MOODYS CORP /DE/, 10-Q filed on 11/1/2019
Quarterly Report
v3.19.3
Cover Page
shares in Millions
9 Months Ended
Sep. 30, 2019
shares
Entity Information [Line Items]  
Document Type 10-Q
Document Quarterly Report true
Document Period End Date Sep. 30, 2019
Document Transition Report false
Entity File Number 1-14037
Entity Registrant Name Moody’s Corporation
Entity Incorporation, State or Country Code DE
Entity Tax Identification Number 13-3998945
Entity Address, Address Line One 7 World Trade Center
Entity Address, Address Line Two 250 Greenwich Street
Entity Address, City or Town New York
Entity Address, State or Province NY
Entity Address, Postal Zip Code 10007
City Area Code (212)
Local Phone Number 553-0300
Entity Current Reporting Status Yes
Entity Interactive Data Current Yes
Entity Filer Category Large Accelerated Filer
Entity Small Business false
Entity Emerging Growth Company false
Entity Shell Company false
Entity Common Stock, Shares Outstanding (in shares) 188.8
Entity Central Index Key 0001059556
Document Fiscal Period Focus Q3
Amendment Flag false
Current Fiscal Year End Date --12-31
Document Fiscal Year Focus 2019
Common Stock, par value $0.01 per share  
Entity Information [Line Items]  
Title of 12(b) Security Common Stock, par value $0.01 per share
Trading Symbol MCO
Security Exchange Name NYSE
1.75% Senior Notes Due 2027  
Entity Information [Line Items]  
Title of 12(b) Security 1.75% Senior Notes Due 2027
Trading Symbol MCO 27
Security Exchange Name NYSE
v3.19.3
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($)
shares in Millions, $ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Income Statement [Abstract]        
Revenue $ 1,240.5 $ 1,080.8 $ 3,596.2 $ 3,382.6
Expenses        
Operating 350.2 306.3 1,031.8 941.4
Selling, general and administrative 291.9 260.3 848.1 801.9
Restructuring (1.0) 0.0 58.3 0.0
Depreciation and amortization 48.6 46.1 149.9 143.6
Acquisition-Related Expenses 0.0 1.3 3.4 4.1
Impairment pursuant to the planned divestiture of MAKS 2.0 0.0 10.7 0.0
Total expenses 691.7 614.0 2,102.2 1,891.0
Operating income 548.8 466.8 1,494.0 1,491.6
Non-operating (expense) income, net        
Interest expense, net (45.9) (56.4) (149.0) (160.5)
Other non-operating income, net 9.9 2.4 12.6 18.3
Total non-operating expense, net (36.0) (54.0) (136.4) (142.2)
Income before provisions for income taxes 512.8 412.8 1,357.6 1,349.4
Provision for income taxes 130.4 100.8 289.6 282.7
Net income 382.4 312.0 1,068.0 1,066.7
Less: Net income attributable to noncontrolling interests 3.0 1.8 5.4 7.4
Net income attributable to Moody's $ 379.4 $ 310.2 $ 1,062.6 $ 1,059.3
Earnings per share attributable to Moody's common shareholders        
Basic (in usd per share) $ 2.01 $ 1.62 $ 5.60 $ 5.53
Diluted (in usd per share) $ 1.99 $ 1.59 $ 5.54 $ 5.45
Weighted average number of shares outstanding        
Basic (in shares) 189.0 191.8 189.6 191.7
Diluted (in shares) 191.1 194.5 191.8 194.4
v3.19.3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Statement of Comprehensive Income [Abstract]        
Net Income $ 382.4 $ 312.0 $ 1,068.0 $ 1,066.7
Foreign Currency Adjustments:        
Foreign currency translation adjustments - Pre Tax (193.6) (52.4) (178.7) (203.2)
Foreign currency translation adjustment - Tax 0.0 0.0 0.0 0.0
Foreign currency translation adjustments - Net of Tax (193.6) (52.4) (178.7) (203.2)
Net gains on net investment hedges - Pre Tax 136.7 5.9 130.1 28.0
Net gains on net investment hedges, Tax (34.0) (1.8) (33.1) (7.4)
Net gains on net investment hedges, Net of Tax 102.7 4.1 97.0 20.6
Net investment hedges - reclassification of gains included in net income - Pre Tax (1.0) 0.0 (1.0) 0.0
Net investment hedges - reclassification of gains included in net income - Tax 0.2 0.0 0.2 0.0
Net investment hedges - reclassification of gains included in net income - Net of Tax (0.8) 0.0 (0.8) 0.0
Cash Flow Hedges:        
Net realized and unrealized gain (loss) on cash flow hedges - Pre Tax     0.0 1.9
Net realized and unrealized gain (loss) on cash flow hedges - Tax     0.0 (0.4)
Net realized and unrealized gain (loss) on cash flow hedges - Net of Tax     0.0 1.5
Reclassification of (losses) gains included in net income - Pre Tax 0.1 (0.1) 0.2 (0.3)
Reclassification of (losses) gains included in net income - Tax 0.1 0.0 0.1 0.0
Reclassification of (losses) gains included in net income - Net of Tax 0.0 (0.1) 0.1 (0.3)
Pension and Other Retirement Benefits:        
Amortization of actuarial losses and prior service costs included in net income - Pre Tax 0.8 1.1 2.4 3.5
Amortization of actuarial losses and prior service costs included in net income - Tax (0.2) (0.3) (0.6) (1.0)
Amortization of actuarial losses and prior service costs included in net income - Net of Tax 0.6 0.8 1.8 2.5
Net actuarial (losses) gains and prior service costs - Pre Tax     (1.7) 1.6
Net actuarial (losses) gains and prior service costs - Tax     0.4 (0.4)
Net actuarial (losses) gains and prior service costs - Net of Tax     (1.3) 1.2
Total other comprehensive (loss) income - Pre Tax (57.0) (45.5) (48.7) (168.5)
Total other comprehensive (loss)income - Tax 34.1 2.1 33.2 9.2
Other comprehensive income/(loss) (91.1) (47.6) (81.9) (177.7)
Comprehensive income 291.3 264.4 986.1 889.0
Less: comprehensive income (loss) attributable to noncontrolling interests 3.1 (8.4) 14.7 (2.7)
Comprehensive Income Attributable to Moody's $ 288.2 $ 272.8 $ 971.4 $ 891.7
v3.19.3
CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($)
$ in Millions
Sep. 30, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 1,178.0 $ 1,685.0
Short-term investments 95.8 132.5
Accounts receivable, net of allowances of $45.2 in 2019 and $43.5 in 2018 1,228.4 1,287.1
Other current assets 286.1 282.3
Assets held for sale 254.0 0.0
Total current assets 3,042.3 3,386.9
Property and equipment, net of accumulated depreciation of $816.8 in 2019 and $790.2 in 2018 292.1 320.4
Operating lease right-of-use assets 464.6  
Goodwill 3,610.0 3,781.3
Intangible assets, net 1,454.1 1,566.1
Deferred tax assets, net 189.4 197.2
Other assets 425.3 274.3
Total assets 9,477.8 9,526.2
Current liabilities:    
Accounts payable and accrued liabilities 607.2 695.2
Current portion of operating lease liabilities 89.5  
Current portion of long-term debt 501.5 449.9
Deferred revenue 855.7 953.4
Liabilities held for sale 84.1 0.0
Total current liabilities 2,138.0 2,098.5
Non-current portion of deferred revenue 115.0 122.3
Long-term debt 4,736.5 5,226.1
Deferred tax liabilities, net 355.7 351.7
Uncertain tax positions 442.0 494.6
Operating lease liabilities 495.0  
Other liabilities 492.5 576.5
Total liabilities 8,774.7 8,869.7
Contingencies (Note 20) 0.0  
Redeemable noncontrolling interest 5.8 0.0
Shareholders' equity:    
Preferred stock, par value $0.01 per share and, 10,000,000 shares authorized; no shares issued and outstanding 0.0 0.0
Common stock 3.4 3.4
Capital surplus 607.9 600.9
Retained earnings 9,391.6 8,594.4
Treasury stock, at cost; 154,151,437 and 151,598,695 shares of common stock at September 30, 2019 and December 31, 2018, respectively (8,993.0) (8,312.5)
Accumulated other comprehensive loss (537.3) (426.3)
Total Moody's shareholders' equity 472.6 459.9
Noncontrolling interests 224.7 196.6
Total shareholders' equity 697.3 656.5
Total liabilities, noncontrolling interests and shareholders' equity 9,477.8 9,526.2
Series Common Stock    
Shareholders' equity:    
Common stock $ 0.0 $ 0.0
v3.19.3
CONSOLIDATED BALANCE SHEETS (Parenthetical) (UNAUDITED) - USD ($)
$ in Millions
Sep. 30, 2019
Dec. 31, 2018
Accounts receivable, allowances $ 45.2 $ 43.5
Property and equipment, accumulated depreciation $ 816.8 $ 790.2
Preferred stock, par value (in usd per share) $ 0.01 $ 0.01
Preferred stock, shares authorized (in shares) 10,000,000 10,000,000
Preferred stock, shares issued (in shares) 0 0
Preferred stock, shares outstanding (in shares) 0 0
Common stock, par value (in usd per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 1,000,000,000 1,000,000,000
Common stock, shares issued (in shares) 342,902,272 342,902,272
Treasury stock, shares (in shares) 154,151,437 151,598,695
Series Common Stock    
Common stock, par value (in usd per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 10,000,000 10,000,000
Common stock, shares issued (in shares) 0 0
Common stock, shares outstanding (in shares) 0 0
v3.19.3
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Cash flows from operating activities    
Net Income $ 1,068.0 $ 1,066.7
Reconciliation of net income to net cash provided by operating activities:    
Depreciation and amortization 149.9 143.6
Stock-based compensation 103.2 100.0
Deferred income taxes (22.2) (75.3)
ROU Asset impairment & other non-cash restructuring/impairment charges 37.6  
Impairment pursuant to the planned divestiture of MAKS 10.7 0.0
Changes in assets and liabilities:    
Accounts receivable 35.9 22.5
Other current assets (8.2) 36.6
Other assets (25.6) (7.4)
Lease obligations (6.5)  
Accounts payable and accrued liabilities (99.8) (176.5)
Deferred revenue (96.4) (35.3)
Unrecognized tax benefits and other non-current tax liabilities (17.2) 42.8
Other liabilities 66.1 (33.1)
Net cash provided by operating activities 1,195.5 1,084.6
Cash flows from investing activities    
Capital additions (60.9) (62.9)
Purchases of investments (110.6) (142.5)
Sales and maturities of investments 138.9 120.9
Cash received upon disposal of a subsidiary, net of cash transferred to purchaser 0.0 5.7
Cash paid for acquisitions, net of cash acquired (121.0) (35.0)
Receipts from settlements of net investment hedges 4.1 0.0
Net cash used in investing activities (149.5) (113.8)
Cash flows from financing activities    
Issuance of notes 0.0 299.6
Repayment of notes (450.0) (750.0)
Issuance of commercial paper 1,307.2 434.4
Repayment of commercial paper (1,310.0) (539.2)
Proceeds from stock-based compensation plans 36.4 42.9
Repurchase of shares related to stock-based compensation (75.9) (62.0)
Treasury shares (728.0) (147.2)
Dividends (283.6) (252.9)
Dividends to noncontrolling interests (0.8) (4.0)
Payment for noncontrolling interest (12.3) 0.0
Debt issuance costs and related fees 0.0 (1.8)
Net cash used in financing activities (1,517.0) (980.2)
Reclassification of cash to assets held for sale (11.1) 0.0
Effect of exchange rate changes on cash and cash equivalents (24.9) (27.3)
Decrease in cash and cash equivalents (507.0) (36.7)
Cash and cash equivalents, beginning of period 1,685.0 1,071.5
Cash and cash equivalents, end of period $ 1,178.0 $ 1,034.8
v3.19.3
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) - USD ($)
shares in Millions, $ in Millions
Total
Common Stock
Capital Surplus
Retained Earnings
Treasury Stock
Accumulated Other Comprehensive Loss
Total Moody's Shareholders' Equity
Non- Controlling Interests
Beginning Balance (in shares) at Dec. 31, 2017   342.9     151.9      
Beginning Balance at Dec. 31, 2017 $ (114.9) $ 3.4 $ 528.6 $ 7,465.4 $ (8,152.9) $ (172.2) $ (327.7) $ 212.8
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net Income 1,066.7     1,059.3     1,059.3 7.4
Dividends (258.0)     (254.0)     (254.0) (4.0)
Stock-based compensation 100.2   100.2       100.2  
Shares issued for stock-based compensation plans at average cost, net (19.1)   (59.1)   $ 40.0   (19.1)  
Shares issued for stock-based compensation plans at average cost, net (in shares)         1.5      
Treasury shares repurchased (147.2)       $ (147.2)   (147.2)  
Treasury shares repurchased (in shares)         (0.9)      
Currency translation adjustment and net gain on net investment hedges (182.6)         (172.4) (172.4) (10.2)
Net actuarial gains (losses) and prior service costs 1.2         1.2 1.2  
Amortization of prior service costs and actuarial losses 2.5         2.5 2.5  
Net realized gain (loss) on cash flow hedges 1.2         1.2 1.2  
Ending Balance (in shares) at Sep. 30, 2018   342.9     151.3      
Ending Balance at Sep. 30, 2018 606.1 $ 3.4 569.7 8,429.1 $ (8,260.1) (342.0) 400.1 206.0
Beginning Balance (in shares) at Jun. 30, 2018   342.9     151.0      
Beginning Balance at Jun. 30, 2018 460.1 $ 3.4 538.6 8,204.6 $ (8,198.9) (304.8) 242.9 217.2
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net Income 312.0     310.2     310.2 1.8
Dividends (88.3)     (85.7)     (85.7) (2.6)
Stock-based compensation 30.7   30.7       30.7  
Shares issued for stock-based compensation plans at average cost, net 5.4   0.4   $ 5.0   5.4  
Shares issued for stock-based compensation plans at average cost, net (in shares)         0.1      
Treasury shares repurchased (66.2)       $ (66.2)   (66.2)  
Treasury shares repurchased (in shares)         (0.4)      
Currency translation adjustment and net gain on net investment hedges (48.3)         (37.9) (37.9) (10.4)
Amortization of prior service costs and actuarial losses 0.8         0.8 0.8  
Net realized gain (loss) on cash flow hedges (0.1)         (0.1) (0.1)  
Ending Balance (in shares) at Sep. 30, 2018   342.9     151.3      
Ending Balance at Sep. 30, 2018 606.1 $ 3.4 569.7 8,429.1 $ (8,260.1) (342.0) 400.1 206.0
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Adoption of new ASU | New Revenue Accounting Standard 156.1     156.1     156.1  
Adoption of new ASU | Financial Instruments - Overall (ASU 2016-01) 0.0     2.3   (2.3) 0.0  
Beginning Balance (in shares) at Dec. 31, 2018   342.9     151.6      
Beginning Balance at Dec. 31, 2018 656.5 $ 3.4 600.9 8,594.4 $ (8,312.5) (426.3) 459.9 196.6
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net Income 1,068.0     1,062.6     1,062.6 5.4
Dividends (286.3)     (285.2)     (285.2) (1.1)
Stock-based compensation 103.5   103.5       103.5  
Shares issued for stock-based compensation plans at average cost, net (39.6)   (71.4)   $ 31.8   (39.6)  
Shares issued for stock-based compensation plans at average cost, net (in shares)         1.5      
Purchase of noncontrolling interest (12.3)   (9.4)       (9.4) (2.9)
Non-controlling interest resulting from majority acquisition of Vigeo Eiris 17.4             17.4
Treasury shares repurchased (728.0)   (15.7)   $ (712.3)   (728.0)  
Treasury shares repurchased (in shares)         (4.1)      
Currency translation adjustment and net gain on net investment hedges (82.5)         (91.8) (91.8) 9.3
Net actuarial gains (losses) and prior service costs (1.3)         (1.3) (1.3)  
Amortization of prior service costs and actuarial losses 1.8         1.8 1.8  
Net realized gain (loss) on cash flow hedges 0.1         0.1 0.1  
Ending Balance (in shares) at Sep. 30, 2019   342.9     154.2      
Ending Balance at Sep. 30, 2019 697.3 $ 3.4 607.9 9,391.6 $ (8,993.0) (537.3) 472.6 224.7
Beginning Balance (in shares) at Jun. 30, 2019   342.9     153.7      
Beginning Balance at Jun. 30, 2019 574.7 $ 3.4 574.5 9,107.7 $ (8,886.7) (446.1) 352.8 221.9
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net Income 382.4     379.4     379.4 3.0
Dividends (95.8)     (95.5)     (95.5) (0.3)
Stock-based compensation 33.4   33.4       33.4  
Shares issued for stock-based compensation plans at average cost, net 6.5   0.0   $ 6.5   6.5  
Shares issued for stock-based compensation plans at average cost, net (in shares)         0.2      
Treasury shares repurchased (112.8)   0.0   $ (112.8)   (112.8)  
Treasury shares repurchased (in shares)         (0.7)      
Currency translation adjustment and net gain on net investment hedges (91.7)         (91.8) (91.8) 0.1
Amortization of prior service costs and actuarial losses 0.6         0.6 0.6  
Ending Balance (in shares) at Sep. 30, 2019   342.9     154.2      
Ending Balance at Sep. 30, 2019 $ 697.3 $ 3.4 $ 607.9 $ 9,391.6 $ (8,993.0) $ (537.3) $ 472.6 $ 224.7
v3.19.3
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) (Parenthetical) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Statement of Stockholders' Equity [Abstract]        
Dividends declared per share attributable to Moody's common shareholders $ 0.50 $ 0.44 $ 1.5 $ 1.32
Currency translation adjustment, tax $ (33.8) $ 1.8 $ (32.9) $ 7.4
Net actuarial losses and prior service costs, tax     (0.4) 0.4
Amortization of actuarial losses and prior service costs included in net income, tax $ 0.2 $ 0.3 0.6 1.0
Net unrealized gain on cash flow hedges, tax     $ 0.1 $ 0.4
v3.19.3
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
9 Months Ended
Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Moody’s is a provider of (i) credit ratings; (ii) credit, capital markets and economic research, data and analytical tools; (iii) software solutions that support financial risk management activities; (iv) quantitatively derived credit scores; (v) learning solutions and certification services; (vi) offshore financial research and analytical services; and (vii) company information and business intelligence products. Moody’s reports in two reportable segments: MIS and MA.
MIS, the credit rating agency, publishes credit ratings and provides assessment services on a wide range of debt obligations and the entities that issue such obligations in markets worldwide. Revenue is primarily derived from the originators and issuers of such transactions who use MIS ratings in the distribution of their debt issues to investors. Additionally, MIS earns revenue from certain non-ratings-related operations which consist primarily of financial instrument pricing services in the Asia-Pacific region as well as revenue from ICRA’s non-ratings operations. The revenue from these operations is included in the MIS Other LOB and is not material to the results of the MIS segment.
MA provides financial intelligence and analytical tools to assist businesses in making decisions. MA’s portfolio of solutions consists of specialized research, data, software, and professional services, which are assembled to support the financial analysis and risk management activities of institutional customers worldwide.
Following a strategic review of its business portfolio, the Company initiated a plan to sell MAKS and determined that all of the criteria had been met to classify the assets and liabilities of MAKS as held for sale as of June 30, 2019. On July 16, 2019, the Company entered into an agreement to sell the MAKS business to Equistone Partners Europe Limited, a European private equity firm. The operating results of MAKS will continue to be reported within the MA segment (and PS LOB) until the closing of the transaction, which is expected to occur in the fourth quarter of 2019.
These interim financial statements have been prepared in accordance with the instructions to Form 10-Q and should be read in conjunction with the Company’s consolidated financial statements and related notes in the Company’s 2018 annual report on Form 10-K filed with the SEC on February 25, 2019. The results of interim periods are not necessarily indicative of results for the full year or any subsequent period. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
Certain reclassifications have been made to prior period amounts to conform to the current presentation.
Adoption of New Accounting Standards
On January 1, 2019, the Company adopted ASU No. 2016-2, “Leases (Topic 842)” and has elected to apply the provisions of the New Lease Accounting Standard on the date of adoption with adjustments to the assets and liabilities on its opening balance sheet, with no cumulative-effect adjustment to the opening balance of retained earnings required. Accordingly, the Company did not restate prior year comparative periods for the impact of the New Lease Accounting Standard. The New Lease Accounting Standard requires lessees to recognize an ROU Asset and lease liability for all leases with terms of more than 12 months. The Company has elected the package of practical expedients permitted under the transition guidance within the New Lease Accounting Standard, which permits the Company not to reassess the following for any expired or existing contracts: i) whether any contracts contain leases; ii) lease classification (i.e. operating lease or finance/capital lease); and iii) initial direct costs.
The adoption of the New Lease Accounting Standard resulted in the recognition of an ROU Assets and lease liabilities of approximately $518 million and $622 million, respectively, at January 1, 2019, consisting primarily of operating leases relating to office space. Pursuant to this transition adjustment, the Company also recognized approximately $150 million and approximately $125 million in additional deferred tax assets and liabilities, respectively. Compared to previous guidance, the New Lease Accounting Standard does not significantly change the method by which a lessee should recognize, measure and present expenses and cash flows arising from a lease. Refer to Note 2 for a more fulsome description of the Company’s accounting policy relating to the New Lease Accounting Standard, which includes a discussion relating to the pattern of operating lease expense recognition (both prior to and subsequent to an impairment of a ROU Asset).
In the first quarter of 2019, the Company adopted ASU No. 2018-2, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. Under current GAAP, adjustments to deferred tax assets and liabilities related to a change in tax laws or rates are included in income from continuing operations, even in situations where the related items were originally recognized in OCI (commonly referred to as a “stranded tax effect”). The provisions of this ASU permit the reclassification of the stranded tax effect related to the Tax Act from AOCI to retained earnings. In the first quarter of 2019, the Company reclassified $19.8 million of tax benefits from AOCI to retained earnings relating to the aforementioned stranded tax effect of the Tax Act.
On January 1, 2019, the Company adopted ASU No. 2018-16, “Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes”. The amendments in this ASU permit the use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under ASC 815, in addition to the currently permissible benchmark interest rates. This ASU provides the Company the ability to utilize the OIS rate based on SOFR as the benchmark interest rate on certain hedges of interest rate risk. The adoption of this ASU had no impact on the Company’s financial statements upon adoption.
Reclassification of Previously Reported Revenue by LOB
There were certain organizational/product realignments in both MIS and MA in the first quarter of 2019. Accordingly, in MIS, revenue from REITs, which was previously classified in the SFG LOB, is now classified in the CFG LOB. In MA, revenue relating to the Bureau van Dijk FACT product (a credit assessment and origination solution), which was previously classified in RD&A, is now classified in the ERS LOB. Accordingly, 2018 revenue by LOB was reclassified to conform with this new presentation, as follows:
MIS
 
As previously
reported
 
Reclassification
 
As Reclassified
 
MA
 
As previously
reported
 
Reclassification
 
As
Reclassified
CFG
 
 
 
 
 
 
 
RD&A
 
 
 
 
 
 
Q1
 
$
377.7


$
11.9


$
389.6

 
Q1
 
$
269.2


$
(2.1
)

$
267.1

Q2
 
377.6


13.4


391.0

 
Q2
 
279.9


(4.0
)

275.9

Q3
 
296.1


11.2


307.3

 
Q3
 
282.6


(2.3
)

280.3

Q4
 
282.7


8.6


291.3

 
Q4
 
302.4


(5.3
)

297.1

Full year 2018
 
$
1,334.1


$
45.1


$
1,379.2

 
Full year 2018
 
$
1,134.1


$
(13.7
)

$
1,120.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SFG
 
 
 
 
 
 
 
ERS
 
 
 
 
 
 
Q1
 
$
129.7


$
(11.9
)

$
117.8

 
Q1
 
$
100.1


$
2.1


$
102.2

Q2
 
141.6


(13.4
)

128.2

 
Q2
 
105.5


4.0


109.5

Q3
 
125.4


(11.2
)

114.2

 
Q3
 
113.0


2.3


115.3

Q4
 
129.8


(8.6
)

121.2

 
Q4
 
118.8


5.3


124.1

Full year 2018
 
$
526.5


$
(45.1
)

$
481.4

 
Full year 2018
 
$
437.4


$
13.7


$
451.1


v3.19.3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
9 Months Ended
Sep. 30, 2019
Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
On January 1, 2019, the Company adopted the New Lease Accounting Standard as more fully discussed in Note 1. Accordingly, the Company revised its lease accounting policy to reflect the provisions of the new standard, which is discussed below. All other significant accounting policies described in the Form 10-K for the year ended December 31, 2018 remain unchanged. Additionally, refer to Note 19 for additional disclosures relating to the Company’s lease obligations.
Leases
The Company has operating leases, of which substantially all relate to the lease of office space. The Company’s leases which are classified as finance leases are not material to the condensed consolidated financial statements.
The Company determines if an arrangement meets the definition of a lease at contract inception. The Company recognizes in its consolidated balance sheet a lease liability and an ROU Asset for all leases with a lease term greater than 12 months. In determining the length of the lease term, the Company utilizes judgment in assessing the likelihood of whether it is reasonably certain that it will exercise an option to extend or early-terminate a lease, if such options are provided in the lease agreement.
ROU Assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU Assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As substantially all of the Company’s leases do not provide an implicit interest rate, the Company uses its estimated secured incremental borrowing rates at the lease commencement date in determining the present value of lease payments. These secured incremental borrowing rates are attributable to the currency in which the lease is denominated.
At commencement, the Company’s initial measurement of the ROU Asset is calculated as the present value of the remaining lease payments (i.e., lease liability), with additive adjustments reflecting: initial direct costs (e.g., broker commissions) and prepaid lease payments (if any); and reduced by any lease incentives provided by the lessor if: (i) received before lease commencement or (ii) receipt of the lease incentive is contingent upon future events for which the occurrence is both probable and within the Company’s control.
Lease expense for minimum operating lease payments is recognized on a straight-line basis over the lease term. This straight-line lease expense represents a single lease cost which is comprised of both an interest accretion component relating to the lease liability and amortization of the ROU Assets. The Company records this single lease cost in operating and SG&A expenses. However, in situations where an operating lease ROU Asset has been impaired, the subsequent amortization of the ROU Asset is then recorded on a straight-line basis over the remaining lease term and is combined with accretion expense on the lease liability to result in single operating lease cost (which subsequent to impairment will no longer follow a straight-line recognition pattern).
The Company has lease agreements which include lease and non-lease components. For the Company’s office space leases, the lease components (e.g., fixed rent payments) and non-lease components (e.g., fixed common-area maintenance costs) are combined and accounted for as a single lease component.
Variable lease payments (e.g., variable common-area-maintenance costs) are only included in the initial measurement of the lease liability to the extent those payments depend on an index or a rate. Variable lease payments not included in the lease liability are recognized in net income in the period in which the obligation for those payments is incurred.
v3.19.3
REVENUES
9 Months Ended
Sep. 30, 2019
Revenue from Contract with Customer [Abstract]  
REVENUES REVENUES
Revenue by Category
The following table presents the Company’s revenues disaggregated by LOB:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
MIS:
 
 
 
 
 
 
 
Corporate finance (CFG) (1)
 
 
 
 
 
 
 
Investment-grade
$
105.8

 
$
54.7

 
$
299.0

 
$
214.3

High-yield
56.9

 
39.1

 
182.4

 
155.7

Bank loans
89.3

 
78.4

 
245.4

 
309.8

Other accounts (2)
140.0

 
135.1

 
408.0

 
408.1

Total CFG
392.0

 
307.3

 
1,134.8

 
1,087.9

Structured finance (SFG) (1)
 
 
 
 
 
 
 
Asset-backed securities
25.0

 
24.6

 
73.8

 
80.7

RMBS
22.1

 
23.7

 
69.7

 
74.8

CMBS
17.5

 
14.7

 
55.6

 
54.2

Structured credit
40.0

 
50.7

 
116.2

 
148.6

Other accounts
0.8

 
0.5

 
2.9

 
1.9

Total SFG
105.4

 
114.2

 
318.2

 
360.2

Financial institutions (FIG)
Banking
79.9

 
72.9

 
244.1

 
227.2

Insurance
31.3

 
37.7

 
88.4

 
98.9

Managed investments
6.5

 
5.5

 
20.0

 
18.4

Other accounts
2.8

 
3.4

 
9.0

 
9.9

Total FIG
120.5

 
119.5

 
361.5

 
354.4

Public, project and infrastructure finance (PPIF)
Public finance / sovereign
57.9

 
45.3

 
157.1

 
143.9

Project and infrastructure
61.9

 
53.7

 
164.0

 
156.4

Total PPIF
119.8

 
99.0

 
321.1

 
300.3

Total ratings revenue
737.7

 
640.0

 
2,135.6

 
2,102.8

MIS Other
8.9

 
4.8

 
19.5

 
14.2

Total external revenue
746.6

 
644.8

 
2,155.1

 
2,117.0

Intersegment royalty
34.3

 
31.6

 
99.6

 
92.0

Total MIS
780.9

 
676.4

 
2,254.7

 
2,209.0

MA:
 
 
 
 
 
 
 
Research, data and analytics (RD&A) (3)
317.5

 
280.3

 
940.5

 
823.3

Enterprise risk solutions (ERS) (3)
133.3

 
115.3

 
372.9

 
327.0

Professional services (PS)
43.1

 
40.4

 
127.7

 
115.3

Total external revenue
493.9

 
436.0

 
1,441.1

 
1,265.6

Intersegment revenue
2.1

 
2.6

 
6.7

 
10.0

Total MA
496.0

 
438.6

 
1,447.8

 
1,275.6

Eliminations
(36.4
)
 
(34.2
)
 
(106.3
)
 
(102.0
)
Total MCO
$
1,240.5

 
$
1,080.8

 
$
3,596.2

 
$
3,382.6

(1) Pursuant to certain organizational realignments in 2019, MIS now reports revenue from REITs, which was previously classified in the SFG LOB, as a component of the CFG LOB. The amounts reclassified were not material and prior year revenue by LOB has been reclassified to conform to this new presentation.
(2) Other includes: recurring monitoring fees of a rated debt obligation and/or entities that issue such obligations as well as fees from programs such as commercial paper, medium term notes, and ICRA corporate finance revenue.
(3) Pursuant to organizational/product realignments in 2019, revenue relating to the Bureau van Dijk FACT product, a credit assessment and origination software solution, is now reported in the ERS LOB. This revenue was previously reported in the RD&A LOB. Prior year revenue by LOB has been reclassified to conform to this new presentation, and the amounts reclassified were not material.
The following table presents the Company’s revenues disaggregated by LOB and geographic area:
 
Three Months Ended September 30, 2019
 
Three Months Ended September 30, 2018
 
U.S.
 
Non-U.S
 
Total
 
U.S.
 
Non-U.S
 
Total
MIS:
Corporate finance (CFG) (1)
$
258.9

 
$
133.1

 
$
392.0

 
$
194.7

 
$
112.6

 
$
307.3

Structured finance (SFG) (1)
67.8

 
37.6

 
105.4

 
70.6

 
43.6

 
114.2

Financial institutions (FIG)
53.7

 
66.8

 
120.5

 
59.8

 
59.7

 
119.5

Public, project and infrastructure finance (PPIF)
72.8

 
47.0

 
119.8

 
59.4

 
39.6

 
99.0

Total ratings revenue
453.2

 
284.5

 
737.7

 
384.5

 
255.5

 
640.0

MIS Other
0.2

 
8.7

 
8.9

 
0.2

 
4.6

 
4.8

Total MIS
453.4

 
293.2

 
746.6

 
384.7

 
260.1

 
644.8

MA:
Research, data and analytics (RD&A) (2)
139.8

 
177.7

 
317.5

 
116.7

 
163.6

 
280.3

Enterprise risk solutions (ERS) (2)
48.2

 
85.1

 
133.3

 
43.0

 
72.3

 
115.3

Professional services (PS)
18.2

 
24.9

 
43.1

 
15.2

 
25.2

 
40.4

Total MA
206.2

 
287.7

 
493.9

 
174.9

 
261.1

 
436.0

Total MCO
$
659.6

 
$
580.9

 
$
1,240.5

 
$
559.6

 
$
521.2

 
$
1,080.8

 
Nine Months Ended September 30, 2019
 
Nine Months Ended September 30, 2018
 
U.S.
 
Non-U.S
 
Total
 
U.S.
 
Non-U.S
 
Total
MIS:
Corporate finance (CFG) (1)
$
744.1

 
$
390.7

 
$
1,134.8

 
$
707.2

 
$
380.7

 
$
1,087.9

Structured finance (SFG) (1)
201.9

 
116.3

 
318.2

 
225.0

 
135.2

 
360.2

Financial institutions (FIG)
151.9

 
209.6

 
361.5

 
162.7

 
191.7

 
354.4

Public, project and infrastructure finance (PPIF)
202.4

 
118.7

 
321.1

 
173.9

 
126.4

 
300.3

Total ratings revenue
1,300.3

 
835.3

 
2,135.6

 
1,268.8

 
834.0

 
2,102.8

MIS Other
0.5

 
19.0

 
19.5

 
0.5

 
13.7

 
14.2

Total MIS
1,300.8

 
854.3

 
2,155.1

 
1,269.3

 
847.7

 
2,117.0

MA:
Research, data and analytics (RD&A) (2)
412.4

 
528.1

 
940.5

 
347.5

 
475.8

 
823.3

Enterprise risk solutions (ERS) (2)
142.7

 
230.2

 
372.9

 
124.1

 
202.9

 
327.0

Professional services (PS)
53.7

 
74.0

 
127.7

 
41.8

 
73.5

 
115.3

Total MA
608.8

 
832.3

 
1,441.1

 
513.4

 
752.2

 
1,265.6

Total MCO
$
1,909.6

 
$
1,686.6

 
$
3,596.2

 
$
1,782.7

 
$
1,599.9

 
$
3,382.6

(1) Pursuant to certain organizational realignments in 2019, MIS now reports revenue from REITs, which was previously classified in the SFG LOB, as a component of the CFG LOB. The amounts reclassified were not material and prior year revenue by LOB has been reclassified to conform to this new presentation.
(2) Pursuant to organizational/product realignments in 2019, revenue relating to the Bureau van Dijk FACT product, a credit assessment and origination software solution, is now reported in the ERS LOB. This revenue was previously reported in the RD&A LOB. Prior year revenue by LOB has been reclassified to conform to this new presentation, and the amounts reclassified were not material.
The following table presents the Company’s reportable segment revenues disaggregated by segment and geographic region:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
MIS:
 
U.S.
$
453.4

 
$
384.7

 
$
1,300.8

 
$
1,269.3

Non-U.S.:
 
 
 
 
 
 
 
EMEA
174.9

 
165.3

 
501.7

 
527.5

Asia-Pacific
78.9

 
72.7

 
241.7

 
224.9

Americas
39.4

 
22.1

 
110.9

 
95.3

Total Non-U.S.
293.2

 
260.1

 
854.3

 
847.7

Total MIS
746.6

 
644.8

 
2,155.1

 
2,117.0

MA:
 
 
 
 
 
 
 
U.S.
206.2

 
174.9

 
608.8

 
513.4

Non-U.S.:
 
 
 
 
 
 
 
EMEA
186.6

 
179.2

 
555.1

 
520.4

Asia-Pacific
63.5

 
50.3

 
173.7

 
142.0

Americas
37.6

 
31.6

 
103.5

 
89.8

Total Non-U.S.
287.7

 
261.1

 
832.3

 
752.2

Total MA
493.9

 
436.0

 
1,441.1

 
1,265.6

Total MCO
$
1,240.5

 
$
1,080.8

 
$
3,596.2

 
$
3,382.6



    
The following tables summarize the split between transaction and relationship revenue. In the MIS segment, excluding MIS Other, transaction revenue represents the initial rating of a new debt issuance as well as other one-time fees while relationship revenue represents the recurring monitoring fees of a rated debt obligation and/or entities that issue such obligations, as well as revenue from programs such as commercial paper, medium-term notes and shelf registrations. In MIS Other, transaction revenue represents revenue from professional services and outsourcing engagements and relationship revenue represents subscription-based revenues. In the MA segment, relationship revenue represents subscription-based revenues and software maintenance revenue. Transaction revenue in MA represents perpetual software license fees and revenue from software implementation services, risk management advisory projects, training and certification services, and outsourced research and analytical engagements.
 
Three Months Ended September 30,
 
2019
 
2018
 
Transaction
 
Relationship
 
Total
 
Transaction
 
Relationship
 
Total
Corporate Finance
$
281.8

 
$
110.2

 
$
392.0

 
$
199.4

 
$
107.9

 
$
307.3

 
72
%
 
28
%
 
100
%
 
65
%
 
35
%
 
100
%
Structured Finance
$
58.4

 
$
47.0

 
$
105.4

 
$
73.5

 
$
40.7

 
$
114.2

 
55
%
 
45
%
 
100
%
 
64
%
 
36
%
 
100
%
Financial Institutions
$
55.7

 
$
64.8

 
$
120.5

 
$
56.2

 
$
63.3

 
$
119.5

 
46
%
 
54
%
 
100
%
 
47
%
 
53
%
 
100
%
Public, Project and Infrastructure Finance
$
82.1

 
$
37.7

 
$
119.8

 
$
60.9

 
$
38.1

 
$
99.0

 
69
%
 
31
%
 
100
%
 
62
%
 
38
%
 
100
%
MIS Other
$
0.6

 
$
8.3

 
$
8.9

 
$
0.5

 
$
4.3

 
$
4.8

 
7
%
 
93
%
 
100
%
 
10
%
 
90
%
 
100
%
Total MIS
$
478.6

 
$
268.0

 
$
746.6

 
$
390.5

 
$
254.3

 
$
644.8

 
64
%
 
36
%
 
100
%
 
61
%
 
39
%
 
100
%
Moody's Analytics
$
78.5

(1) 
$
415.4

 
$
493.9

 
$
70.6

(1) 
$
365.4

 
$
436.0

 
16
%
 
84
%
 
100
%
 
16
%
 
84
%
 
100
%
Total Moody's Corporation
$
557.1

 
$
683.4

 
$
1,240.5

 
$
461.1

 
$
619.7

 
$
1,080.8

 
45
%
 
55
%
 
100
%
 
43
%
 
57
%
 
100
%
 
Nine Months Ended September 30,
 
2019
 
2018
 
Transaction
 
Relationship
 
Total
 
Transaction
 
Relationship
 
Total
Corporate Finance
$
807.7

 
$
327.1

 
$
1,134.8

 
$
767.3

 
$
320.6

 
$
1,087.9

 
71
%
 
29
%
 
100
%
 
71
%
 
29
%
 
100
%
Structured Finance
$
183.9

 
$
134.3

 
$
318.2

 
$
233.3

 
$
126.9

 
$
360.2

 
58
%
 
42
%
 
100
%
 
65
%
 
35
%
 
100
%
Financial Institutions
$
164.8

 
$
196.7

 
$
361.5

 
$
162.4

 
$
192.0

 
$
354.4

 
46
%
 
54
%
 
100
%
 
46
%
 
54
%
 
100
%
Public, Project and Infrastructure Finance
$
208.2

 
$
112.9

 
$
321.1

 
$
184.9

 
$
115.4

 
$
300.3

 
65
%
 
35