MOODYS CORP /DE/, 10-Q filed on 11/9/2017
Quarterly Report
Document and Entity Information
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2017
Document Information [Line Items]
 
Document Type
10-Q 
Amendment Flag
false 
Document Period End Date
Sep. 30, 2017 
Document Fiscal Year Focus
2017 
Document Fiscal Period Focus
Q3 
Trading Symbol
MCO 
Entity Registrant Name
MOODYS CORP /DE/ 
Entity Central Index Key
0001059556 
Current Fiscal Year End Date
--12-31 
Entity Filer Category
Large Accelerated Filer 
Entity Common Stock, Shares Outstanding
191.1 
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Revenues
$ 1,062.9 
$ 917.1 
$ 3,038.6 
$ 2,662.1 
Expenses
 
 
 
 
Operating
317.2 
253.2 
880.4 
761.3 
Selling, general and administrative
247.2 
225.3 
686.8 
683.2 
Restructuring
 
8.4 
 
12.0 
Depreciation and amortization
43.0 
32.7 
108.4 
93.8 
Acquisition-Related Expenses
10.1 
 
16.7 
 
Total expenses
617.5 
519.6 
1,692.3 
1,550.3 
Operating Income
445.4 
397.5 
1,346.3 
1,111.8 
Non-operating (expense) income, net
 
 
 
 
Interest income (expense), net
(48.1)
(35.4)
(135.5)
(103.8)
Other non-operating income (expense), net
(1.4)
6.9 
(2.5)
15.5 
Purchase price hedge gain
69.9 
 
111.1 
 
CCXI gains
 
 
59.7 
 
Total non-operating income (expense), net
20.4 
(28.5)
32.8 
(88.3)
Income before provisions for income taxes
465.8 
369.0 
1,379.1 
1,023.5 
Provision for income taxes
146.1 
112.4 
399.9 
322.2 
Net income
319.7 
256.6 
979.2 
701.3 
Less: Net income attributable to noncontrolling interests
2.4 
1.3 
4.1 
6.1 
Net income attributable to Moody's
$ 317.3 
$ 255.3 
$ 975.1 
$ 695.2 
Earnings per share attributable to Moody's common shareholders
 
 
 
 
Basic
$ 1.66 
$ 1.33 
$ 5.1 
$ 3.6 
Diluted
$ 1.63 
$ 1.31 
$ 5.02 
$ 3.55 
Weighted average number of shares outstanding
 
 
 
 
Basic
191.1 
191.7 
191.1 
193.3 
Diluted
194.1 
194.3 
194.1 
196.0 
Dividends declared per share attributable to Moody's common shareholders
$ 0.38 
$ 0.37 
$ 0.76 
$ 0.74 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Net income
$ 319.7 
$ 256.6 
$ 979.2 
$ 701.3 
Foreign currency translation:
 
 
 
 
Foreign currency translation adjustments - Pre Tax
45.4 
(12.0)
94.9 
(9.4)
Foreign currency translation adjustment - Tax
6.4 
2.6 
19.5 
16.6 
Foreign currency translation adjustments - Net of Tax
51.8 
(9.4)
114.4 
7.2 
Cash flow hedges:
 
 
 
 
Net realized and unrealized gain (loss) on cash flow hedges - Pre Tax
5.2 
5.1 
10.0 
2.5 
Net realized and unrealized gain (loss) on cash flow hedges - Tax Amount
(2.0)
(1.9)
(3.8)
(1.0)
Net realized and unrealized gain (loss) on cash flow hedges - Net of Tax
3.2 
3.2 
6.2 
1.5 
Reclassification of losses (gains) included in net income - Pre Tax
(4.2)
(1.3)
(11.7)
(0.9)
Reclassification of losses included in net income - Tax Amount
1.6 
0.4 
4.9 
0.3 
Reclassification of losses (gains) included in net income- Net of Tax
(2.6)
(0.9)
(6.8)
(0.6)
Available for sale securities:
 
 
 
 
Net unrealized gains on available for sale securities - Pre Tax
0.5 
0.7 
1.6 
1.9 
Net unrealized gains on available for sale securities - Net of Tax
0.5 
0.7 
1.6 
1.9 
Reclassification of gains included in net income - Pre Tax
(2.2)
 
(2.2)
 
Reclassification of gains included in net income - Net of Tax
(2.2)
 
(2.2)
 
Pension and Other Retirement Benefits:
 
 
 
 
Amortization of actuarial losses and prior service costs included in net income - Pre Tax
2.1 
2.4 
6.4 
7.3 
Amortization of actuarial losses and prior service costs included in net income - Tax
(0.8)
(0.9)
(2.5)
(2.8)
Amortization of actuarial losses and prior service costs included in net income - Net of Tax
1.3 
1.5 
3.9 
4.5 
Net actuarial losses and prior service costs - Pre Tax
 
 
7.9 
5.3 
Net actuarial losses and prior service costs - Tax
 
 
(3.0)
(2.0)
Net actuarial losses and prior service costs - Net of Tax
 
 
4.9 
3.3 
Total other comprehensive income (loss) - Pre Tax
46.8 
(5.1)
106.9 
6.7 
Total other comprehensive income (loss) - Tax
5.2 
0.2 
15.1 
11.1 
Total other comprehensive income (loss) - Net of Tax
52.0 
(4.9)
122.0 
17.8 
Comprehensive income
371.7 
251.7 
1,101.2 
719.1 
Less: Comprehensive income attributable to noncontrolling interests and redeemable noncontrolling interest
3.1 
(14.8)
19.6 
(10.0)
Comprehensive income attributable to Moody's
$ 368.6 
$ 266.5 
$ 1,081.6 
$ 729.1 
CONSOLIDATED BALANCE SHEETS (USD $)
In Millions, unless otherwise specified
Sep. 30, 2017
Dec. 31, 2016
Current assets:
 
 
Cash and cash equivalents
$ 962.8 
$ 2,051.5 
Short-term investments
108.3 
173.4 
Accounts receivable, net of allowances of net of allowances of $32.2 in 2017 and $25.7 in 2016
1,007.3 
887.4 
Other current assets
200.5 
140.8 
Total current assets
2,278.9 
3,253.1 
Property and equipment, net of accumulated depreciation of $681.9 in 2017 and $595.5 in 2016
332.1 
325.9 
Goodwill
3,722.1 
1,023.6 
Intangible assets, net
1,633.1 
296.4 
Deferred tax assets, net
170.2 
316.1 
Other assets
168.5 
112.2 
Total assets
8,304.9 
5,327.3 
Current liabilities:
 
 
Accounts payable and accrued liabilities
577.5 
1,444.3 
Commercial paper
314.8 
 
Current portion of long-term debt
299.3 
300.0 
Deferred revenue
791.1 
683.9 
Total current liabilities
1,982.7 
2,428.2 
Non-current portion of deferred revenue
135.5 
134.1 
Long-term debt
5,107.3 
3,063.0 
Deferred tax liabilities, net
452.6 
104.3 
Unrecognized tax benefits
336.3 
199.8 
Other liabilities
447.3 
425.2 
Total liabilities
8,461.7 
6,354.6 
Contingencies (Note 14)
   
   
Shareholders' deficit
 
 
Preferred stock, par value $.01 per share; 10,000,000 shares authorized; no shares issued and outstanding
   
   
Capital surplus
495.6 
477.2 
Retained earnings
7,513.4 
6,688.9 
Treasury stock, at cost; 151,821,294 and 152,208,231 shares of common stock at June 30, 2017 and December 31, 2016, respectively
(8,123.7)
(8,029.6)
Accumulated other comprehensive loss
(257.8)
(364.9)
Total Moody's shareholders' deficit
(369.1)
(1,225.0)
Noncontrolling interests
212.3 
197.7 
Total shareholders' deficit
(156.8)
(1,027.3)
Total liabilities and shareholders' deficit
8,304.9 
5,327.3 
Series common stock
 
 
Shareholders' deficit
 
 
Common stock
   
   
Common Stock
 
 
Shareholders' deficit
 
 
Common stock
$ 3.4 
$ 3.4 
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Sep. 30, 2017
Dec. 31, 2016
Accounts receivable, allowances
$ 32.2 
$ 25.7 
Property and equipment, accumulated depreciation
$ 681.9 
$ 595.5 
Preferred stock, par value
$ 0.01 
$ 0.01 
Preferred stock, shares authorized
10,000,000.0 
10,000,000.0 
Treasury stock, shares
151,821,294.0 
152,208,231.0 
Series common stock
 
 
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
10,000,000.0 
1,000,000,000.0 
Common Stock
 
 
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
1,000,000,000.0 
1,000,000,000.0 
Common stock, shares issued
342,902,272.0 
342,902,272.0 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Cash flows from operating activities
 
 
Net income
$ 979.2 
$ 701.3 
Reconciliation of net income to net cash provided by operating activities:
 
 
Depreciation and amortization
108.4 
93.8 
Stock-based compensation expense
88.9 
72.8 
CCXI gains
(59.7)
 
Purchase price hedge gain
(111.1)
 
Deferred income taxes
161.4 
7.1 
Legacy Tax Matters
 
(1.6)
Changes in assets and liabilities:
 
 
Accounts receivable
(9.8)
(35.6)
Other current assets
(16.2)
51.1 
Other assets
11.4 
10.2 
Accounts payable and accrued liabilities
(834.3)
(54.6)
Deferred revenue
(19.3)
31.2 
Other liabilities
25.4 
15.1 
Unrecognized tax benefits and other non-current tax liabilities
18.4 
(1.8)
Net cash provided by operating activities
342.7 
889.0 
Cash flows from investing activities
 
 
Capital additions
(69.4)
(84.8)
Purchases of investments
(124.0)
(279.7)
Sales and maturities of investments
183.8 
438.7 
Cash paid for acquisitions, net of cash acquired and equity investments
(3,511.0)
(79.1)
Receipts from Purchase price hedge
111.1 
 
Receipts from settlements of net investment hedges
2.1 
2.5 
Net cash provided by (used in) investing activities
(3,407.4)
(2.4)
Cash flows from financing activities
 
 
Issuance of notes
2,291.9 
 
Repayments of notes
(300.0)
 
Issuance of commercial paper
1,437.5 
 
Repayments of commercial paper
(1,123.2)
 
Proceeds from stock-based compensation plans
49.3 
72.5 
Repurchase of shares related to stock-based compensation
(48.3)
(44.0)
Cost of treasury shares repurchased
(163.6)
(678.9)
Payment of Dividends
(217.8)
(214.5)
Payment of Dividends to noncontrolling interests
(3.2)
(4.6)
Payment for noncontrolling interest
(6.2)
(45.4)
Debt issuance costs and related fees
(19.7)
(0.1)
Net cash (used in) provided by financing activities
1,896.7 
(915.0)
Effect of exchange rate changes on cash and cash equivalents
79.3 
17.1 
Net increase (decrease) in cash and cash equivalents
(1,088.7)
(11.3)
Cash and cash equivalents, beginning of the period
2,051.5 
1,757.4 
Cash and cash equivalents, end of the period
$ 962.8 
$ 1,746.1 
GLOSSARY OF TERMS AND ABBREVIATIONS
GLOSSARY OF TERMS AND ABBREVIATIONS
GLOSSARY OF TERMS AND ABBREVIATIONS
The following terms, abbreviations and acronyms are used to identify frequently used terms in this report:
TERMDEFINITION
Acquisition-Related Amortization Amortization of acquired definite-lived intangible assets acquired by the Company from all business combination transactions
Acquisition-Related ExpensesConsists of expenses incurred to complete and integrate the acquisition of Bureau van Dijk for which integration will be a multi-year effort
Adjusted Diluted EPSDiluted EPS excluding the impact of the CCXI Gain, Acquisition-Related Expenses, Acquisition-Related Amortization and the Purchase Price Hedge Gain
Adjusted Net Income Net Income excluding the impact of the CCXI Gain, Acquisition-Related Expenses, Acquisition-Related Amortization and the Purchase Price Hedge Gain
Adjusted Operating Income Operating income excluding depreciation and amortization, Acquisition-Related Expenses and restructuring charges
Adjusted Operating Margin Adjusted Operating Income divided by revenue
AmericasRepresents countries within North and South America, excluding the U.S.
AOCIAccumulated other comprehensive income (loss); a separate component of shareholders’ (deficit) equity
ASCThe FASB Accounting Standards Codification; the sole source of authoritative GAAP as of July 1, 2009 except for rules and interpretive releases of the SEC, which are also sources of authoritative GAAP for SEC registrants
Asia-PacificRepresents countries in Asia including but not limited to: Australia, China, India, Indonesia, Japan, Korea, Malaysia, Singapore, Sri Lanka and Thailand
ASUThe FASB Accounting Standards Update to the ASC. It also provides background information for accounting guidance and the bases for conclusions on the changes in the ASC. ASUs are not considered authoritative until codified into the ASC
BoardThe board of directors of the Company
BPSBasis points
Bureau van DijkBureau van Dijk Electronic Publishing, B.V., a global provider of business intelligence and company information; acquired by the Company on August 10, 2017 via the acquisition of Yellow Maple I B.V. an inderect parent of Bureau van Dijk
CCXI China Cheng Xin International Credit Rating Co. Ltd.; China’s first and largest domestic credit rating agency approved by the People's Bank of China; the Company acquired a 49% interest in 2006; currently Moody’s owns 30% of CCXI.
CCXI GainIn the first quarter of 2017 CCXI, as part of a strategic business realignment, issued additional capital to its majority shareholder in exchange for a ratings business wholly-owned by the majority shareholder and which has the right to rate a different class of debt instrument in the Chinese market. The capital issuance by CCXI in exchange for this ratings business diluted Moody’s ownership interest in CCXI to 30% of a larger business and resulted in a $59.7 million non-cash, non-taxable gain.  
CLOCollateralized loan obligation
CommissionEuropean Commission
Common StockThe Company’s common stock
CompanyMoody’s Corporation and its subsidiaries; MCO; Moody’s
CopalCopal Partners; an acquisition completed in November 2011; part of the MA segment; leading provider of research and analytical services to institutional investors
Copal AmbaOperating segment (rebranded as MAKS in 2016) created in January 2014 that consists of all operations from Copal and Amba. Part of the PS LOB within the MA reportable segment. Also a reporting unit.
CouncilCouncil of the European Union
CPCommercial Paper
CP NotesUnsecured commercial paper issued under the CP Program
CP ProgramA program entered into on August 3, 2016 allowing the Company to privately place CP up to a maximum of $1 billion for which the maturity may not exceed 397 days from the date of issue
CRAsCredit rating agencies
CSPPCorporate Sector Purchase Programme; quantative easing program implemented by the ECB. This program allows the central bank to purchase bonds issued by European companies, as well as provides access to the secondary bond market in which existing corporate bonds trade
D&ADepreciation and amortization
DBPPDefined benefit pension plans
Debt/EBITDARatio of Total Debt to EBITDA
EBITDAEarnings before interest, taxes, depreciation and amortization
ECBEuropean Central Bank
EMEARepresents countries within Europe, the Middle East and Africa
EPSEarnings per share
ERSThe enterprise risk solutions LOB within MA, which offers risk management software products as well as software implementation services and related risk management advisory engagements
ESMAEuropean Securities and Markets Authority
ETREffective tax rate
EUEuropean Union
EUREuros
Excess Tax BenefitsThe difference between the tax benefit realized at exercise of an option or delivery of a restricted share and the tax benefit recorded at the time the option or restricted share is expensed under GAAP
Exchange ActThe Securities Exchange Act of 1934, as amended
FASBFinancial Accounting Standards Board
FIGFinancial institutions group; an LOB of MIS
Financial Reform ActDodd-Frank Wall Street Reform and Consumer Protection Act
Free Cash FlowNet cash provided by operating activities less cash paid for capital additions
FSTCFinancial Services Training and Certifications; part of the PS LOB and a reporting unit within the MA reportable segment; consists of online and classroom-based training services and CSI Global Education, Inc.
FXForeign exchange
GAAPU.S. Generally Accepted Accounting Principles
GBPBritish pounds
GGYGilliland Gold Young; a leading provider of advanced actuarial software for the global insurance industry. The Company acquired GGY on March 1, 2016; part of the ERS LOB and reporting unit within the MA reportable segment
ICRAICRA Limited; a leading provider of credit ratings and research in India. The Company previously held 28.5% equity ownership and in June 2014, increased that ownership stake to just over 50% through the acquisition of additional shares
ICTEASICRA Techno Analytics; formerly a wholly-owned subsidiary of ICRA; divested by ICRA in the fourth quarter of 2016
IRSInternal Revenue Service
ITInformation technology
KISKorea Investors Service, Inc; a leading Korean rating agency and consolidated subsidiary of the Company
KIS PricingKorea Investors Service Pricing, Inc; a leading Korean provider of fixed income securities pricing and consolidated subsidiary of the Company
LIBORLondon Interbank Offered Rate
LOBLine of business
M&AMergers and acquisitions
MAMoody’s Analytics – a reportable segment of MCO formed in January 2008 which provides a wide range of products and services that support financial analysis and risk management activities of institutional participants in global financial markets; consists of three LOBs – RD&A, ERS and PS
Make Whole AmountThe prepayment penalty amount relating to the Series 2007-1 Notes, 2010 Senior Notes, 2012 Senior Notes, 2013 Senior Notes, 2014 Senior Notes (5-year), 2014 Senior Notes (30-year), 2015 Senior Notes, 2017 Senior Notes, 2017 Private Placement Notes Due 2023 and 2017 Private Placement Notes Due 2028 which is a premium based on the excess, if any, of the discounted value of the remaining scheduled payments over the prepaid principal
MAKSMoody’s Analytics Knowledge Services; formerly known as Copal Amba; provides offshore research and analytic services to the global financial and corporate sectors; part of the PS LOB and a reporting unit within the MA reportable segment
MCOMoody’s Corporation and its subsidiaries; the Company; Moody’s
MD&AManagement’s Discussion and Analysis of Financial Condition and Results of Operations
MISMoody’s Investors Service – a reportable segment of MCO; consists of five LOBs – SFG, CFG, FIG, PPIF and MIS Other
MIS OtherConsists of non-ratings revenue from ICRA, KIS Pricing and KIS Research. These businesses are components of MIS; MIS Other is an LOB of MIS
Moody’sMoody’s Corporation and its subsidiaries; MCO; the Company
Net IncomeNet income attributable to Moody’s Corporation, which excludes net income from consolidated noncontrolling interests belonging to the minority interest holder
NMPercentage change is not meaningful
Non-GAAPA financial measure not in accordance with GAAP; these measures, when read in conjunction with the Company’s reported results, can provide useful supplemental information for investors analyzing period-to-period comparisons of the Company’s performance, facilitate comparisons to competitors’ operating results and provide greater transparency to investors of supplemental information used by management in its financial and operational decision making
NRSRONationally Recognized Statistical Rating Organization
OCIOther comprehensive income (loss); includes gains and losses on cash flow and net investment hedges, unrealized gains and losses on available for sale securities, certain gains and losses relating to pension and other retirement benefit obligations and foreign currency translation adjustments
Other Retirement PlanThe U.S. retirement healthcare and U.S. retirement life insurance plans
PPIFPublic, project and infrastructure finance; an LOB of MIS
Profit Participation PlanDefined contribution profit participation plan that covers substantially all U.S. employees of the Company
PSProfessional Services, an LOB within MA consisting of MAKS and FSTC that provides research and analytical services as well as financial training and certification programs
Purchase Price HedgeForeign currency collar and forward contracts entered by the Company to economically hedge the Bureau van Dijk euro denominated purchase price
Purchase Price Hedge GainGain on foreign currency collars to economically hedge the Bureau van Dijk euro denominated purchase price
RD&AResearch, Data and Analytics; an LOB within MA that produces, sells and distributes research, data and related content. Includes products generated by MIS, such as analyses on major debt issuers, industry studies, and commentary on topical credit events. Also includes economic research, data, quantitative risk scores, other analytical tools that are produced within MA and business intelligence and company information products.
Reform ActCredit Rating Agency Reform Act of 2006
REITReal Estate Investment Trust
Relationship RevenueFor MIS represents monitoring 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. For MIS Other represents subscription-based revenue. For MA, represents subscription-based license and maintenance revenue
Retirement PlansMoody’s funded and unfunded pension plans, the healthcare plans and life insurance plans
SCDMSCDM Financial, a leading provider of analytical tools for participants in securitization markets. Moody’s acquired SCDM’s structured finance data and analytics business in February 2017
SECU.S. Securities and Exchange Commission
Securities ActSecurities Act of 1933, as amended
Series 2007-1 NotesPrincipal amount of $300 million, 6.06% senior unsecured notes due in September 2017 pursuant to the 2007 Agreement; prepaid in March 2017
Settlement ChargeCharge of $863.8 million recorded in the fourth quarter of 2016 related to an agreement entered into on January 13, 2017 with the U.S. Department of Justice and the attorneys general of 21 U.S states and the District of Columbia to resolve pending and potential civil claims related to the credit ratings that MIS assigned to certain structured finance instruments in the financial crisis era
SFGStructured finance group; an LOB of MIS
SG&ASelling, general and administrative expenses
Total DebtAll indebtedness of the Company as reflected on the consolidated balance sheets
Transaction RevenueFor MIS, represents the initial rating of a new debt issuance as well as other one-time fees. For MIS Other, represents revenue from professional services as well as data services, research and analytical engagements. For MA, represents software license fees and revenue from risk management advisory projects, training and certification services, and research and analytical engagements
U.K.United Kingdom
U.S.United States
USDU.S. dollar
UTBsUnrecognized tax benefits
UTPsUncertain tax positions
VSOEVendor specific objective evidence; as defined in the ASC, evidence of selling price limited to either of the following: the price charged for a deliverable when it is sold separately, or for a deliverable not yet being sold separately, the price established by management having the relevant authority
2007 AgreementNote purchase agreement dated September 7, 2007, relating to the Series 2007-1 Notes
2010 IndentureSupplemental indenture and related agreements dated August 19, 2010, relating to the 2010 Senior Notes
2010 Senior NotesPrincipal amount of $500 million, 5.50% senior unsecured notes due in September 2020 pursuant to the 2010 Indenture
2012 IndentureSupplemental indenture and related agreements dated August 18, 2012, relating to the 2012 Senior Notes
2012 Senior NotesPrincipal amount of $500 million, 4.50% senior unsecured notes due in September 2022 pursuant to the 2012 Indenture
2013 IndentureSupplemental indenture and related agreements dated August 12, 2013, relating to the 2013 Senior Notes
2013 Senior NotesPrincipal amount of the $500 million, 4.875% senior unsecured notes due in February 2024 pursuant to the 2013 Indenture
2014 IndentureSupplemental indenture and related agreements dated July 16, 2014, relating to the 2014 Senior Notes ( 5-year and 30-year)
2017 IndentureCollectively the Supplemental indenture and related agreements dated March 2, 2017, relating to the 2017 Floating Rate Senior Notes and 2017 Senior Notes and the Supplemental indenture and related agreements dated June 12, 2017, relating to the 2017 Private Placement Notes Due 2023 and 2017 Private Placement Notes Due 2028
2014 Senior Notes (5-Year)Principal amount of $450 million, 2.75% senior unsecured notes due in July 2019
2014 Senior Notes (30-Year)Principal amount of $600 million, 5.25% senior unsecured notes due in July 2044
2015 FacilityFive-year unsecured revolving credit facility, with capacity to borrow up to $1 billion
2015 IndentureSupplemental indenture and related agreements dated March 9, 2015, relating to the 2015 Senior Notes
2015 Senior NotesPrincipal amount €500 million, 1.75% senior unsecured notes issued March 9, 2015 and due in March 2027
2017 Bridge Credit FacilityBridge Credit Agreement entered into in May 2017 pursuant to the definitive agreement to acquire Bureau van Dijk; this facility was terminated in June 2017 upon issuance of the 2017 Private Placement Notes Due 2023 and the 2017 Private Placement Notes Due 2028
2017 Floating Rate Senior Notes Principal amount of $300 million, floating rate senior unsecured notes due in September 2018
2017 Private Placement Notes Due 2023Principal amount $500 million, 2.625% senior unsecured notes due January 15, 2023
2017 Private Placement Notes Due 2028Principal amount $500 million, 3.250% senior unsecured notes due January 15, 2028
2017 Senior Notes Principal amount of $500 million, 2.75% senior unsecured notes due in December 2021
2017 Term Loan$500 million three-year term loan facility entered into on June 6, 2017 for which the Company drew down $500 million on August 8, 2017 to fund the acquisition of Bureau van Dijk
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

NOTE 1. 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 and related risk management services, (iv) quantitative credit risk measures, financial services training and certification services (v) analytical and research services and (vi) business intelligence and company information products. Moody’s has two reportable segments: MIS and MA.

MIS, the credit rating agency, publishes credit ratings 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 the distribution of research and 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.

The MA segment develops a wide range of products and services that support financial analysis and risk management activities of institutional participants in global financial markets. Within its RD&A business, MA distributes research and data developed by MIS as part of its ratings process, including in-depth research on major debt issuers, industry studies and commentary on topical credit-related events. The RD&A business also produces economic research and data and analytical tools such as quantitative credit risk scores as well as business intelligence and company information products. Within its ERS business, MA provides software solutions as well as related risk management services. The PS business provides analytical and research services along with financial training and certification programs.

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 2016 annual report on Form 10-K filed with the SEC on February 25, 2017. 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 Standard

In the first quarter of 2017, the Company adopted ASU No. 2016-09 “Improvements to Employee Share-Based Payment Accounting”. As required by ASU 2016-09, Excess Tax Benefits or shortfalls recognized on stock-based compensation expense are reflected in the consolidated statement of operations as a component of the provision for income taxes on a prospective basis. Prior to the adoption of this ASU, Excess Tax Benefits and shortfalls were recorded to capital surplus within shareholders’ deficit. The impact of this adoption was an $7.7 million and $35.6 million benefit to the provision for income taxes for the three and nine months ended September 30, 2017, respectively.

Additionally, in accordance with this ASU, Excess Tax Benefits or shortfalls recognized on stock-based compensation are classified as operating cash flows in the consolidated statement of cash flows, and the Company has applied this provision on a retrospective basis. Under previous accounting guidance, the Excess Tax Benefits or shortfalls were shown as a reduction to operating activity and an increase to financing activity. Furthermore, the Company has elected to continue to estimate the number of stock-based awards expected to vest, rather than accounting for award forfeitures as they occur, to determine the amount of stock-based compensation cost recognized in each period. The impact to the Company’s statement of cash flows for the nine months ended September 30, 2016 relating to the adoption of this provision of the ASU is set forth in the table below:

(amounts in millions)As reported Nine Months Ended September 30, 2016Adoption AdjustmentNine Months Ended September 30, 2016 As adjusted
Net cash provided by operating activities$ 856.6 $ 32.4 $ 889.0
Net cash used in financing activities$ (882.6)$ (32.4)$ (915.0)
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (Tables)
Schedule of Change in Balance Sheets Item Due to Adoption of Debt Issuance Costs Policy
(amounts in millions)As reported Nine Months Ended September 30, 2016Adoption AdjustmentNine Months Ended September 30, 2016 As adjusted
Net cash provided by operating activities$ 856.6 $ 32.4 $ 889.0
Net cash used in financing activities$ (882.6)$ (32.4)$ (915.0)
Change in Financial Statement due to adoption of Policy (Details) (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Item Effected [Line Items]
 
 
Net Cash Provided By Used In Operating Activities
$ 342.7 
$ 889.0 
Net Cash Provided By Used In Financing Activities
1,896.7 
(915.0)
As Previously Reported [Member]
 
 
Item Effected [Line Items]
 
 
Net Cash Provided By Used In Operating Activities
 
856.6 
Net Cash Provided By Used In Financing Activities
 
(882.6)
Adoption Adjustment [Member]
 
 
Item Effected [Line Items]
 
 
Net Cash Provided By Used In Operating Activities
 
32.4 
Net Cash Provided By Used In Financing Activities
 
$ (32.4)
Description of Business and Basis of Presentation - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2017
Segment Reporting Information [Line Items]
 
 
Excess tax benefit effect of adoption adjustment on provision for income taxes
$ 7.7 
$ 35.6 
Number of Reporting Segments
 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

In accordance with the Company’s early adoption of ASU 2017-04, “Simplifying the Test for Goodwill Impairment (Topic 350)”, the Company has modified its accounting policy regarding long-lived assets, including goodwill and other acquired intangible assets. All other significant accounting policies described in the Form 10-K for the year ended December 31, 2016 remain unchanged. The Company’s revised accounting policy regarding long-lived assets, including goodwill and other acquired intangible assets is disclosed below.

Long-Lived Assets, including Goodwill and Other Acquired Intangible Assets

Moody’s evaluates its goodwill for impairment at the reporting unit level, defined as an operating segment or one level below an operating segment, annually as of July 31 or more frequently if impairment indicators arise in accordance with ASC Topic 350.

The Company evaluates the recoverability of goodwill using a two-step impairment test approach at the reporting unit level. In the first step, the Company assesses various qualitative factors to determine whether the fair value of a reporting unit may be less than its carrying amount. If a determination is made that, based on the qualitative factors, an impairment does not exist, the Company is not required to perform further testing. If the aforementioned qualitative assessment results in the Company concluding that it is more likely than not that the fair value of a reporting unit may be less than its carrying amount, the fair value of the reporting unit will be determined and compared to its carrying value including goodwill. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and the Company is not required to perform further testing. If the fair value of the reporting unit is less than the carrying value, the Company will recognize the difference as an impairment charge.

The Company evaluates its reporting units for impairment on an annual basis, or more frequently if there are changes in the reporting structure of the Company due to acquisitions or realignments or if there are indicators of potential impairment. For the reporting units where the Company is consistently able to conclude that an impairment does not exist using only a qualitative approach, the Company’s accounting policy is to perform the second step of the aforementioned goodwill impairment assessment at least once every three years. Goodwill is assigned to a reporting unit at the date when an acquisition is integrated into one of the established reporting units, and is based on which reporting unit is expected to benefit from the synergies of the acquisition.

For purposes of assessing the recoverability of goodwill, the Company has seven primary reporting units at September 30, 2017: two within the Company’s ratings business (one for the ICRA business and one that encompasses all of Moody’s other ratings operations) and five reporting units within MA: RD&A, ERS, FSTC, MAKS and Bureau van Dijk. The RD&A reporting unit encompasses the distribution of investor-oriented research and data developed by MIS as part of its ratings process, in-depth research on major debt issuers, industry studies, economic research and commentary on topical events and credit analytic tools. The ERS reporting unit consists of credit risk management and compliance software that is sold on a license or subscription basis as well as related advisory services for implementation and maintenance. The FSTC reporting unit consists of the portion of the MA business that offers both credit training as well as other professional development training and certification services. The MAKS reporting unit consists of research and analytical services. The Bureau van Dijk reporting unit consists of business intelligence and company information products.

Amortizable intangible assets are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
Long-Lived Assets, Including Goodwill and Other Acquired Intangible Assets

Long-Lived Assets, including Goodwill and Other Acquired Intangible Assets

Moody’s evaluates its goodwill for impairment at the reporting unit level, defined as an operating segment or one level below an operating segment, annually as of July 31 or more frequently if impairment indicators arise in accordance with ASC Topic 350.

The Company evaluates the recoverability of goodwill using a two-step impairment test approach at the reporting unit level. In the first step, the Company assesses various qualitative factors to determine whether the fair value of a reporting unit may be less than its carrying amount. If a determination is made that, based on the qualitative factors, an impairment does not exist, the Company is not required to perform further testing. If the aforementioned qualitative assessment results in the Company concluding that it is more likely than not that the fair value of a reporting unit may be less than its carrying amount, the fair value of the reporting unit will be determined and compared to its carrying value including goodwill. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and the Company is not required to perform further testing. If the fair value of the reporting unit is less than the carrying value, the Company will recognize the difference as an impairment charge.

The Company evaluates its reporting units for impairment on an annual basis, or more frequently if there are changes in the reporting structure of the Company due to acquisitions or realignments or if there are indicators of potential impairment. For the reporting units where the Company is consistently able to conclude that an impairment does not exist using only a qualitative approach, the Company’s accounting policy is to perform the second step of the aforementioned goodwill impairment assessment at least once every three years. Goodwill is assigned to a reporting unit at the date when an acquisition is integrated into one of the established reporting units, and is based on which reporting unit is expected to benefit from the synergies of the acquisition.

For purposes of assessing the recoverability of goodwill, the Company has seven primary reporting units at September 30, 2017: two within the Company’s ratings business (one for the ICRA business and one that encompasses all of Moody’s other ratings operations) and five reporting units within MA: RD&A, ERS, FSTC, MAKS and Bureau van Dijk. The RD&A reporting unit encompasses the distribution of investor-oriented research and data developed by MIS as part of its ratings process, in-depth research on major debt issuers, industry studies, economic research and commentary on topical events and credit analytic tools. The ERS reporting unit consists of credit risk management and compliance software that is sold on a license or subscription basis as well as related advisory services for implementation and maintenance. The FSTC reporting unit consists of the portion of the MA business that offers both credit training as well as other professional development training and certification services. The MAKS reporting unit consists of research and analytical services. The Bureau van Dijk reporting unit consists of business intelligence and company information products.

Amortizable intangible assets are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION

NOTE 2. STOCK-BASED COMPENSATION

Presented below is a summary of the stock-based compensation cost and associated tax benefit included in the accompanying consolidated statements of operations:

Three Months EndedNine months ended
September 30,September 30,
2017201620172016
Stock-based compensation cost$31.8$23.9$88.9$72.8
Tax benefit$10.3$7.8$28.8$23.7

During the first nine months of 2017, the Company granted 0.2 million employee stock options, which had a weighted average grant date fair value of $30.00 per share based on the Black-Scholes option-pricing model. The Company also granted 1.0 million shares of restricted stock in the first nine months of 2017, which had a weighted average grant date fair value of $113.39 per share. Both the employee stock options and restricted stock generally vest ratably over a four-year period. Additionally, the Company granted approximately 0.2 million shares of performance-based awards whereby the number of shares that ultimately vest are based on the achievement of certain non-market based performance metrics of the Company over a three-year period. The weighted average grant date fair value of these awards was $109.36 per share.

The following weighted average assumptions were used in determining the fair value for options granted in 2017:

Expected dividend yield1.34%
Expected stock volatility26.8%
Risk-free interest rate2.19%
Expected holding period6.5 years
Grant date fair value$30.00

Unrecognized compensation expense at September 30, 2017 was $8.0 million and $150.1 million for stock options and unvested restricted stock, respectively, which is expected to be recognized over a weighted average period of 1.4 years and 1.6 years, respectively. Additionally, there was $27.7 million of unrecognized compensation expense relating to the aforementioned non-market based performance-based awards, which is expected to be recognized over a weighted average period of 1.1 years.

The following tables summarize information relating to stock option exercises and restricted stock vesting:

Nine months ended
September 30,
Exercise of stock options:20172016
Proceeds from stock option exercises$44.0$67.7
Aggregate intrinsic value$75.7$67.8
Tax benefit realized upon exercise$26.9$23.1
Number of shares exercised1.01.4
Nine months ended
September 30,
Vesting of restricted stock:20172016
Fair value of shares vested$109.1$92.8
Tax benefit realized upon vesting$34.6$29.5
Number of shares vested1.01.0
Nine months ended
September 30,
Vesting of performance-based restricted stock:20172016
Fair value of shares vested$19.5$23.6
Tax benefit realized upon vesting$6.9$8.4
Number of shares vested0.20.2
STOCK-BASED COMPENSATION (Tables)
Three Months EndedNine months ended
September 30,September 30,
2017201620172016
Stock-based compensation cost$31.8$23.9$88.9$72.8
Tax benefit$10.3$7.8$28.8$23.7
Expected dividend yield1.34%
Expected stock volatility26.8%
Risk-free interest rate2.19%
Expected holding period6.5 years
Grant date fair value$30.00
Nine months ended
September 30,
Exercise of stock options:20172016
Proceeds from stock option exercises$44.0$67.7
Aggregate intrinsic value$75.7$67.8
Tax benefit realized upon exercise$26.9$23.1
Number of shares exercised1.01.4
Nine months ended
September 30,
Vesting of restricted stock:20172016
Fair value of shares vested$109.1$92.8
Tax benefit realized upon vesting$34.6$29.5
Number of shares vested1.01.0
Nine months ended
September 30,
Vesting of performance-based restricted stock:20172016
Fair value of shares vested$19.5$23.6
Tax benefit realized upon vesting$6.9$8.4
Number of shares vested0.20.2
Stock-Based Compensation Cost and Associated Tax Benefit (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Compensation Related Costs Share Based Payments Disclosure [Line Items]
 
 
 
 
Stock-based compensation cost
$ 31.8 
$ 23.9 
$ 88.9 
$ 72.8 
Tax benefit
$ 10.3 
$ 7.8 
$ 28.8 
$ 23.7 
Weighted Average Assumptions used in Determining Fair Value for Options Granted (Detail)
9 Months Ended
Sep. 30, 2017
Schedule Of Weighted Average Assumptions For Fair Values Of Stock Options [Line Items]
 
Expected dividend yield
1.34% 
Expected stock volatility
26.80% 
Risk-free interest rate
2.19% 
Expected holding period
6 years 6 months 
Grant date fair value
$ 30 
Stock Option Exercises and Restricted Stock Vesting (Detail) (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Employee Stock Options [Member]
 
 
Share Based Compensation Shares Authorized Under Stock Option Plans Exercise Price Range [Line Items]
 
 
Proceeds from stock option exercises
$ 44.0 
$ 67.7 
Aggregate intrinsic value
75.7 
67.8 
Tax benefit realized upon exercise/vesting
26.9 
23.1 
Number of shares exercised
1.0 
1.4 
Restricted Stock [Member]
 
 
Share Based Compensation Shares Authorized Under Stock Option Plans Exercise Price Range [Line Items]
 
 
Fair value of shares vested
109.1 
92.8 
Tax benefit realized upon exercise/vesting
34.6 
29.5 
Number of shares vested
1.0 
1.0 
Vesting of Performance Based Restricted Stock [Member]
 
 
Share Based Compensation Shares Authorized Under Stock Option Plans Exercise Price Range [Line Items]
 
 
Fair value of shares vested
19.5 
23.6 
Tax benefit realized upon exercise/vesting
$ 6.9 
$ 8.4 
Number of shares vested
0.2 
0.2 
Stock-Based Compensation - Additional Information (Detail) (USD $)
In Millions, except Per Share data, unless otherwise specified
9 Months Ended
Sep. 30, 2017
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
 
Employee stock options, granted
0.2 
Employee stock options, weighted average grant date fair value
$ 30 
Employee Stock Options [Member]
 
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
 
Vesting period (in years)
4 years 
Unrecognized compensation expense
$ 8.0 
Weighted average period to recognize expense
1 year 4 months 24 days 
Restricted Stock [Member]
 
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
 
Other than options, Shares granted
1.0 
Other than options, weighted average grant date fair value
$ 113.39 
Vesting period (in years)
4 years 
Unrecognized compensation expense
150.1 
Weighted average period to recognize expense
1 year 7 months 6 days 
Performance Based Restricted Stock [Member]
 
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
 
Other than options, Shares granted
0.2 
Other than options, weighted average grant date fair value
$ 109.36 
Vesting period (in years)
3 years 
Unrecognized compensation expense
$ 27.7 
Weighted average period to recognize expense
1 year 1 month 6 days 
INCOME TAXES
INCOME TAXES

NOTE 4. INCOME TAXES

Moody’s effective tax rate was 31.4% and 30.5% for the three months ended September 30, 2017 and 2016, respectively and 29.0% and 31.5% for the nine month periods ended September 30, 2017 and 2016, respectively. The increase for the three months ended September 30, 2017 is primarily due to the tax effects of a purchase price hedge gain and higher tax rates on non-US income, partially offset by Excess Tax Benefits of $7.7 million on stock-based compensation, as further discussed in Note 1 above, which favorably benefited the ETR by approximately 160 BPS. The decrease in the ETR for the nine months ended September 30, 2017 was primarily due to Excess Tax Benefits of $35.6 million on stock-based compensation, as further discussed in Note 1, which favorably benefited the ETR by approximately 260 BPS coupled with the non-taxable CCXI Gain as discussed in Note 11 below.

The Company classifies interest related to UTBs in interest expense, net in its consolidated statements of operations. Penalties, if incurred, would be recognized in other non-operating (expense) income, net. The Company had a net increase in its UTBs of $122.7 million ($122.6 million net of federal tax) during the third quarter of 2017 and a net increase in its UTBs during the first nine months of 2017 of $136.6 million ($136.9 million net of federal tax). The increase in reserves is primarily due to the recording of UTBs in connection with the Bureau van Dijk acquisition.

Moody’s Corporation and subsidiaries are subject to U.S. federal income tax as well as income tax in various state, local and foreign jurisdictions. The Company’s U.S. federal income tax returns for the years 2011 and 2012 are under examination and its returns for 2013, 2014 and 2015 remain open to examination. The Company’s New York State tax returns for 2011 through 2014 are currently under examination and the Company’s New York City tax return for 2014 is currently under examination. The Company’s U.K. tax return for 2012 is currently under examination and its returns for 2013, 2014 and 2015 remain open to examination.

For ongoing audits, it is possible the balance of UTBs could decrease in the next twelve months as a result of the settlement of these audits, which might involve the payment of additional taxes, the adjustment of certain deferred taxes and/or the recognition of tax benefits. It is also possible that new issues might be raised by tax authorities which could necessitate increases to the balance of UTBs. As the Company is unable to predict the timing or outcome of these audits, it is therefore unable to estimate the amount of changes to the balance of UTBs at this time. However, the Company believes that it has adequately provided for its financial exposure relating to all open tax years by tax jurisdiction in accordance with the applicable provisions of Topic 740 of the ASC regarding UTBs.

On March 30, 2016, the FASB issued Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share Based Payment Accounting as more fully discussed in Note 1 to the condensed consolidated financial statements. The new guidance requires all tax effects related to share based payments to be recorded through the income statement. The Company has adopted the new guidance as of the first quarter of 2017 and expects the adoption to result in a reduction in its income tax provision of approximately $40 million, or an approximate 225BPS reduction in the Company’s ETR for the full year of 2017.

In the first quarter of 2017, the Company adopted Accounting Standards Update 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory. Under previous guidance, the tax effects of intra-entity asset transfers (intercompany sales) were deferred until the transferred asset was sold to a third party or otherwise recovered through use. The new guidance eliminates the exception for all intra-entity sales of assets other than inventory. Upon adoption, a cumulative-effect adjustment is recorded in retained earnings as of the beginning of the period of adoption. The net impact upon adoption is a reduction to retained earnings of $4.6 million. The Company does not expect any material impact on its future operations as a result of the adoption of this guidance.

The following table shows the amount the Company paid for income taxes:

Nine months ended
September 30,
20172016
Income taxes paid*$194.7$242.8
*The decrease in income taxes paid is primarily due to tax benefits relating to the Settlement Charge
INCOME TAXES (Tables)
Income Taxes Paid
Nine months ended
September 30,
20172016
Income taxes paid*$194.7$242.8
*The decrease in income taxes paid is primarily due to tax benefits relating to the Settlement Charge
Income Taxes - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Income Tax Contingency [Line Items]
 
 
 
 
Effective tax rate
31.40% 
30.50% 
29.00% 
31.50% 
Overall increase (decrease) in unrecognized tax benefits (UTPs)
$ 122.7 
 
$ 136.6 
 
Expected Benefit to provision for income taxes for full-year 2017 due to change in accounting principle
 
 
40.0 
 
Expected change to tax rate for full-year 2017 due to change in accounting principle
 
 
2.25% 
 
Excess tax benefit effect of adoption adjustment on provision for income taxes
7.7 
 
35.6 
 
Excess tax benefit effect of adoption change on provision for income taxes rates
1.60% 
 
2.60% 
 
Net of federal tax benefit [Member]
 
 
 
 
Income Tax Contingency [Line Items]
 
 
 
 
Overall increase (decrease) in unrecognized tax benefits (UTPs)
122.6 
 
136.9 
 
Retained Earnings [Member]
 
 
 
 
Income Tax Contingency [Line Items]
 
 
 
 
Effect of adoption adjustment Reduction to retained earnings
$ 4.6 
 
$ 4.6 
 
WEIGHTED AVERAGE SHARES OUTSTANDING
WEIGHTED AVERAGE SHARES OUTSTANDING

NOTE 4. WEIGHTED AVERAGE SHARES OUTSTANDING

Below is a reconciliation of basic to diluted shares outstanding:

Three Months EndedNine months ended
September 30,September 30,
2017201620172016
Basic191.1191.7191.1193.3
Dilutive effect of shares issuable under stock-based compensation plans3.02.63.02.7
Diluted194.1194.3194.1196.0
Anti-dilutive options to purchase common shares and restricted stock as well as contingently issuable restricted stock which are excluded from the table above0.50.50.60.9

The calculation of diluted EPS requires certain assumptions regarding the use of both cash proceeds and assumed proceeds that would be received upon the exercise of stock options and vesting of restricted stock outstanding as of September 30, 2017 and 2016. The assumed proceeds in 2017 do not include Excess Tax Benefits pursuant to the prospective adoption of ASU 2016-09 in the first quarter of 2017. The assumed proceeds in 2016 include Excess Tax Benefits.

The decrease in the diluted shares outstanding in the nine months ended September 30, 2017 primarily reflects treasury share repurchases under the Company’s Board authorized share repurchase program.

WEIGHTED AVERAGE SHARES OUTSTANDING (Tables)
Reconciliation of Basic to Diluted Shares Outstanding
Three Months EndedNine months ended
September 30,September 30,
2017201620172016
Basic191.1191.7191.1193.3
Dilutive effect of shares issuable under stock-based compensation plans3.02.63.02.7
Diluted194.1194.3194.1196.0
Anti-dilutive options to purchase common shares and restricted stock as well as contingently issuable restricted stock which are excluded from the table above0.50.50.60.9
Reconciliation of Basic to Diluted Shares Outstanding (Detail)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Schedule Of Earnings Per Share Basic And Diluted By Common Class [Line Items]
 
 
 
 
Basic
191.1 
191.7 
191.1 
193.3 
Dilutive effect of shares issuable under stock-based compensation plans
3.0 
2.6 
3.0 
2.7 
Diluted
194.1 
194.3 
194.1 
196.0 
Anti-dilutive options to purchase common shares and restricted stock as well as contingently issuable restricted stock which are excluded from the table above
0.5 
0.5 
0.6 
0.9 
CASH EQUIVALENT AND INVESTMENTS
CASH EQUIVALENT AND INVESTMENT

NOTE 5. CASH EQUIVALENTS AND INVESTMENTS

The table below provides additional information on the Company’s cash equivalents and investments:

As of September 30, 2017
Balance sheet location
CostGross Unrealized GainsFair ValueCash and cash equivalentsShort-term investmentsOther assets
Money market mutual funds$18.5$-$18.5$18.5$-$-
Certificates of deposit and money market deposit accounts (1)$253.2$ - $253.2$142.6$108.3$2.3
Fixed maturity and open ended mutual funds (2)$21.8$5.2$27.0$-$-$27.0
As of December 31, 2016
Balance sheet location
CostGross Unrealized GainsFair ValueCash and cash equivalentsShort-term investmentsOther assets
Money market mutual funds$189.0 $ -$189.0$189.0 $ - $ -
Certificates of deposit and money market deposit accounts (1)$1,190.5 $ -$1,190.5$1,017.0 $ 173.4 $ 0.1
Fixed maturity and open ended mutual funds (2)$27.0 $ 5.6$32.6$- $ - $ 32.6
(1) Consists of time deposits and money market deposit accounts. The remaining contractual maturities for the certificates of deposits classified as short-term investments were one to 12 months at both September 30, 2017 and December 31, 2016. The remaining contractual maturities for the certificates of deposits classified in other assets are 13 to 51 months at September 30, 2017 and 13 months to 15 months at December 31, 2016. Time deposits with a maturity of less than 90 days at time of purchase are classified as cash and cash equivalents.
(2) Consists of investments in fixed maturity mutual funds and open-ended mutual funds. The remaining contractual maturities for the fixed maturity instruments range from nine months to ten months and six months to 19 months at September 30, 2017 and December 31, 2016 respectively.

The money market mutual funds as well as the fixed maturity and open ended mutual funds in the table above are deemed to be available for sale under ASC Topic 320 and the fair value of these instruments is determined using Level 1 inputs as defined in the ASC.

CASH EQUIVALENT AND INVESTMENTS (Tables)
Schedule of Cash, Cash Equivalents and Investments
As of September 30, 2017
Balance sheet location
CostGross Unrealized GainsFair ValueCash and cash equivalentsShort-term investmentsOther assets
Money market mutual funds$18.5$-$18.5$18.5$-$-
Certificates of deposit and money market deposit accounts (1)$253.2$ - $253.2$142.6$108.3$2.3
Fixed maturity and open ended mutual funds (2)$21.8$5.2$27.0$-$-$27.0
As of December 31, 2016
Balance sheet location
CostGross Unrealized GainsFair ValueCash and cash equivalentsShort-term investmentsOther assets
Money market mutual funds$189.0 $ -$189.0$189.0 $ - $ -
Certificates of deposit and money market deposit accounts (1)$1,190.5 $ -$1,190.5$1,017.0 $ 173.4 $ 0.1
Fixed maturity and open ended mutual funds (2)$27.0 $ 5.6$32.6$- $ - $ 32.6
(1) Consists of time deposits and money market deposit accounts. The remaining contractual maturities for the certificates of deposits classified as short-term investments were one to 12 months at both September 30, 2017 and December 31, 2016. The remaining contractual maturities for the certificates of deposits classified in other assets are 13 to 51 months at September 30, 2017 and 13 months to 15 months at December 31, 2016. Time deposits with a maturity of less than 90 days at time of purchase are classified as cash and cash equivalents.
(2) Consists of investments in fixed maturity mutual funds and open-ended mutual funds. The remaining contractual maturities for the fixed maturity instruments range from nine months to ten months and six months to 19 months at September 30, 2017 and December 31, 2016 respectively.
Cash Equivalent and Investments (Detail) (USD $)
In Millions, unless otherwise specified
9 Months Ended 12 Months Ended
Sep. 30, 2017
Dec. 31, 2016
Sep. 30, 2016
Dec. 31, 2015
Sep. 30, 2017
Money Market [Member]
Dec. 31, 2016
Money Market [Member]
Sep. 30, 2017
Certificates Of Deposit [Member]
Dec. 31, 2016
Certificates Of Deposit [Member]
Sep. 30, 2017
Fixed Maturity and Mutual Funds [Member]
Dec. 31, 2016
Fixed Maturity and Mutual Funds [Member]
Cash and Cash Equivalents [Line Items]
 
 
 
 
 
 
 
 
 
 
Cost
 
 
 
 
$ 18.5 
$ 189.0 
$ 253.2 
$ 1,190.5 
$ 21.8 
$ 27.0 
Gross unrealized gain
 
 
 
 
 
 
 
 
5.2 
5.6 
Fair value
27.0 
32.6 
 
 
18.5 
189.0 
253.2 
1,190.5 
27.0 
32.6 
Cash and cash equivalents
962.8 
2,051.5 
1,746.1 
1,757.4 
18.5 
189.0 
142.6 
1,017.0 
 
 
Short-term investments
108.3 
173.4 
 
 
 
 
108.3 
173.4 
 
 
Other assets
 
 
 
 
 
 
$ 2.3 
$ 0.1 
$ 27.0 
$ 32.6 
Cash Equivalent and Investments (Parenthetical) (Detail)
9 Months Ended 12 Months Ended
Sep. 30, 2017
Dec. 31, 2016
Minimum [Member] |
Certificates Of Deposit [Member] |
Short Term Investments [Member]
 
 
Schedule Of Investments [Line Items]
 
 
Securities Maturity period
1 month 
1 month 
Minimum [Member] |
Certificates Of Deposit [Member] |
Other Assets [Member]
 
 
Schedule Of Investments [Line Items]
 
 
Securities Maturity period
13 months 
13 months 
Minimum [Member] |
Fixed Maturity and Mutual Funds [Member]
 
 
Schedule Of Investments [Line Items]
 
 
Securities Maturity period
9 months 
6 months 
Maximum [Member] |
Certificates Of Deposit [Member] |
Short Term Investments [Member]
 
 
Schedule Of Investments [Line Items]
 
 
Securities Maturity period
12 months 
12 months 
Maximum [Member] |
Certificates Of Deposit [Member] |
Cash And Cash Equivalents [Member]
 
 
Schedule Of Investments [Line Items]
 
 
Securities Maturity period
90 days 
 
Maximum [Member] |
Certificates Of Deposit [Member] |
Other Assets [Member]
 
 
Schedule Of Investments [Line Items]
 
 
Securities Maturity period
51 months 
15 months 
Maximum [Member] |
Fixed Maturity and Mutual Funds [Member]
 
 
Schedule Of Investments [Line Items]
 
 
Securities Maturity period
10 months 
19 months 
ACQUISITIONS
ACQUISITIONS

NOTE 7. ACQUISITIONS

The business combinations described below are accounted for using the acquisition method of accounting whereby assets acquired and liabilities assumed were recognized at fair value on the date of the transaction. Any excess of the purchase price over the fair value of the assets acquired and liabilities assumed was recorded to goodwill.

Bureau van Dijk

On August 10, 2017, a subsidiary of the Company acquired 100% of Yellow Maple I B.V., an indirect parent company of Bureau van Dijk Electronic Publishing B.V., a global provider of business intelligence and company information products. The cash payment of $3,542.0 million was funded with a combination of cash on hand, primarily offshore, and new debt financing. The acquisition extends Moody’s position as a leader in risk data and analytical insight.

Shown below is the preliminary purchase price allocation, which summarizes the fair value of the assets and liabilities assumed, at the date of acquisition:

(Amounts in millions)
Current assets$160.5
Property and equipment, net4.2
Intangible assets:
Customer relationships (23 year weighted average life)$998.7
Product technology (12 year weighted average life)258.5
Trade name (18 year weighted average life)82.2
Database (10 year weighted average life)13.0
Total intangible assets (21 year weighted average life)1,352.4
Goodwill2,636.1
Other assets4.3
Liabilities
Deferred revenue$(101.1)
Accounts payable and accrued liabilities(48.3)
Deferred tax liabilities, net(348.1)
Other liabilities (118.0)
Total liabilities(615.5)
Net assets acquired$3,542.0

The Company has performed a preliminary valuation analysis of the fair market value of assets and liabilities of the Bureau van Dijk business. The final purchase price allocation will be determined when the Company has completed and fully reviewed the detailed valuations. The final allocation could differ materially from the preliminary allocation. The final allocation may include changes in allocations to acquired intangible assets as well as goodwill and other changes to assets and liabilities including reserves for uncertain tax positions and deferred tax liabilities. The estimated useful lives of acquired intangibles assets are also preliminary.

Current assets in the table above include acquired cash of $36 million. Additionally, current assets include accounts receivable of approximately $90 million (net of an allowance for uncollectible accounts of $1.4 million).

The amount of Bureau van Dijk's revenue and Net Income from August 10, 2017 through September 30, 2017 included in the Company's statement of operations was $30.3 million and ($2.0) million, respectively. The acquired deferred revenue balance was reduced by $53 million as part of acquisition accounting to establish the fair value of deferred revenue. This will reduce reported revenue by $53 million over the remaining contractual period of in progress customer arrangements assumed as of the acquisition date. This resulted in an approximate $14 million reduction in reported revenue for the period from August 10, 2017 to September 30, 2017. Amortization of acquired intangible assets was approximately $10 million for the period from August 10, 2017 through September 30, 2017.

Goodwill

Under the acquisition method of accounting for business combinations, the excess of the purchase price over the fair value of the net assets acquired is allocated to goodwill. Goodwill typically results through expected synergies from combining operations of an acquiree and an acquirer, anticipated new customer acquisition and products, as well as from intangible assets that do not qualify for separate recognition. The goodwill recognized as a result of this acquisition includes, among other things, the value of combining the complementary product portfolios of the Company and Bureau van Dijk which is expected to extend the Company’s reach to new and evolving market segments as well as cost savings synergies, expected new customer acquisitions and products.

Goodwill, which has been assigned to the MA segment, is not deductible for tax purposes.

Bureau van Dijk will be a separate reporting unit for purposes of the Company’s annual goodwill impairment assessment.

Other Liabilities Assumed

In connection with the acquisition, the Company assumed liabilities relating to UTBs as well as deferred tax liabilities which relate to acquired intangible assets. These items are included in other liabilities in the table above.

Transaction and Non-Recurring Integration Costs.

In connection with the acquisition, the Company incurred transaction and non-recurring integration costs (Acquisition-Related Expenses) through the first nine months of 2017. Acquisition-Related Expenses of $16.7 million were comprised of transaction costs (consisting primarily of legal and advisory costs) of $8.5 million and non-recurring integration costs of $8.2 million for the nine months ended September 30, 2017.

Supplementary Unaudited Pro Forma Information

Supplemental information on an unaudited pro forma basis is presented below for the nine months ended September 30, 2017 and 2016 as if the acquisition of Bureau van Dijk occurred on January 1, 2016. The pro forma financial information is presented for comparative purposes only, based on certain estimates and assumptions, which the Company believes to be reasonable but not necessarily indicative of future results of operations or the results that would have been reported if the acquisition had been completed at January 1, 2016. The unaudited pro forma information includes amortization of acquired intangible assets, based on the preliminary purchase price allocation and an estimate of useful lives reflected above, and incremental financing costs resulting from the acquisition, net of income tax, which was estimated using the weighted average statutory tax rates in effect in the jurisdiction for which the pro forma adjustment relates.

(Amounts in millions)For the nine months ended September 30, 2017For the nine months ended September 30, 2016
Proforma Revenue$ 3,226.9 $ 2,821.8
Proforma Net Income attributable to Moody's$ 965.9 $ 695.1

The unaudited pro forma results do not include any anticipated cost savings or other effects of the planned integration of Bureau van Dijk. Accordingly, the pro forma results above are not necessarily indicative of the results that would have been reported if the acquisition had occurred on the dates indicated, nor are the pro forma results indicative of results which may occur in the future. The Bureau van Dijk results included in the above have been converted to U.S. GAAP from IFRS as issued by the IASB and have been translated to USD at rates in effect for the periods presented. The Bureau van Dijk amounts in the pro forma results include a reduction in revenue of approximately $50 million and $1 million relating to a fair value adjustment to deferred revenue required as part of acquisition accounting for the nine months ended September 30, 2016 and 2017, respectively.

The following acquisitions occurred prior to the third quarter 2017. The Company has not presented proforma combined results for these acquisitions because the impact on previously reported statements of operations would not have been material. Additionally, the near term impact to the Company’s operations and cash flows is not material.

SCDM Financial

On February 13, 2017, a subsidiary of the Company acquired the structured finance data and analytics business of SCDM Financial. The aggregate purchase price was not material and the near term impact to the Company’s operations and cash flow is not expected to be material. This business unit operates in the MA reportable segment and goodwill related to this acquisition has been allocated to the RD&A reporting unit.

Korea Investor Service (KIS)

In July 2016, a subsidiary of the Company acquired the non-controlling interest of KIS and additional shares of KIS Pricing. The aggregate purchase price was not material and the near term impact to the Company’s operations and cash flow is not expected to be material. KIS and KIS Pricing are a part of the MIS segment.

Gilliland Gold Young (GGY)

On March 1, 2016, subsidiaries of the Company acquired 100% of GGY, a leading provider of advanced actuarial software for the life insurance industry. The cash payments noted in the table below were funded with cash on hand. The acquisition of GGY will allow MA to provide an industry-leading enterprise risk offering for global life insurers and reinsurers.

The table below details the total consideration relating to the acquisition:

(amounts in millions)
Cash paid at closing$83.4
Additional consideration paid to sellers in the third quarter 2016(1)3.1
Total consideration $86.5
(1) Represents additional consideration paid to the sellers for amounts withheld at closing pending the completion of certain administrative matters

Shown below is the purchase price allocation, which summarizes the fair value of the assets and liabilities assumed, at the date of acquisition:

Current assets$11.7
Property and equipment, net2.0
Indemnification assets1.5
Intangible assets:
Trade name (19 year weighted average life)$3.7
Client relationships (21 year weighted average life)13.8
Software (7 year weighted average life)16.6
Total intangible assets (14 year weighted average life)34.1
Goodwill59.4
Liabilities(22.2)
Net assets acquired$86.5

Current assets in the table above include acquired cash of $7.5 million. Additionally, current assets include accounts receivable of $2.9 million. Goodwill, which has been assigned to the MA segment, is not deductible for tax.

In connection with the acquisition, the Company assumed liabilities relating to UTPs and certain other tax exposures which are included in the liabilities assumed in the table above. The sellers have contractually indemnified the Company against any potential payments that may have to be made regarding these amounts. Accordingly, the Company carries an indemnification asset on its consolidated balance sheet at June 30, 2017 and December 31, 2016.

The Company incurred $0.9 million of costs directly related to the GGY acquisition of which $0.6 million was incurred in 2015 and $0.3 million was incurred in the first quarter of 2016. These costs are recorded within selling, general and administrative expenses in the Company’s consolidated statements of operations.

GGY is part of the ERS reporting unit for purposes of the Company’s annual goodwill impairment assessment.

ACQUISITIONS (Tables)
(amounts in millions)
Cash paid at closing$83.4
Additional consideration paid to sellers in the third quarter 2016(1)3.1
Total consideration $86.5
(1) Represents additional consideration paid to the sellers for amounts withheld at closing pending the completion of certain administrative matters
Current assets$11.7
Property and equipment, net2.0
Indemnification assets1.5
Intangible assets:
Trade name (19 year weighted average life)$3.7
Client relationships (21 year weighted average life)13.8
Software (7 year weighted average life)16.6
Total intangible assets (14 year weighted average life)34.1
Goodwill59.4
Liabilities(22.2)
Net assets acquired$86.5
(Amounts in millions)
Current assets$160.5
Property and equipment, net4.2
Intangible assets:
Customer relationships (23 year weighted average life)$998.7
Product technology (12 year weighted average life)258.5
Trade name (18 year weighted average life)82.2
Database (10 year weighted average life)13.0
Total intangible assets (21 year weighted average life)1,352.4
Goodwill2,636.1
Other assets4.3
Liabilities
Deferred revenue$(101.1)
Accounts payable and accrued liabilities(48.3)
Deferred tax liabilities, net(348.1)
Other liabilities (118.0)
Total liabilities(615.5)
Net assets acquired$3,542.0
(Amounts in millions)For the nine months ended September 30, 2017For the nine months ended September 30, 2016
Proforma Revenue$ 3,226.9 $ 2,821.8
Proforma Net Income attributable to Moody's$ 965.9 $ 695.1
Total Consideration Transferred to Sellers (Detail) (Gilliland Gold Young (GGY) [Member], USD $)
In Millions, unless otherwise specified
0 Months Ended
Mar. 1, 2016
Gilliland Gold Young (GGY) [Member]
 
Business Acquisition [Line Items]
 
Cash paid
$ 83.4 
Additional consideration to be paid to seller in 2016
3.1 
Total consideration
$ 86.5 
Purchase Price Allocation (Detail) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2017
Dec. 31, 2016
Dec. 31, 2015
Mar. 1, 2016
Gilliland Gold Young (GGY) [Member]
Mar. 1, 2016
Gilliland Gold Young (GGY) [Member]
Trade Names [Member]
Mar. 1, 2016
Gilliland Gold Young (GGY) [Member]
Customer Relationships [Member]
Mar. 1, 2016
Gilliland Gold Young (GGY) [Member]
Software [Member]
Aug. 10, 2017
Bureau van Dijk (BvD) [Member]
Aug. 10, 2017
Bureau van Dijk (BvD) [Member]
Trade Names [Member]
Aug. 10, 2017
Bureau van Dijk (BvD) [Member]
Customer Relationships [Member]
Aug. 10, 2017
Bureau van Dijk (BvD) [Member]
Databases [Member]
Aug. 10, 2017
Bureau van Dijk (BvD) [Member]
Product Technology [Member]
Business Acquisition [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
$ 11.7 
 
 
 
$ 160.5 
 
 
 
 
Property and equipment, net
 
 
 
2.0 
 
 
 
4.2 
 
 
 
 
Indemnification asset
16.8 
16.5 
 
1.5 
 
 
 
 
 
 
 
 
Total intangible assets
 
 
 
34.1 
3.7 
13.8 
16.6 
1,352.4 
82.2 
998.7 
13.0 
258.5 
Goodwill
3,722.1 
1,023.6 
976.3 
59.4 
 
 
 
2,636.1 
 
 
 
 
Other assets
 
 
 
 
 
 
 
4.3 
 
 
 
 
Deferred revenue
 
 
 
 
 
 
 
(101.1)
 
 
 
 
Accounts payable and accrued liabilities
 
 
 
 
 
 
 
(48.3)
 
 
 
 
Deferred tax liabilities, net
 
 
 
 
 
 
 
(348.1)
 
 
 
 
Other liabilities
 
 
 
 
 
 
 
(118.0)
 
 
 
 
Liabilities assumed
 
 
 
(22.2)
 
 
 
(615.5)
 
 
 
 
Net assets acquired
 
 
 
$ 86.5 
 
 
 
$ 3,542.0 
 
 
 
 
Purchase Price Allocation (Parenthetical) (Detail)
0 Months Ended
Mar. 1, 2016
Gilliland Gold Young (GGY) [Member]
Mar. 1, 2016
Gilliland Gold Young (GGY) [Member]
Trade Names [Member]
Mar. 1, 2016
Gilliland Gold Young (GGY) [Member]
Customer Relationships [Member]
Mar. 1, 2016
Gilliland Gold Young (GGY) [Member]
Software [Member]
Aug. 10, 2017
Bureau van Dijk (BvD) [Member]
Aug. 10, 2017
Bureau van Dijk (BvD) [Member]
Trade Names [Member]
Aug. 10, 2017
Bureau van Dijk (BvD) [Member]
Customer Relationships [Member]
Aug. 10, 2017
Bureau van Dijk (BvD) [Member]
Databases [Member]
Aug. 10, 2017
Bureau van Dijk (BvD) [Member]
Product Technology [Member]
Business Acquisition [Line Items]
 
 
 
 
 
 
 
 
 
Weighted average life of intangible assets acquired (in years)
14 years 
19 years 
21 years 
7 years 
21 years 
18 years 
23 years 
10 years 
12 years 
BvD Pro Forma Information (Detail) (Bureau van Dijk [Member], USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Bureau van Dijk [Member]
 
 
Business Acquisition [Line Items]
 
 
Proforma revenue
$ 3,226.9 
$ 2,821.8 
Proforma net income from continuing operations
$ 965.9 
$ 695.1 
Acquisitions - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended 0 Months Ended 0 Months Ended 2 Months Ended 9 Months Ended
Sep. 30, 2017
Sep. 30, 2016
Sep. 30, 2017
Sep. 30, 2016
Mar. 1, 2016
Gilliland Gold Young [Member]
Mar. 31, 2016
Gilliland Gold Young [Member]
Dec. 31, 2015
Gilliland Gold Young [Member]
Aug. 10, 2017
Bureau van Dijk (BvD) [Member]
Sep. 30, 2017
Bureau van Dijk (BvD) [Member]
Sep. 30, 2017
Bureau van Dijk (BvD) [Member]
Sep. 30, 2016
Bureau van Dijk (BvD) [Member]
Business Acquisition [Line Items]
 
 
 
 
 
 
 
 
 
 
 
Acquired cash
 
 
 
 
$ 7.5 
 
 
$ 36.0 
 
 
 
Amount related to transaction cost
 
 
 
 
0.9 
0.3 
0.6 
 
8.5 
8.5 
 
Percentage of interests acquired
 
 
 
 
100.00% 
 
 
100.00% 
 
 
 
Acquired account receivables
 
 
 
 
2.9 
 
 
90.0 
 
 
 
Cash paid for acquisitions
 
 
 
 
83.4 
 
 
3,542.0 
 
 
 
Revenue since Acquisition Date, Actual
 
 
 
 
 
 
 
 
30.3 
 
 
Net income from continuing operations since Acquisition Date, Actual
 
 
 
 
 
 
 
 
(2.0)
 
 
Integration Costs
 
 
 
 
 
 
 
 
 
8.2 
 
Reduction in Revenue included in net income
 
 
 
 
 
 
 
 
14.0 
1.0 
50.0 
Reduction in Deferred Revenue to establish the fair value
 
 
 
 
 
 
 
 
53.0 
 
 
Acquisition-Related Expenses
10.1 
 
16.7 
 
 
 
 
 
 
 
 
Allowance for Uncollectible Accounts
 
 
 
 
 
 
 
1.4 
 
 
 
Amortization expense
$ 18.8 
$ 8.9 
$ 35.9 
$ 25.5 
 
 
 
 
$ 10.0 
 
 
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

NOTE 7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company is exposed to global market risks, including risks from changes in FX rates and changes in interest rates. Accordingly, the Company uses derivatives in certain instances to manage the aforementioned financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for speculative purposes.

Derivatives and non-derivative instruments designated as accounting hedges:

Interest Rate Swaps

The Company has entered into interest rate swaps to convert the fixed interest rate on certain of its long-term debt to a floating interest rate based on the 3-month LIBOR. The purpose of these hedges is to mitigate the risk associated with changes in the fair value of the long-term debt, thus the Company has designated these swaps as fair value hedges. The fair value of the swaps is adjusted quarterly with a corresponding adjustment to the carrying value of the debt. The changes in the fair value of the swaps and the underlying hedged item generally offset and the net cash settlements on the swaps are recorded each period within interest (expense) income, net in the Company’s consolidated statement of operations.

The following table summarizes the Company’s interest rate swaps designated as fair value hedges:

Hedged ItemNature of SwapNotional AmountFloating Interest Rate
As of September 30, 2017As of December 31, 2016
2010 Senior Notes due 2020Pay Floating/Receive Fixed$500.0$500.03-month LIBOR
2014 Senior Notes due 2019Pay Floating/Receive Fixed$450.0$450.03-month LIBOR
2012 Senior Notes due 2022Pay Floating/Receive Fixed$80.0$80.03-month LIBOR

The following table summarizes the impact to the statement of operations of the Company’s interest rate swaps designated as fair value hedges:

Amount of income recognized in the consolidated statements of operations
Three Months EndedNine months ended
September 30,September 30,
Derivatives designated as fair value accounting hedgesLocation on Statement of Operations2017201620172016
Interest rate swaps Interest expense, net$1.6$2.7$5.8$8.8

Cross-currency swaps

In conjunction with the issuance of the 2015 Senior Notes, the Company entered into a cross-currency swap to exchange €100 million for U.S. dollars on the date of the settlement of the notes. The purpose of this cross-currency swap is to mitigate FX risk on the remaining principal balance on the 2015 Senior Notes that was not designated as a net investment hedge as more fully discussed below. Under the terms of the swap, the Company will pay the counterparty interest on the $110.5 million received at 3.945% per annum and the counterparty will pay the Company interest on the €100 million paid at 1.75% per annum. These interest payments will be settled in March of each year, beginning in 2016, until either the maturity of the cross-currency swap in 2027 or upon early termination at the discretion of the Company. The principal payments on this cross currency swap will be settled in 2027, concurrent with the repayment of the 2015 Senior Notes at maturity or upon early termination at the discretion of the Company. In March 2016, the Company designated these cross-currency swaps as cash flow hedges. Accordingly, changes in fair value subsequent to the date the swaps were designated as cash flow hedges will initially be recognized in OCI. Gains and losses on the swaps initially recognized in OCI will be reclassified to the statement of operations in the period in which changes in the underlying hedged item affects net income. Ineffectiveness, if any, will be recognized in other non-operating (expense) income, net in the Company’s consolidated statement of operations.

Forward start interest rate swaps

In the second quarter of 2017, in conjunction with the then-forecasted issuance of the Company’s 2017 Private Placement Notes Due 2023 and 2017 Private Placement Notes Due 2028, the Company entered into forward starting interest rate swaps to mitigate the risk of changes in the semi-annual interest payments attributable to changes in market interest rates during the period leading up to the forecasted debt issuance. The swaps were terminated on June 5, 2017 following the issuance of the aforementioned notes and the losses recorded to OCI upon settlement were not material.

Net investment hedges

The Company entered into foreign currency forward contracts that are designated as net investment hedges and additionally has designated €400 million of the 2015 Senior Notes Due 2027 as a net investment hedge. These hedges are intended to mitigate FX exposure related to non-U.S. dollar net investments in certain foreign subsidiaries against changes in foreign exchange rates. These net investment hedges are designated as accounting hedges under the applicable sections of Topic 815 of the ASC. This net investment hedge will end upon the repayment of the notes in 2027 unless terminated earlier at the discretion of the Company.

Hedge effectiveness is assessed based on the overall changes in the fair value of the hedge. For hedges that meet the effectiveness requirements, any change in the fair value is recorded in OCI in the foreign currency translation account. Any change in the fair value of these hedges that is the result of ineffectiveness is recognized immediately in other non-operating (expense) income, net in the Company’s consolidated statement of operations.

The following table summarizes the notional amounts of the Company’s outstanding forward contracts that were designated as net investment hedges:

September 30,December 31,
20172016
Notional amount of net investment hedges:SellBuySellBuy
Contracts to sell GBP for euros£--£22.126.4

The following table provides information on the gains/(losses) on the Company’s net investment and cash flow hedges:

Amount of Gain/(Loss) Recognized in AOCI on Derivative (Effective Portion)Amount of Gain/(Loss) Reclassified from AOCI into Income (Effective Portion)Amount of Gain/(Loss) Recognized Directly into Income (Ineffective Portion), net of Tax
Derivatives and non-derivative instruments in Net Investment Hedging RelationshipsThree Months EndedThree Months EndedThree Months Ended
September 30,September 30,September 30,
201720162017201620172016
FX forwards$0.4$(0.2)$-$-$-$-
Long-term debt(10.3)(3.2)----
Total net investment hedges$(9.9)$(3.4)$-$-$-$-
Derivatives in cash flow hedging relationships
Cross currency swap$3.2$3.2$2.6*$0.9*$-$-
Total cash flow hedges$