MOODYS CORP /DE/, 10-Q filed on 5/1/2020
Quarterly Report
v3.20.1
Cover Page
shares in Millions
3 Months Ended
Mar. 31, 2020
shares
Entity Information [Line Items]  
Document Type 10-Q
Document Quarterly Report true
Document Period End Date Mar. 31, 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) 187.5
Entity Central Index Key 0001059556
Document Fiscal Period Focus Q1
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 $0.01 per share
Trading Symbol MCO
Security Exchange Name NYSE
1.75% Senior Notes Due 2027  
Entity Information [Line Items]  
Title of 12(b) Security 1.75% Senior Notes Due 2027
Trading Symbol MCO 27
Security Exchange Name NYSE
0.950% Senior Notes Due 2030  
Entity Information [Line Items]  
Title of 12(b) Security 0.950% Senior Notes Due 2030
Trading Symbol MCO 30
Security Exchange Name NYSE
v3.20.1
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($)
shares in Millions, $ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Income Statement [Abstract]    
Revenue $ 1,290 $ 1,142
Expenses    
Operating 340 342
Selling, general and administrative 301 281
Restructuring (1) 6
Depreciation and amortization 49 50
Acquisition-Related Expenses 0 1
Loss pursuant to the divestiture of MAKS 9 0
Total expenses 698 680
Operating income 592 462
Non-operating (expense) income, net    
Interest expense, net (40) (52)
Other non-operating income, net 12 2
Total non-operating expense, net (28) (50)
Income before provisions for income taxes 564 412
Provision for income taxes 77 38
Net income 487 374
Less: Net (loss) income attributable to noncontrolling interests (1) 1
Net income attributable to Moody's $ 488 $ 373
Earnings per share attributable to Moody's common shareholders    
Basic (in usd per share) $ 2.60 $ 1.96
Diluted (in usd per share) $ 2.57 $ 1.93
Weighted average number of shares outstanding    
Basic (in shares) 187.5 190.4
Diluted (in shares) 189.6 192.8
v3.20.1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Statement of Comprehensive Income [Abstract]    
Net Income $ 487 $ 374
Foreign Currency Adjustments:    
Foreign currency translation adjustment - Pre Tax (175) (27)
Foreign currency translation adjustments - Tax 5 0
Foreign currency translation adjustments - Net of Tax (170) (27)
Net gains on net investment hedges - Pre Tax 119 30
Net gains on net investment hedges, Tax (30) (7)
Net gains on net investment hedges, Net of Tax 89 23
Cash Flow Hedges:    
Net realized and unrealized (losses) gains on cash flow hedges - Pre Tax (48) 0
Net realized and unrealized (losses) gains on cash flow hedges - Tax 12 0
Net realized and unrealized (losses) gains on cash flow hedges - Net of Tax (36) 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 2 1
Amortization of actuarial losses and prior service costs included in net income - Tax (1) (1)
Amortization of actuarial losses and prior service costs included in net income - Net of Tax 1 0
Net actuarial (losses) gains and prior service costs - Pre Tax (1) 1
Net actuarial (losses) gains and prior service costs - Tax 0 0
Net actuarial (losses) gains and prior service costs - Net of Tax (1) 1
Total other comprehensive income (loss) - Pre Tax (102) 5
Total other comprehensive income (loss) - Tax (14) (8)
Total other comprehensive income (loss) - Net of Tax (116) (3)
Comprehensive income 371 371
Less: comprehensive income (loss) attributable to noncontrolling interests (2) 8
Comprehensive Income Attributable to Moody's $ 373 $ 363
v3.20.1
CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($)
$ in Millions
Mar. 31, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 2,141 $ 1,832
Short-term investments 90 98
Accounts receivable, net of allowance for credit losses of $42 in 2020 and $20 in 2019 1,413 1,419
Other current assets 350 330
Total current assets 3,994 3,679
Property and equipment, net of accumulated depreciation of $853 in 2020 and $839 in 2019 285 292
Operating lease right-of-use assets 437 456
Goodwill 4,122 3,722
Intangible assets, net 1,709 1,498
Deferred tax assets, net 165 229
Other assets 594 389
Total assets 11,306 10,265
Current liabilities:    
Accounts payable and accrued liabilities 664 773
Current portion of operating lease liabilities 89 89
Commercial Paper 485 0
Deferred revenue 1,113 1,050
Total current liabilities 2,351 1,912
Non-current portion of deferred revenue 109 112
Long-term debt 6,303 5,581
Deferred tax liabilities, net 424 357
Uncertain tax positions 448 477
Operating lease liabilities 463 485
Other liabilities 403 504
Total liabilities 10,501 9,428
Contingencies (Note 20) 0 0
Redeemable noncontrolling interest 6 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 616 642
Retained earnings 10,041 9,656
Treasury stock, at cost; 155,386,192 and 155,215,143 shares of shares of common stock at March 31, 2020 and December 31, 2019 (9,524) (9,250)
Accumulated other comprehensive loss (554) (439)
Total Moody's shareholders' equity 582 612
Noncontrolling interests 217 219
Total shareholders' equity 799 831
Total liabilities, noncontrolling interests and shareholders' equity 11,306 10,265
Series Common Stock    
Shareholders' equity:    
Common stock $ 0 $ 0
v3.20.1
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) - USD ($)
$ in Millions
Mar. 31, 2020
Dec. 31, 2019
Accounts receivable, allowances $ 42 $ 20
Accumulated depreciation, property and equipment $ 853 $ 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) 155,386,192 155,215,143
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
v3.20.1
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Cash flows from operating activities    
Net Income $ 487 $ 374
Reconciliation of net income to net cash provided by operating activities:    
Depreciation and amortization 49 50
Stock-based compensation 37 36
Deferred income taxes 57 14
Loss pursuant to the divestiture of MAKS 9 0
Changes in assets and liabilities:    
Accounts receivable (7) (8)
Other current assets (38) (6)
Other assets 2 (14)
Restructuring liability (12) (3)
Accounts payable and accrued liabilities (186) (180)
Deferred revenue 64 104
Unrecognized tax benefits and other non-current tax liabilities (18) (22)
Other liabilities (99) 22
Net cash provided by operating activities 345 367
Cash flows from investing activities    
Capital additions (21) (20)
Purchases of investments (78) (38)
Sales and maturities of investments 23 51
Cash paid for acquisitions, net of cash acquired (696) 0
Net cash used in investing activities (772) (7)
Cash flows from financing activities    
Issuance of notes 700 0
Repayment of notes 0 (450)
Issuance of commercial paper 789 402
Repayment of commercial paper (305) (85)
Proceeds from stock-based compensation plans 16 14
Repurchase of shares related to stock-based compensation (71) (51)
Treasury shares (253) (448)
Dividends (105) (94)
Debt issuance costs (6) 0
Payment for noncontrolling interest 0 (12)
Cash paid for ASR contract relating to shares retained by Counterparty until final settlement 0 (125)
Net cash provided by (used in) financing activities 765 (849)
Effect of exchange rate changes on cash and cash equivalents (29) 1
Increase (decrease) in cash and cash equivalents 309 (488)
Cash and cash equivalents, beginning of period 1,832 1,685
Cash and cash equivalents, end of period $ 2,141 $ 1,197
v3.20.1
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) - USD ($)
shares in Millions, $ in Millions
Total
Common Stock
Capital Surplus
Retained Earnings
Treasury Stock
Accumulated Other Comprehensive Loss
Total Moody's Shareholders' Equity
Non- Controlling Interests
Beginning Balance (in shares) at Dec. 31, 2018   342.9     151.6      
Beginning Balance at Dec. 31, 2018 $ 656 $ 3 $ 601 $ 8,594 $ (8,313) $ (426) $ 459 $ 197
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net Income 374     373     373 1
Dividends (94)     (94)     (94)  
Stock-based compensation 36   36       36  
Shares issued for stock-based compensation plans at average cost, net (60)   (67)   $ 7   (60)  
Shares issued for stock-based compensation plans at average cost, net (in shares)         1.0      
Purchase of noncontrolling interest (12)   (9)       (9) (3)
Treasury shares repurchased (448)       $ (448)   (448)  
Treasury shares repurchased (in shares)         (2.7)      
Cash paid for ASR contract relating to shares retained by Counterparty until final settlement (125)   (125)       (125)  
Currency translation adjustment, net of net investment hedge activity (net of tax of) (3)         (10) (10) 7
Net actuarial gains (losses) and prior service costs 1         1 1  
Amortization of prior service costs and actuarial losses 0              
Ending Balance (in shares) at Mar. 31, 2019   342.9     153.3      
Ending Balance at Mar. 31, 2019 325 $ 3 436 8,893 $ (8,754) (455) 123 202
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
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net Income 487     488     488 (1)
Dividends (101)     (101)     (101)  
Stock-based compensation 37   37       37  
Shares issued for stock-based compensation plans at average cost, net (84)   (63)   $ (21)   (84)  
Shares issued for stock-based compensation plans at average cost, net (in shares)         0.9      
Treasury shares repurchased (253)     $ (253)   (253)  
Treasury shares repurchased (in shares)         (1.1)      
Cash paid for ASR contract relating to shares retained by Counterparty until final settlement 0              
Currency translation adjustment, net of net investment hedge activity (net of tax of) (81)         (80) (80) (1)
Net actuarial gains (losses) and prior service costs (1)         (1) (1)  
Amortization of prior service costs and actuarial losses 1         1 1  
Net realized and unrealized gain on cash flow hedges (net of tax) (35)         (35) (35)  
Ending Balance (in shares) at Mar. 31, 2020   342.9     155.4      
Ending Balance at Mar. 31, 2020 $ 799 $ 3 $ 616 $ 10,041 $ (9,524) $ (554) $ 582 $ 217
v3.20.1
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) (Parenthetical) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Statement of Stockholders' Equity [Abstract]    
Dividends declared per share attributable to Moody's common shareholders (in USD per share) $ 0.56 $ 0.50
Currency translation adjustment, tax $ 25 $ 7
Amortization of actuarial losses and prior service costs included in net income, tax 1 $ 1
Net realized and unrealized gain on cash flow hedges, tax $ 12  
v3.20.1
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
3 Months Ended
Mar. 31, 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 pandemic of the novel strain of coronavirus, COVID-19, on all aspects of its business. Moody’s has transitioned to remote work for all employees globally to help reduce the spread of COVID-19.
The Company experienced disruption in certain sectors of its business late in the first quarter of 2020 (including a decline in leveraged finance related issuance volumes) 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; changes in the effectiveness of certain hedging instruments; 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 March, 2020, in order to maximize liquidity and to increase available cash on hand through this period of uncertainty, the Company issued $700 million in 5-year Senior Notes and began drawing on its CP Program as more fully discussed in Note 16. 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 intends on utilizing certain provisions in the CARES Act and other IRS guidance which permit the deferral of certain income and payroll tax remittances.
v3.20.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3 Months Ended
Mar. 31, 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 this quarter 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 March 31, 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 three months ended March 31, 2020, the Company recorded a provision for expected credited losses of $24 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). 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.
v3.20.1
REVENUES
3 Months Ended
Mar. 31, 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
March 31,
20202019
MIS:
Corporate finance (CFG)
Investment-grade
$144  $97  
High-yield
75  57  
Bank loans
89  73  
Other accounts (1)
145  128  
Total CFG
453  355  
Structured finance (SFG)
Asset-backed securities
22  23  
RMBS
27  24  
CMBS
17  18  
Structured credit
29  35  
Other accounts
  
Total SFG
96  101  
Financial institutions (FIG)
Banking
86  80  
Insurance
30  29  
Managed investments
  
Other accounts
  
Total FIG
125  116  
Public, project and infrastructure finance (PPIF)
Public finance / sovereign
57  46  
Project and infrastructure
52  47  
Total PPIF
109  93  
Total ratings revenue
783  665  
MIS Other
11   
Total external revenue
794  670  
Intersegment royalty
37  32  
Total MIS
831  702  
MA:
Research, data and analytics (RD&A) 358  308  
Enterprise risk solutions (ERS)
138  122  
Professional services (PS) (2)
—  42  
Total external revenue
496  472  
Intersegment revenue
  
Total MA
498  474  
Eliminations
(39) (34) 
Total MCO
$1,290  $1,142  
(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, will now be 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 March 31, 2020Three Months Ended March 31, 2019
U.S.
Non-U.S
Total
U.S.
Non-U.S
Total
MIS:
Corporate finance (CFG)
$314  $139  $453  $243  $112  $355  
Structured finance (SFG) 61  35  96  62  39  101  
Financial institutions (FIG)
60  65  125  46  70  116  
Public, project and infrastructure finance (PPIF)
68  41  109  60  33  93  
Total ratings revenue
503  280  783  411  254  665  
MIS Other—  11  11  —    
Total MIS
503  291  794  411  259  670  
MA:
Research, data and analytics (RD&A) 158  200  358  135  173  308  
Enterprise risk solutions (ERS)
53  85  138  48  74  122  
Professional services (PS) (1)
—  —  —  18  24  42  
Total MA
211  285  496  201  271  472  
Total MCO
$714  $576  $1,290  $612  $530  $1,142  
(1) Subsequent to the divestiture of MAKS in 2019, the RD&A LOB now includes revenue from Moody's Analytics Learning Solutions (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
March 31,
20202019
MIS:
U.S.
$503  $411  
Non-U.S.:
EMEA
171  149  
Asia-Pacific
81  79  
Americas
39  31  
Total Non-U.S.
291  259  
Total MIS
794  670  
MA:
U.S.
211  201  
Non-U.S.:
EMEA
192  184  
Asia-Pacific
55  53  
Americas
38  34  
Total Non-U.S.
285  271  
Total MA
496  472  
Total MCO
$1,290  $1,142  
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 March 31,
20202019
Transaction
Relationship
Total
Transaction
Relationship
Total
Corporate Finance
$338  $115  $453  $249  $106  $355  
75 %25 %100 %70 %30 %100 %
Structured Finance
$50  $46  $96  $57  $44  $101  
52 %48 %100 %56 %44 %100 %
Financial Institutions
$60  $65  $125  $48  $68  $116  
48 %52 %100 %41 %59 %100 %
Public, Project and Infrastructure Finance
$69  $40  $109  $55  $38  $93  
63 %37 %100 %59 %41 %100 %
MIS Other
$ $ $11  $ $ $ 
18 %82 %100 %20 %80 %100 %
Total MIS
$519  $275  $794  $410  $260  $670  
65 %35 %100 %61 %39 %100 %
Research, data and analytics$18  $340  $358  $ $303  $308  
%95 %100 %%98 %100 %
Enterprise risk solutions$32  $106  $138  $24  $98  $122  
23 %77 %100 %20 %80 %100 %
Professional services$—  $—  $—  $42  $—  $42  
— %— %— %100 %— %100 %
Total MA$50  
(1)
$446  $496  $71  
(1)
$401  $472  
10 %90 %100 %15 %85 %100 %
Total Moody's Corporation$569  $721  $1,290  $481  $661  $1,142  
44 %56 %100 %42 %58 %100 %
(1) Revenue from software implementation services and risk management advisory projects, while classified by management as transactional revenue, is recognized over time under the New Revenue Accounting Standard (please also refer to the following table).

The following table presents the timing of revenue recognition:
Three Months Ended March 31, 2020
MIS
MA
Total
Revenue recognized at a point in time
$519  $39  $558  
Revenue recognized over time
275  457  732  
Total
$794  $496  $1,290  

Three Months Ended March 31, 2019
MIS
MA
Total
Revenue recognized at a point in time
$410  $30  $440  
Revenue recognized over time
260  442  702  
Total
$670  $472  $1,142  
Unbilled receivables, deferred revenue and remaining performance obligations
Unbilled receivables
At March 31, 2020 and December 31, 2019, accounts receivable, net included $404 million and $346 million, respectively, of unbilled receivables, net related to the MIS segment. Certain MIS arrangements contain contractual terms whereby the customers are billed in arrears for annual monitoring services, requiring revenue to be accrued as an unbilled receivable as such services are provided.
In addition, for certain MA arrangements, the timing of when the Company has the unconditional right to consideration and recognizes revenue occurs prior to invoicing the customer. Consequently, at March 31, 2020 and December 31, 2019, accounts receivable, net included $59 million and $53 million, respectively, of unbilled receivables, net related to the MA segment.
Deferred revenue
The Company recognizes deferred revenue when a contract requires a customer to pay consideration to the Company in advance of when revenue related to that contract is recognized. This deferred revenue is relieved when the Company satisfies the related performance obligation and revenue is recognized.
Significant changes in the deferred revenue balances during the three months ended March 31, 2020 are as follows:

Three Months Ended March 31, 2020
MIS
MA
Total
Balance at January 1, 2020  $322  $840  $1,162  
Changes in deferred revenue
Revenue recognized that was included in the deferred revenue balance at the beginning of the period
(99) (336) (435) 
Increases due to amounts billable excluding amounts recognized as revenue during the period
161  343  504  
Increases due to RDC acquisition during the period—  20  20  
Effect of exchange rate changes
(5) (24) (29) 
Total changes in deferred revenue
57   60  
Balance at March 31, 2020$379  $843  $1,222  
Deferred revenue - current
$275  $838  $1,113  
Deferred revenue - noncurrent
$104  $ $109  


Three Months Ended March 31, 2019
MIS
MA
Total
Balance at January 1, 2019
$326  $750  $1,076  
Changes in deferred revenue

Revenue recognized that was included in the deferred revenue balance at the beginning of the period
(93) (307) (400) 
Increases due to amounts billable excluding amounts recognized as revenue during the period
155  347  502  
Effect of exchange rate changes
—    
Total changes in deferred revenue
62  45  107  
Balance at March 31, 2019$388  $795  $1,183  
Deferred revenue - current
$271  $791  1,062  
Deferred revenue - noncurrent
$117  $ 121  
The increase in deferred revenue during both the three months ended March 31, 2020 and 2019 is primarily due to the significant portion of contract renewals that occur during the first quarter within both segments.
Remaining performance obligations
Remaining performance obligations in the MIS segment largely reflect deferred revenue related to monitoring fees for certain structured finance products, primarily CMBS, where the issuers can elect to pay the monitoring fees for the life of the security in advance. As of March 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $136 million. The Company expects to recognize into revenue approximately 20% of this balance within one year, approximately 50% of this balance between one to five years and the remaining amount thereafter. With respect to the remaining performance obligations for the MIS segment, the Company has applied a practical expedient set forth in ASC Topic 606 permitting the omission from the amounts stated above relating to unsatisfied performance obligations for contracts with an original expected length of one year or less.

Remaining performance obligations in the MA segment include both amounts recorded as deferred revenue on the balance sheet as of March 31, 2020 as well as amounts not yet invoiced to customers as of March 31, 2020, largely reflecting future revenue related to signed multi-year arrangements for hosted and installed subscription based products. As of March 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $2.0 billion. The Company expects to recognize into revenue approximately 70% of this balance within one year, approximately 20% of this balance between one to two years and the remaining amount thereafter.
v3.20.1
STOCK-BASED COMPENSATION
3 Months Ended
Mar. 31, 2020
Share-based Payment Arrangement, Noncash Expense [Abstract]  
STOCK-BASED COMPENSATION 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 Ended
March 31,
20202019
Stock-based compensation cost
$37  $36  
Tax benefit
$ $ 
During the first three months of 2020, the Company granted 0.1 million employee stock options, which had a weighted average grant date fair value of $60.53 per share based on the Black-Scholes option-pricing model. The Company also granted 0.5 million shares of restricted stock in the first three months of 2020, which had a weighted average grant date fair value of $280.42 per share. Both the employee stock options and restricted stock generally vest ratably over four years. Additionally, the Company granted 0.1 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 three years. The weighted average grant date fair value of these awards was $273.85 per share.
The following weighted average assumptions were used in determining the fair value for options granted in 2020:
Expected dividend yield
0.80 %
Expected stock volatility
22.43 %
Risk-free interest rate
1.45 %
Expected holding period
5.7 years
Unrecognized stock-based compensation expense at March 31, 2020 was $10 million and $252 million for stock options and unvested restricted stock, respectively, which is expected to be recognized over a weighted average period of 2.6 years and 2.8 years, respectively. Additionally, there was $31 million of unrecognized stock-based compensation expense relating to the aforementioned non-market based performance-based awards, which is expected to be recognized over a weighted average period of 2.3 years.
The following tables summarize information relating to stock option exercises and restricted stock vesting:
Three Months Ended
March 31,
2020
2019
Exercise of stock options:
Proceeds from stock option exercises
$13  $12  
Aggregate intrinsic value
$46  $36  
Tax benefit realized upon exercise
$11  $ 
Number of shares exercised
0.2  0.3  
Vesting of restricted stock:
Fair value of shares vested
$191  $147  
Tax benefit realized upon vesting
$44  $34  
Number of shares vested
0.8  0.8  
Vesting of performance-based restricted stock:
Fair value of shares vested
$70  $48  
Tax benefit realized upon vesting
$17  $12  
Number of shares vested
0.3  0.3  
v3.20.1
INCOME TAXES
3 Months Ended
Mar. 31, 2020
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Moody’s ETR was 13.7% and 9.2% for the three months ended March 31, 2020 and 2019, respectively. The increase in the ETR is primarily due to favorable IRS regulations issued in the first quarter of 2019 which did not occur in the first quarter of 2020. The Company’s quarterly tax expense differs from the tax computed by applying its estimated annual effective tax rate to this quarter’s pre-tax earnings due to Excess Tax Benefits from stock compensation of $40 million and net reductions to tax positions of $23 million.
The Company classifies interest related to UTPs 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 decrease in its UTPs of $28 million ($29 million, net of federal tax) during the first quarter of 2020.
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 return for 2016 remains open to examination and 2017 and 2018 are currently under examination. The Company’s New York State tax returns for 2011 through 2016 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 through 2018 remain open to examination.
For ongoing audits, it is possible the balance of UTPs 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 UTPs. 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 UTPs 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 UTPs.
The following table shows the amount the Company paid for income taxes:
Three Months Ended March 31,
20202019
Income taxes paid$29  $37  
v3.20.1
WEIGHTED AVERAGE SHARES OUTSTANDING
3 Months Ended
Mar. 31, 2020
Earnings Per Share [Abstract]  
WEIGHTED AVERAGE SHARES OUTSTANDING WEIGHTED AVERAGE SHARES OUTSTANDING
Below is a reconciliation of basic to diluted shares outstanding:
Three Months Ended March 31,
20202019
Basic
187.5  190.4  
Dilutive effect of shares issuable under stock-based compensation plans
2.1  2.4  
Diluted
189.6  192.8  
Anti-dilutive options to purchase common shares and restricted stock as well as contingently issuable restricted stock which are excluded from the table above
0.3  0.4  
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 March 31, 2020 and 2019.
v3.20.1
ACCELERATED SHARE REPURCHASE PROGRAM
3 Months Ended
Mar. 31, 2020
Other Liabilities Disclosure [Abstract]  
ACCELERATED SHARE REPURCHASE PROGRAM ACCELERATED SHARE REPURCHASE PROGRAM
On February 20, 2019, the Company entered into an ASR agreement with a financial institution counterparty to repurchase $500 million of its outstanding common stock. The Company paid $500 million to the counterparty and received an initial delivery of 2.2 million shares of its common stock. Final settlement of the ASR agreement was completed on April 26, 2019 and the Company received delivery of an additional 0.6 million shares of the Company’s common stock.
In total, the Company repurchased 2.8 million shares of the Company’s common stock during the term of the ASR Agreement, based on the volume-weighted average price (net of discount) of $180.33/share over the duration of the program. The initial share repurchase and final share settlement were recorded as a reduction to shareholders’ equity.
v3.20.1
CASH EQUIVALENTS AND INVESTMENTS
3 Months Ended
Mar. 31, 2020
Cash and Cash Equivalents [Abstract]  
CASH EQUIVALENTS AND INVESTMENTS CASH EQUIVALENTS AND INVESTMENTS
The table below provides additional information on the Company’s cash equivalents and investments:
As of March 31, 2020