MOODYS CORP /DE/, 10-Q filed on 8/2/2018
Quarterly Report
v3.10.0.1
Document and Entity Information
shares in Millions
6 Months Ended
Jun. 30, 2018
shares
Document Information [Line Items]  
Document Type 10-Q
Amendment Flag false
Document Period End Date Jun. 30, 2018
Document Fiscal Year Focus 2018
Document Fiscal Period Focus Q2
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 191.9
v3.10.0.1
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
shares in Millions, $ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Income Statement [Abstract]        
Revenues $ 1,175.1 $ 1,000.5 $ 2,301.8 $ 1,975.7
Expenses        
Operating 320.2 284.8 635.1 560.1
Selling, general and administrative 270.5 216.1 541.6 436.8
Depreciation and amortization 48.4 32.9 97.5 65.4
Acquisition-Related Expenses 2.0 6.6 2.8 6.6
Total expenses 641.1 540.4 1,277.0 1,068.9
Operating Income 534.0 460.1 1,024.8 906.8
Non-operating (expense) income, net        
Interest expense, net (53.4) (49.7) (104.1) (97.1)
Other non-operating income, net 14.9 10.4 15.9 2.7
Purchase price hedge gain   41.2   41.2
CCXI gains       59.7
Total non-operating (expense) income, net (38.5) 1.9 (88.2) 6.5
Income before provisions for income taxes 495.5 462.0 936.6 913.3
Provision for income taxes 117.6 148.4 181.9 253.8
Net income 377.9 313.6 754.7 659.5
Less: Net income attributable to noncontrolling interests 1.7 1.4 5.6 1.7
Net income attributable to Moody's $ 376.2 $ 312.2 $ 749.1 $ 657.8
Earnings per share attributable to Moody's common shareholders        
Basic $ 1.96 $ 1.63 $ 3.91 $ 3.44
Diluted $ 1.94 $ 1.61 $ 3.85 $ 3.39
Weighted average number of shares outstanding        
Basic 191.9 191.0 191.6 191.1
Diluted 194.4 193.8 194.5 194.1
Dividends declared per share attributable to Moody's common shareholders $ 0.44 $ 0.38 $ 0.88 $ 0.38
v3.10.0.1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Derivative Instruments Gain Loss [Line Items]        
Net income $ 377.9 $ 313.6 $ 754.7 $ 659.5
Foreign currency translation:        
Foreign currency translation adjustments - Pre Tax (250.3) 35.1 (128.7) 49.5
Foreign currency translation adjustment - Tax (9.2) 15.4 (5.6) 13.1
Foreign currency translation adjustments - Net of Tax (259.5) 50.5 (134.3) 62.6
Cash flow hedges:        
Net realized and unrealized gain (loss) on cash flow hedges - Net of Tax 27.4 (13.5) 18.0 (17.3)
Reclassification of losses included in net income - Pre Tax (0.1) (6.1) (0.2) (7.5)
Reclassification of losses included in net income - Tax Amount   2.8   3.3
Reclassification of losses included in net income- Net of Tax (0.1) (3.3) (0.2) (4.2)
Available for sale securities:        
Net unrealized gains on available for sale securities - Pre Tax   0.6   1.1
Net unrealized gains on available for sale securities - Net of Tax   0.6   1.1
Pension and Other Retirement Benefits:        
Amortization of actuarial losses and prior service costs included in net income - Pre Tax 1.0 1.9 2.4 4.3
Amortization of actuarial losses and prior service costs included in net income - Tax (0.3) (0.8) (0.7) (1.7)
Amortization of actuarial losses and prior service costs included in net income - Net of Tax 0.7 1.1 1.7 2.6
Net actuarial losses and prior service costs - Pre Tax 1.6 7.9 1.6 7.9
Net actuarial losses and prior service costs - Tax (0.4) (3.0) (0.4) (3.0)
Net actuarial losses and prior service costs - Net of Tax 1.2 4.9 1.2 4.9
Total other comprehensive (loss) income - Pre Tax (247.8) 44.5 (123.0) 60.1
Total other comprehensive (loss)income - Tax (9.9) 12.5 (7.1) 9.9
Total other comprehensive (loss) income - Net of Tax (257.7) 57.0 (130.1) 70.0
Comprehensive income 120.2 370.6 624.6 729.5
Less: Comprehensive income attributable to noncontrolling interests and redeemable noncontrolling interest (3.2) 10.8 5.7 16.5
Comprehensive income attributable to Moody's 123.4 359.8 618.9 713.0
Cash Flow Hedging [Member]        
Cash flow hedges:        
Net realized and unrealized gain (loss) on cash flow hedges - Pre Tax   5.1 1.9 4.8
Net realized and unrealized gain (loss) on cash flow hedges - Tax Amount   (1.9) (0.4) (1.8)
Net realized and unrealized gain (loss) on cash flow hedges - Net of Tax   3.2 1.5 3.0
Reclassification of losses included in net income- Net of Tax $ (0.1) $ (3.3) $ (0.2) $ (4.2)
v3.10.0.1
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Jun. 30, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 1,314.5 $ 1,071.5
Short-term investments 101.2 111.8
Accounts receivable, net of allowances of $36.3 in 2018 and $36.6 in 2017 1,137.1 1,147.2
Other current assets 286.9 250.1
Total current assets 2,839.7 2,580.6
Property and equipment, net of accumulated depreciation of $748.2 in 2018 and $706.0 in 2017 312.2 325.1
Goodwill 3,662.7 3,753.2
Intangible assets, net 1,541.4 1,631.6
Deferred tax assets, net 136.6 143.8
Other assets 259.0 159.9
Total assets 8,751.6 8,594.2
Current liabilities:    
Accounts payable and accrued liabilities 593.6 750.3
Commercial paper 89.9 129.9
Current portion of long-term debt 299.9 299.5
Deferred revenue 860.5 883.6
Total current liabilities 1,843.9 2,063.3
Non-current portion of deferred revenue 126.0 140.0
Long-term debt 4,934.2 5,111.1
Deferred tax liabilities, net 363.2 341.6
Unrecognized tax benefits 398.3 389.1
Other liabilities 625.9 664.0
Total liabilities 8,291.5 8,709.1
Contingencies (Note 14)
Shareholders' (deficit) equity    
Preferred stock, par value $.01 per share; 10,000,000 shares authorized; no shares issued and outstanding
Common stock 3.4 3.4
Capital surplus 538.6 528.6
Retained earnings 8,204.6 7,465.4
Treasury stock, at cost; 151,012,009 and 151,932,157 shares of common stock at June 30, 2018 and December 31, 2017, respectively (8,198.9) (8,152.9)
Accumulated other comprehensive loss (304.8) (172.2)
Total Moody's shareholders' deficit 242.9 (327.7)
Noncontrolling interests 217.2 212.8
Total shareholders' deficit 460.1 (114.9)
Total liabilities and shareholders' (deficit) equity 8,751.6 8,594.2
Series common stock    
Shareholders' (deficit) equity    
Common stock
v3.10.0.1
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
$ in Millions
Jun. 30, 2018
Dec. 31, 2017
Accounts receivable, allowances $ 36.3 $ 36.6
Property and equipment, accumulated depreciation $ 748.2 $ 706.0
Preferred stock, par value $ 0.01 $ 0.01
Preferred stock, shares authorized 10,000,000 10,000,000
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 1,000,000,000 1,000,000,000
Common stock, shares issued 342,902,272 342,902,272
Treasury stock, shares 151,012,009 151,932,157
Series common stock    
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 10,000,000 10,000,000
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Cash flows from operating activities    
Net income $ 754.7 $ 659.5
Reconciliation of net income to net cash provided by operating activities:    
Depreciation and amortization 97.5 65.4
Stock-based compensation expense 69.5 57.1
Purchase price hedge gain   (41.2)
CCXI gains   (59.7)
Deferred income taxes (12.1) 193.5
Changes in assets and liabilities:    
Accounts receivable 17.8 (16.5)
Other current assets (10.2) (91.0)
Other assets (14.3) 8.9
Accounts payable and accrued liabilities (163.2) (877.4)
Deferred revenue 55.3 43.9
Unrecognized tax benefits and other non-current tax liabilities (33.6) 8.4
Other liabilities 15.9 8.5
Net cash provided by (used in) operating activities 777.3 (40.6)
Cash flows from investing activities    
Capital additions (37.9) (42.8)
Purchases of investments (92.2) (75.3)
Sales and maturities of short-term investments 79.1 161.6
Cash paid for acquisitions, net of cash acquired and equity investments   (5.0)
Receipts from settlements of net investment hedges   1.4
Cash received upon diposal of a subsidiary, net of cash transferred to purchaser 5.7  
Net cash used in investing activities (45.3) 39.9
Cash flows from financing activities    
Issuance of notes 299.6 1,791.9
Repayments of notes (450.0) (300.0)
Issuance of commercial paper 359.4 703.7
Repayments of commercial paper (399.4) (703.7)
Proceeds from stock-based compensation plans 36.9 39.1
Repurchase of shares related to stock-based compensation (61.5) (47.9)
Cost of treasury shares repurchased (81.0) (134.5)
Dividends (168.6) (145.2)
Dividends to noncontrolling interests (1.3) (0.8)
Payment for noncontrolling interest   (6.2)
Debt issuance costs, extinguishment costs and related fees (1.7) (25.9)
Net cash provided (used in) by financing activities (467.6) 1,170.5
Effect of exchange rate changes on cash and cash equivalents (21.4) 59.6
Net increase (decrease) in cash and cash equivalents 243.0 1,229.4
Cash and cash equivalents, beginning of the period 1,071.5 2,051.5
Cash and cash equivalents, end of the period $ 1,314.5 $ 3,280.9
v3.10.0.1
GLOSSARY OF TERMS AND ABBREVIATIONS
6 Months Ended
Jun. 30, 2018
Text Block [Abstract]  
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 AmortizationAmortization of 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 the integration will be a multi-year effort
Adjusted Diluted EPSDiluted EPS excluding the impact of certain items as detailed in the section entitled “Non-GAAP Financial Measures”
Adjusted Net IncomeNet Income excluding the impact of certain items as detailed in the section entitled “Non-GAAP Financial Measures”
Adjusted Operating Income Operating income excluding depreciation and amortization
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’ equity (deficit)
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
ASC 605The U.S. GAAP authoritative guidance for revenue accounting prior to the adoption of ASU No. 2014-09, “Revenue from Contracts with Customers (ASC Topic 606).
Asia-PacificRepresents Australia and countries in Asia including but not limited to: 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 indirect 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. 
CFGCorporate finance group; an LOB of MIS 
CLOCollateralized loan obligation
CMBSCommercial mortgage-backed securities; part of the CREF asset class within SFG
CommissionEuropean Commission
Common StockThe Company’s common stock
CompanyMoody’s Corporation and its subsidiaries; MCO; Moody’s
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 and which is backstopped by the 2015 facility.
CRAsCredit rating agencies
CRA3Regulation (EU) No 462/2013 of the European Parliament and of the Council, which updated the regulatory regimes imposing additional procedural requirements on CRAs
CREFCommercial real estate finance which includes REITs, commercial real estate CDOs and mortgage-backed securities; part of SFG
D&ADepreciation and amortization
DBPPsDefined benefit pension plans
Debt/EBITDARatio of Total Debt to EBITDA
EBITDAEarnings before interest, taxes, depreciation and amortization
EMEARepresents countries within Europe, the Middle East and Africa
EPSEarnings per share
ERSThe Enterprise Risk Solutions LOB within MA, which offers risk management software solutions as well as related risk management advisory engagements services
ESAEconomics and Structured Analytics; part of the RD&A line of business within MA
ESMAEuropean Securities and Markets Authority
ETREffective tax rate
EUEuropean Union
EUREuros
EURIBORThe Euro Interbank Offered Rate
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 on-line and classroom-based training services and CSI Global Education, Inc.
FXForeign exchange
GAAPU.S. Generally Accepted Accounting Principles
GBPBritish pounds
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
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
KIS ResearchKorea Investors Service Research; a Korean provider of financial research and consolidated subsidiary of the Company
KoreaRepublic of South Korea
LIBORLondon Interbank Offered Rate
LOBLine of business
M&AMergers and acquisitions
MAMoody’s Analytics a reportable segment of MCO 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 and 2018 Senior Notes 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
New Revenue Accounting Standard Updates to the ASC pursuant to ASU No. 2014-09, “Revenue from Contracts with Customers (ASC Topic 606)”. This new accounting guidance significantly changes the accounting framework under U.S. GAAP relating to revenue recognition and to the accounting for the deferral of incremental costs of obtaining or fulfilling a contract with a customer
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 to 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 (in periods prior to January 1, 2018), 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
PCSPost-Contract Customer Support
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 into 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 distributes research and data developed by MIS as part of the ratings process, including in-depth research on major debt issuers, industry studies and commentary on topical credit-related events. Also, produces economic research and data and analytical tools such as quantitative credit risk scores as well as business intelligence and company information products.
Reform ActCredit Rating Agency Reform Act of 2006
REITReal Estate Investment Trust
Relationship RevenueFor MIS represents 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. For MIS Other represents subscription-based revenue. For MA, represents subscription-based revenue and software 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 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
SSPStandalone selling price
T&MTime-and-Material
Tax ActThe “Tax Cuts and Jobs Act” enacted into U.S. law on December 22, 2017 which significantly amends the tax code in the U.S.
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 perpetual software license fees and revenue from software implementation services, risk management advisory projects, training and certification services, and research and analytical engagements
U.K.United Kingdom
U.S.United States
USDU.S. dollar
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
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; backstops CP issued under the CP Program
2015 IndentureSupplemental indenture and related agreements dated March 9, 2015, relating to the 2015 Senior Notes
2015 Senior NotesPrincipal amount of €500 million, 1.75% senior unsecured notes issued March 9, 2015 and due in March 2027
2017 Floating Rate Senior Notes Principal amount of $300 million, floating rate senior unsecured notes due in September 2018
2017 IndentureCollectively the Supplemental indenture and related agreements dated March 2, 2017, relating to the 2017 Floating Rate Senior Notes and 2017 Notes Due 2023 and 2028, and the supplemental indenture and related agreements dated June 12, 2017, relating to the 2017 Notes Due 2023 and 2028
2017 Senior Notes Due 2023Principal amount of $500 million, 2.625% senior unsecured notes due January 15, 2023
2017 Senior Notes Due 2028Principal amount of $500 million, 3.250% senior unsecured notes due January 15, 2028
2017 Senior Notes Due 2021Principal 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 June6, 2017 for which the Company drew down $500 million on August 8, 2017 to fund the acquisition of Bureau van Dijk
2018 Senior NotesPrincipal amount of $300 million, 3.250% senior unsecured notes due June 7, 2021
v3.10.0.1
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
6 Months Ended
Jun. 30, 2018
Text Block [Abstract]  
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 that support financial risk management activities; (iv) quantitatively derived credit scores; (v) financial services training 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 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.

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 offshore 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 2017 annual report on Form 10-K filed with the SEC on February 27, 2018. 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, 2018, the Company adopted ASU No. 2014-09, “Revenue from Contracts with Customers (ASC Topic 606)” using the modified retrospective approach which Moody’s has elected to apply only to those contracts which were not completed as of January 1, 2018. Additionally, the Company has not retrospectively restated contract positions for contract modifications made prior to the adoption. ASU No. 2014-09 also includes updates related to the accounting for the deferral of incremental costs of obtaining or fulfilling a contract with a customer (“ASC Subtopic 340-40”). Hereunder, discussion of the provisions of ASC Topic 606 and ASC Subtopic 340-40 are both individually and collectively referred to as the “New Revenue Accounting Standard.” Results for reporting periods beginning on January 1, 2018 are presented under the guidance set forth in the New Revenue Accounting Standard, while prior period amounts have not been adjusted and continue to be reported in accordance with the previous accounting guidance.

The most significant impacts to the Company’s financial statements from adopting the New Revenue Accounting Standard are primarily related to: i) the accounting for certain installed software subscription revenue in MA whereby the license rights within the arrangement are recognized at the inception of the contract based on SSP with the remainder recognized over the subscription period (compared to ASC Topic 605 whereby all installed software subscription revenue was previously recognized over the subscription period); ii) the accounting for certain ERS and ESA revenue arrangements where VSOE was not available under ASC Topic 605 now results in the acceleration of revenue recognition (compared to ASC Topic 605 whereby revenue was deferred due to lack of VSOE until all elements without VSOE had been delivered); iii) sales commissions incurred in the MA segment will be capitalized and amortized over an extended period which is generally based upon the average economic life of products/services sold and incorporates anticipated subscription renewals (compared to previous accounting guidance whereby capitalized sales commissions were amortized over the committed subscription period only); iv) the immediate expensing of software implementation project costs to fulfill a contract for its ERS and ESA businesses which under previous accounting guidance were capitalized and expensed when related project revenue was recognized; v) the capitalization of work-in-process costs for in-progress MIS ratings at the end of each reporting period which under ASC Topic 605 were expensed as incurred; vi) the timing of when revenue for certain MIS ratings products is recognized; and vii) the estimation of variable consideration at contract inception whereas under ASC Topic 605 companies were not required to consider the amount of consideration for which it expected to be entitled.

The Company does not anticipate that applying the provisions of the New Revenue Accounting Standard will have a material impact to its 2018 consolidated Net Income. However, there could be quarterly fluctuations in the financial results of both MIS and MA, or there could be increases or decreases in revenues and expenses which would largely offset and not be material to total consolidated Net Income for the full year.

The table below provides detail relating to the adjustment to the Company’s retained earnings balance upon adoption of the New Revenue Accounting Standard:

Transition adjustment  Benefit to / (reduction of) January 1, 2018 Retained EarningsCorresponding Balance Sheet Line Item
Recognition of MA deferred revenue / increase in MA unbilled receivables (1)   $108 millionDeferred revenue, Non-current portion of deferred revenue, Accounts receivable, Other assets
Increase to capitalized MA sales commissions (2)   $78 millionOther current assets, Other assets, Accounts payable and accrued liabilities
Capitalization of work-in-process for in-progress ratings   $9 millionOther current assets
Net impact of all other adjustments   $4 millionVarious
Net increase in tax liability on the above  ($43 million)Deferred tax liabilities, net
Total post-tax adjustment   $156 million
(1) Represents deferred revenue as of December 31, 2017 as well as amounts then unbilled that would have been recognized as revenue in 2017 or earlier if the New Revenue Accounting Standard was then in effect. These amounts will not be recognized as revenue in future statements of operations. Conversely, revenue will be recorded to the Company's statement of operations in 2018 under the New Revenue Accounting Standard, which otherwise would have been recognized in periods subsequent to 2018 if accounted for under ASC Topic 605.
(2) Represents sales commissions that would have been capitalized as of December 31, 2017 if the New Revenue Accounting Standard was then in effect, but had previously been expensed by the Company under the previous accounting guidance. These sales commissions, as well as sales commissions incurred in 2018 related to new sales and renewals, will be amortized to expense in the statements of operations beginning in 2018 over an extended period generally based upon the average economic life of the products sold or over the period in which implementation and advisory services will be provided.

The table below presents the cumulative effect of the changes made to the Company’s consolidated balance sheet at January 1, 2018 for the adoption of the New Revenue Accounting Standard:

As Reported December 31, 2017Adjustment Due to New Revenue Accounting StandardBalance at January 1, 2018
ASSETS
Current assets:
Cash and cash equivalents$1,071.5$-$1,071.5
Short-term investments111.8-111.8
Accounts receivable, net of allowances1,147.216.81,164.0
Other current assets250.132.9283.0
Total current assets2,580.649.72,630.3
Property and equipment, net325.1-325.1
Goodwill3,753.2-3,753.2
Intangible assets, net1,631.6-1,631.6
Deferred tax assets, net143.8-143.8
Other assets159.971.3231.2
Total assets$8,594.2$121.0$8,715.2
LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS' (DEFICIT)/EQUITY
Current liabilities:
Accounts payable and accrued liabilities$750.3$(0.8)$749.5
Commercial paper129.9-129.9
Current portion of long-term debt299.5-299.5
Deferred revenue883.6(69.3)814.3
Total current liabilities2,063.3(70.1)1,993.2
Non-current portion of deferred revenue140.0(8.0)132.0
Long-term debt5,111.1-5,111.1
Deferred tax liabilities, net341.642.7384.3
Unrecognized tax benefits389.1-389.1
Other liabilities664.00.3664.3
Total liabilities8,709.1(35.1)8,674.0
Shareholders' (deficit) equity:
Common stock3.4-3.4
Capital surplus528.6-528.6
Retained earnings7,465.4156.17,621.5
Treasury stock(8,152.9)-(8,152.9)
Accumulated other comprehensive loss(172.2)-(172.2)
Total Moody's shareholders' (deficit) equity(327.7)156.1(171.6)
Noncontrolling interests212.8-212.8
Total shareholders' (deficit) equity(114.9)156.141.2
Total liabilities, noncontrolling interests and shareholders' (deficit) equity$8,594.2$121.0$8,715.2

The below table presents the impacts on the Company’s statement of operations for the current reporting period from applying the provisions of the New Revenue Accounting Standard compared to the accounting standard in effect before the change:

For the Three Months Ended June 30, 2018
As ReportedUnder previous accounting guidance Effect ofChangeHigher/(Lower)
Revenue$1,175.1$1,169.9$5.2
Expenses
Operating320.2320.7(0.5)
Selling, general and administrative270.5272.5(2.0)
Depreciation and amortization48.448.4-
Acquisition-related expenses2.02.0-
Total expenses641.1643.6(2.5)
Operating income534.0526.37.7
Non-operating (expense) income, net
Interest expense, net(53.4)(53.4)-
Other non-operating income, net14.914.9-
Total non-operating (expense) income, net(38.5)(38.5)-
Income before provision for income taxes495.5487.87.7
Provision for income taxes117.6115.71.9
Net income377.9372.15.8
Less: Net income attributable to noncontrolling interests1.71.7-
Net income attributable to Moody's$376.2$370.4$5.8
Earnings per share
Basic$1.96$1.93$0.03
Diluted$1.94$1.91$0.03
Weighted average shares outstanding
Basic191.9191.9
Diluted194.4194.4
For the Six Months Ended June 30, 2018
As ReportedUnder previous accounting guidance Effect ofChangeHigher/(Lower)
Revenue$2,301.8$2,296.3$5.5
Expenses
Operating635.1636.2(1.1)
Selling, general and administrative541.6544.0(2.4)
Depreciation and amortization97.597.5-
Acquisition-related expenses2.82.8-
Total expenses1,277.01,280.5(3.5)
Operating income1,024.81,015.89.0
Non-operating (expense) income, net
Interest expense, net(104.1)(104.1)-
Other non-operating income, net15.915.9-
Total non-operating (expense) income, net(88.2)(88.2)-
Income before provision for income taxes936.6927.69.0
Provision for income taxes181.9179.22.7
Net income754.7748.46.3
Less: Net income attributable to noncontrolling interests5.65.6-
Net income attributable to Moody's$749.1$742.8$6.3
Earnings per share
Basic$3.91$3.88$0.03
Diluted$3.85$3.82$0.03
Weighted average shares outstanding
Basic191.6191.6
Diluted194.5194.5

As Reported June 30, 2018Under previous accounting guidance June 30, 2018Effect of Change Higher/(Lower)
ASSETS
Current assets:
Cash and cash equivalents$1,314.5$1,314.5$-
Short-term investments101.2101.2-
Accounts receivable, net of allowances1,137.11,122.914.2
Other current assets286.9264.222.7
Total current assets:2,839.72,802.836.9
Property and equipment, net312.2312.2-
Goodwill3,662.73,662.7-
Intangible assets, net1,541.41,541.4-
Deferred tax assets, net136.6136.50.1
Other assets259.0189.070.0
Total assets$8,751.6$8,644.6$107.0
LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities$593.6$593.4$0.2
Commercial paper89.989.9-
Current portion of long-term debt299.9299.9-
Deferred revenue 860.5930.8(70.3)
Total current liabilities1,843.91,914.0(70.1)
Non-current portion of deferred revenue126.0133.6(7.6)
Long-term debt4,934.24,934.2-
Deferred tax liabilities, net363.2335.128.1
Unrecognized tax benefits398.3398.3-
Other liabilities625.9625.60.3
Total liabilities8,291.58,340.8(49.3)
Shareholders' equity:
Common stock3.43.4-
Capital surplus538.6538.6-
Retained earnings8,204.68,048.3156.3
Treasury stock(8,198.9)(8,198.9)-
Accumulated other comprehensive loss(304.8)(304.8)-
Total Moody's shareholders' equity242.986.6156.3
Noncontrolling interests217.2217.2-
Total shareholders' equity460.1303.8156.3
Total liabilities, noncontrolling interests and shareholders' equity$8,751.6$8,644.6$107.0

The below table presents the impacts on various line items within the operating cash flow within the Company’s statement of cash flows for the current reporting period from applying the provisions of the New Revenue Accounting Standard compared to the accounting standard in effect before the change.

For the Six Months Ended June 30, 2018
As ReportedUnder previous accounting guidance Effect of Change
Cash flows from operating activities
Net income$754.7$748.4$6.3
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization97.597.5-
Stock-based compensation 69.569.5-
Deferred income taxes(12.1)2.0(14.1)
Changes in assets and liabilities:
Accounts receivable17.815.22.6
Other current assets(10.2)(20.4)10.2
Other assets(14.3)(21.0)6.7
Accounts payable and accrued liabilities(163.2)(158.1)(5.1)
Deferred revenue55.355.9(0.6)
Unrecognized tax benefits and other non-current tax liabilities(33.6)(33.6)-
Other liabilities15.921.9(6.0)
Net cash provided by operating activities$777.3$777.3$-

The New Revenue Accounting Standard did not have any impact on individual line items within investing or financing cash flows in the Company’s consolidated statement of cash flows. In 2018, the adoption of the New Revenue Accounting Standard will likely result in higher cash taxes as the cumulative catch-up adjustment to retained earnings is taxable and there is expected to be acceleration of revenue recognition under the New Revenue Accounting Standard.

On January 1, 2018, the Company adopted ASU No. 2017-07, “Compensation—Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”. As required by this ASU, the components of net periodic pension costs were disaggregated in the statement of operations on a retrospective basis. The Company has continued to reflect the service cost component in either Operating or SG&A expenses in Moody’s statement of operations. The other components of net benefit cost are presented within non-operating (expense) income, net, within the statement of operations. The adoption of this ASU has no impact on Net Income in the Company’s statements of operations. The impact to the Company’s statements of operations for the three and six months ended June 30, 2018 and 2017 related to the adoption of this ASU are set forth in the table below:

For the Three Months Ended June 30, 2018For the Three Months Ended June 30, 2017
As ReportedUnder previous accounting guidance Effect of ChangeHigher/(Lower)As AdjustedUnder previous accounting guidance Effect of ChangeHigher/(Lower)
Operating expenses$320.2$321.0$(0.8)$284.8$285.8$(1.0)
Selling, general and administrative expenses270.5271.7(1.2)216.1217.7(1.6)
Operating income534.0532.02.0460.1457.52.6
Interest expense, net(53.4)(48.5)(4.9)(49.7)(45.0)(4.7)
Other non-operating income (expense), net14.912.02.910.48.32.1
For the Six Months Ended June 30, 2018For the Six Months Ended June 30, 2017
As ReportedUnder previous accounting guidance Effect of ChangeHigher/(Lower)As AdjustedUnder previous accounting guidance Effect of ChangeHigher/(Lower)
Operating expenses$635.1$637.4$(2.3)$560.1$563.2$(3.1)
Selling, general and administrative expenses541.6543.7(2.1)436.8439.6(2.8)
Operating income1,024.81,020.44.4906.8900.95.9
Interest expense, net(104.1)(94.5)(9.6)(97.1)(87.4)(9.7)
Other non-operating income (expense), net15.910.75.22.7(1.1)3.8

On January 1, 2018, the Company adopted ASU No. 2016-01 “Financial Instruments—Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). The amendments in this ASU update various aspects of recognition, measurement, presentation and disclosures relating to financial instruments. Upon adoption, the Company recorded a $2.3 million cumulative adjustment to reclassify net unrealized gains on investments in equity securities previously classified as available-for-sale under the previous guidance from AOCI to retained earnings. Beginning in the first quarter of 2018, the Company will measure equity investments with readily determinable fair values (except those accounted for under the equity method, those that result in consolidation of the investee and certain other investments) at fair value and recognize any changes in fair value in net income. The adoption of this ASU did not have material impact on the Company’s financial statements for the three and six months ended June 30, 2018.

In March 2018, the FASB issued ASU No. 2018-05, "Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118". This ASU adds SEC paragraphs to the codification pursuant to the SEC Staff Accounting Bulletin No. 118, which addresses the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to finalize the calculations for the 2017 income tax effects of the Tax Act. This ASU provides entities with a one year measurement period from the December 22, 2017 enactment date, in order to complete the accounting for the effects of the Tax Act. The Company has recorded a provisional estimate for the transition tax relating to the Tax Act which is more fully described in Note 5. This provisional estimate may be impacted by a number of additional considerations, including but not limited to the issuance of regulations and the Company’s ongoing analysis of the new law.

On January 1, 2018, the Company adopted ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a Consensus of the Emerging Issues Task Force)” on a retrospective basis. This ASU reduces diversity in practice in how certain transactions are reflected in the statement of cash flows. Pursuant to the adoption of this ASU, the Company reclassified $7.1 million in cash paid in the first half of 2017 relating to a Make-Whole provision upon the repayment of the Series 2007-1 Notes from cash flows used in operations to cash flows provided by financing activities.

During the second quarter of 2018, the Company early adopted ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”. This ASU fosters enhanced transparency relating to risk management activities and simplifies the application of hedge accounting in certain circumstances. The adoption of this ASU did not have an impact on the Company’s financial statements at the date of adoption. Refer to Note 9 for further discussion on the prospective impact of this ASU on the Company’s financial statements.

v3.10.0.1
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (Tables)
6 Months Ended
Jun. 30, 2018
Schedule of Cumulative Adjustment to Retained earnings due to prospective adoption of new revenue guidance
Transition adjustment  Benefit to / (reduction of) January 1, 2018 Retained EarningsCorresponding Balance Sheet Line Item
Recognition of MA deferred revenue / increase in MA unbilled receivables (1)   $108 millionDeferred revenue, Non-current portion of deferred revenue, Accounts receivable, Other assets
Increase to capitalized MA sales commissions (2)   $78 millionOther current assets, Other assets, Accounts payable and accrued liabilities
Capitalization of work-in-process for in-progress ratings   $9 millionOther current assets
Net impact of all other adjustments   $4 millionVarious
Net increase in tax liability on the above  ($43 million)Deferred tax liabilities, net
Total post-tax adjustment   $156 million
(1) Represents deferred revenue as of December 31, 2017 as well as amounts then unbilled that would have been recognized as revenue in 2017 or earlier if the New Revenue Accounting Standard was then in effect. These amounts will not be recognized as revenue in future statements of operations. Conversely, revenue will be recorded to the Company's statement of operations in 2018 under the New Revenue Accounting Standard, which otherwise would have been recognized in periods subsequent to 2018 if accounted for under ASC Topic 605.
(2) Represents sales commissions that would have been capitalized as of December 31, 2017 if the New Revenue Accounting Standard was then in effect, but had previously been expensed by the Company under the previous accounting guidance. These sales commissions, as well as sales commissions incurred in 2018 related to new sales and renewals, will be amortized to expense in the statements of operations beginning in 2018 over an extended period generally based upon the average economic life of the products sold or over the period in which implementation and advisory services will be provided.
New Revenue Accounting Standard [Member] | Balance Sheets [Member]  
Schedule of New Accounting Pronouncements and Changes in Accounting Principles
As Reported June 30, 2018Under previous accounting guidance June 30, 2018Effect of Change Higher/(Lower)
ASSETS
Current assets:
Cash and cash equivalents$1,314.5$1,314.5$-
Short-term investments101.2101.2-
Accounts receivable, net of allowances1,137.11,122.914.2
Other current assets286.9264.222.7
Total current assets:2,839.72,802.836.9
Property and equipment, net312.2312.2-
Goodwill3,662.73,662.7-
Intangible assets, net1,541.41,541.4-
Deferred tax assets, net136.6136.50.1
Other assets259.0189.070.0
Total assets$8,751.6$8,644.6$107.0
LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities$593.6$593.4$0.2
Commercial paper89.989.9-
Current portion of long-term debt299.9299.9-
Deferred revenue 860.5930.8(70.3)
Total current liabilities1,843.91,914.0(70.1)
Non-current portion of deferred revenue