MOODYS CORP /DE/, 10-Q filed on 7/31/2020
Quarterly Report
v3.20.2
Cover Page
shares in Millions
6 Months Ended
Jun. 30, 2020
shares
Entity Information [Line Items]  
Document Type 10-Q
Document Quarterly Report true
Document Period End Date Jun. 30, 2020
Document Transition Report false
Entity File Number 1-14037
Entity Registrant Name Moody’s Corporation
Entity Incorporation, State or Country Code DE
Entity Tax Identification Number 13-3998945
Entity Address, Address Line One 7 World Trade Center at 250 Greenwich Street
Entity Address, City or Town New York
Entity Address, State or Province NY
Entity Address, Postal Zip Code 10007
City Area Code (212)
Local Phone Number 553-0300
Entity Current Reporting Status Yes
Entity Interactive Data Current Yes
Entity Filer Category Large Accelerated Filer
Entity Small Business false
Entity Emerging Growth Company false
Entity Shell Company false
Entity Common Stock, Shares Outstanding (in shares) 187.7
Entity Central Index Key 0001059556
Document Fiscal Period Focus Q2
Amendment Flag false
Current Fiscal Year End Date --12-31
Document Fiscal Year Focus 2020
Common Stock, par value $0.01 per share  
Entity Information [Line Items]  
Title of 12(b) Security Common Stock, par value $0.01 per share
Trading Symbol MCO
Security Exchange Name NYSE
1.75% Senior Notes Due 2027  
Entity Information [Line Items]  
Title of 12(b) Security 1.75% Senior Notes Due 2027
Trading Symbol MCO 27
Security Exchange Name NYSE
0.950% Senior Notes Due 2030  
Entity Information [Line Items]  
Title of 12(b) Security 0.950% Senior Notes Due 2030
Trading Symbol MCO 30
Security Exchange Name NYSE
v3.20.2
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($)
shares in Millions, $ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Income Statement [Abstract]        
Revenue $ 1,435 $ 1,214 $ 2,725 $ 2,356
Expenses        
Operating 362 340 702 682
Selling, general and administrative 307 275 608 556
Restructuring (2) 53 (3) 59
Depreciation and amortization 58 52 107 102
Acquisition-Related Expenses 0 2 0 3
Loss pursuant to the divestiture of MAKS 0 9 9 9
Total expenses 725 731 1,423 1,411
Operating income 710 483 1,302 945
Non-operating (expense) income, net        
Interest expense, net (60) (51) (100) (103)
Other non-operating income, net 16 0 28 2
Total non-operating expense, net (44) (51) (72) (101)
Income before provisions for income taxes 666 432 1,230 844
Provision for income taxes 157 121 234 159
Net income 509 311 996 685
Less: Net (loss) income attributable to noncontrolling interests 0 1 (1) 2
Net income attributable to Moody's $ 509 $ 310 $ 997 $ 683
Earnings per share attributable to Moody's common shareholders        
Basic (in usd per share) $ 2.71 $ 1.64 $ 5.31 $ 3.60
Diluted (in usd per share) $ 2.69 $ 1.62 $ 5.27 $ 3.56
Weighted average number of shares outstanding        
Basic (in shares) 187.7 189.4 187.6 189.9
Diluted (in shares) 189.0 191.3 189.3 192.1
v3.20.2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Statement of Comprehensive Income [Abstract]        
Net Income $ 509 $ 311 $ 996 $ 685
Foreign Currency Adjustments:        
Foreign currency translation adjustment - Pre Tax 78 42 (97) 15
Foreign currency translation adjustments - Tax 1 0 6 0
Foreign currency translation adjustments - Net of Tax 79 42 (91) 15
Net gains on net investment hedges - Pre Tax (97) (36) 22 (6)
Net gains on net investment hedges, Tax 24 7 (6) 1
Net gains on net investment hedges, Net of Tax (73) (29) 16 (5)
Cash Flow Hedges:        
Net realized and unrealized (losses) gains on cash flow hedges - Pre Tax (20) 0 (68) 0
Net realized and unrealized (losses) gains on cash flow hedges - Tax 6 0 18 0
Net realized and unrealized (losses) gains on cash flow hedges - Net of Tax (14) 0 (50) 0
Reclassification of losses (gains) included in net income - Pre Tax     1 0
Reclassification of losses (gains) included in net income - Tax     0 0
Reclassification of losses (gains) included in net income - Net of Tax     1 0
Pension and Other Retirement Benefits:        
Amortization of actuarial losses and prior service costs included in net income - Pre Tax 1 1 3 2
Amortization of actuarial losses and prior service costs included in net income - Tax 0 0 (1) (1)
Amortization of actuarial losses and prior service costs included in net income - Net of Tax 1 1 2 1
Net actuarial (losses) gains and prior service costs - Pre Tax 9 (3) 8 (2)
Net actuarial (losses) gains and prior service costs - Tax (2) 1 (2) 1
Net actuarial (losses) gains and prior service costs - Net of Tax 7 (2) 6 (1)
Total other comprehensive income (loss) - Pre Tax (29) 4 (131) 9
Total other comprehensive income (loss) - Tax 29 8 15 1
Total other comprehensive income (loss) - Net of Tax 0 12 (116) 10
Comprehensive income 509 323 880 695
Less: comprehensive (loss) income attributable to noncontrolling interests (11) 4 (13) 12
Comprehensive Income Attributable to Moody's $ 520 $ 319 $ 893 $ 683
v3.20.2
CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 2,099 $ 1,832
Short-term investments 100 98
Accounts receivable, net of allowance for credit losses of $41 in 2020 and $20 in 2019 1,401 1,419
Other current assets 363 330
Total current assets 3,963 3,679
Property and equipment, net of accumulated depreciation of $880 in 2020 and $839 in 2019 298 292
Operating lease right-of-use assets 429 456
Goodwill 4,162 3,722
Intangible assets, net 1,697 1,498
Deferred tax assets, net 188 229
Other assets 561 389
Total assets 11,298 10,265
Current liabilities:    
Accounts payable and accrued liabilities 795 773
Current portion of operating lease liabilities 90 89
Deferred revenue 1,001 1,050
Total current liabilities 1,886 1,912
Non-current portion of deferred revenue 104 112
Long-term debt 6,333 5,581
Deferred tax liabilities, net 414 357
Uncertain tax positions 455 477
Operating lease liabilities 451 485
Other liabilities 418 504
Total liabilities 10,061 9,428
Contingencies (Note 19)
Redeemable noncontrolling interest 5 6
Shareholders' equity:    
Preferred stock, par value $.01 per share; 10,000,000 shares authorized; no shares issued and outstanding 0 0
Common stock 3 3
Capital surplus 651 642
Retained earnings 10,442 9,656
Treasury stock, at cost; 155,206,451 and 155,215,143 shares of shares of common stock at June 30, 2020 and December 31, 2019 (9,513) (9,250)
Accumulated other comprehensive loss (542) (439)
Total Moody's shareholders' equity 1,041 612
Noncontrolling interests 191 219
Total shareholders' equity 1,232 831
Total liabilities, noncontrolling interests and shareholders' equity 11,298 10,265
Series Common Stock    
Shareholders' equity:    
Common stock $ 0 $ 0
v3.20.2
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Accounts receivable, allowances $ 41 $ 20
Accumulated depreciation, property and equipment $ 880 $ 839
Preferred stock, par value (in usd per share) $ 0.01 $ 0.01
Preferred stock, shares authorized (in shares) 10,000,000 10,000,000
Preferred stock, shares issued (in shares) 0 0
Preferred stock, shares outstanding (in shares) 0 0
Common stock, par value (in usd per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 1,000,000,000 1,000,000,000
Common stock, shares issued (in shares) 342,902,272 342,902,272
Treasury stock, shares (in shares) 155,206,451 155,215,143
Series Common Stock    
Common stock, par value (in usd per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 10,000,000 10,000,000
Common stock, shares issued (in shares) 0 0
Common stock, shares outstanding (in shares) 0 0
v3.20.2
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($)
$ in Millions
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Cash flows from operating activities    
Net Income $ 996 $ 685
Reconciliation of net income to net cash provided by operating activities:    
Depreciation and amortization 107 102
Stock-based compensation 72 70
Deferred income taxes 46 (3)
ROU Asset impairment & other non-cash restructuring/impairment charges 0 29
Loss pursuant to the divestiture of MAKS 9 9
Changes in assets and liabilities:    
Accounts receivable 11 30
Other current assets (45) (58)
Other assets (39) (33)
Accounts payable and accrued liabilities (37) (96)
Deferred revenue (60) (8)
Unrecognized tax benefits and other non-current tax liabilities (13) (15)
Other liabilities (70) 43
Net cash provided by operating activities 977 755
Cash flows from investing activities    
Capital additions (62) (39)
Purchases of investments (108) (70)
Sales and maturities of investments 45 93
Cash paid for acquisitions, net of cash acquired (698) (37)
Net cash used in investing activities (823) (53)
Cash flows from financing activities    
Issuance of notes 995 0
Repayment of notes (300) (450)
Issuance of commercial paper 789 942
Repayment of commercial paper (792) (815)
Proceeds from stock-based compensation plans 29 29
Repurchase of shares related to stock-based compensation (100) (75)
Treasury shares (253) (615)
Dividends (210) (189)
Debt issuance costs, extinguishment costs and related fees (17) 0
Dividends to noncontrolling interest (1) (1)
Payment to acquire noncontrolling interests (17) (12)
Net cash provided by (used in) financing activities 123 (1,186)
Reclassification of cash to assets held for sale 0 (8)
Effect of exchange rate changes on cash and cash equivalents (10) 3
Increase (decrease) in cash and cash equivalents 267 (489)
Cash and cash equivalents, beginning of period 1,832 1,685
Cash and cash equivalents, end of period $ 2,099 $ 1,196
v3.20.2
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) - USD ($)
shares in Millions, $ in Millions
Total
Common Stock
Capital Surplus
Retained Earnings
Treasury Stock
Accumulated Other Comprehensive Loss
Total Moody's Shareholders' Equity
Non- Controlling Interests
Cumulative Effect, Period of Adoption, Adjustment
Cumulative Effect, Period of Adoption, Adjustment
Retained Earnings
Cumulative Effect, Period of Adoption, Adjustment
Accumulated Other Comprehensive Loss
Cumulative Effect, Period of Adoption, Adjustment
Total Moody's Shareholders' Equity
Beginning Balance (in shares) at Dec. 31, 2018   342.9     151.6              
Beginning Balance at Dec. 31, 2018 $ 656 $ 3 $ 601 $ 8,594 $ (8,313) $ (426) $ 459 $ 197 $ 0 $ 20 $ (20) $ 0
Increase (Decrease) in Stockholders' Equity [Roll Forward]                        
Net income 685     683     683 2        
Dividends (190)     (189)     (189) (1)        
Stock-based compensation 70   70       70          
Shares issued for stock-based compensation plans at average cost, net (46)   (71)   $ 25   (46)          
Shares issued for stock-based compensation plans at average cost, net (in shares)         1.3              
Purchase of noncontrolling interest (12)   (9)       (9) (3)        
Non-controlling interest resulting from majority acquisition of Vigeo Eiris 17           0 17        
Treasury shares repurchased (in shares)         (3.4)              
Treasury shares repurchased (615)   (16)   $ (599)   (615)          
Currency translation adjustment, net of net investment hedge activity (net of tax) 10         0 0 10        
Net actuarial gains (losses) and prior service costs (1)         (1) (1)          
Amortization of prior service costs and actuarial losses 1         1 1          
Ending Balance (in shares) at Jun. 30, 2019   342.9     153.7              
Ending Balance at Jun. 30, 2019 $ 575 $ 3 575 9,108 $ (8,887) (446) 353 222        
Accounting Standards Update [Extensible List] us-gaap:AccountingStandardsUpdate201613Member                      
Beginning Balance (in shares) at Dec. 31, 2018   342.9     151.6              
Beginning Balance at Dec. 31, 2018 $ 656 $ 3 601 8,594 $ (8,313) (426) 459 197 0 20 $ (20) 0
Ending Balance (in shares) at Dec. 31, 2019   342.9     155.2              
Ending Balance at Dec. 31, 2019 831 $ 3 642 9,656 $ (9,250) (439) 612 219 (2) (2)   (2)
Beginning Balance (in shares) at Mar. 31, 2019   342.9     153.3              
Beginning Balance at Mar. 31, 2019 325 $ 3 436 8,893 $ (8,754) (455) 123 202        
Increase (Decrease) in Stockholders' Equity [Roll Forward]                        
Net income 311     310     310 1        
Dividends (96)     (95)     (95) (1)        
Stock-based compensation 34   34       34          
Shares issued for stock-based compensation plans at average cost, net 14   (4)   $ 18   14          
Shares issued for stock-based compensation plans at average cost, net (in shares)         0.3              
Non-controlling interest resulting from majority acquisition of Vigeo Eiris 17           0 17        
Treasury shares repurchased (in shares)         (0.7)              
Treasury shares repurchased (42)   109   $ (151)   (42)          
Currency translation adjustment, net of net investment hedge activity (net of tax) 13         10 10 3        
Net actuarial gains (losses) and prior service costs (2)         (2) (2)          
Amortization of prior service costs and actuarial losses 1         1 1          
Ending Balance (in shares) at Jun. 30, 2019   342.9     153.7              
Ending Balance at Jun. 30, 2019 575 $ 3 575 9,108 $ (8,887) (446) 353 222        
Beginning Balance (in shares) at Dec. 31, 2019   342.9     155.2              
Beginning Balance at Dec. 31, 2019 831 $ 3 642 9,656 $ (9,250) (439) 612 219 $ (2) $ (2)   $ (2)
Increase (Decrease) in Stockholders' Equity [Roll Forward]                        
Net income 997     997     997          
Dividends (209)     (209)     (209)          
Stock-based compensation 72   72       72          
Shares issued for stock-based compensation plans at average cost, net (71)   (61)   $ (10)   (71)          
Shares issued for stock-based compensation plans at average cost, net (in shares)         1.1              
Purchase of noncontrolling interest (17)   (2)       (2) (15)        
Treasury shares repurchased (in shares)         (1.1)              
Treasury shares repurchased (253)       $ (253)   (253)          
Currency translation adjustment, net of net investment hedge activity (net of tax) (75)         (62) (62) (13)        
Net actuarial gains (losses) and prior service costs 6         6 6          
Amortization of prior service costs and actuarial losses 2         2 2          
Net realized and unrealized gain (loss) on cash flow hedges (net of tax) (49)         (49) (49)          
Ending Balance (in shares) at Jun. 30, 2020   342.9     155.2              
Ending Balance at Jun. 30, 2020 1,232 $ 3 651 10,442 $ (9,513) (542) 1,041 191        
Beginning Balance (in shares) at Mar. 31, 2020   342.9     155.4              
Beginning Balance at Mar. 31, 2020 799 $ 3 616 10,041 $ (9,524) (554) 582 217        
Increase (Decrease) in Stockholders' Equity [Roll Forward]                        
Net income 510     509     509 1        
Dividends (108)     (108)     (108)          
Stock-based compensation 35   35       35          
Shares issued for stock-based compensation plans at average cost, net 13   2   $ 11   13          
Shares issued for stock-based compensation plans at average cost, net (in shares)         0.2              
Purchase of noncontrolling interest (17)   (2)       (2) (15)        
Currency translation adjustment, net of net investment hedge activity (net of tax) 6         18 18 (12)        
Net actuarial gains (losses) and prior service costs 7         7 7          
Amortization of prior service costs and actuarial losses 1         1 1          
Net realized and unrealized gain (loss) on cash flow hedges (net of tax) (14)         (14) (14)          
Ending Balance (in shares) at Jun. 30, 2020   342.9     155.2              
Ending Balance at Jun. 30, 2020 $ 1,232 $ 3 $ 651 $ 10,442 $ (9,513) $ (542) $ 1,041 $ 191        
v3.20.2
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) (Parenthetical) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Statement of Stockholders' Equity [Abstract]        
Dividends declared per share attributable to Moody's common shareholders (in USD per share) $ 0.56 $ 0.50 $ 1.12 $ 1.00
Currency translation adjustment, net of net investment hedge activity, tax expense (benefit) $ (25) $ (8)   $ (1)
Net actuarial gains and prior service cost, tax expense (benefit) 2 (1) $ 2 (1)
Amortization of prior service costs and actuarial losses, tax expense 0 $ 0 1 $ 1
Net realized and unrealized gain on cash flow hedges, tax expense (benefit) $ (6)   $ (18)  
v3.20.2
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
6 Months Ended
Jun. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Moody’s is a provider of (i) credit ratings and assessment services; (ii) credit, capital markets and economic research, data and analytical tools; (iii) software solutions that support financial risk management activities; (iv) quantitatively derived credit scores; (v) learning solutions and certification services; and (vi) company information and business intelligence products. Moody’s reports in two reportable segments: MIS and MA.
MIS, the credit rating agency, publishes credit ratings and provides assessment services on a wide range of debt obligations and the entities that issue such obligations in markets worldwide. Revenue is primarily derived from the originators and issuers of such transactions who use MIS ratings in the distribution of their debt issues to investors. Additionally, MIS earns revenue from certain non-ratings-related operations which consist primarily of financial instrument pricing services in the Asia-Pacific region, revenue from ICRA’s non-ratings operations and revenue from providing ESG research, data and assessments. The revenue from these operations is included in the MIS Other LOB and is not material to the results of the MIS segment.
MA provides financial intelligence and analytical tools to assist businesses in making decisions. MA’s portfolio of solutions consists of specialized research, data, software, and professional services, which are assembled to support the financial analysis and risk management activities of institutional customers worldwide.
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 2019 annual report on Form 10-K filed with the SEC on February 24, 2020. 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, 2020, the Company adopted ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The Company has implemented policies and procedures in compliance with the “expected credit loss” impairment model, which included (1) refinement of the grouping of receivables with similar risk characteristics; and (2) processes to identify information that can be used to develop reasonable and supportable forecasts of factors that could affect the collectability of the reported amount of the receivable. As the Company's accounts receivable are short-term in nature, the adoption of this ASU did not have a material impact to the Company's allowance for bad debts or its policies and procedures for determining the allowance. Refer to Note 2 for further information on how the Company determines its reserves for expected credit losses. The Company recorded a $2 million cumulative-effect adjustment to retained earnings to increase its allowance for credit losses upon adoption.
On January 1, 2020, the Company adopted ASU No. 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” This ASU requires implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same provisions of authoritative guidance for internal-use software, and amortized over the non-cancellable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. The Company will be required to present the amortization of capitalized implementation costs in the same line item in the statement of operations as the fees associated with the hosting service (i.e. operating and SG&A expense) and classify the related payments in the statement of cash flows in the same manner as payments made for fees associated with the hosting service (i.e. cash flows from operating activities). This ASU also requires capitalization of implementation costs in the balance sheet to be consistent with the location of prepayment of fees for the hosting element (i.e. within other current assets or other assets).The Company adopted this ASU prospectively to all implementation costs incurred after the date of adoption and it did not have a material impact on the Company's current financial statements. The future impact to the Company's financial statements will relate to the aforementioned classification of these capitalized costs and related amortization.
In March 2020, FASB issued ASU No. 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting". The ASU provides temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance was effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022 as the transition from LIBOR is completed.
COVID-19
The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business. While the Company has selectively reopened certain of its offices, Moody’s continues to require remote work for most employees globally. The Company continues to monitor regional developments relating to the COVID-19 pandemic to inform decisions on office re-openings.
The Company experienced disruption in certain sectors of its business beginning late in the first quarter of 2020 resulting from market volatility associated with the COVID-19 crisis. However, at the date of the filing of this quarterly report on Form 10-Q, the Company is unable to predict either the potential near-term or longer-term impact that the COVID-19 crisis may have on its financial position and operating results due to numerous uncertainties regarding the duration and severity of the crisis. As a result, it is reasonably possible that the Company could experience material impacts including, but not limited to: reductions in revenue and cash flows; additional credit losses related to accounts receivables; asset impairment charges; and changes in the funded status of defined benefit pension plans. While it is reasonably possible that the COVID-19 crisis will have a material impact on the results of operations and cash flows of the Company in 2020, Moody's believes that it has adequate liquidity to maintain its operations with minimal disruption in the near term and to maintain compliance with its debt covenants.
In the first half of 2020, in order to maximize liquidity and to increase available cash on hand through this period of uncertainty, the Company added $700 million in additional long-term borrowings and began borrowing under its CP Program as more fully discussed in Note 17 . At June 30, 2020, the Company had repaid all CP outstanding. In addition, the Company is reducing discretionary spending, including suspending its share repurchase program until further notice.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States. The Company will utilize certain provisions in the CARES Act and other IRS guidance which permit the deferral of certain income and payroll tax remittances.
v3.20.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
6 Months Ended
Jun. 30, 2020
Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
On January 1, 2020, the Company adopted the New Credit Losses Accounting Standard as more fully discussed in Note 1. Accordingly, the Company revised its accounts receivable allowances accounting policy to reflect the provisions of the new standard, which is discussed below along with the capitalized software accounting policy, which was also updated to reflect the New Internal Use Software Accounting Standard. All other significant accounting policies described in the Form 10-K for the year ended December 31, 2019 remain unchanged.
Accounts Receivable Allowances
On January 1, 2020, the Company adopted ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” as more fully described in Note 1. As the Company's accounts receivable are short-term in nature, the adoption of this ASU did not have a material impact to the Company's allowance for bad debts or its policies and procedures for determining the allowance.
In order to determine an estimate of expected credit losses, receivables are segmented based on similar risk characteristics including historical credit loss patterns and industry or class of customers to calculate reserve rates. The Company uses an aging method for developing its allowance for credit losses by which receivable balances are stratified based on aging category. A reserve rate is calculated for each aging category which is generally based on historical information. The reserve rate is adjusted, when necessary, for current conditions (e.g., macroeconomic or industry related) and reasonable and supportable forecasts about the future. The Company also considers customer specific information (e.g., bankruptcy or financial difficulty) when estimating its expected credit losses, as well as the economic environment of the customers, both from an industry and geographic perspective, in evaluating the need for allowances. Expected credit losses are reflected as additions to the accounts receivable allowance. Actual uncollectible account write-offs are recorded against the allowance.
As of June 30, 2020, Moody's assessment included consideration of the current COVID-19 pandemic and its estimated impact on the Company's accounts receivable allowances. This assessment involved the utilization of significant judgment regarding the expected severity and duration of the market disruption caused by the COVID-19 pandemic, as well as judgment regarding which industries, classes of customers and geographies would be most significantly impacted.
During the six months ended June 30, 2020, the Company recorded a net provision for expected credit losses of $28 million. The increase in the provision for expected credit losses for the current period was primarily attributable to the aforementioned estimated effects of COVID-19.
Computer Software Developed or Obtained for Internal Use
The Company capitalizes costs related to software developed or obtained for internal use. These assets, included in property and equipment in the consolidated balance sheets, relate to the Company’s financial systems, website and other systems. Such costs generally consist of direct costs for third-party perpetual license fees, professional services provided by third parties and employee compensation, in each case incurred either during the application development stage or in connection with upgrades and enhancements that increase functionality. Such costs are depreciated over their estimated useful lives on a straight-line basis. Costs incurred during the preliminary project stage of development as well as maintenance costs are expensed as incurred.
The Company also capitalizes implementation costs incurred in cloud computing arrangements (i.e., hosting arrangements) and depreciates the costs over the non-cancellable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised or for which the exercise is controlled by the service provider. Following the January 1, 2020 adoption of ASU No. 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract" (as further discussed in Note 1), the Company classifies the amortization of capitalized implementation costs in the same line item in the statement of operations as the fees associated with the hosting service (i.e., operating and SG&A expense) and classifies the related payments in the statement of cash flows in the same manner as payments made for fees associated with the hosting service (i.e. cash flows from operating activities). In addition, the capitalization of implementation costs is reflected in the balance sheet consistent with the location of prepayment of fees for the hosting element (i.e., within other current assets or other assets). The implementation costs incurred prior to adoption of this ASU have been included within property and equipment, net in the balance sheet with the amortization of such balance included within depreciation and amortization in the statement of operations.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates.
v3.20.2
REVENUES
6 Months Ended
Jun. 30, 2020
Revenue from Contract with Customer [Abstract]  
REVENUES REVENUES
Revenue by Category
The following table presents the Company’s revenues disaggregated by LOB:
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
MIS:
Corporate finance (CFG)
Investment-grade
$291  $96  $435  $193  
High-yield
99  69  174  126  
Bank loans
43  83  132  156  
Other accounts (1)
139  140  284  268  
Total CFG
572  388  1,025  743  
Structured finance (SFG)
Asset-backed securities
23  26  45  49  
RMBS
23  24  50  48  
CMBS
13  20  30  38  
Structured credit
21  41  50  76  
Other accounts
    
Total SFG
81  112  177  213  
Financial institutions (FIG)
Banking
88  84  174  164  
Insurance
44  28  74  57  
Managed investments
 10  14  14  
Other accounts
    
Total FIG
142  125  267  241  
Public, project and infrastructure finance (PPIF)
Public finance / sovereign
64  53  121  99  
Project and infrastructure
69  55  121  102  
Total PPIF
133  108  242  201  
Total ratings revenue
928  733  1,711  1,398  
MIS Other
10   21  11  
Total external revenue
938  739  1,732  1,409  
Intersegment royalty
35  33  72  65  
Total MIS
973  772  1,804  1,474  
MA:
Research, data and analytics (RD&A) 366  315  724  623  
Enterprise risk solutions (ERS)
131  117  269  239  
Professional services (PS) (2)
—  43  —  85  
Total external revenue
497  475  993  947  
Intersegment revenue
    
Total MA
499  478  997  952  
Eliminations
(37) (36) (76) (70) 
Total MCO
$1,435  $1,214  $2,725  $2,356  
(1) Other includes: recurring monitoring fees of a rated debt obligation and/or entities that issue such obligations as well as fees from programs such as commercial paper, medium term notes, and ICRA corporate finance revenue.
(2) Subsequent to the divestiture of MAKS in 2019, revenue from the MALS reporting unit, which previous to 2020 was reported in the PS LOB, is now reported as part of the RD&A LOB. Prior periods have not been reclassified as the amounts were not material.
The following table presents the Company’s revenues disaggregated by LOB and geographic area:
Three Months Ended June 30, 2020Three Months Ended June 30, 2019
U.S.
Non-U.S
Total
U.S.
Non-U.S
Total
MIS:
Corporate finance (CFG)
$413  $159  $572  $242  $146  $388  
Structured finance (SFG)45  36  81  72  40  112  
Financial institutions (FIG)
70  72  142  52  73  125  
Public, project and infrastructure finance (PPIF)
87  46  133  69  39  108  
Total ratings revenue
615  313  928  435  298  733  
MIS Other  10     
Total MIS
616  322  938  436  303  739  
MA:
Research, data and analytics (RD&A)167  199  366  138  177  315  
Enterprise risk solutions (ERS)
54  77  131  46  71  117  
Professional services (PS) (1)
—  —  —  18  25  43  
Total MA
221  276  497  202  273  475  
Total MCO
$837  $598  $1,435  $638  $576  $1,214  

Six Months Ended June 30, 2020Six Months Ended June 30, 2019
U.S.
Non-U.S
Total
U.S.
Non-U.S
Total
MIS:
Corporate finance (CFG)
$727  $298  $1,025  $485  $258  $743  
Structured finance (SFG) 106  71  177  134  79  213  
Financial institutions (FIG)
130  137  267  98  143  241  
Public, project and infrastructure finance (PPIF)
155  87  242  129  72  201  
Total ratings revenue
1,118  593  1,711  846  552  1,398  
MIS Other 20  21   10  11  
Total MIS
1,119  613  1,732  847  562  1,409  
MA:
Research, data and analytics (RD&A) 325  399  724  273  350  623  
Enterprise risk solutions (ERS)
107  162  269  94  145  239  
Professional services (PS) (1)
—  —  —  36  49  85  
Total MA
432  561  993  403  544  947  
Total MCO
$1,551  $1,174  $2,725  $1,250  $1,106  $2,356  
(1) Subsequent to the divestiture of MAKS in 2019, the RD&A LOB now includes revenue from MALS beginning in the first quarter of 2020. MALS revenue was previously reported as part of the PS LOB and prior year revenue by LOB has not been reclassified as the amounts were not material.
The following table presents the Company’s reportable segment revenues disaggregated by segment and geographic region:
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
MIS:
U.S.
$616  $436  $1,119  $847  
Non-U.S.:
EMEA
183  178  354  327  
Asia-Pacific
90  84  171  163  
Americas
49  41  88  72  
Total Non-U.S.
322  303  613  562  
Total MIS
938  739  1,732  1,409  
MA:
U.S.
221  202  432  403  
Non-U.S.:
EMEA
190  184  382  368  
Asia-Pacific
54  57  109  110  
Americas
32  32  70  66  
Total Non-U.S.
276  273  561  544  
Total MA
497  475  993  947  
Total MCO
$1,435  $1,214  $2,725  $2,356  
The following tables summarize the split between transaction and relationship revenue. In the MIS segment, excluding MIS Other, transaction revenue represents the initial rating of a new debt issuance as well as other one-time fees while relationship revenue represents the recurring monitoring fees of a rated debt obligation and/or entities that issue such obligations, as well as revenue from programs such as commercial paper, medium-term notes and shelf registrations. In MIS Other, transaction revenue represents revenue from professional services and outsourcing engagements and relationship revenue represents subscription-based revenues. In the MA segment, relationship revenue represents subscription-based revenues and software maintenance revenue. Transaction revenue in MA represents perpetual software license fees and revenue from software implementation services, risk management advisory projects, training and certification services, and outsourced research and analytical engagements.
Three Months Ended June 30,
20202019
Transaction
Relationship
Total
Transaction
Relationship
Total
Corporate Finance
$457  $115  $572  $277  $111  $388  
80 %20 %100 %71 %29 %100 %
Structured Finance
$35  $46  $81  $69  $43  $112  
43 %57 %100 %62 %38 %100 %
Financial Institutions
$76  $66  $142  $61  $64  $125  
54 %46 %100 %49 %51 %100 %
Public, Project and Infrastructure Finance
$96  $37  $133  $71  $37  $108  
72 %28 %100 %66 %34 %100 %
MIS Other
$—  $10  $10  $—  $ $ 
— %100 %100 %— %100 %100 %
Total MIS
$664  $274  $938  $478  $261  $739  
71 %29 %100 %65 %35 %100 %
Research, data and analytics$16  $350  $366  $ $311  $315  
%96 %100 %%99 %100 %
Enterprise risk solutions$26  $105  $131  $23  $94  $117  
20 %80