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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(Mark One)
x | ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (fee required) |
For the fiscal year ended December 31, 2014
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (no fee required) |
For the transition period from to
Commission file number 1-1023
Standard & Poor’s 401(k) Savings and Profit Sharing
Plan for Represented Employees
(Full title of the plan)
McGraw Hill Financial, Inc.
1221 Avenue of the Americas
New York, NY 10020
(Name of issuer of the securities held pursuant to the plan and address of its principal executive office.)
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FINANCIAL STATEMENTSAND
SUPPLEMENTAL SCHEDULE
Standard & Poor’s 401(k) Savings and Profit Sharing Plan for Represented Employees
Years Ended December 31, 2014 and 2013
With Report of Independent Registered Public Accounting Firm
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Standard & Poor’s
401(k) Savings and Profit Sharing Plan for Represented Employees
Financial Statements
and Supplemental Schedule
December 31, 2014 and 2013
1 | ||||
Financial Statements | ||||
2 | ||||
3 | ||||
4 | ||||
Schedule H, Line 4(i) – Schedule of Assets (Held at End of Year) | 24 |
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Report of Independent Registered Public Accounting Firm
The Retirement Plans Investment Committee
McGraw Hill Financial, Inc.
We have audited the accompanying statements of net assets available for benefits of Standard & Poor’s 401(k) Savings and Profit Sharing Plan for Represented Employees (the “Plan”) as of December 31, 2014 and 2013, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Plan’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan at December 31, 2014 and 2013, and the changes in its net assets available for benefits for the years then ended, in conformity with U.S. generally accepted accounting principles.
The accompanying supplemental schedule of assets (held at end of year) as of December 31, 2014, has been subjected to audit procedures performed in conjunction with the audit of the Plan’s financial statements. The information in the supplemental schedules is the responsibility of the Plan’s management. Our audit procedures included determining whether the information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental schedule. In forming our opinion on the information, we evaluated whether such information, including its form and content, is presented in conformity with the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole.
/s/ ERNST & YOUNG LLP
New York, New York
June 29, 2015
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Standard & Poor’s
401(k) Savings and Profit Sharing Plan for Represented Employees
Statements of Net Assets Available for Benefits
(In Thousands)
December 31 | ||||||||
2014 | 2013 | |||||||
Interest in the McGraw Hill Financial, Inc. Savings Plans Master Trust Fund at fair value: | ||||||||
S&P 500 Index Account | $ | 23,359 | $ | 22,377 | ||||
Stable Assets Account | 22,561 | 27,188 | ||||||
Retirement Assets I Account | 10,680 | 11,434 | ||||||
McGraw Hill Financial, Inc. Stock Account | 8,254 | 8,180 | ||||||
Retirement Assets III Account | 6,778 | 6,566 | ||||||
S&P 400 Index Account | 6,249 | 5,550 | ||||||
Retirement Assets II Account | 4,891 | 4,043 | ||||||
International Equity Account | 4,783 | 5,468 | ||||||
Core Equity Account | 3,837 | 4,046 | ||||||
Money Market Account | 3,673 | 5,572 | ||||||
Special Equity Account | 2,532 | 2,611 | ||||||
S&P 600 Index Account | 2,493 | 2,724 | ||||||
Target Retirement Income | 163 | — | ||||||
Target Retirement 2055 | 91 | — | ||||||
Target Retirement 2035 | 80 | — | ||||||
Target Retirement 2030 | 66 | — | ||||||
Target Retirement 2025 | 64 | — | ||||||
Target Retirement 2050 | 26 | — | ||||||
Target Retirement 2040 | 11 | — | ||||||
Target Retirement 2045 | 11 | — | ||||||
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Total plan assets in Master Trust Fund | 100,602 | 105,759 | ||||||
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Self Directed Accounts | 256 | 389 | ||||||
Contributions receivable: | ||||||||
Employer | 800 | 957 | ||||||
Notes receivable from participants | 1,212 | 576 | ||||||
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Total plan assets, reflecting investments at fair value | 102,870 | 107,681 | ||||||
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Adjustments from fair value to contract value for fully benefit responsive investment contracts | (852 | ) | (997 | ) | ||||
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Net assets available for benefits | $ | 102,018 | $ | 106,684 | ||||
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See accompanying notes to the financial statements.
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Standard & Poor’s
401(k) Savings and Profit Sharing Plan for Represented Employees
Statements of Changes in Net Assets Available for Benefits
(In Thousands)
Year Ended December 31 | ||||||||
2014 | 2013 | |||||||
Investment gain: | ||||||||
Net investment gain from McGraw Hill Financial, Inc. Savings Plans Master Trust Fund | $ | 7,145 | $ | 17,600 | ||||
Net investment gain/(loss) from Self Directed Accounts | 16 | (107 | ) | |||||
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Total investment gain | 7,161 | 17,493 | ||||||
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Interest income on notes receivable from participants | 50 | 29 | ||||||
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Additions: | ||||||||
Contributions: | ||||||||
Employer | 2,341 | 2,301 | ||||||
Employee | 2,658 | 2,929 | ||||||
Plan transfers | 40 | 43 | ||||||
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Total additions | 5,039 | 5,273 | ||||||
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Deductions: | ||||||||
Benefit payments and withdrawals | (15,025 | ) | (6,825 | ) | ||||
Plan transfers | (1,891 | ) | (2,340 | ) | ||||
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Total deductions | (16,916 | ) | (9,165 | ) | ||||
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Net (decrease) / increase | (4,666 | ) | 13,630 | |||||
Net assets available for benefits: | ||||||||
Beginning of year | $ | 106,684 | 93,054 | |||||
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End of year | $ | 102,018 | $ | 106,684 | ||||
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See accompanying notes to the financial statements.
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Standard & Poor’s
401(k) Savings and Profit Sharing Plan for Represented Employees
Year Ended December 31, 2014
1. Plan Description
On May 1, 2013, The McGraw-Hill Companies, Inc. changed its name to McGraw Hill Financial, Inc. (the “Company”).
The Standard & Poor’s 401(k) Savings and Profit Sharing Plan for Represented Employees (the “Plan”) is a defined contribution plan sponsored by McGraw Hill Financial, Inc. The Plan has a beneficial interest in McGraw Hill Financial, Inc. Savings Plans Master Trust Fund (the “Master Trust”). The Master Trust consists of the Stable Assets Account, S&P 500 Index Account, McGraw Hill Financial, Inc. Stock Account, Retirement Assets I Account, International Equity Account, Money Market Account, Special Equity Account, Core Equity Account, Retirement Assets III Account, Retirement Assets II Account, S&P 400 Index Account, S&P 600 Index Account and Target Retirement Funds (the “Investment Accounts”). In addition to the Investment Accounts in the Master Trust, the Plan allows participants to maintain Self Directed Accounts.
The following is a summary of benefit guidelines. A more detailed description is contained in the Plan document.
Employees are eligible to become participants immediately, as long as the enrollment process is complete and they are represented by the Newspaper Guild of New York. Employees who do not make an election to participate will automatically be enrolled in the Plan after 60 days of eligibility to participate with tax deferred participant contributions at 3% of eligible pay.
Employees are eligible to have profit sharing contributions credited to their profit sharing contribution account on the first day of the month coincident with or following the date the employee attains age 21 and completes one year of continuous service.
Participants may contribute to the Plan up to 25% of their Plan earnings, limited to $17,500 in 2014 and 2013, respectively. Plan contribution amounts allowable are limited pursuant to Sections 401(k), 401(m) and 415 of the Internal Revenue Code (the “IRC”). Plan earnings include base earnings and certain other forms of compensation as provided under the Plan. Plan earnings were limited to $260,000 and $255,000 in 2014 and 2013, respectively.
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Standard & Poor’s
401(k) Savings and Profit Sharing Plan for Represented Employees
Notes to Financial Statements (continued)
1. Plan Description (continued)
Effective as of January 1, 2014, the Company matches 100% of the first 6% of tax deferred compensation contributed to the Plan by the employee. Effective as of January 1, 2008, the Plan was amended to limit after tax contributions by highly compensated employees (“HCEs”) to 4% of earnings. Effective as of January 1, 2012, the Plan was updated to allow 3% after tax for HCEs. If automatically enrolled, participants defer 3% of their eligible compensation until changed by the participant.
The assets of the Plan may be invested in the Investment Accounts as well as the Self Directed Accounts. Participants can elect to designate, in 1% increments, their investment preference(s). If a participant is automatically enrolled, their contributions are invested in the age appropriate Target Retirement Fund. The particular Target Retirement Fund used as the default fund is based on the date an individual will turn age 65. There is no limit to the number of investment allocation changes.
Prior to January 1, 2014, a $10 charge was assessed for each participant investment allocation change or reallocation after the first 8 changes, which were permissible free of charge. Effective January 1, 2014, such provision was eliminated, and no charges are assessed for any participant change or reallocation of existing balances.
Employee contributions to the Plan are non-forfeitable. Matching contributions by the employer are fully vested immediately. Employer profit sharing contributions attributable to the 2007 plan year and subsequent plan years shall vest 20% after two years of continuous service, an additional 20% after each of the third and fourth years, and the remaining 40% after the fifth year, with full vesting after five years. Profit sharing contributions also vest upon the participant’s attainment of age 65, if still employed by the Company, or upon the participant’s death, if still employed by the Company. Employer profit sharing contributions attributable to the 2006 plan year and prior years will be fully vested upon completion of five years of continuous service or upon attainment of age 65 or death while in service. Continuous Plan participation includes all years of participation plus any waiting periods before being eligible to join the Plan.
Non-vested participant benefits are forfeited after a five-year break in service and forfeitures are used to reduce Company contributions for the current plan year. Forfeited participant benefits used to reduce Company contributions for 2014 and 2013 were approximately $59,000 and $30,000, respectively.
The IRC limits how participants may withdraw funds from the Plan. Participants may have up to six options for withdrawing all or a portion of the vested balance in their Plan account while they are an employee of the Company or an affiliate. The withdrawal options include: hardship loans, withdrawal from participant’s after-tax and rollover sub-accounts, withdrawals after attainment of age 59 1⁄2, withdrawals upon disability, hardship withdrawals, or reservist withdrawal.
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Standard & Poor’s
401(k) Savings and Profit Sharing Plan for Represented Employees
Notes to Financial Statements (continued)
1. Plan Description (continued)
The Plan also provides that a participant who makes an election regarding the Investment Accounts, upon exercising withdrawal or loan rights, receives a pro rata distribution from the elected Investment Accounts.
The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). While the Company has not expressed any intent to discontinue or to terminate the Plan, it is free to do so at any time subject to the provisions of ERISA. Upon termination of the Plan, the account balances of all participants become non-forfeitable.
Profit Sharing
The Company will make profit sharing contributions from consolidated net profits for each plan year as the Company’s Board of Directors may determine at its discretion. This amount can be up to a maximum of 2.5% of eligible compensation up to the Social Security wage base and 5% of eligible compensation in excess of the Social Security wage base. The Company contributed approximately $759,000 and $911,000 to the Plan in 2014 and 2013, respectively.
2. Summary of Significant Accounting Policies
Basis of Accounting
The accompanying financial statements have been prepared on the accrual basis of accounting.
Investment Valuation
The investments of the Plan and the Standard & Poor’s 401(k) Savings and Profit Sharing Plan for Represented Employees (together, the “Participating Plans”), are pooled for investment purposes in the Master Trust under the agreement entered into with The Northern Trust Company (“Northern Trust”). At December 31, 2014 and 2013, the Plan’s interest in the net assets of the Master Trust was approximately 96% and 95%, respectively.
All earnings and net appreciation or depreciation of the Master Trust Investment Accounts, other than the Self Directed Accounts and the Stable Assets Account, are allocated to the Plan daily based upon the Plan’s share of the Investment Accounts’ fair value at the end of the previous day.
Investments in the Self Directed Accounts are credited with earnings/charged with losses and expenses based on the performance of the individual investments within these accounts.
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Standard & Poor’s
401(k) Savings and Profit Sharing Plan for Represented Employees
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
As described in Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 962, Plan Accounting – Defined Contribution Pension Plans, investment contracts held by a defined contribution plan are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan. The statement of net assets available for benefits adjusts the fair value of the investment contracts from fair value to contract value. Investments in the Stable Assets Account are benefit responsive. Contract value represents contributions made under the contract plus interest at the contract rate, less withdrawals under the contract.
In accordance with ASC 820, Fair Value Measurements and Disclosures, (“ASC 820”), assets and liabilities measured at fair value are categorized according to a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are defined as follows:
• | Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. |
• | Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. |
• | Level 3 – Unobservable inputs for the asset or liability. |
A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
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Standard & Poor’s
401(k) Savings and Profit Sharing Plan for Represented Employees
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
The following is a description of the Plan’s valuation methodologies used for the Investment Accounts and the Self Directed Accounts measured at fair value. There have been no changes in the methodologies used at December 31, 2014 and 2013.
Investment Accounts: Valued at fair value based on the unit value of the funds. Unit values are determined by the investment manager sponsoring such funds by dividing the fund’s net assets at fair value by its units outstanding at the valuation dates.
Self Directed Accounts: The Self Directed Accounts hold mutual funds and money market funds valued at the quoted net asset value (“NAV”) of shares held by the Plan at year-end.
The following is a description of the valuation methodologies used for the assets within the Master Trust measured at fair value. There have been no changes in the methodologies used at December 31, 2014 and 2013.
Corporate Common Stock: Valued at quoted market prices.
Preferred Stock: Valued at quoted market prices.
Foreign Common Stock: Valued at quoted market prices.
US Government Securities: Valued based on evaluated prices provided by independent pricing services. Such evaluated prices may be determined by factors which include, but are not limited to market quotations, yields, maturities and the bond’s terms and conditions. These financial instruments are generally categorized as Level 2 instruments in the fair value hierarchy.
Collective Investment Trust Funds: Valued at fair value based on the unit value of the funds. Unit values are determined by the investment manager sponsoring such funds by dividing the fund’s net assets at fair value by its units outstanding at the valuation dates. The Collective Investment Funds seek to provide long-term capital appreciation and income by investing in the stocks of the Standard & Poor’s 500 Composite Stock Index, Standard & Poor’s MidCap 400 Composite Stock Index and other various asset classes. These financial instruments are generally categorized as Level 2 instruments in the fair value hierarchy. There are currently no redemption restrictions on these investments.
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Standard & Poor’s
401(k) Savings and Profit Sharing Plan for Represented Employees
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
McGraw Hill Financial, Inc. Common Stock: Valued at quoted market prices.
Corporate Debt: Valued based on evaluated prices provided by independent pricing services. Such evaluated prices may be determined by factors which include, but are not limited to market quotations, yields, maturities and the bond’s terms and conditions. These financial instruments are generally categorized as Level 2 instruments in the fair value hierarchy.
Mutual Funds: Valued at the quoted NAV of shares held by the Master Trust at year-end. These financial instruments are generally categorized as Level 1 instruments in the fair value hierarchy.
Asset-backed Securities: Valued based on evaluated prices provided by independent pricing services. Such evaluated prices may be determined by factors which include, but are not limited to market quotations, yields, maturities and the bond’s terms and conditions. For securities without quoted market prices, other observable market inputs are utilized to determine the fair value. Institutional bid evaluations are estimated prices. Pricing vendors use models, which are generally proprietary, to arrive at the estimated prices. These financial instruments are generally categorized as Level 2 instruments in the fair value hierarchy.
Guaranteed Investment Contracts: For funds that stand ready to redeem their outstanding shares at net asset value any time, the NAVs used to price such funds are considered to be the equivalent of Level 1 inputs. For other funds, the reported NAV is corroborated with observable data and is considered to be a Level 2 input. Refer to Note 3 for further details.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation is appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following table sets forth by level within the fair value hierarchy the Plan investment assets at fair value, as of December 31, 2014 and 2013. As required by ASC 820, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
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Standard & Poor’s
401(k) Savings and Profit Sharing Plan for Represented Employees
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Assets at Master Trust Level | ||||||||||||||||
as of December 31, 2014 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(In Thousands) | ||||||||||||||||
Corporate common stock | ||||||||||||||||
Consumer sectors | $ | 151,070 | $ | — | $ | — | $ | 151,070 | ||||||||
Technology sectors | 207,063 | — | — | 207,063 | ||||||||||||
Other sectors | 399,073 | — | — | 399,073 | ||||||||||||
Preferred stock | 4,148 | — | — | 4,148 | ||||||||||||
US Government Securities | — | 46,301 | — | 46,301 | ||||||||||||
Common collective trust | ||||||||||||||||
Northern Trust S&P 400 Index* | — | 116,822 | — | 116,822 | ||||||||||||
Northern Trust S&P 500 Index* | — | 480,929 | — | 480,929 | ||||||||||||
Other | 993 | 10,847 | — | 11,840 | ||||||||||||
McGraw Hill Financial, Inc. common stock* | 165,216 | — | — | 165,216 | ||||||||||||
Corporate debt | — | 164,510 | — | 164,510 | ||||||||||||
Asset-backed securities | — | 48,545 | — | 48,545 | ||||||||||||
Mutual funds: | ||||||||||||||||
Fixed Income Fund Investments | 72,629 | — | — | 72,629 | ||||||||||||
Other | 89,070 | — | — | 89,070 | ||||||||||||
Stable Assets Account | ||||||||||||||||
Fixed Income Fund Investments | 7,103 | — | — | 7,103 | ||||||||||||
Monumental Life Ins #MDA00938 | — | 120,760 | — | 120,760 | ||||||||||||
Bank of Tokyo-Mitsubishi #UFJ DAM-McGHill13-1 | 87,049 | 87,049 | ||||||||||||||
Prudential Insurance Co. of America #GA-6245 | — | 157,201 | — | 157,201 | ||||||||||||
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Total Master Trust Assets | $ | 1,096,365 | $ | 1,232,964 | $ | — | $ | 2,329,329 | ||||||||
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* | Indicates party-in-interest to the Plan. |
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Standard & Poor’s
401(k) Savings and Profit Sharing Plan for Represented Employees
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Assets at Plan Level as of December 31, 2014 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(In Thousands) | ||||||||||||||||
Self Directed Accounts | $ | 256 | $ | — | $ | — | $ | 256 | ||||||||
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Total Plan Assets Outside Master Trust | $ | 256 | $ | — | $ | — | $ | 256 | ||||||||
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Assets at Master Trust Level | ||||||||||||||||
as of December 31, 2013 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(In Thousands) | ||||||||||||||||
Corporate common stock | ||||||||||||||||
Consumer sectors | $ | 164,674 | $ | — | $ | — | $ | 164,674 | ||||||||
Technology sectors | 173,538 | — | — | 173,538 | ||||||||||||
Other sectors | 425,847 | — | — | 425,847 | ||||||||||||
Preferred stock | 4,603 | — | — | 4,603 | ||||||||||||
US Government Securities | — | 56,611 | — | 56,611 | ||||||||||||
Common collective trust | ||||||||||||||||
Northern Trust S&P 400 Index* | — | 111,938 | — | 111,938 | ||||||||||||
Northern Trust S&P 500 Index* | — | 446,977 | — | 446,977 | ||||||||||||
Other | 1,960 | 16,571 | — | 18,531 | ||||||||||||
McGraw Hill Financial, Inc. common stock* | 172,374 | — | — | 172,374 | ||||||||||||
Corporate debt | — | 165,385 | — | 165,385 | ||||||||||||
Asset-backed securities | — | 24,666 | — | 24,666 | ||||||||||||
Mutual funds: | ||||||||||||||||
Fixed Income Fund Investments | 77,115 | — | — | 77,115 | ||||||||||||
Other | 56,395 | — | — | 56,395 | ||||||||||||
Stable Assets Account | ||||||||||||||||
Fixed Income Fund Investments | 17,130 | — | — | 17,130 | ||||||||||||
Monumental Life Ins #MDA00938 | — | 126,604 | — | 126,604 | ||||||||||||
Bank of Tokyo-Mitsubishi #UFJ DAM-McGHill13-1 | — | 92,655 | — | 92,655 | ||||||||||||
Prudential Insurance Co. of America #GA-6245 | — | 166,893 | — | 166,893 | ||||||||||||
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Total Master Trust Assets | $ | 1,093,636 | $ | 1,208,300 | $ | — | $ | 2,301,936 | ||||||||
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* | Indicates party-in-interest to the Plan. |
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Standard & Poor’s
401(k) Savings and Profit Sharing Plan for Represented Employees
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Assets at Plan Level as of December 31, 2013 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(In Thousands) | ||||||||||||||||
Self Directed Accounts | $ | 389 | $ | — | $ | — | $ | 389 | ||||||||
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Total Plan Assets Outside Master Trust | $ | 389 | $ | — | $ | — | $ | 389 | ||||||||
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Investment Income
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded as earned. Dividends are recorded on the ex-dividend date. Net appreciation (depreciation) includes the Plan’s gains and losses on investments bought and sold as well as held during the year.
Contributions
Contributions from employees are accrued when the Company makes payroll deductions. Contributions from the Company are accrued in the period in which they become obligations of the Company.
Payment of Benefits
Benefits are recorded when paid.
Notes Receivable from Participants
Notes receivable from participants represent participant loans that are recorded at their unpaid principal balance plus any accrued but unpaid interest. Interest income on notes receivable from participants is recorded when it is earned. Related fees are recorded as administrative expenses and are expensed when they are incurred. No allowance for credit losses has been recorded as of December 31, 2014 or 2013. If a participant ceases to make loan repayments and the Vice-President, Global Benefits (the “Plan Administrator”) deems the participant loan to be a distribution, the participant loan balance is reduced and a benefit payment is recorded.
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Standard & Poor’s
401(k) Savings and Profit Sharing Plan for Represented Employees
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Administration of the Plan
The Plan is administered by the Plan Administrator who is responsible for carrying out the provisions of the Plan. The appointment was approved by the Board of Directors of the Company.
The investments for the Plan, excluding the investments in the Self Directed Accounts, are directed by the Retirement Plans Investment Committee and by outside investment managers. The Retirement Plans Investment Committee is appointed by the Board of Directors of the Company and the outside investment managers are appointed by the Retirement Plans Investment Committee.
The Plan is responsible for its administrative expenses. The Company may reimburse the Plan for these expenses at its discretion. The Company did not reimburse the Plan for any administrative expenses in 2014 and 2013, respectively. During 2014 and 2013, the administrative expenses of the Investment Accounts were allocated to all plans participating in the respective Investment Accounts and deducted from the net investment income allocated to the participating plans.
Federal Income Tax Status
The Plan received a determination letter from the Internal Revenue Service (the “IRS”) dated August 17, 2011 stating that the Plan, as amended, is qualified under Section 401(a) of the IRC and, therefore, the related trust is exempt from taxation. Once qualified, the Plan is required to operate in conformity with the IRC to maintain its qualification. The Plan Administrator believes the Plan is being operated in compliance with the applicable requirements of the IRC and therefore believes the Plan is qualified and the related trust is tax-exempt.
Accounting principles generally accepted in the United States (“US GAAP”) require plan management to evaluate uncertain tax positions taken by the Plan. The financial statement effects of a tax position are recognized when the position is more likely than not, based on the technical merits, to be sustained upon examination by the IRS. The Plan Administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2014, there are no uncertain positions taken or expected to be taken. The Plan has recognized no interest or penalties related to uncertain tax positions. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Plan Administrator believes it is no longer subject to income tax examinations for years prior to 2011.
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Table of Contents
Standard & Poor’s
401(k) Savings and Profit Sharing Plan for Represented Employees
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates that affect the amounts reported in the financial statements and accompanying notes and supplemental schedule. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In January 2014, the FASB issued Accounting Standards Update (“ASU”) ASU 2014-01, “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”, (“ASU 2014-01”). ASU 2014-01 limits the scope of the new balance sheet offsetting disclosures to derivatives, repurchase agreements, and securities lending transactions to the extent that they are (1) offset in the financial statements or (2) subject to an enforceable master netting arrangement or similar agreement. The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2014, and interim periods within those annual periods. The adoption of this guidance had no material effect on the Plan’s financial statements.
In May 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-07, “Disclosures for Investments in Certain Entities That Calculate Net Assets Value per Share (or Its Equivalent)”, (“ASU 2015-07”). ASU 2015-07 removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. It also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. ASU 2015-07 will be effective for the Plan beginning in the first quarter of 2016, with early adoption permitted, and will be applied retrospectively. The Plan Administrator is currently evaluating the standard and does not believe it will have a material impact on the Plan’s financial statements.
3. Investments
The investments of the Participating Plans are pooled for investment purposes in the Master Trust under the agreement entered into with Northern Trust. At both December 31, 2014 and 2013, the Plan’s interest in the net assets of the Master Trust was approximately 4% and 5%, respectively.
14
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Standard & Poor’s
401(k) Savings and Profit Sharing Plan for Represented Employees
Notes to Financial Statements (continued)
3. Investments (continued)
As of December 31, the Plan’s approximate interest in the Investment Accounts was as follows:
% Interest | ||||||||
2014 | 2013 | |||||||
Stable Assets Account | 6.1 | % | 6.7 | % | ||||
S&P 400 Index Account | 5.3 | 5.0 | ||||||
Money Market Account | 5.1 | 7.2 | ||||||
Target Retirement 2055 | 5.1 | — | ||||||
McGraw Hill Financial, Inc. Stock Account | 5.0 | 4.7 | ||||||
S&P 500 Index Account | 4.9 | 5.0 | ||||||
S&P 600 Index Account | 4.4 | 4.7 | ||||||
Target Retirement 2035 | 4.0 | — | ||||||
Retirement Assets I Account | 3.7 | 3.9 | ||||||
International Equity Account | 3.6 | 3.7 | ||||||
Special Equity Account | 3.1 | 3.0 | ||||||
Core Equity Account | 3.1 | 3.5 | ||||||
Retirement Assets III Account | 3.0 | 3.0 | ||||||
Retirement Assets II Account | 2.7 | 2.4 | ||||||
Target Retirement Income | 2.7 | — | ||||||
Target Retirement 2050 | 1.8 | — | ||||||
Target Retirement 2025 | 1.3 | — | ||||||
Target Retirement 2030 | 0.8 | — | ||||||
Target Retirement 2045 | 0.8 | — | ||||||
Target Retirement 2040 | 0.6 | — |
15
Table of Contents
Standard & Poor’s
401(k) Savings and Profit Sharing Plan for Represented Employees
Notes to Financial Statements (continued)
3. Investments (continued)
The following table is a summary, at fair value, of the net assets of the Master Trust Investment Accounts as of:
December 31 | ||||||||
2014 | 2013 | |||||||
(In Thousands) | ||||||||
Assets | ||||||||
Investments: | ||||||||
Corporate common stock | ||||||||
Consumer sectors | $ | 151,070 | $ | 164,674 | ||||
Technology sectors | 207,063 | 173,538 | ||||||
Other sectors | 399,073 | 425,847 | ||||||
Preferred stock | 4,148 | 4,603 | ||||||
US Government Securities | 46,301 | 56,611 | ||||||
Common collective trust | 609,591 | 577,446 | ||||||
McGraw Hill Financial, Inc. common stock* | 165,216 | 172,374 | ||||||
Corporate debt | 164,510 | 165,385 | ||||||
Asset-backed securities | 48,545 | 24,666 | ||||||
Mutual funds | 161,699 | 133,510 | ||||||
Stable Assets Account: | ||||||||
Fixed Income Fund Investments | 7,103 | 17,130 | ||||||
Monumental Life Ins #MDA00938, 3.37% and 3.41% at December 31, 2014 and 2013, respectively | 120,760 | 126,604 | ||||||
Bank of Tokyo-Mitsubishi UfJ #DAM-McGILL13-1, 2.43% and 2.48% at December 31, 2014 and 2013, respectively | 87,049 | 92,655 | ||||||
Prudential Insurance Co. of America #GA-62450, 3.12% and 2.98% at December 31, 2014 and 2013, respectively | 157,201 | 166,893 | ||||||
|
|
|
| |||||
2,329,329 | 2,301,936 | |||||||
Receivables | ||||||||
Due (to) / from broker on pending trades | (845 | ) | 1,203 | |||||
|
|
|
| |||||
Total receivables | (845 | ) | 1,203 | |||||
|
|
|
| |||||
Liabilities | ||||||||
Accrued investment management expenses | (1,729 | ) | (1,788 | ) | ||||
|
|
|
| |||||
Total liabilities | (1,729 | ) | (1,788 | ) | ||||
|
|
|
| |||||
Net assets of the Master Trust, at fair value | 2,326,755 | 2,301,351 | ||||||
Adjustments from fair value to contract value for fully benefit responsive investment contracts | (14,042 | ) | (14,772 | ) | ||||
|
|
|
| |||||
Net assets of the Master Trust | $ | 2,312,713 | $ | 2,286,579 | ||||
|
|
|
|
* | Indicates party-in-interest to the Plan. |
16
Table of Contents
Standard & Poor’s
401(k) Savings and Profit Sharing Plan for Represented Employees
Notes to Financial Statements (continued)
3. Investments (continued)
Individual investments that represent 5% or more of the Master Trust’s net assets are as follows:
December 31 | ||||||||
2014 | 2013 | |||||||
(In Thousands) | ||||||||
NTGI-QM Collective Daily S&P 500 Equity Index Fund – Non Lending* | $ | 480,929 | $ | 446,977 | ||||
McGraw Hill Financial, Inc. common stock* | 165,216 | 172,374 |
* | Indicates party-in-interest to the Plan. |
Investment income for the Master Trust is as follows:
Year Ended December 31 | ||||||||
2014 | 2013 | |||||||
(In Thousands) | ||||||||
Investment income | ||||||||
Net appreciation (depreciation) in fair value of investments: | ||||||||
U.S. Government securities | $ | 13,027 | $ | (84 | ) | |||
Corporate common stock | 52,015 | 196,920 | ||||||
Preferred stock | (271 | ) | 830 | |||||
McGraw Hill Financial, Inc. common stock* | 22,535 | 53,900 | ||||||
Mutual funds | 5,197 | 53,002 | ||||||
Corporate debt | 6,254 | (703 | ) | |||||
Asset-backed securities | (177 | ) | 272 | |||||
Common collective trust | 60,891 | 119,145 | ||||||
Interest and dividend income | 10,839 | 14,491 | ||||||
|
|
|
| |||||
Net investment gain | 170,310 | 437,773 | ||||||
|
|
|
| |||||
Expenses | ||||||||
Administrative and other expenses | (2,432 | ) | (2,058 | ) | ||||
|
|
|
| |||||
Total investment gain | $ | 167,878 | $ | 435,715 | ||||
|
|
|
|
* | Indicates party-in-interest to the Plan. |
17
Table of Contents
Standard & Poor’s
401(k) Savings and Profit Sharing Plan for Represented Employees
Notes to Financial Statements (continued)
3. Investments (continued)
Guaranteed Investment Contracts
The Monumental Life Insurance contract, the Bank of Tokyo-Mitsubishi contract and the Prudential Insurance Co. of America contract are book value liquidity agreements which, in conjunction with the underlying bond portfolios covered by each contract, comprise the synthetic Guaranteed Investment Contracts (the “GICs”). In exchange for an annual fee, each book value liquidity agreement issuer guarantees to reimburse the Stable Assets Account for the shortfall, if any, between the portfolio’s market value and principal and accrued interest in the event of participant initiated distributions from the synthetic GIC. The synthetic GICs crediting interest rate resets quarterly and is based upon the yield, duration and market value of the underlying bond portfolio. Each of the book value liquidity agreements is subject to an early termination penalty, which could reduce the crediting interest rate guarantee for the quarter in which a premature termination occurs.
Certain events limit the ability of the Plan to transact at contract value with the insurance company and the financial institution issuer. Such events include (1) amendments to the Plan documents (including complete or partial plan termination or merger with another plan), (2) changes to the Plan’s prohibition on competing investment options or deletion of equity wash provisions, (3) bankruptcy of the Plan sponsor or other Plan sponsor events (for example, divestitures or spin-offs of a subsidiary) that cause a significant withdrawal from the Plan, or (4) the failure of the trust to qualify for exemption from federal income taxes or any required prohibited transaction exemption under ERISA. The Plan Administrator does not believe that the occurrence of any such events that would limit the Plan’s ability to transact at contract value with participants is probable.
The synthetic GICs do not permit the insurance company to terminate the agreement prior to the scheduled maturity date; however, the synthetic GICs generally impose conditions on both the Plan and the issuer.
The weighted-average yield for the synthetic GICs for the years ended December 31, 2014 and 2013 was 2.91% and 2.76%, respectively.
The rate at which interest is accrued to the contract balance of the synthetic GICs for the years ended December 31, 2014 and 2013 was 2.97% and 2.87%, respectively.
18
Table of Contents
Standard & Poor’s
401(k) Savings and Profit Sharing Plan for Represented Employees
Notes to Financial Statements (continued)
3. Investments (continued)
The total fair value of the synthetic GICs was approximately $372,113,000 and $403,283,000 as of December 31, 2014 and 2013, respectively.
The fair value of the synthetic GIC contracts was calculated using the following methodology:
1. | The difference between the indicative replacement cost and the current annual fee multiplied by the notional dollar amount of the contract was calculated. |
2. | Future quarterly payments for the duration of the agreement that resulted from any difference identified immediately above, other than zero, were determined. |
3. | Any difference in future payments were discounted by the published Bloomberg USD US Bank -AA- rated credit curve, as of the end of the year, and totaled. |
Self Directed Accounts
Self Directed Accounts, also known as Mutual Fund Investment Window Accounts, allow individual participants to gain access to up to 9,500 mutual funds. These funds are not reviewed or monitored by McGraw Hill Financial, Inc. Retirement Plans Investment Committee.
A summary of net assets at fair value, as of December 31, follows:
2014 | 2013 | |||||||
(In Thousands) | ||||||||
Investments | ||||||||
Money markets | $ | 145 | $ | 47 | ||||
Mutual funds | 103 | 342 | ||||||
|
|
|
| |||||
Total investments | 248 | 389 | ||||||
Cash | 39 | 1 | ||||||
Due to broker on pending trades, net | (31 | ) | (1 | ) | ||||
|
|
|
| |||||
Net assets available to participanting Plan | $ | 256 | $ | 389 | ||||
|
|
|
|
19
Table of Contents
Standard & Poor’s
401(k) Savings and Profit Sharing Plan for Represented Employees
Notes to Financial Statements (continued)
3. Investments (continued)
A summary of the net investment gain/(loss) of the Self Directed Accounts for the years ended December 31, follows:
2014 | 2013 | |||||||
(In Thousands) | ||||||||
Dividend and interest income | $ | 2 | $ | 4 | ||||
Net realized and unrealized gain on Mutual funds | 14 | (111 | ) | |||||
|
|
|
| |||||
Net investment gain/(loss) | $ | 16 | $ | (107 | ) | |||
|
|
|
|
Derivative Contracts
In the normal course of business, the Plan enters into exchange-traded derivative contracts for trading purposes through the Master Trust. Exchange-traded derivatives are standard contracts traded on a regulated exchange. The Plan has entered into derivatives that include option contracts, futures and swaps agreements in the underlying fixed income portfolios of the Stable Assets Fund. Derivatives are recorded at fair value. The Plan values derivatives at independent values when available; otherwise, fair values are based on pricing models that incorporate the time value of money, volatility, credit spreads, liquidity, and the current market and contractual prices of the underlying financial instruments.
The notional and fair values of derivative financial instruments included in the Plan’s investments, and within the Plan’s Master Trust, as of December 31, 2014 and 2013, respectively are as follows:
20
Table of Contents
Standard & Poor’s
401(k) Savings and Profit Sharing Plan for Represented Employees
Notes to Financial Statements (continued)
3. Investments (continued)
December 31, 2014 | ||||||||||||||||
(In Thousands) | ||||||||||||||||
Notional | Market Value | |||||||||||||||
Assets | Liabilities | Assets | Liabilities | |||||||||||||
Foreign exchange forward contracts | $ | 45,012 | $ | 43,453 | $ | 1,723 | $ | 165 | ||||||||
Equity futures contracts | — | 1,412 | — | 11 | ||||||||||||
Swap contracts | 1,200 | 6,300 | 14 | 340 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 46,212 | $ | 51,165 | $ | 1,737 | $ | 516 | ||||||||
|
|
|
|
|
|
|
| |||||||||
December 31, 2013 | ||||||||||||||||
(In Thousands) | ||||||||||||||||
Notional | Market Value | |||||||||||||||
Assets | Liabilities | Assets | Liabilities | |||||||||||||
Foreign exchange forward contracts | $ | 36,096 | $ | 35,771 | $ | 815 | $ | 489 | ||||||||
Equity futures contracts | 1,248 | — | 5 | — | ||||||||||||
Swap contracts | 11,205 | 134,335 | 1,814 | 1,074 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 48,549 | $ | 170,106 | $ | 2,634 | $ | 1,563 | ||||||||
|
|
|
|
|
|
|
|
Notional amounts for option contracts are only relevant if the options are in-the-money at the expiration date, otherwise, they expire worthless.
4. Plan to Plan Transfers
Employees transferred to and from this Plan and the 401(k) Savings and Profit Sharing Plan of McGraw Hill Financial, Inc. and Its Subsidiaries which resulted in transfers in of approximately $40,000 and $43,000 in 2014 and 2013, respectively, and transfers out of approximately $1,891,000 and $2,340,000 in 2014 and 2013, respectively.
21
Table of Contents
Standard & Poor’s
401(k) Savings and Profit Sharing Plan for Represented Employees
Notes to Financial Statements (continued)
5. Related-Party Transactions
The Master Trust holds units of common/collective trust funds managed by Northern Trust, the trustee of the Plan. The Master Trust also invests in the common stock of the Company. These transactions qualify as party-in-interest transactions; however, they are exempt from the prohibited transactions rules under ERISA.
6. Risks and Uncertainties
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the statements of net assets available for benefits.
7. Differences Between Financial Statements and Form 5500
The following is a reconciliation of net assets available for benefits per the financial statements, as of December 31, to the Form 5500:
2014 | 2013 | |||||||
(In Thousands) | ||||||||
Net assets available for benefits per the financial statements | $ | 102,870 | $ | 106,684 | ||||
Add: Adjustments from fair value to contract value for fully benefit-responsive contracts | 852 | 997 | ||||||
|
|
|
| |||||
Net assets per Form 5500 | $ | 103,722 | $ | 107,681 | ||||
|
|
|
|
22
Table of Contents
Standard & Poor’s
401(k) Savings and Profit Sharing Plan for Represented Employees
Notes to Financial Statements (continued)
7. Differences Between Financial Statements and Form 5500 (continued)
The following is a reconciliation of total additions per the financial statements to total income per the Form 5500 for the year ended December 31:
2014 | ||||
(In Thousands) | ||||
Total investment gain per the financial statements | $ | 7,161 | ||
Add: Adjustment from fair value to contract value for fully benefit-responsive investment contracts at December 31, 2014 | 852 | |||
Less: Adjustment from fair value to contract value for fully benefit-responsive investment contracts at December 31, 2013 | (997 | ) | ||
|
| |||
Total income per the Form 5500 | $ | 7,016 | ||
|
|
The following is a reconciliation of total additions per the financial statements to total income per the Form 5500 for the year ended December 31:
2013 | ||||
(In Thousands) | ||||
Total investment gain per the financial statements | $ | 17,493 | ||
Add: Adjustment from fair value to contract value for fully benefit-responsive investment contracts at December 31, 2013 | 997 | |||
Less: Adjustment from fair value to contract value for fully benefit-responsive investment contracts at December 31, 2012 | (1,855 | ) | ||
|
| |||
Total income per the Form 5500 | $ | 16,635 | ||
|
|
8. Subsequent Event
Management has evaluated subsequent events for Plan through June 29, 2015, the date the financial statements were available to be issued.
23
Table of Contents
Table of Contents
Standard & Poor’s
401(k) Savings and Profit Sharing Plan for Represented Employees
EIN #13-1026995 Plan #009
Schedule H, Line 4(i) – Schedule of Assets (Held at End of Year)
December 31, 2014
Identity of Issuer, Borrower, | Description of Investment | Current Value | ||||
Notes receivable from participants* | Interest rates ranging from 4.25% – 9.25%, maturing through October 11, 2024 | $ | 1,212,077 | |||
Self Directed Accounts | Mutual funds and money market funds, presented at fair value | 256,420 |
* | Indicates party-in-interest to the Plan. |
24
Table of Contents
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-50856) pertaining to The Savings Incentive Plan of McGraw Hill, Inc. and its Subsidiaries, The Employee Retirement Account Plan of McGraw Hill, Inc. and its Subsidiaries, The Standard & Poor’s Savings Incentive Plan for Represented Employees, The Standard & Poor’s Employee Retirement Account Plan for Represented Employees, The Employees’ Investment Plan of McGraw Hill Broadcasting Company, Inc. and its Subsidiaries; the Registration Statement (Form S-8 No. 333-126465) pertaining to The Savings Incentive Plan of The McGraw Hill Companies, Inc. and its Subsidiaries, The Employee Retirement Account Plan of The McGraw Hill Companies, Inc. and its Subsidiaries, The Standard & Poor’s Savings Incentive Plan for Represented Employees, and The Standard & Poor’s Employee Retirement Account Plan for Represented Employees, and the Registration Statement (Form S-8 Nos. 333-157570 and 333-170902) pertaining to The 401(k) Savings and Profit Sharing Plan of The McGraw Hill Companies, Inc. and its Subsidiaries, and The Standard & Poor’s 401(k) Savings and Profit Sharing Plan for Represented Employees of our report dated June 29, 2015, with respect to the financial statements and schedule of the Standard and Poor’s 401(k) Savings and Profit Sharing Plan for Represented Employees included in this Annual Report (Form 11-K) for the year ended December 31, 2014.
/s/ ERNST & YOUNG LLP
New York, New York
June 29, 2015
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
COMPANY NAME | ||||||
Date: June 29, 2015 | By: | /s/ Peter Palma | ||||
Name: | Peter Palma | |||||
Title: | Vice President, Global Benefits and Plan Administrator | |||||