sales for exchange fees incurred by QuantHouse and costs related to additional headcount in developing regions. S&P DJ Indices - Revenue and operating profit increased 27% and 31%, respectively. The revenue increases were primarily due to revenue from our S&P Dow Jones Indices LLC joint venture. Excluding revenue from the joint venture, revenue increased due to higher average levels of assets under management for exchange traded funds ("ETF") products. Operating profit increased primarily due to the increases in revenue, partially offset by the impact of higher data fees, increased incentive costs due to improved financial performance and higher marketing costs due to increased advertising levels as building the S&P DJ Indices brand was a focus in 2013. The increase in 2013 was also partially offset by the impact of a full year of expenses for our S&P Dow Jones Indices LLC joint venture. Additionally, we incurred a $26 million non-cash impairment charge associated with an intangible asset acquired through the formation of our S&P Dow Jones Indices LLC joint venture. C&C - Revenue and operating profit increased 4% and 25%, respectively. The revenue increase was primarily driven by continued demand for Platts' proprietary content as annualized contract values increased and increases at J.D. Power, partially offset by declines at McGraw-Hill Construction. Operating profit increased due to the increases in revenue, the gain on the sale of Aviation Week and lower expenses at J.D. Power and McGraw-Hill Construction. Operating profit was partially offset by additional headcount and other operating costs to support business growth at Platts.



2012

S&P Ratings - Revenue and operating profit increased 15% and 18%, respectively. Revenue growth was driven by strong high-yield and investment grade corporate bond issuance related to robust refinancing activity and increases in bank loan ratings and structured finance. The increase was also impacted by increases in public finance driven by strong municipal bond issuance in the United States. Operating profit increased compared to 2011 primarily due to the increases in revenue, partially offset by higher incentive costs due to improved financial performance, an increase in legal expenses, restructuring charges of $15 million in the second half of 2012 and unfavorable foreign exchange rates. S&P Capital IQ - Revenue increased 9%, while operating profit decreased 3%, respectively. The revenue increase was primarily attributable to growth at Capital IQ driven by market share gains and increased contract values for existing accounts; and increases in our subscription base for RatingsDirect®. Operating profit was significantly impacted by restructuring charges of $19 million recorded in the second half of 2012, as well as increased costs to further develop our content and software. The acquisitions of R2 Technologies in February 2012, QuantHouse in April 2012 and Credit Market Analysis Limited ("CMA") in June 2012 also impacted the results, particularly amortization charges relating to the intangible assets. S&P DJ Indices - Revenue and operating profit increased 20% and 12%, respectively. The revenue increases were primarily due to revenue from our S&P Dow Jones Indices LLC joint venture. Excluding revenue from the joint venture, revenue increased 3%, primarily due to higher average levels of assets under management for ETF products and higher mutual fund revenue. Operating profit was significantly impacted by expenses for our joint venture, higher data fees and additional personnel costs for targeted staff increases to drive future growth. C&C - Revenue and operating profit increased 9% and 38%, respectively. These increases were primarily driven by continued demand for Platts' proprietary content as annualized contract values increased; growth across our automotive sectors at J.D. Power, primarily in Asia and the United States; and a strong focus on the management of expenses across the brands. Partially offsetting the growth in the segment were additional costs related to revenue growth, incentive costs at Platts and J.D. Power and restructuring charges of $12 million recorded in the second half of 2012. Outlook We strive to be the leading provider of essential intelligence such as ratings, benchmarks and analytics to the global capital and commodities markets. We also seek to leverage the strength of our globally recognized brands and content to promote sustainable growth by bringing transparency and independent insights to the markets we serve.



With the successful completion of the Growth & Value Plan, we are aligning our efforts against two key strategic priorities, growth and performance.

We will strive to deliver on our strategic priorities through a clear set of growth drivers which are underpinned by excellence in

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management and execution.

We believe the key drivers of our growth are: • Serving our customers with innovative, must-have solutions; • Leveraging our unique portfolio of powerful brands and distinctive opportunities in the financial and commodity markets; and



• Winning as a dynamic, global company.

We believe the key elements of management and execution are: • Ensuring quality and excellence in everything we do;

• Attracting and developing top-performing people; and

• Delivering together as one connected company.

Integrating and leveraging our key capabilities will also be critical to improving performance and delivering against our strategic priorities. We will strive to enhance analytical and product quality through technology, data and process improvements. Our businesses will also strive to continue to extend efforts in external outreach and advocacy, control and compliance. We will seek to further engage the customer by strengthening our sales, customer service, customer management processes and global operations. Finally, we will look to continue to put efforts and resources into developing high-performing talent driving to a common purpose. We believe our strategic priorities are designed to deliver global growth in both new and existing markets. We intend to expand our coverage of core customer segments and markets by leveraging existing products and capabilities while also developing new products and capabilities to meet evolving customer needs in new markets. 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.



Further projections and discussion on our 2014 outlook for our segments can be found within "Segment Review".

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Table of Contents RESULTS OF OPERATIONS Consolidated Review (in millions) Years ended December 31, % Change 2013 2012 2011 '13 vs '12 '12 vs '11 Revenue $ 4,875$ 4,450$ 3,954 10% 13% Expenses: Operating-related expenses 1,584 1,486 1,387 7% 7% Selling and general expenses 1,737 1,664 1,377 4% 21% Depreciation and amortization 137 141 126 (3)% 12% Total expenses 3,458 3,291 2,890 5% 14% Other loss (income) 12 (52 ) (13 ) N/M N/M Operating profit 1,405 1,211 1,077 16% 12% Interest expense, net 59 81 77 (26)% 4% Provision for taxes on income 443 404 374 9% 8% Income from continuing operations 903 726 626 24% 16% Discontinued operations, net 563 (234 ) 308 N/M N/M Less: net income from continuing operations attributable to noncontrolling interests (91 ) (50 ) (19 ) 81% N/M Less: net loss (income) from discontinuing operations attributable to noncontrolling interests 1 (5 ) (4 ) N/M 6% Net income attributable to McGraw Hill Financial, Inc. $ 1,376$ 437$ 911 N/M (52)% N/M - not meaningful Revenue (in millions) Years ended December 31, % Change 2013 2012 2011 '13 vs '12 '12 vs '11 Subscription / Non-transaction revenue $ 2,978$ 2,777$ 2,608 7% 6% Non-subscription / Transaction revenue $ 1,897$ 1,673$ 1,346 13% 24% Domestic revenue $ 2,892$ 2,684$ 2,373 8% 13% International revenue $ 1,983$ 1,766$ 1,581 12% 12% 2013 Revenue increased $425 million or 10% as compared to 2012. Subscription / non-transaction revenue increased primarily due to increases in non-issuance related revenue for corporate ratings, primarily for entity credit ratings and increased ratings evaluation services ("RES") activity, continued demand for Platts' proprietary content, growth at Capital IQ driven by market share gains and increased contract values for existing accounts and an increase in our subscription base at RatingsXpress®. Non-subscription / transaction revenue also increased due to strong high-yield corporate bond issuance in the U.S. during the first half of 2013 and in Europe for the full year resulting from refinancing activity, increases in bank loan ratings, growth in structured finance and higher assets under management for ETF products at S&P DJ Indices. See "Segment Review" below for further information. Foreign exchange rates had an unfavorable impact of $10 million on revenue. This impact refers to constant currency comparisons estimated by re-calculating current year results of foreign operations using the average exchange rate from the prior year.



2012

Revenue increased $496 million or 13% as compared to 2011, primarily due to strong high-yield investment grade corporate bond issuance, which impacted non-subscription / transaction revenue; growth in our global commodities products; growth for our

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Capital IQ product, strong municipal bond issuance in the U.S. and increases in bank loan ratings; increases in the subscription base at RatingsXpress®; and recent acquisitions, including, QuantHouse in April 2012 and CMA and our S&P Dow Jones Indices LLC joint venture in June 2012. See "Segment Review" below for further information.



Foreign exchange rates had an unfavorable impact of $40 million on revenue.

Total Expenses

The following tables provide an analysis by segment of our operating-related expenses and selling and general expenses for the years ended December 31, 2013 and 2012: (in millions) 2013 2012 % Change Operating- Selling and Operating- Selling and Operating- Selling and related expenses general expenses related expenses general expenses related expenses general expenses S&P Ratings $ 770 $ 477 $ 692 $ 450 11% 6% S&P Capital IQ 490 416 455 410 8% 1% S&P DJ Indices 1 79 127 72 96 10% 32% C&C 323 368 337 365 (4)% 1% Intersegment eliminations (76 ) - (69 ) - (11)% -% Total segments 1,586 1,388 1,487 1,321 7% 5% Corporate 2 (2 ) 349 (1 ) 343 N/M 2% $ 1,584 $ 1,737 $ 1,486 $ 1,664 7% 4%



1 In 2013, selling and general expenses includes a $26 million non-cash

impairment charge associated with an intangible asset acquired through the

formation of our S&P Dow Jones Indices LLC joint venture. In 2012, selling

and general expenses includes transaction costs of $15 million for our S&P

Dow Jones Indices LLC joint venture. 2 In 2013, selling and general expenses primarily include pre-tax legal



settlements of approximately $77 million, $64 million for our Growth and

Value Plan, restructuring charges and charges related to our reduction in our

real estate portfolio. In 2012, selling and general expenses includes

expenses of $156 million for our Growth and Value Plan partially offset by a

vacation accrual reversal of $52 million. These Growth and Value Plan costs

primarily include professional fees and charges associated with our

outsourcing initiatives and 2012 also includes severance charges, a charge

related to a reduction in our lease commitments and transaction costs for our

S&P Dow Jones Indices LLC joint venture.

Operating-Related Expenses Operating-related expenses increased $98 million or 7% as compared to 2012, primarily driven by increased costs at S&P Ratings and S&P Capital IQ. At S&P Ratings the increases were primarily a result of higher personnel costs, including incentive compensation. At S&P Capital IQ the increases were primarily a result of additional headcount in developing regions and costs to further develop our content and purchase new data sets. This was partially offset by lower compensation expense at C&C due to a reduction in headcount from recent restructuring actions.



Intersegment eliminations relates to a royalty charged to S&P Capital IQ for the rights to use and distribute content and data developed by S&P Ratings.

Selling and General Expenses Selling and general expenses were impacted by Growth and Value Plan related costs of $64 million and $226 million for 2013 and 2012, respectively. 2013 costs were primarily driven by additional professional fees and costs related to our separation from MHE. 2012 costs primarily include professional fees, charges associated with our outsourcing initiatives, severance charges, a charge related to a reduction in our lease commitments and transaction costs for our S&P Dow Jones Indices LLC joint venture. Additionally, 2013 was also impacted by pre-tax legal settlements of approximately $77 million and charges we recorded in the fourth quarter of 2013 as we continued to evaluate our remaining cost structure, particularly in light of recent divestitures. This resulted in $28 million of restructuring charges, primarily related to severance, associated with streamlining our management structure and our decision to exit non-strategic businesses; and $13 million related to terminating various leases as we reduce our real estate portfolio. Excluding these costs, selling and general expenses increased compared to 2012, primarily due to higher costs associated with increased sales and additional incentive compensation driven by improved performance at S&P Ratings and S&P DJ Indices. The increase in 2013 at S&P DJ Indices was also impacted by a $26 million non-cash impairment charge associated with an intangible 23



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asset acquired through the formation of our S&P Dow Jones Indices LLC joint venture.

Depreciation and Amortization Depreciation and amortization decreased $4 million or 3% as compared to 2012, primarily due to asset write offs in 2013 as we consolidated office locations, partially offset by additional intangible asset amortization related to our acquisitions in 2012. The following tables provide an analysis by segment of our operating-related expenses and selling and general expenses for the years ended December 31, 2012 and 2011: (in millions) 2012 2011 % Change Operating- Selling and Operating- Selling and Operating- Selling and related expenses general expenses related expenses general expenses related expenses general expenses S&P Ratings $ 692 $ 450 $ 646 $ 361 7% 25% S&P Capital IQ 455 410 382 392 19% 5% S&P DJ Indices 1 72 96 75 56 (4)% 71% C&C 337 365 351 356 (4)% 3% Intersegment eliminations (69 ) - (63 ) - (10)% -% Total segments 1,487 1,321 1,391 1,165 7% 13% Corporate 2 (1 ) 343 (4 ) 212 (75)% 62% $ 1,486 $ 1,664 $ 1,387 $ 1,377 7% 21%



1 In 2012, selling and general expenses includes transaction costs of $15

million for our S&P Dow Jones Indices LLC joint venture.

2 In 2012, selling and general expenses includes expenses of $156 million for

our Growth and Value Plan, including costs related to the separation of MHE,

restructuring costs and other related non-recurring costs, partially offset

by a vacation accrual reversal of $52 million.

Operating-Related Expenses Operating-related expenses increased $99 million or 7% as compared to 2011, primarily driven by increased costs at S&P Ratings of $46 million or 7% and S&P Capital IQ of $73 million or 19%. These increases were primarily a result of higher personnel costs, including incentive compensation, at S&P Ratings and global staff increases at S&P Capital IQ. This was partially offset by lower compensation expense at C&C of $6 million or 8% due to a reduction in headcount from recent restructuring actions.



Intersegment eliminations relates to a royalty charged to S&P Capital IQ for the rights to use and distribute content and data developed by S&P Ratings.

Selling and General Expenses During 2012, we recorded $226 million of Growth and Value Plan related costs necessary to enable separation and reduce our cost structure, which includes professional fees, severance charges, transaction costs for our S&P Dow Jones Indices LLC joint venture and a charge related to a reduction in our lease commitments. Excluding these costs and $10 million of Growth and Value Plan costs for 2011, selling and general expenses increased $71 million as compared to 2011, due to higher costs associated with increased sales and additional stock-based compensation, mainly due to higher expected performance achievement and an increase in the grant price of our equity awards. Personnel costs increased $44 million at S&P Ratings, $20 million at C&C, $7 million at S&P DJ Indices and $4 million at S&P Capital IQ as revenue growth improved 15%, 9%, 20% and 9%, respectively. In addition, S&P Ratings had increased legal costs as compared to 2011.



Total costs incurred since the Growth and Value Plan was announced in September of 2011 have been $361 million, of which $300 million have been recorded in continuing operations and $61 million have been recorded in discontinued operations. These are costs that have been necessary to enable separation, reduce our cost structure, accelerate growth and increase shareholder value.

Depreciation and Amortization Depreciation and amortization increased $15 million or 12% as compared to 2011, primarily due to additional intangible asset amortization related to our recent acquisitions, partially offset by reduced purchases of furniture and computer equipment last year as we focused on continued cost controls. 24



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Other Loss (Income)

During 2013, we recorded a net pre-tax loss of $12 million within other loss (income) in the consolidated statement of income: • During the fourth quarter of 2013, we recognized a non-cash impairment charge of $36 million related to the facilities and associated infrastructure of one of our data centers that we are in the process of selling.



• 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 of Aviation Week within our C&C

segment to Penton, a privately held business information company.

In the fourth quarter of 2012, we recorded a pre-tax gain of $52 million within other loss (income) in the consolidated statement of income related to a change in our vacation policy. The change in our vacation policy modified the number of days that employees are entitled to for unused vacation time upon termination of employment as they will only be paid for vacation days equivalent to what they have earned in the current year.



During 2011, we recorded a pre-tax gain of $13 million within other loss (income) in the consolidated statement of income, which related to the sale of our interest in LinkedIn Corporation in their initial public offering. This investment was held within our C&C segment.

Operating Profit

We consider operating profit to be an important measure for evaluating our operating performance and we define operating profit as revenues less the related cost of producing the revenues and selling and general expenses. We also further 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" and resources are allocated primarily based on segment operating profit. Segment operating profit is defined as operating profit before allocated expenses, which are centrally managed costs and do not affect the operating results of our segments. 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. (in millions) Years ended December 31, % Change 2013 2012 2011 '13 vs '12 '12 vs '11 S&P Ratings $ 1,000$ 849$ 720 18% 18% S&P Capital IQ 211 208 214 1% (3)% S&P DJ Indices 278 212 189 31% 12% C&C 311 248 180 25% 38%



Total segment operating profit 1,800 1,517 1,303 19%

16% Unallocated expense 1 (395 ) (306 ) (226 ) 29% 36% Total operating profit $ 1,405$ 1,211$ 1,077 16% 12%



1 Includes depreciation expense and expenses for our Growth and Value Plan,

including restructuring costs and other related non-recurring costs. 2013

also includes a charge related to pre-tax legal settlements, a non-cash

impairment charge related to the facilities and associated infrastructure of

one of our data centers that we are in the process of selling and charges

related to a reduction in our real estate portfolio. 2012 includes a benefit

related to a vacation accrual reversal.

2013

Segment Operating Profit - Increased $283 million, or 19% as compared to 2012. Segment operating income margins were 37% and 34% for 2013 and 2012, respectively. Substantial revenue growth at corporate ratings and S&P DJ Indices, and strong demand for Platts' proprietary content were the primary drivers of the increase. See "Segment Review" below for further information.

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Unallocated Expense - Increased by $89 million or 29% as compared to 2012. Unallocated expense was impacted by Growth and Value related plan costs at our corporate headquarters of $64 million in 2013 and $156 million in 2012. Unallocated expense in 2013 was also impacted by pre-tax legal settlements of approximately $77 million, a $36 million non-cash impairment charge related to the facilities and associated infrastructure of one of our data centers that we are in the process of selling and $13 million related to terminating various leases as we reduce our real estate portfolio. In 2012, unallocated expense was partially offset by a vacation accrual reversal of $52 million. Excluding these items, unallocated expense increased slightly compared to 2012, primarily due to increased unoccupied office space. Foreign exchange rates had a favorable impact of $20 million on operating profit for 2013. 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 business' functional currency.



2012

Segment Operating Profit - Increased $214 million, or 16% as compared to 2011. Segment operating income margins were 34% and 33% for 2012 and 2011, respectively. Restructuring charges and other non-recurring charges as noted above mitigated the margin improvement for the period. See "Segment Review" below for further information. In addition, segment operating profit benefited from reduced pension costs as we froze our U.S. Employee Retirement Plan effective on April 1, 2012. Unallocated Expense - Increased by $80 million or 36% as compared to 2011, mainly as a result of $156 million of Growth and Value Plan related costs necessary to enable separation and reduce our cost structure, which includes professional fees of $117 million and restructuring charges of $21 million. This was partially offset by a vacation accrual reversal of $52 million. Unallocated expenses also includes an increase for costs that were previously allocated to MHE, such as costs for centralized departments, that could not be classified as discontinued operations due to the nature of the expense.



Foreign exchange rates had an unfavorable impact of $6 million on operating profit for 2012.

Interest Expense, net

Net interest expense for 2013 decreased 26% as compared to 2012, primarily driven by the maturity of our $400 million, 5.375% Senior Notes on November 15, 2012. Net interest expense for 2012 increased 4% as compared to 2011, primarily due to increased interest expense related to uncertain tax positions, as well as lower international interest income from our investments in 2012 compared with 2011. Provision for Income Taxes Our effective tax rate from continuing operations was 32.9%, 35.8% and 37.4% for 2013, 2012 and 2011, respectively. The decrease in the 2013 effective tax rate from the prior year period was primarily due to the full year effect of the partnership structure of the S&P Dow Jones Indices LLC joint venture, an increase in income in lower tax rate jurisdictions and tax planning. The decrease in the 2012 effective tax rate from the prior year period was primarily due to the partnership structure of the S&P Dow Jones Indices LLC joint venture, the Growth and Value Plan and restructuring costs incurred primarily in the United States. Including discontinued operations, the effective tax rate was 33.1%, 45.8% and 36.5% for 2013, 2012 and 2011, respectively. The decrease in the 2013 and the increase in the 2012 effective tax rates including discontinued operations was primarily due to the goodwill impairment recorded at MHE in 2012. Additionally, the 2013 effective tax rate including discontinued operations was favorably impacted by the items listed above for continuing operations.



Discontinued Operations, net

2013

Income from discontinued operations was $563 million in 2013 as compared to a loss from discontinued operations of $234 million in 2012, primarily as a result of an after-tax gain of $589 million recorded on the sale of MHE in 2013.



2012

Loss from discontinued operations was $234 million in 2012 as compared to income from discontinued operations of $308 million in 2011, primarily as a result of revenue declines and several non-recurring items. 26



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Revenue at MHE decreased $230 million or 10% as compared to 2011, primarily due to decreases in the adoption states as well as open territory sales at School Education Group. Also contributing to the reduction was a substantial increase in deferred revenue due to higher sales of programs that contain digital components that will be delivered over multiple years. In the Higher Education, Professional and International Group, sales of new editions have been impacted by the growth of the used book and rental market. However, digital sales across MHE continue to increase as compared to 2011.



Non-recurring items impacting the loss from discontinued operations in 2012 included: • Intangible asset impairments of $497 million that consisted of goodwill,

prepublication and inventory assets at MHE's School Education Group ("SEG").



• As a result of the offer we received from Apollo Global Management,

LLC in the fourth quarter of 2012, we performed a goodwill



impairment

review at MHE, which resulted in a full impairment of goodwill



of $478

million at SEG. • An impairment charge of $19 million was recorded on certain prepublication and inventory assets as targeted school programs were shut down.



• Restructuring charges of $39 million consisting primarily of employee

severance costs related to a workforce reduction of approximately 530

positions.

• Direct transaction costs of $17 million for legal and professional fees

related to the sale of MHE.

• A charge related to a lease commitment of $3 million.

• These charges were partially offset by a vacation accrual reversal of $17

million related to a change in our vacation policy.

Segment Review S&P Ratings 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 and fees for entity credit ratings. 27



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Table of Contents (in millions) Years ended December 31, % Change 2013 2012 2011 '13 vs '12 '12 vs '11 Revenue: Transaction $ 1,035$ 903$ 651 15 % 39 % Non-transaction 1,239 1,131 1,116 10 % 1 % Total revenue $ 2,274$ 2,034$ 1,767 12 % 15 % % of total revenue: Transaction 46 % 44 % 37 % Non-transaction 54 % 56 % 63 % Domestic revenue $ 1,214$ 1,102$ 910 10 % 21 % International revenue $ 1,060$ 932$ 857 14 % 9 % Operating profit $ 1,000$ 849$ 720 18 % 18 % % Operating margin 44 % 42 % 41 % Revenue 2013 Both transaction and non-transaction revenue grew compared to 2012, with transaction revenue growing at a higher rate. Additionally, both domestic and international revenue in 2013 grew compared to 2012, with international growing at a faster pace reflecting strong growth in Europe as the economic outlook has improved. Transaction revenue grew in 2013 due to strong high-yield corporate bond issuance in the U.S. during the first half of 2013 and in Europe for the full year, driven by refinancing activity and borrowers taking advantage of lower rates. Increases in U.S. and Europe bank loan ratings resulting from refinancing activity also contributed to the full year increase. These increases were partially offset by a decline in U.S. corporate bond issuance in the second half of the year, reflecting interest rate volatility in the early part of the third quarter of 2013 and challenging comparisons to 2012 related to robust refinancing activity. Additionally, transaction revenue was favorably impacted by growth in structured finance revenues driven primarily by increased issuance of U.S. collateralized loan obligations ("CLO") and U.S. commercial mortgage-backed securities. Non-transaction revenue increased in 2013 due to growth in non-issuance related revenue for corporate ratings, primarily for entity credit ratings in the U.S. and Europe and increased RES activity. Additionally, CRISIL's acquisition of Coalition Development Ltd. in July of 2012 had a favorable impact. Non-transaction revenue includes an intersegment royalty charged to S&P Capital IQ for the rights to use and distribute content and data developed by S&P Ratings. Royalty revenue for 2013 and 2012 was $72 million and $69 million, respectively.



Foreign exchange rates had an unfavorable impact of $5 million on revenue for 2013.

2012

Transaction revenue grew significantly in 2012 as compared to 2011 driven by strong high-yield and investment grade corporate bond issuance related to robust refinancing activity. Borrowers took advantage of low rates replacing existing bonds with cheaper debt, particularly in the second half of 2012 as issuers refinanced in advance of the uncertainty surrounding the U.S. fiscal cliff and Presidential election. The significant increase was also attributable to weak results in the second half of 2011 resulting from the impacts of the sovereign difficulties in Europe and a slow economic recovery. Additionally, increases in 2012 in public finance contributed to growth in transaction revenue, primarily from strong municipal bond issuance in the U.S. as refunding activity increased dramatically over 2011. Strong growth in bank loan ratings, resulting from a favorable interest rate environment, was also a key driver contributing to the growth in structured finance revenues, specifically an increase in U.S. CLO transaction revenue. U.S. asset backed securities ("ABS") transaction revenue also increased due to favorable spreads, expansion of both bank and non-bank issuance and solid refinancing activity of student loans. Non-transaction revenue remained relatively flat in 2012 as growth in non-issuance related revenue at corporate ratings, primarily for entity credit ratings and RES, was offset by declines in annual fees and program fees in structured finance. Annual fees include surveillance fees and other customer relationship-based fees. Additionally, CRISIL's acquisition of Coalition Development Ltd. in July of 2012 had a favorable impact on non-transaction revenue in 2012. Non-transaction revenue includes an intersegment 28



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royalty charged to S&P Capital IQ for the rights to use and distribute content and data developed by S&P Ratings. Royalty revenue for 2012 and 2011 was $69 million and $63 million, respectively.



Foreign exchange rates had an unfavorable impact of $37 million on revenue for 2012.

Operating Profit



2013

Operating profit increased compared to 2012 due to the increases in revenue as noted above. Additionally, the gain on sale of an equity investment held by CRISIL of $16 million in 2013 and the favorable impact from foreign exchange rates of $11 million also contributed to the increase in operating profit. These increases were partially offset by increased compliance and regulatory costs, higher incentive costs due to improved performance, increased advertising expenses, higher technology investments and CRISIL's acquisition of Coalition Development Ltd. in July of 2012.



2012

Operating profit increased compared to 2011 primarily due to the increases in revenue as noted above. These increases were partially offset by increased expenses resulting from higher incentive costs due to improved financial performance, an increase in legal expenses, restructuring charges of $15 million in the second half of 2012 consisting of employee severance costs related to a workforce reduction of approximately 100 positions, CRISIL's acquisition of Coalition Development Ltd. in July of 2012 and an unfavorable impact from foreign exchange rates of $13 million.



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 Thomson Financial, Harrison Scott Publications, Dealogic and S&P Rating's internal estimates. 2013 Compared to 2012 Corporate Issuance U.S. Europe High-Yield Issuance (6 )% 92 % Investment Grade 9 % (13 )% Total New Issue Dollars-Corporate Issuance 5 % (5 )%



• Corporate issuance in the U.S. was up as an increase in investment grade

debt issuance driven by a number of large issuance deals was offset by a

decrease in high-yield debt issuance driven by interest rate volatility

that occurred in the early part of the third quarter of 2013. High-yield

debt issuance and investment-grade debt issuance comparisons reflect high volumes experienced in the second half of 2012 as issuers refinanced in advance of the uncertainty surrounding the U.S. fiscal cliff and Presidential election.



• Corporate issuance in Europe was down driven by weakness in investment

grade issuance reflecting difficult comparisons to 2012 and the fact that

many companies had already met their refinancing needs. The decreases were

partially offset by strong high-yield debt issuance reflecting issuers

taking advantage of improving economic conditions.

2013 Compared to 2012 Structured Finance U.S. Europe Asset-Backed Securities ("ABS") (2 )% - % Collateralized Debt Obligations ("CDO") 63 % ** Commercial Mortgage-Backed Securities ("CMBS") 76 % ** Residential Mortgage-Backed Securities ("RMBS") 31 % (56



)%

Covered Bonds * (19



)%

Total New Issue Dollars-Structured Finance 24 % (18



)%

* Represents no activity in 2013 and low issuance levels in 2012.

** Represents low issuance levels in 2012.

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• ABS issuance in the U.S. was down slightly due to a decline in student

loans and auto activity, partially offset by an increase in credit card

activity. Student loan activity was down due to a lower level of Federal

Family Education Loan Program ("FFELP") refinancing and a smaller volume

of private market deals. Despite solid auto sales and growth in sub-prime

lending, auto volumes declined as prime issuers shifted more funding to

unsecured markets. The increase in credit card activity was partially

driven by banks being more active in an effort to diversify and take

advantage of favorable spreads. ABS issuance in Europe was flat as

increased activity in the second half of the year reflecting improving

economic conditions was offset by declines in the first half of 2013.



• Issuance was up in the U.S. CDO market driven by corporate loan activity

which benefited from strong credit performance and lower default rates, as

new collateral managers entered the market and market participants issued

ahead of regulatory changes. European issuance in the CDO market was minimal, however, issuance levels improved in 2013.



• CMBS issuance was up in the U.S. due to improving sector fundamentals

resulting in more attractive spreads. European CMBS issuance was also up,

although off of a low 2012 base.

• RMBS volume is up in the U.S. due to a slow revival of the non-agency

private-label market driven by a small number of repetitive issuers and

new entrants coming into the market. Despite relatively strong market

fundamentals in Europe, issuance was down reflecting issuers taking advantage of the Bank of England's Funding for Lending Scheme.



• 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 down due to the European Central Bank's Long Term Refinancing

Offering, the drive for banks to increase deposit funding and the impact

of lower mortgage production in many jurisdictions - all collectively

reducing funding needs.

Industry Highlights and Outlook

Revenue growth in 2013 was primarily driven by strong high-yield bond issuance in the U.S. in the first half of the year and in Europe for the full year. Additionally, U.S. and Europe bank loan ratings increased driven by refinancing activity. U.S. high-yield bond issuance levels decreased in the second half of 2013 reflecting interest rate volatility in the beginning of the third quarter of 2013 and difficult comparisons to robust performance in the second half of 2012. In 2014, debt issuance and bank loan rating activity is expected to continue growing at a lower pace as many refinancings were completed in 2013, however, we believe the longer term outlook for the corporate bond market continues to be healthy. Structured finance issuance in the U.S. is expected to continue its steady recovery in 2014 and improving economic conditions and increased investor confidence in Europe should provide opportunities for additional issuance. Healthy U.S. RMBS and U.S. CMBS levels are expected to continue in 2014. The U.S. CDO market continued to experience strong activity in 2013. We expect the CLO market in 2014 to be comparable to 2013. U.S. ABS issuance volume decreased slightly in 2013, however, we expect modest issuance growth in 2014, driven by solid auto and credit card issuance, offset by lower FFELP student loan refinancing activity.



Legal and Regulatory Environment

The financial services industry is subject to the potential for increased regulation in the U.S. and abroad. The businesses conducted by our S&P Ratings segment are, in certain cases, regulated under the Credit Rating Agency Reform Act of 2006, the U.S. Securities Exchange Act of 1934 and/or the laws of the states or other jurisdictions in which they conduct business. Standard & Poor's Ratings Services is a credit rating agency that is registered with the SEC as a Nationally Recognized Statistical Rating Organization ("NRSRO"). The SEC first began designating NRSROs in 1975 for use of their credit ratings in the determination of capital charges for registered brokers and dealers under the SEC's Net Capital Rule. The "Credit Rating Agency Reform Act of 2006" (the "Act") created a new SEC registration system for rating agencies that choose to register as NRSROs. Under the Act, the SEC is given authority and oversight of NRSROs and can censure NRSROs, revoke their registration or limit or suspend their registration in certain cases. The rules implemented by the SEC pursuant to the Act address, among other things, prevention or misuse of material non-public information, conflicts of interest and improving transparency of ratings performance and methodologies. The public portions of the current version of S&P Ratings's Form NRSRO are available on S&P Rating's Web site. Outside the U.S., regulators and government officials have been implementing formal oversight of credit rating agencies. S&P Ratings is subject to regulations in several foreign jurisdictions in which it operates and continues to work closely with regulators globally, including the International Organization of Securities Commissions, the European Securities and Markets Authority and 30



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others to promote the global consistency of regulatory requirements. S&P Ratings expects regulators in additional countries to introduce new regulations in the future. We have reviewed the new laws, regulations and rules which have been adopted and have implemented, or are planning to implement, changes as required. We do not believe that such new laws, regulations or rules will have a materially adverse effect on our financial condition or results of operations. Other laws, regulations and rules relating to credit rating agencies are being considered by local, national, foreign and multinational bodies and are likely to continue to be considered in the future, including provisions seeking to reduce regulatory and investor reliance on credit ratings, rotation of credit rating agencies and liability standards applicable to credit rating agencies. The impact on us of the adoption of any such laws, regulations or rules remains uncertain, but could increase the costs and legal risks relating to S&P Rating's rating activities.



For a further discussion of competitive and other risks inherent in the S&P Ratings business, see Item 1a, Risk Factors, in this Form 10-K.

In the normal course of business both in the U.S. and abroad, the Company and its subsidiaries are defendants in numerous legal proceedings and are involved, from time to time, in governmental and self-regulatory agency proceedings which may result in adverse judgments, damages, fines or penalties. Also, various governmental and self-regulatory agencies regularly make inquiries and conduct investigations concerning compliance with applicable laws and regulations.



For a further discussion of the legal and regulatory environment see Note 12 - Commitments and Contingencies to the consolidated financial statements.

S&P Capital IQ

S&P Capital IQ'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. Specific capabilities include: • Desktop Solutions - a product suite that provides data, analytics and third-party research for global finance professionals, which include Capital IQ and MarketScope Advisor;



• Enterprise Solutions - integrated bulk data feeds that can be customized,

which include QuantHouse, S&P Securities Evaluations, CUSIP and Compustat;

• Ratings Intellectual Property ("IP") - commercial arm that sells Standard

& Poor's Ratings' IP, which includes RatingsDirect® and RatingsXpress®;

and • Proprietary Research - comprehensive source of market research for financial professionals, which includes Leveraged Commentary & Data, Global Market Intelligence and multi-asset-class research. (in millions) Years ended December 31, % Change 2013 2012 2011 '13 vs '12 '12 vs '11 Revenue $ 1,170$ 1,124$ 1,031 4 % 9 % Subscription revenue $ 1,056$ 1,014$ 922 4 % 10 % Non-subscription revenue $ 114$ 110$ 109 4 % 1 % Domestic revenue $ 767$ 749$ 693 2 % 8 % International revenue $ 403$ 375$ 338 7 % 11 % Operating profit $ 211$ 208$ 214 1 % (3 )% % Operating margin 18 % 19 % 21 % Revenue 2013



Revenue grew compared to 2012 primarily due growth at Capital IQ and RatingsXpress®, partially offset by an unfavorable impact related to the closure of several non-core businesses and declines in several of our investment research products.

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The increase at Capital IQ was driven by market share gains and increased contract values for existing accounts. The number of users on the desktop continues to show strong growth over 2012. Contract value growth continues to be driven by success in the corporate and investment management client segments. These segments are also growing as a result of our bundled solution offerings integrated within the Capital IQ platform. Increased contract values were also driven by new datasets and expanded coverage of existing datasets combined with improved functionality and performance of the Capital IQ platform. Both domestic and international revenue increased over 2012, however, international increased at a higher rate due to the continued sales growth of Capital IQ in Europe and Asia and the growth of QuantHouse. International growth was partially offset by our decision to close certain businesses and products within Proprietary Research. The subscription base for RatingsXpress® is growing due to new client relationships and expanded relationships within existing accounts as the number of customers have increased 5% in 2013 as compared to 2012. RatingsXpress® has benefited from increased compliance requirements which has created a greater need for alternative risk tools. Improvements made to the speed and timeliness through delivery on the Xpressfeed platform has also contributed to growth in RatingsXpress®. Sales related to RatingsDirect® have increased more toward the second half of 2013 as the product is now also available on the Capital IQ platform and growth in contract values is also being driven by being able to sell bundled packages with other S&P Capital IQ data sets.



The 2012 acquisitions of QuantHouse and Credit Market Analysis Limited also contributed to the increase in revenue.

2012

Revenue grew compared to 2011, primarily due to growth at Capital IQ, RatingsXpress® and the acquisitions of R˛ Technologies, QuantHouse and CMA.

The increase at Capital IQ was driven by market share gains and increased contract values for existing accounts, however headcount reductions in the financial services industry have tempered growth. The number of clients have still increased 7% in 2012 from 2011 and the spend from the top accounts continued to grow. The client increase includes a certain percentage of clients on TheMarkets.com platform that have been migrated to the Capital IQ platform. The subscription base for RatingsDirect® increased slightly as difficult market conditions due to budget constraints and reductions in headcount across the customer base affected revenue in 2012. Clients continued to reduce staff levels to manage their spending levels and layoffs continued to be announced through the fourth quarter of 2012. The subscription base for RatingsXpress® grew from new client relationships and expanded relationships into existing accounts as the number of RatingsXpress® customers increased 10% in 2012 as compared to 2011. However, average contract values for those customers declined due to customer budget constraints amidst difficult market conditions. Client cancellations were also higher than in 2011 due to increased merger and acquisition activity during the year that caused those clients to reevaluate their subscriptions. Traditionally, revenue has been primarily domestic, however, due to increases in Europe for the subscription base for RatingsXpress®, continued sales efforts of the Capital IQ desktop in Europe and Asia and recent acquisitions in Europe, international growth continued to occur throughout 2012.



Operating Profit

2013

Operating profit increased slightly as compared to 2012 due to the increase in revenue as discussed above, lower expenses resulting from the closure of several non-core businesses, reductions in outside consulting fees, lower restructuring costs in 2013 as compared to 2012 and a favorable impact from foreign exchange rates of $9 million. Partially offsetting the increases to operating profit were higher incentive costs due to improved performance, increased costs of sales for exchange fees incurred by QuantHouse, costs related to additional headcount in developing regions and a loss on the sale of Financial Communications of $3 million in 2013.



2012

Operating profit decreased slightly as compared to 2011. 2012 was significantly impacted by restructuring charges of $19 million recorded in the second half of 2012 consisting of employee severance costs related to a workforce reduction of approximately 150 positions. The 2012 acquisitions also contributed to the decrease, particularly due to amortization charges relating to the intangible assets. Also impacting operating profit were staff increases, primarily in developing regions, increased technology costs to support the growth in the employee base and costs to further develop our content and software. These decreases were partially offset by the increase in revenue discussed above and a favorable impact from foreign exchange rates of $7 million. 32



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Industry Highlights and Outlook

Enhancements to the segments content and platforms and growing the client base were key areas of focus in 2013. New datasets and expanded coverage of existing datasets combined with improved functionality of the Capital IQ platform contributed to the segments revenue growth in 2013. Platform releases have been focused on improving reliability, scalability and product performance. Improvements to the speed and timeliness through the delivery on the Xpressfeed platform and the ability to sell bundled packages with other S&P Capital IQ data sets also contributed to revenue growth at RatingsXpress®. The integration of their services on their delivery platforms and introduction of new analytic and data solutions to the market place contributed to customer growth at Capital IQ and RatingsXpress® in 2013. In 2014, the segment will continue to focus on integrating and evolving its assets and capabilities into one scaled business that offers unique, high-value offerings across all asset classes. S&P Capital IQ will continue to strive to build new functionality filling critical capability gaps to bolster their foundation for future growth.



Legal and Regulatory Environment

The financial services industry is subject to the potential for increased regulation in the U.S. and abroad. The businesses conducted by S&P Capital IQ are in certain cases regulated under the U.S. Investment Advisers Act of 1940, the U.S. Securities Exchange Act of 1934 and/or the laws of the states or other jurisdictions in which they conduct business. The markets for financial research, investment and advisory services are very competitive. S&P Capital IQ competes domestically and internationally on the basis of a number of factors, including the quality of its research and advisory services, client service, reputation, price, geographic scope, range of products and services, and technological innovation.



For a further discussion of the legal and regulatory environment see Note 12 - Commitments and Contingencies to the consolidated financial statements.

S&P DJ Indices

S&P DJ Indices is a global index provider that maintains a wide variety of investable and benchmark indices to meet an array of investor needs. S&P DJ Indices' mission is to provide benchmarks to help with decision making, create transparent indices, collaborate with the financial community to create innovative products and provide investors with tools to monitor world markets. S&P DJ Indices includes our transaction in June 2012 with CME Group, Inc. and CME Group Index Services LLC to form a new company, S&P Dow Jones Indices LLC. The joint venture is designed to advance international growth with some of the largest derivative exchanges worldwide. S&P DJ Indices generates subscription revenue but primarily derives revenue from non-subscription products based on the S&P and Dow Jones Indices. Specifically, S&P DJ Indices generate revenue from the following sources: • Investment vehicles - such as, exchange traded funds ("ETFs"), which are



based on the S&P and Dow Jones Indices and generate revenue through fees

based on assets and underlying funds;

• Listed 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 subscription - which support index fund management, portfolio analytics and research. 33



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Table of Contents (in millions) Years ended December 31, % Change 2013 2012 2011 '13 vs '12 '12 vs '11 Revenue $ 493$ 388$ 323 27% 20% Subscription revenue $ 103$ 87$ 71 19% 22% Non-subscription revenue $ 390$ 301$ 252 30% 19% Domestic revenue $ 385$ 301$ 248 28% 21% International revenue $ 108$ 87$ 75 24% 16% Operating profit $ 278$ 212$ 189 31% 12% Less: net income attributable to noncontrolling interests 73 $ 34 $ - N/M N/M Net operating profit $ 205$ 178$ 189 15% (6)% % Operating margin 56 % 55 % 59 % % Net operating margin 42 % 46 % 59 % Revenue 2013 Revenue at S&P DJ Indices grew compared to 2012 primarily due to the incremental revenue from the S&P Dow Jones Indices LLC joint venture. Excluding the incremental revenue from the joint venture, revenue increased primarily due higher average levels of assets under management for ETF products. The trend toward ETF products continued in 2013 driving a fourth consecutive quarterly record for ETF assets under management in the fourth quarter of 2013. Volumes for exchange-traded derivatives continued to increase primarily for certain Chicago Board Options Exchange ("CBOE") products. Higher rates for certain new contracts also contributed to revenue growth in 2013. 40 new ETFs were launched during 2013 compared to 85 launched during 2012. Assets under management for ETFs rose 43% to $668 billion in 2013 from $466 billion in 2012. As the ETF market becomes more mature, we are beginning to evaluate those ETF's that have been launched that have not been as successful and making efforts to close them down. Assets under management for the fourth quarter of 2013 were 14% higher than the record amount set in the third quarter of 2013 and S&P DJ Indices is the leading index provider for the ETF market with assets representing 29% of global ETF assets.



2012

Revenue at S&P DJ Indices increased 20%, primarily due to the S&P Dow Jones Indices LLC joint venture. Excluding revenue from the joint venture, S&P DJ Indices revenue increased 3% primarily due to higher average levels of assets under management for ETF products and higher mutual fund revenue. Both domestic and international revenue increased in 2012 over 2011 primarily due to the joint venture. Excluding this impact, domestic revenue was still up, however international decreased due lower reported over-the-counter derivative trades in Europe.



85 new ETFs were launched during 2012 compared to 77 launched during 2011. Assets under management for ETFs, excluding those contributed from formation of the joint venture, rose 28% to $402 billion in 2012 from $314 billion in 2011.

Operating Profit



2013

Operating profit increased due to the increase in revenue as discussed above and from the reduction of transaction costs associated with our S&P Dow Jones Indices LLC joint venture in 2012. This was partially offset by the impact of higher data fees, increased incentive costs due to improved financial performance and higher marketing costs due to increased advertising levels as building the S&P DJ Indices brand was a focus in 2013. The increase in 2013 was also partially offset by the impact of a full year of expenses for our S&P Dow Jones Indices LLC joint venture. Additionally, we incurred a $26 million non-cash impairment charge associated with an intangible asset acquired through the formation of our S&P Dow Jones Indices LLC joint venture. 34



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In the fourth quarter of 2013, we acquired 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 trade marks. This transaction will allow us to eliminate applicable royalty obligations going forward and will favorably impact operating profit beginning in 2014.



2012

Operating profit increased due to the increase in revenue discussed above, partially offset by the impact of expenses for our S&P Dow Jones Indices LLC joint venture, higher data fees and additional personnel costs for targeted staff increases.

Industry Highlights and Outlook

S&P DJ Indices, the leading index provider for the ETF market space, grew in 2013 as the trend toward ETFs continued, driving record AUM levels. In 2014, we expect this favorable trend to continue driving higher AUM levels over the long-term. The segment will also seek to continue to launch new ETFs where they see a customer interest or opportunity. This group anticipates continuing to see opportunities in products internationally, primarily in the Middle East and Asia.



Legal and Regulatory Environment

The financial services industry is subject to the potential for increased regulation in the U.S. and abroad. The markets for index providers are very competitive. S&P DJ Indices competes domestically and internationally on the basis of a number of factors, including the quality of its benchmark indices, client service, reputation, price, geographic scope, range of products and services, and technological innovation.



For a further discussion of the legal and regulatory environment see Note 12 - Commitments and Contingencies to the consolidated financial statements.

Commodities & Commercial

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 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;



J.D. Power - provides essential consumer intelligence to help businesses

measure, understand, and improve the key performance metrics that drive growth and profitability; and



McGraw Hill Construction - provides essential data, news, insights, and

intelligence to better inform construction professionals' decisions and strengthen their market position.



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: • Subscription revenue - subscriptions to our real-time news, market data

and price assessments, along with other print and digital information

products, primarily serving the energy and construction markets 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, conference sponsorship, consulting engagements, and events. As of August 1, 2013, we completed the sale of Aviation Week and results have been included in C&C's results through that date. The Broadcasting Group had historically been part of C&C. As of December 30, 2011, we completed the sale of the Broadcasting Group. See Note 2 - Acquisitions and Divestitures to our consolidated financial statements for further discussion. 35



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Table of Contents (in millions) Years ended December 31, % Change 2013 2012 2011 '13 vs '12 '12 vs '11 Revenue: Commodities $ 550$ 489$ 419 13 % 17 % Commercial 464 484 477 (4 )% 1 % Total revenue $ 1,014$ 973$ 896 4 % 9 % Subscription revenue $ 656$ 614$ 564 7 % 9 % Non-subscription revenue $ 358$ 359$ 332 - % 8 % Domestic revenue $ 563$ 563$ 551 - % 2 % International revenue $ 451$ 410$ 345 10 % 19 % Operating profit $ 311$ 248$ 180 25 % 38 % % Operating margin 31 % 26 % 20 % Revenue 2013 Revenue at C&C increased due to continued demand for Platts' proprietary content as Platts' revenue grew by 13% with consistent growth across all regions. This growth was mainly driven by strength in Platts' market data and price assessment products across all commodity sectors, led by petroleum, complimented by gains in demand for shipping data and risk forward curve products. Additionally, growth has been driven by the continued licensing of our proprietary market price data and price assessments to various commodity exchanges. While petroleum is still the biggest driver, the revenue mix continues to become more diversified as other sectors showed positive growth including, petrochemicals, natural gas, coal and metals and agriculture. The acquisition of Kingsman in the fourth quarter of 2012 also contributed to the growth in the agriculture sector. Platts represents 54% of total C&C revenue. Excluding the impact of Aviation Week, Commercial markets revenue was up slightly in the year as increases at J.D. Power offset revenue declines at McGraw-Hill Construction. Revenue at J.D. Power for 2013 represented a record revenue year. Revenue growth was due to strong demand in China for auto consulting engagements, growth in U.S. auto driven by additional consulting and proprietary engagements and growth in the U.S. Power Information Network® ("PIN"). PIN provides real-time automotive information and decision-support tools based on the collection and analysis of daily new- and used-vehicle retail transaction data from thousands of automotive franchises. International revenue at J.D. Power increased 13% for the year as compared to 2012. The Asia-Pacific region represents approximately 31% of J.D. Power's total revenue. McGraw-Hill Construction's revenue was down primarily driven by declines in their subscription business; however new analytic products and enhancements continue to show growth and customer retention improved over 2012. Media revenue at McGraw-Hill Construction also improved over 2012 due to strong growth in advertising and events. 2013 full year revenue performance is the best revenue growth performance for McGraw-Hill Construction since 2008.



2012

Revenue at C&C increased primarily due to continued demand for Platts' proprietary content and by growth across our automotive sectors at J.D. Power, primarily in Asia and the United States.

Platts' revenue grew by 17% and represents 50% of total C&C revenue with growth across all regions. This growth was mainly driven by strength in Platts' market data and price assessment products across all commodity sectors, led by petroleum and natural gas. While petroleum is still the biggest driver, the revenue mix is becoming more diversified as metals and global trading services have shown strong growth year over year. Excluding recent acquisitions, annualized contract values for Platts' top 250 customers have increased 13% as compared to 2011 and those customers represent approximately 67% of Platts' total annualized contract value. The two strategic acquisitions in 2011, Bentek Energy LLC in January and Steel Business Briefing Group in July, also contributed to the increase in revenue at Platts. All commodity sectors have also shown very strong renewal rates for subscription products during the year. 36



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J.D. Power had revenue growth across their global automotive sectors, including automotive consulting and PIN. Growth occurred across the majority of regions, most notably China and Japan. International growth was 14% and represents 37% of the total revenue. Also contributing to the increase at J.D. Power was an increase in their roundtables and events as well as licensing revenue associated with syndicated studies.



Partially offsetting these increases at C&C were declines in McGraw-Hill Construction as market contraction declines have continued to impact revenue; however growth related to new products and enhancements is gaining traction.

Operating Profit



2013

Operating profit increased primarily due to higher revenue at Platts and J.D. Power as noted above. Growth at J.D. Power was also due to lower expenses primarily due to increased productivity and lower incentive costs. McGraw-Hill Construction has also contributed to the increase as decreases in the expenses driven by headcount, lower advertising and promotion expense and product investment savings have outpaced revenue declines. Additionally, the sale of Aviation Week during the third quarter of 2013 resulted in a pre-tax gain of $11 million. Partially offsetting the increases at Platts were additional headcount and other operating costs to support business growth.



2012

Operating profit increased primarily due to the revenue growth described above and a strong focus on the management of expenses across the brands. The nonrecurring items that impacted operating profit in the prior year also contributed to the increase in 2012. Offsetting the increase were additional costs primarily related to revenue growth, additional incentive costs at Platts and J.D. Power and restructuring charges of $12 million that were recorded in the second half of 2012, consisting primarily of employee severance costs related to a workforce reduction of approximately 110 positions.



Industry Highlights and Outlook

C&C expects to continue to invest in digital capabilities that will enable our brands to become more integrated, compete more effectively in the marketplace, and create a foundation for the development of new products and revenue streams. The segment expects to further expand its presence in selected markets and geographies to help drive growth. The continuing growth in oil demand and the uncertainty of supply causes volatility in energy prices, which will drive market participant demand for Platts' proprietary content, including news, price assessments and analytics. The International Energy Agency projects that world oil consumption will rise to 92.4 million barrels per day in 2014, a gain of 1.2 million barrels per day compared to 2013. In 2014, Platts will continue to invest in technology and customer engagement activities to seek to drive additional revenue growth across all commodity sectors. They will also seek to continue to leverage the capabilities and content from recent acquisitions and expand into adjacent markets. Similar to 2013, they expect to continue to introduce a number of new products and price assessments within all commodity sectors. Platts will also seek to continue to ensure readiness for adherence to the International Organization of Securities Commissions ("IOSCO") Principles and while the Principles focus on oil, Platts is ensuring that processes related to all commodities are in adherence with the Principles. Demand for our automotive studies is driven by the performance of the automotive industry. In 2013, global and U.S. light vehicle sales increased approximately 4% and 8%, respectively, compared to 2012, with growth across most primary markets except Europe, India and Russia. For 2014, J.D. Power projects growth for global and U.S. light vehicles sales of 5% and 4%, respectively. In 2014, J.D. Power will strive to grow the core business by strengthening their benchmark studies, leveraging new initiatives to drive operational efficiencies and enhance customer delivery and increasing the distribution of their syndicated studies. In 2013, international growth was driven by auto in Asia-Pacific, particularly in China. International growth will also continue to be a key focus in 2014 as they will look to extend product offerings by further expanding their PIN business into China and exploring growth opportunities in Latin America. Demand for our construction offerings is primarily dependent on the non-residential construction industry. Non-residential building construction in 2013 increased 7% from a year ago, with growth for commercial buildings, up 16%, and manufacturing facilities, up 36%. Residential building climbed 24% compared to 2012. Non-building construction in 2013 fell 12% from prior year, as a 57% decline in electric utilities offset a 9% gain in public works. In 2014, total construction starts are forecast to rise 9% with residential building up 22% and non-residential building up 8%, with the latter helped by a 17% increase for commercial building. McGraw-Hill Construction will continue to focus on expense management in 2014 and new business growth should begin to outweigh the historical loss of certain strategic accounts. 37



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Legal and Regulatory Environment

For a further discussion of the legal and regulatory environment see Note 12 - Commitments and Contingencies to our consolidated financial statements.

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. In 2014, 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 $1.5 billion as of December 31, 2013, an increase of $782 million as compared to December 31, 2012, and consisted of domestic cash of $695 million and cash held abroad of $847 million. 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. (in millions) Years ended December 31, 2013 2012 2011 Net cash provided by (used for): Operating activities from continuing operations $ 816$ 747$ 924 Investing activities from continuing operations (130 ) (247 ) (271 ) Financing activities from continuing operations (1,743 ) (905 )



(1,660 )

In 2013, free cash flow of $624 million was relatively flat compared to $626 million in 2012. The slight decrease was a result of higher dividends and payments to noncontrolling interests and an increase in capital expenditures, partially offset by the increase in cash flow from operating activities discussed below. Free cash flow is a non-GAAP financial measure and reflects our cash flow provided by 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. Operating activities Cash provided by operating activities increased $69 million to $816 million in 2013. The increase is mainly due to higher operating results and improved cash collections in 2013 impacting accounts receivable. These increases were partially offset by a tax payment made in the first quarter of 2013 as compared to the fourth quarter of 2012, our legal settlements and higher incentive compensation payments in 2013 reflecting greater achievement against targeted results in 2012 as compared to 2011. Cash provided by operating activities decreased $177 million to $747 million in 2012, mainly due to an increase in accounts receivable as a result of higher billings at S&P Ratings, S&P Indices and S&P Capital IQ in 2012 compared to 2011 and higher pension plan contributions in 2012, partially offset by higher income taxes payable as the IRS extended the due date for the fourth quarter estimated income tax payment until the first quarter of 2013, and higher payments to vendors in 2011. Investing activities Our cash outflows from investing activities are primarily for acquisitions and capital expenditures, while cash inflows are primarily from dispositions. Cash used for investing activities decreased $117 million to $130 million for 2013, primarily due to a lower amount of cash paid for acquisitions and higher proceeds from dispositions primarily due to our sale of Aviation Week and the sale of an equity investment held by CRISIL. These decreases were partially offset by an increase related to cash outflows for the purchase of short-term investments in 2013 compared to cash inflows from short-term investments in 2012. 38



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Cash used for investing activities decreased $24 million to $247 million for 2012, primarily due to a higher amount of cash inflows from short-term investments and a lower amount of cash paid for acquisitions, partially offset by lower proceeds from dispositions due to the sale of our interest in LinkedIn Corporation in 2011.



Refer to Note 2 - Acquisitions and Divestitures to our consolidated financial statements for further information.

Financing activities Our cash outflows from financing activities consist primarily of share repurchases, dividends and repayment of debt, while cash inflows are primarily inflows from commercial paper borrowings and proceeds from the exercise of stock options. Cash used for financing activities increased $838 million to $1.7 billion in 2013. This increase is primarily attributable to an increase in cash used for share repurchases, the repayment of short-term debt in the first quarter of 2013 and the purchase of CRISIL equity shares in the third quarter of 2013. These increases were partially offset by a decrease in cash used for dividends paid to shareholders due to a special dividend paid in 2012 and the payment related to the maturity of our $400 million, 5.375% Senior Notes in November of 2012.



Cash used for financing activities decreased $755 million to $905 million in 2012. The decrease is primarily attributable to a decrease in cash used for share repurchases, partially offset by an increase in dividends paid to shareholders due to a special dividend payment in 2012.

During 2013, we used cash to repurchase 16.8 million shares for $978 million, including commissions. The average price per share, excluding commissions, was $58.36. An additional 0.1 million shares were repurchased in the fourth quarter of 2013 for approximately $10 million, which settled in January of 2014. Including these additional shares, we utilized cash to repurchase shares at an average price of $58.52, excluding commissions. During 2012, we used cash to repurchase 6.8 million shares for $295 million, including commissions. The average price per share, excluding commissions, was $50.35. During 2011, we utilized cash to repurchase 34.7 million shares for $1.5 billion, including commissions. The average price per share, excluding commissions, was $40.48. The average price per share for 2012 and 2011 does not include the accelerated share repurchase transactions as discussed in more detail in Note 8 - Equity to our consolidated financial statements. The 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. On December 4, 2013, the Board of Directors approved a new stock repurchase program authorizing the purchase of up to 50 million shares (the "2013 Repurchase Program"), which was approximately 18% of the total shares of our outstanding common stock at that time. 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. As of December 31, 2013, 50 million shares remained available under the 2013 Repurchase Program. Discontinued Operations Cash flows from discontinued operations reflects the classification of MHE and the Broadcasting Group as discontinued operations. Cash used for operating activities from discontinued operations was $265 million compared to cash provided by operating activities of $520 million in 2012 as a result of the completion of the sale of MHE that occurred on March 22, 2013. Cash flows provided by operating activities from discontinued operations increased $100 million to $520 million in 2012 compared to 2011. The increase in 2012 is primarily due to a reduction in accounts receivables as a result of lower sales year over year at MHE, higher unearned revenue at School Education Group and lower inventory purchases. Cash provided by investing activities from discontinued operations was $2.1 billion in 2013 compared to cash used for investing activities from discontinued operations of $198 million in 2012. The increase in 2013 is primarily due to proceeds received from the sale of MHE in 2013. Cash used for investing activities from discontinued operations of $198 million in 2012 compared to cash provided by investing activities from discontinued operations of $25 million in 2011, primarily due to proceeds received for the sale of the Broadcasting Group in 2011.



Cash used for financing activities increased $13 million to $25 million in 2013 and increased $8 million to $12 million in 2012.

Additional Financing

Currently, we have the ability to borrow a total of $1.0 billion through our commercial paper program, which is supported by our credit facility described below. As of December 31, 2013, there were no commercial paper borrowings outstanding. In connection with the December 2012 special dividend in the amount of $2.50 per share on our common stock, we utilized our commercial 39



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paper program and as a result, commercial paper borrowings outstanding as of December 31, 2012 totaled $457 million with an average interest rate and term of 0.48% and 28 days. On June 19, 2013, we entered into a $1.0 billion four-year credit agreement (our "credit facility") that will terminate on June 19, 2017. This credit facility replaced our $1.2 billion three-year credit facility that was scheduled to terminate on July 30, 2013. The previous credit facility was canceled immediately after the new credit facility became effective. There were no outstanding borrowings under the previous credit facility when it was replaced. We pay a commitment fee of 20 to 45 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 25 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 indebtness 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 3.25 to 1, and this covenant has never been exceeded.

On February 7, 2013, Fitch Ratings downgraded our credit rating to BBB+ from A- and placed our ratings on Rating Watch Negative. There has been no change to our short-term / commercial paper rating of F2 from Fitch Ratings. On February 14, 2013, Moody's Investors Service downgraded our credit rating from A3 to Baa2 with negative outlook. In March 2013, upon the completion of the sale of McGraw-Hill Education, Moody's withdrew our credit ratings (due to Moody's own business reasons). Dividends



On January 29, 2014, the Board of Directors approved an increase in the quarterly common stock dividend from $0.28 per share to $0.30 per share.

On December 6, 2012, our Board of Directors approved a special dividend in the amount of $2.50 per share on our common stock, payable on December 27, 2012 to shareholders on record on December 18, 2012.



Contractual Obligations

We typically have various contractual obligations, which are recorded as liabilities in our consolidated balance sheets, while other items, such as certain purchase commitments and other executory contracts, are not recognized, but are disclosed herein. For example, we are contractually committed to contracts for information-technology outsourcing, certain enterprise-wide information-technology software licensing and maintenance and make certain minimum lease payments for the use of property under operating lease agreements.

We believe that the amount of cash and cash equivalents on hand, cash flow expected from operations and availability under our credit facility will be adequate for us to execute our business strategy and meet anticipated requirements for lease obligations, capital expenditures, working capital and debt service for 2014.

The following table summarizes our significant contractual obligations and commercial commitments as of December 31, 2013, over the next several years that relate to our continuing operations. Additional details regarding these obligations are provided in the notes to our consolidated financial statements, as referenced in the footnotes to the table: (in millions) Less than 1 After 5 Year 1-3 Years 4-5 Years Years Total Debt: 1 Principal payments $ - $ - $ 400$ 399$ 799 Interest payments 50 99 76 498 723 Operating leases 2 161 278 189 238 866 Purchase obligations and other 3 100 146 65 - 311



Total contractual cash obligations $ 311 $ 523 $

730 $ 1,135$ 2,699

1 Our debt obligations are described in Note 5 - Debt to our consolidated

financial statements.

2 Amounts shown include taxes and escalation payments, see Note 12 -

Commitments and Contingencies to our consolidated financial statements for

further discussion on our operating lease obligations. 40



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3 Other consists primarily of commitments for unconditional purchase

obligations in contracts for information-technology outsourcing and certain

enterprise-wide information-technology software licensing and maintenance.

As of December 31, 2013, we had $82 million of liabilities for unrecognized tax benefits. We have excluded the liabilities for unrecognized tax benefits from our contractual obligations table because reasonable estimates of the timing of cash settlements with the respective taxing authorities are not practicable. As of December 31, 2013, we have recorded $810 million for our redeemable noncontrolling interest in our S&P Dow Jones Indices LLC partnership discussed in Note 2 - Acquisitions and Divestitures to our consolidated financial statements. Specifically, this amount relates to the put option under the terms of the operating agreement of S&P Dow Jones Indices LLC, whereby, after December 31, 2017, CME Group and 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. We have excluded this amount from our contractual obligations table because we are uncertain as to the timing and the ultimate amount of the potential payment we may be required to make. We make contributions to our pension and postretirement plans in order to satisfy minimum funding requirements as well as additional contributions that we consider appropriate to improve the funded status of our plans. During 2013, we contributed $27 million and $9 million to our domestic and international retirement and postretirement plans, respectively. Expected employer contributions in 2014 are $23 million and $10 million for our domestic and international retirement and postretirement plans, respectively. In 2014, we may elect to make additional non-required contributions depending on investment performance and the pension plan status. See Note 6 - Employee Benefits to our consolidated financial statements for further discussion.



Off-Balance Sheet Arrangements

As of December 31, 2013 and 2012, we did not have any relationships with unconsolidated entities, such as entities often referred to as specific purpose or variable interest entities where we are the primary beneficiary, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such we are not exposed to any financial liquidity, market or credit risk that could arise if we had engaged in such relationships.



RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION

Free cash flow is a non-GAAP financial measure and reflects our cash flow provided by 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. We believe the presentation of free cash flow 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 operation and working capital needs. The presentation of free cash flow is 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: (in millions) Years ended December 31, 2013 2012 2011 Cash provided by operating activities $ 816$ 747$ 924 Capital expenditures (117 ) (97 ) (92 ) Dividends and other payments paid to noncontrolling interests (75 ) (24 ) (23 ) Free cash flow $ 624$ 626$ 809 41



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CRITICAL ACCOUNTING ESTIMATES

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Unless otherwise indicated, all discussion and analysis of our financial condition and results of operations relate to our continuing operations. 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. 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. Management considers 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. Management has discussed the development and selection of our critical accounting estimates with the Audit Committee of our Board of Directors. The Audit Committee has reviewed our disclosure relating to them in this MD&A.



We believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our consolidated financial statements:

Revenue recognition Revenue is recognized as it is earned when goods are shipped to customers or services are rendered. We consider amounts to be earned once evidence of an arrangement has been obtained, services are performed, fees are fixed or determinable and collectability is reasonably assured. Revenue relating to products that provide for more than one deliverable is recognized based upon the relative fair value to the customer of each deliverable as each deliverable is provided. Revenue relating to agreements that provide for more than one service is recognized based upon the relative fair value to the customer of each service component as each component is earned. If the fair value to the customer for each service is not objectively determinable, we make our best estimate of the services' stand alone selling price and recognize revenue as earned as the services are delivered. The allocation of consideration received from multiple element arrangements that involve initial assignment of ratings and the future surveillance of ratings is determined through an analysis that considers cash consideration that would be received for instances when the service components are sold separately. In such cases, we defer portions of rating fees that we estimate will be attributed to future surveillance and recognize the deferred revenue ratably over the estimated surveillance periods. Advertising revenue is recognized when the page is run. Subscription income is recognized over the related subscription period. For the years ended December 31, 2013, 2012 and 2011, no significant changes have been made to the underlying assumptions related to estimates of revenue or the methodologies applied. Based on our current outlook these assumptions are not expected to significantly change in 2014. Allowance for doubtful accounts The allowance for doubtful accounts reserve methodology is based on historical analysis, a review of outstanding balances and current conditions. In determining these reserves, we consider, amongst other factors, the financial condition and risk profile of our customers, areas of specific or concentrated risk as well as applicable industry trends or market indicators. The impact on operating profit for a one percentage point change in the allowance for doubtful accounts is approximately $10 million.



For the years ended December 31, 2013, 2012 and 2011, we made no material changes in our assumptions regarding the determination of the allowance for doubtful accounts. Based on our current outlook these assumptions are not expected to significantly change in 2014.

Accounting for the impairment of long-lived assets (including other intangible assets) We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Upon such an occurrence, recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to current forecasts of undiscounted future net cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized equal to the amount by which the carrying amount of the asset exceeds the fair value of the asset. For long-lived assets held for sale, assets are written down to fair value, less cost to sell. Fair value is determined based on market evidence, discounted cash flows, appraised values or management's estimates, depending upon the nature of the assets. 42



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During the fourth quarter of 2013, we entered the final stages of discussions to sell the facilities and associated infrastructure equipment of one of our data centers to a third party, causing us to recognize an impairment charge of $36 million for the year ended December 31, 2013 to adjust the value facilities and associated infrastructure classified as held for sale to their fair value. Additionally, we incurred a $26 million non-cash impairment charge associated with the an intangible asset acquired through the formation of our S&P Dow Jones Indices LLC joint venture.



There were no material impairments of long-lived assets for the years ended December 31, 2012 and 2011.

Goodwill and indefinite-lived intangible assets Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets of businesses acquired. As of December 31, 2013 and 2012, the carrying value of goodwill and other indefinite-lived intangible assets was $2.0 billion and $2.1 billion, respectively. Goodwill and other intangible assets with indefinite lives 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

As part of our annual impairment test of our 4 reporting units, we initially perform a qualitative analysis evaluating whether any events and circumstances occurred that provide evidence that it is more likely than not that the fair value of any of our reporting units is less than its carrying amount. Our qualitative assessment included, but was not limited to, consideration of macroeconomic conditions, industry and market conditions, cost factors, cash flows, changes in key Company personnel and our share price. If, based on our evaluation of the events and circumstances that occurred during the year we do not believe that it is more likely than not that the fair value of any of our reporting units is less than its carrying amount, no quantitative impairment test is performed. Conversely, if the results of our qualitative assessment determine that it is more likely than not that the fair value of any of our reporting units is less than its respective carrying amount we perform a two-step quantitative impairment test. For 2013, based on our qualitative assessments, we determined that it is more likely than not that our reporting units' fair value was greater than their respective carrying amounts. Our qualitative assessment included, but was not limited to, consideration of macroeconomic conditions, industry and market conditions, cost factors, cash flows, changes in key Company personnel and our share price. If the fair value of the reporting unit is less than the carrying value, a second step is performed which compares the implied fair value of the reporting unit's goodwill to the carrying value of the goodwill. The implied fair value of the goodwill is determined based on the difference between the fair value of the reporting unit and the net fair value of the identifiable assets and liabilities of the reporting unit. If the implied fair value of the goodwill is less than the carrying value, the difference is recognized as an impairment charge. Indefinite-Lived Intangible Assets We evaluate the recoverability of indefinite-lived intangible assets by first performing a qualitative analysis evaluating whether any events and circumstances occurred that provide evidence that it is more likely than not that the indefinite-lived asset is impaired. If, based on our evaluation of the events and circumstances that occurred during the year we do not believe that it is more likely than not that the indefinite-lived asset is impaired, no quantitative impairment test is performed. Conversely, if the results of our qualitative assessment determine that it is more likely than not that the indefinite-lived asset is impaired a quantitative impairment test is performed. If necessary, the impairment test is performed by comparing the estimated fair value of the intangible asset to its carrying value. If the indefinite-lived intangible asset carrying value exceeds its fair value, an impairment analysis is performed using the income approach. The fair value of loss is recognized in an amount equal to that excess. Significant judgments inherent in these analyses include estimating the amount and timing of future cash flows and the selection of appropriate discount rates, royalty rates and long-term growth rate assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for this indefinite-lived intangible asset and could result in an impairment charge, which could be material to our financial position and results of operations. We performed our impairment assessment of goodwill and indefinite-lived intangible assets at our S&P Ratings, S&P Capital IQ, S&P DJ Indices and C&C operating segments and concluded that no impairment existed for the years ended December 31, 2013, 2012, and 2011. Retirement plans and postretirement healthcare and other benefits Our employee pension and other postretirement benefit costs and obligations are dependent on assumptions concerning the outcome of future events and circumstances, including compensation increases, long-term return on pension plan assets, healthcare cost trends, discount rates and other factors. In determining such assumptions, we consult with outside actuaries and other advisors where deemed appropriate. In accordance with relevant accounting standards, if actual results differ from our assumptions, such differences are deferred and amortized over the estimated future working life of the plan participants. While we believe that the 43



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assumptions used in these calculations are reasonable, differences in actual experience or changes in assumptions could affect the expense and liabilities related to our pension and other postretirement benefits. The following is a discussion of some significant assumptions that we make in determining costs and obligations for pension and other postretirement benefits: • Discount rate assumptions are based on current yields on high-grade corporate long-term bonds.



• Healthcare cost trend assumptions are based on historical market data, the

near-term outlook and an assessment of likely long-term trends.

• The expected return on assets assumption is calculated based on the plan's

asset allocation strategy and projected market returns over the long-term.

Our discount rate and return on asset assumptions used to determine the net periodic pension and postretirement benefit cost on our U.S. retirement plans are as follows: Retirement Plans Postretirement Plans January 1 2014 2013 2012 2014 2013 2012 Discount rate 1 5.0 % 4.1 % 5.1 % 4.20 % 3.45 % 4.45 % Return on assets 7.125 % 7.25 % 7.75 % Weighted-average healthcare cost rate 7.0 %



7.5 % 8.0 %

1 The discount rate assumption used to determine the net periodic pension and

postretirement benefit cost on our U.S. retirement plans on January 1 is

based on the discount rate assumption used to determine the benefit obligation as of December 31 of the previous year. Stock-based compensation Stock-based compensation expense is measured at the grant date based on the fair value of the award and is recognized over the requisite service period, which typically is the vesting period. Stock-based compensation is classified as both operating-related expense and selling and general expense in our consolidated statements of income.



We use a lattice-based option-pricing model to estimate the fair value of options granted. The following assumptions were used in valuing the options granted (in 2012, stock options were not granted as part of employees' total stock-based incentive awards):

Years



ended December 31,

2013 2012 2011 Risk-free average interest rate 0.1 - 2.9% N/A 0.2 - 3.5% Dividend yield 2.09 - 2.07% N/A 2.5 - 3.0% Volatility 29 - 45% N/A 21 - 51% Expected life (years) 6.1 - 6.2 N/A 6.1 - 6.2 Weighted-average grant-date fair value per option $ 14.46



N/A $ 10.61

Because lattice-based option-pricing models incorporate ranges of assumptions, those ranges are disclosed. These assumptions are based on multiple factors, including historical exercise patterns, post-vesting termination rates, expected future exercise patterns and the expected volatility of our stock price. The risk-free interest rate is the imputed forward rate based on the U.S. Treasury yield at the date of grant. We use the historical volatility of our stock price over the expected term of the options to estimate the expected volatility. The expected term of options granted is derived from the output of the lattice model and represents the period of time that options granted are expected to be outstanding. Income taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. We recognize liabilities for uncertain tax positions taken or expected to be taken in income tax returns. Accrued interest and penalties related to unrecognized tax benefits are recognized in interest expense and operating expense, respectively. 44



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Judgment is required in determining our provision for income taxes, deferred tax assets and liabilities and unrecognized tax benefits. In determining the need for a valuation allowance, the historical and projected financial performance of the operation that is recording a net deferred tax asset is considered along with any other pertinent information. We file income tax returns in the U.S. federal jurisdiction, various states, and foreign jurisdictions, and we are routinely under audit by many different tax authorities. We believe that our accrual for tax liabilities is adequate for all open audit years based on our assessment of many factors including past experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. It is possible that examinations will be settled prior to December 31, 2014. If any of these tax audit settlements do occur within that period we would make any necessary adjustments to the accrual for unrecognized tax benefits. Until formal resolutions are reached between us and the tax authorities, the determination of a possible audit settlement range with respect to the impact on unrecognized tax benefits is not practicable. On the basis of present information, it is our opinion that any assessments resulting from the current audits will not have a material effect on our consolidated financial statements. We have determined that the undistributed earnings of our foreign subsidiaries are permanently reinvested within those foreign operations. Accordingly, we have not provided deferred income taxes on these indefinitely reinvested earnings. A future distribution by the foreign subsidiaries of these earnings could result in additional tax liability, which may be material to our future reported results, financial position and cash flows. For the years ended December 31, 2013, 2012, and 2011, we made no material changes in our assumptions regarding the determination of the provision for income taxes. However, certain events could occur that would materially affect our estimates and assumptions regarding deferred taxes. Changes in current tax laws and applicable enacted tax rates could affect the valuation of deferred tax assets and liabilities, thereby impacting our income tax provision.



Contingencies

We are subject to a number of lawsuits and claims that arise in the ordinary course of business. We recognize a liability for such contingencies when both (a) information available prior to issuance of the financial statements indicates that it is probable that a liability had been incurred at the date of the financial statements and (b) the amount of loss can reasonably be estimated. We continually assess the likelihood of any adverse judgments or outcomes to our contingencies, as well as potential amounts or ranges of probable losses, and recognize a liability, if any, for these contingencies based on an analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts. Because many of these matters are resolved over long periods of time, our estimate of liabilities may change due to new developments, changes in assumptions or changes in our strategy related to the matter. Redeemable Noncontrolling Interest The fair value component of the redeemable noncontrolling interest in S&P DJ Indices business is based on a combination of an income and market valuation approach. Our income and market valuation approaches may incorporate Level 3 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.



RECENT ACCOUNTING STANDARDS

See Note 1 - Accounting Policies, to the consolidated financial statements for a detailed description of recent accounting standards. We do not expect these recent accounting standards to have a material impact on our results of operations, financial condition, or liquidity in future periods.


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