MOODYS CORP /DE/, 10-Q filed on 5/2/2019
Quarterly Report
v3.19.1
Document and Entity Information
shares in Millions
3 Months Ended
Mar. 31, 2019
shares
Document Documentand Entity Information [Abstract]  
Document Fiscal Period Focus Q1
Amendment Flag false
Entity Registrant Name MOODYS CORP /DE/
Document Type 10-Q
Current Fiscal Year End Date --12-31
Entity Filer Category Large Accelerated Filer
Document Fiscal Year Focus 2019
Trading Symbol MCO
Document Period End Date Mar. 31, 2019
Entity Small Business false
Entity Emerging Growth Company false
Entity Central Index Key 0001059556
Entity Common Stock Shares Outstanding 189.6
v3.19.1
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
shares in Millions, $ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)    
Revenues $ 1,142.1 $ 1,126.7
Expenses    
Operating 341.7 314.9
Selling, general and administrative 281.5 271.1
Restructuring Charges 5.5  
Depreciation and amortization 50.3 49.1
Acquisition-Related Expenses 1.4 0.8
Total expenses 680.4 635.9
Operating Income 461.7 490.8
Non-operating (expense) income, net    
Interest expense, net (52.5) (50.7)
Other non-operating income, net 2.3 1.0
Total non-operating (expense) income, net (50.2) (49.7)
Income before provisions for income taxes 411.5 441.1
Provision for income taxes 37.9 64.3
Net income 373.6 376.8
Less: Net income attributable to noncontrolling interests 0.7 3.9
Net income attributable to Moody's $ 372.9 $ 372.9
Earnings per share attributable to Moody's common shareholders    
Basic $ 1.96 $ 1.95
Diluted $ 1.93 $ 1.92
Weighted average number of shares outstanding    
Basic 190.4 191.4
Diluted 192.8 194.5
v3.19.1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)    
Net income $ 373.6 $ 376.8
Foreign currency translation:    
Foreign currency translation adjustments - Pre Tax (26.7) 136.1
Foreign currency translation adjustments - Net of Tax (26.7) 136.1
Net gains (losses) on net investment hedges - Pre Tax 30.4 (14.5)
Net gains (losses) on net investment hedges, Tax (6.9) 3.6
Net gains (losses) on net investment hedges, Net of Tax 23.5 (10.9)
Cash flow hedges:    
Net realized and unrealized gain (loss) on cash flow hedges - Pre Tax   1.9
Net realized and unrealized gain (loss) on cash flow hedges - Tax Amount   (0.4)
Net realized and unrealized gain (loss) on cash flow hedges - Net of Tax   1.5
Reclassification of losses included in net income - Pre Tax   (0.1)
Reclassification of losses included in net income- Net of Tax   (0.1)
Pension and Other Retirement Benefits:    
Amortization of actuarial losses and prior service costs included in net income - Pre Tax 0.8 1.4
Amortization of actuarial losses and prior service costs included in net income - Tax (0.2) (0.4)
Amortization of actuarial losses and prior service costs included in net income - Net of Tax 0.6 1.0
Net actuarial losses and prior service costs - Pre Tax 1.1  
Net actuarial losses and prior service costs - Tax (0.3)  
Net actuarial losses and prior service costs - Net of Tax 0.8  
Total other comprehensive (loss) income - Pre Tax 5.6 124.8
Total other comprehensive (loss)income - Tax (7.4) 2.8
Total other comprehensive (loss) income - Net of Tax (1.8) 127.6
Comprehensive income 371.8 504.4
Less: Comprehensive income attributable to noncontrolling interests and redeemable noncontrolling interest 8.2 8.9
Comprehensive income attributable to Moody's $ 363.6 $ 495.5
v3.19.1
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Mar. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 1,196.6 $ 1,685.0
Short-term investments 114.0 132.5
Accounts receivable, net of allowances of $46.0 in 2019 and $43.5 in 2018 1,301.2 1,287.1
Other current assets 286.6 282.3
Total current assets 2,898.4 3,386.9
Property and equipment, net of accumulated depreciation of $834.9 in 2019 and $790.2 in 2018 318.7 320.4
Operating lease right-of-use assets 508.1  
Goodwill 3,762.5 3,781.3
Intangible assets, net 1,530.4 1,566.1
Deferred tax assets, net 178.8 197.2
Other assets 321.2 274.3
Total assets 9,518.1 9,526.2
Current liabilities:    
Accounts payable and accrued liabilities 537.1 695.2
Current portion of operating lease liabilities 87.4  
Commercial paper 318.8  
Current portion of long-term debt   449.9
Deferred revenue 1,062.3 953.4
Total current liabilities 2,005.6 2,098.5
Non-current portion of deferred revenue 120.9 122.3
Long-term debt 5,228.6 5,226.1
Deferred tax liabilities, net 353.4 351.7
Uncertain tax positions 474.5 494.6
Operating lease liabilities 523.5  
Other liabilities 486.6 576.5
Total liabilities 9,193.1 8,869.7
Contingencies (Note 19)
Shareholders' equity:    
Preferred stock, par value $.01 per share; 10,000,000 shares authorized; no shares issued and outstanding
Common stock 3.4 3.4
Capital surplus 435.7 600.9
Retained earnings 8,893.6 8,594.4
Treasury stock, at cost; 153,299,621 and 151,598,695 shares of common stock at March 31, 2019 and December 31, 2018, respectively (8,754.0) (8,312.5)
Accumulated other comprehensive loss (455.5) (426.3)
Total Moody's shareholders' deficit 123.2 459.9
Noncontrolling interests 201.8 196.6
Total shareholders' deficit 325.0 656.5
Total liabilities and shareholders' (deficit) equity 9,518.1 9,526.2
Series common stock    
Shareholders' equity:    
Common stock
v3.19.1
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
$ in Millions
Mar. 31, 2019
Dec. 31, 2018
Accounts receivable, allowances $ 46.0 $ 43.5
Property and equipment, accumulated depreciation $ 834.9 $ 790.2
Preferred stock, par value $ 0.01 $ 0.01
Preferred stock, shares authorized 10,000,000 10,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
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 153,299,621 151,598,695
Series common stock    
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 10,000,000 10,000,000
Common stock, shares issued 0 0
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Cash flows from operating activities    
Net income $ 373.6 $ 376.8
Reconciliation of net income to net cash provided by operating activities:    
Depreciation and amortization 50.3 49.1
Stock-based compensation expense 35.7 35.1
Deferred income taxes 13.8 (4.2)
Changes in assets and liabilities:    
Accounts receivable (8.5) (29.9)
Other current assets (5.9) 47.8
Other assets (13.5) (14.5)
Accounts payable and accrued liabilities (179.5) (224.1)
Restructuring (2.5) (0.1)
Deferred revenue 103.9 167.7
Unrecognized tax benefits and other non-current tax liabilities (21.9) (17.9)
Other liabilities 21.6 5.7
Net cash provided by (used in) operating activities 367.1 391.5
Cash flows from investing activities    
Capital additions (20.0) (15.0)
Purchases of investments (37.8) (50.3)
Sales and maturities of short-term investments 50.6 41.1
Cash received upon diposal of a subsidiary, net of cash transferred to purchaser   5.7
Net cash used in investing activities (7.2) (18.5)
Cash flows from financing activities    
Repayments of notes (450.0)  
Issuance of commercial paper 402.8 219.6
Repayments of commercial paper (85.0) (259.6)
Proceeds from stock-based compensation plans 14.2 28.5
Repurchase of shares related to stock-based compensation (50.6) (42.0)
Treasury shares (448.2) (43.4)
Cash paid for ASR contract relating to shares retained by counterparty until final settlement (125.3)  
Dividends (94.4) (84.1)
Dividends to noncontrolling interests   (1.1)
Payment for noncontrolling interest (12.3)  
Debt issuance costs, extinguishment costs and related fees   (0.2)
Net cash provided (used in) by financing activities (848.8) (182.3)
Effect of exchange rate changes on cash and cash equivalents 0.5 15.1
Net increase (decrease) in cash and cash equivalents (488.4) 205.8
Cash and cash equivalents, beginning of the period 1,685.0 1,071.5
Cash and cash equivalents, end of the period $ 1,196.6 $ 1,277.3
v3.19.1
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) - USD ($)
shares in Millions, $ in Millions
Total
Common Stock
Capital Surplus
Retained Earnings
Treasury Stock
Accumulated Other Comprehensive Income (Loss)
Total Moody's Shareholders' Equity (Deficit)
Noncontrolling Interests
Beginning Balance (in shares) at Dec. 31, 2017   342.9     (151.9)      
Beginning Balance at Dec. 31, 2017 $ (114.9) $ 3.4 $ 528.6 $ 7,465.4 $ (8,152.9) $ (172.2) $ (327.7) $ 212.8
Net income 376.8     372.9     372.9 3.9
Dividends (85.1)     (83.7)     (83.7) (1.4)
Stock-based compensation 35.2   35.2       35.2  
Shares issued for stock-based compensation plans, net (32.3)   (57.2)   $ 24.9   (32.3)  
Shares issued for stock-based compensation plans, net (in shares)         1.2      
Treasury shares repurchased, shares         (0.3)      
Treasury shares repurchased (43.4)       $ (43.4)   (43.4)  
Currency translation adjustment 125.2         120.2 120.2 5.0
Amortization of actuarial losses and prior service costs included in net income - Net of Tax 1.0         1.0 1.0  
Net realized and unrealized gain on cash flow hedges (net of tax of $1.1 million) 1.4         1.4 1.4  
Ending Balance at Mar. 31, 2018 420.0 $ 3.4 506.6 7,913.0 $ (8,171.4) (51.9) 199.7 220.3
Ending Balance (in shares) at Mar. 31, 2018   342.9     (151.0)      
Adoption of new ASU | New Revenue Accounting Standard [Member] 156.1     156.1     156.1  
Adoption of new ASU | Accounting Standards Update 2016-01 [Member]       2.3   (2.3)    
Beginning Balance (in shares) at Dec. 31, 2018   342.9     (151.6)      
Beginning Balance at Dec. 31, 2018 656.5 $ 3.4 600.9 8,594.4 $ (8,312.5) (426.3) 459.9 196.6
Net income 373.6     372.9     372.9 0.7
Dividends (93.7)     (93.5)     (93.5) (0.2)
Cash paid for ASR contract relating to shares retained by counterparty until final settlement (125.3)   (125.3)       (125.3)  
Stock-based compensation 35.8   35.8       35.8  
Shares issued for stock-based compensation plans, net (59.6)   (66.3)   $ 6.7   (59.6)  
Shares issued for stock-based compensation plans, net (in shares)         1.0      
Purchase of noncontrolling interest (12.3)   (9.4)       (9.4) (2.9)
Treasury shares repurchased, shares         (2.7)      
Treasury shares repurchased (448.2)       $ (448.2)   (448.2)  
Currency translation adjustment (3.2)         (10.8) (10.8) 7.6
Net actuarial losses and prior service costs - Net of Tax 0.8         0.8 0.8  
Amortization of actuarial losses and prior service costs included in net income - Net of Tax 0.6         0.6 0.6  
Ending Balance at Mar. 31, 2019 $ 325.0 $ 3.4 $ 435.7 8,893.6 $ (8,754.0) (455.5) $ 123.2 $ 201.8
Ending Balance (in shares) at Mar. 31, 2019   342.9     (153.3)      
Adoption of new ASU | Accounting Standards Update 2018-02 [Member]       $ 19.8   $ (19.8)    
v3.19.1
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Parenthetical) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Statement Of Stockholders Equity (Unaudited) [Abstract]    
Dividends declared per share attributable to Moody's common shareholders $ 0.5 $ 0.44
Currency translation adjustment, tax $ 6.9 $ (3.6)
Net actuarial losses and prior service costs - Tax 0.3  
Amortization of actuarial losses and prior service costs included in net income - Tax $ 0.2 0.4
Net unrealized gain on cash flow hedges, tax   $ 0.4
v3.19.1
GLOSSARY OF TERMS AND ABBREVIATIONS
3 Months Ended
Mar. 31, 2019
Glossary of Terms and Abbreviations [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 MarginAdjusted 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
Asia-PacificRepresents Australia and countries in Asia including but not limited to: China, India, Indonesia, Japan, Korea, Malaysia, Singapore, Sri Lanka and Thailand
ASRAccelerated Share Repurchase
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
BrexitThe withdrawal of the United Kingdom from the European Union
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
CECLCurrent expected credit losses
CFGCorporate finance group; an LOB of MIS 
CLOCollateralized loan obligation
CMBSCommercial mortgage-backed securities; an asset class within SFG
Common StockThe Company’s common stock
CompanyMoody’s Corporation and its subsidiaries; MCO; Moody’s
ContentA reporting unit within the MA segment that offers subscription based research, data and analytical products, including credit ratings produced by MIS, credit research, quantitative credit scores and other analytical tools, economic research and forecasts, business intelligence and company information products, and commercial real estate data and analytical tools
CPCommercial Paper
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 2018 Facility
CRAsCredit rating agencies
D&ADepreciation and amortization
DBPPsDefined benefit pension plans
EMEARepresents countries within Europe, the Middle East and Africa
EPSEarnings per share
ERSEnterprise Risk Solutions; an LOB within MA, which offers risk management software solutions as well as related risk management advisory engagements services
ESGEnvironmental, Social, and Governance
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
External RevenueRevenue excluding any intersegment amounts
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; now referred to as MALS
FXForeign exchange
GAAPU.S. Generally Accepted Accounting Principles
GBPBritish pounds
ICRAICRA Limited; a leading provider of credit ratings and research in India, for which the Company owns approximately 52%
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; 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
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
MALSMoody’s Analytics Learning Solutions; a reporting unit within the MA segment that includes on-line and classroom-based training services as well as credentialing and certification services; formerly known as FSTC
MCOMoody’s; Moody’s Corporation and its subsidiaries; the Company
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 Lease Accounting Standard Updates to the ASC pursuant to ASU No. 2016-02, “Leases (ASC Topic 842)”. This new accounting guidance requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses and cash flows depend on classification as either a finance or operating lease
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, which is a credit rating agency registered with the SEC.
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
Omega PerformanceA leading provider of online credit training, acquired by the Company in August 2018
Operating segmentTerm defined in the ASC relating to segment reporting; the ASC defines an operating segment as a component of a business entity that has each of the three following characteristics: i) the component engages in business activities from which it may recognize revenue and incur expenses; ii) the operating results of the component are regularly reviewed by the entity’s chief operating decision maker; and iii) discrete financial information about the component is available
Other Retirement PlansThe U.S. retirement healthcare and U.S. retirement life insurance plans
PPIFPublic, project and infrastructure finance; an LOB of MIS
Profit Participation PlanDefined contribution profit participation plan that covers substantially all U.S. employees of the Company
PSProfessional Services, an LOB within MA consisting of MAKS and MALS that provides offshore analytical and research services as well as learning solutions and certification programs
RD&AResearch, Data and Analytics; an LOB within MA that offers subscription based research, data and analytical products, including credit ratings produced by MIS, credit research, quantitative credit scores and other analytical tools, economic research and forecasts, business intelligence and company information products, and commercial real estate data and analytical tools
Reform ActCredit Rating Agency Reform Act of 2006
REITReal Estate Investment Trust
Reis, Inc. (Reis)A leading provider of U.S. commercial real estate (CRE) data; acquired by the Company in October 2018
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
Reporting unitThe level at which Moody’s evaluates its goodwill for impairment under U.S. GAAP; defined as an operating segment or one level below an operating segment
RMBSResidential mortgage-backed securities; an asset class within SFG
ROU AssetAssets recorded pursuant to the New Lease Accounting Standard which represent the Company’s right to use an underlying asset for the term of a lease
SaaSSoftware-as-a-Service
SECU.S. Securities and Exchange Commission
Securities ActSecurities Act of 1933, as amended
SFGStructured finance group; an LOB of MIS
SG&ASelling, general and administrative expenses
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
Vigeo EirisA global leader in ESG research, data and assessments, acquired by the Company on April 11, 2019.
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 pursuant to the 2014 Indenture; repaid in 2019
2014 Senior Notes (30-Year)Principal amount of $600 million, 5.25% senior unsecured notes due in July 2044 pursuant to the 2014 Indenture
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 pursuant to the 2015 Indenture; repaid in 2018
2017 Floating Rate Senior Notes Principal amount of $300 million, floating rate senior unsecured notes due in September 2018 pursuant to the 2017 Indenture
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 pursuant to the 2017 Indenture
2017 Senior Notes Due 2028Principal amount of $500 million, 3.25% senior unsecured notes due January 15, 2028 pursuant to the 2017 Indenture
2017 Senior Notes Due 2021Principal amount of $500 million, 2.75% senior unsecured notes due in December 2021
2018 FacilityFive-year unsecured revolving credit facility, with capacity to borrow up to $1 billion; replaced the 2015 Facility; backstops CP issued under the CP Program
2018 Senior NotesPrincipal amount of $300 million, 3.25% senior unsecured notes due June 7, 2021
2018 Senior Notes (10-year)Principal amount of $400 million, 4.25% senior unsecured notes due February 1, 2029
2018 Senior Notes (30-year)Principal amount of $400 million, 4.875% senior unsecured notes December 17, 2048
v3.19.1
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
3 Months Ended
Mar. 31, 2019
Description of Business and Basis of Presentation [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) learning solutions and certification services; (vi) offshore financial research and analytical services; and (vii) company information and business intelligence products. Moody’s reports in two reportable segments: MIS and MA.

MIS, the credit rating agency, publishes credit ratings on a wide range of debt obligations and the entities that issue such obligations in markets worldwide. Revenue is primarily derived from the originators and issuers of such transactions who use MIS ratings in the distribution of their debt issues to investors. Additionally, MIS earns revenue from certain non-ratings-related operations which consist primarily of financial instrument pricing services in the Asia-Pacific region as well as revenue from ICRA’s non-ratings operations. The revenue from these operations is included in the MIS Other LOB and is not material to the results of the MIS segment.

MA provides financial intelligence and analytical tools to assist businesses in making decisions. MA’s portfolio of solutions consists of specialized research, data, software, and professional services, which are assembled to support the financial analysis and risk management activities of institutional customers worldwide.

These interim financial statements have been prepared in accordance with the instructions to Form 10-Q and should be read in conjunction with the Company’s consolidated financial statements and related notes in the Company’s 2018 annual report on Form 10-K filed with the SEC on February 22, 2019. The results of interim periods are not necessarily indicative of results for the full year or any subsequent period. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

Certain reclassifications have been made to prior period amounts to conform to the current presentation.

Adoption of New Accounting Standards

On January 1, 2019, the Company adopted ASU No. 2016-02, “Leases (Topic 842)” and has elected to apply the provisions of the New Lease Accounting Standard on the date of adoption with adjustments to the assets and liabilities on its opening balance sheet, with no cumulative-effect adjustment to the opening balance of retained earnings required. Accordingly, the Company will not restate prior year comparative periods for the impact of the New Lease Accounting Standard. The New Lease Accounting Standard requires lessees to recognize an ROU Asset and lease liability for all leases with terms of more than 12 months. The Company has elected the package of practical expedients permitted under the transition guidance within the New Lease Accounting Standard, which permits the Company not to reassess the following for any expired or existing contracts: i) whether any contracts contain leases; ii) lease classification (i.e. operating lease or finance/capital lease); and iii) initial direct costs.

The adoption of the New Lease Accounting Standard resulted in the recognition of an ROU Assets and lease liabilities of approximately $518 million and $622 million, respectively, at January 1, 2019, consisting primarily of operating leases relating to office space. Pursuant to this transition adjustment, the Company also recognized approximately $150 million and approximately $125 million in additional deferred tax assets and liabilities, respectively. Compared to previous guidance, the New Lease Accounting Standard does not significantly change the method by which a lessee should recognize, measure and present expenses and cash flows arising from a lease. Refer to Note 2 for a more fulsome description of the Company’s accounting policy relating to the New Lease Accounting Standard, which includes a discussion relating to the pattern of operating lease expense recognition (both prior to and subsequent to an impairment of a ROU Asset).

In the first quarter of 2019, the Company adopted ASU No. 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. Under current GAAP, adjustments to deferred tax assets and liabilities related to a change in tax laws or rates are included in income from continuing operations, even in situations where the related items were originally recognized in OCI (commonly referred to as a “stranded tax effect”). The provisions of this ASU permit the reclassification of the stranded tax effect related to the Tax Act from AOCI to retained earnings. In the first quarter of 2019, the Company reclassified approximately $20 million of tax benefits from AOCI to retained earnings relating to the aforementioned stranded tax effect of the Tax Act.

On January 1, 2019, the Company adopted ASU No. 2018-16, “Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes”. The amendments in this ASU permit the use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under ASC 815, in addition to the currently permissible benchmark interest rates. This ASU provides the Company the ability to utilize the OIS rate based on SOFR as the benchmark interest rate on certain hedges of interest rate risk. The adoption of this ASU had no impact on the Company’s financial statements upon adoption.

Reclassification of Previously Reported Revenue by LOB

There were certain organizational/product realignments in both MIS and MA in the first quarter of 2019. Accordingly, in MIS, revenue from REITs, which was previously classified in the SFG LOB, is now classified in the CFG LOB. In MA, revenue relating to the Bureau van Dijk FACT product (a credit assessment and origination solution), which was previously classified in RD&A, is now classified in the ERS LOB. Accordingly, 2018 revenue by LOB was reclassified to conform with this new presentation, as follows:

MISAs previously reportedReclassificationAs ReclassifiedMAAs previously reportedReclassificationAs Reclassified
CFGRD&A
Q1$377.7$11.9$389.6Q1$269.2$(2.1)$267.1
Q2377.613.4391.0Q2279.9(4.0)275.9
Q3296.111.2307.3Q3282.6(2.3)280.3
Q4282.78.6291.3Q4302.4(5.3)297.1
Full year 2018$1,334.1$45.1$1,379.2Full year 2018$1,134.1$(13.7)$1,120.4
SFGERS
Q1$129.7$(11.9)$117.8Q1$100.1$2.1$102.2
Q2141.6(13.4)128.2Q2105.54.0109.5
Q3125.4(11.2)114.2Q3113.02.3115.3
Q4129.8(8.6)121.2Q4118.85.3124.1
Full year 2018$526.5$(45.1)$481.4Full year 2018$437.4$13.7$451.1
v3.19.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3 Months Ended
Mar. 31, 2019
Summary of Significant Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

On January 1, 2019, the Company adopted the New Lease Accounting Standard as more fully discussed in Note 1. Accordingly, the Company revised its lease accounting policy to reflect the provisions of the new standard, which is discussed below. All other significant accounting policies described in the Form 10-K for the year ended December 31, 2018 remain unchanged. Additionally, refer to Note 18 for additional disclosures relating to the Company’s lease obligations.

Leases

The Company has operating leases, of which substantially all relate to the lease of office space. The Company’s leases which are classified as finance leases are not material to the condensed consolidated financial statements.

The Company determines if an arrangement meets the definition of a lease at contract inception. The Company recognizes in its consolidated balance sheet a lease liability and an ROU Asset for all leases with a lease term greater than 12 months. In determining the length of the lease term, the Company utilizes judgment in assessing the likelihood of whether it is reasonably certain that it will exercise an option to extend or early-terminate a lease, if such options are provided in the lease agreement.

ROU Assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU Assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As substantially all of the Company’s leases do not provide an implicit interest rate, the Company uses its estimated secured incremental borrowing rates at the lease commencement date in determining the present value of lease payments. These secured incremental borrowing rates are attributable to the currency in which the lease is denominated.

At commencement, the Company’s initial measurement of the ROU Asset is calculated as the present value of the remaining lease payments (i.e., lease liability), with additive adjustments reflecting: initial direct costs (e.g., broker commissions) and prepaid lease payments (if any); and reduced by any lease incentives provided by the lessor if: (i) received before lease commencement or (ii) receipt of the lease incentive is contingent upon future events for which the occurrence is both probable and within the Company’s control.

Lease expense for minimum operating lease payments is recognized on a straight-line basis over the lease term. This straight-line lease expense represents a single lease cost which is comprised of both an interest accretion component relating to the lease liability and amortization of the ROU Assets. The Company records this single lease cost in operating and SG&A expenses. However, in situations where an operating lease ROU Asset has been impaired, the subsequent amortization of the ROU Asset is then recorded on a straight-line basis over the remaining lease term and is combined with accretion expense on the lease liability to result in single operating lease cost (which subsequent to impairment will no longer follow a straight-line recognition pattern).

The Company has lease agreements which include lease and non-lease components. For the Company’s office space leases, the lease components (e.g., fixed rent payments) and non-lease components (e.g., fixed common-area maintenance costs) are combined and accounted for as a single lease component.

Variable lease payments (e.g. variable common-area-maintenance costs) are only included in the initial measurement of the lease liability to the extent those payments depend on an index or a rate. Variable lease payments not included in the lease liability are recognized in net income in the period in which the obligation for those payments is incurred.

v3.19.1
REVENUES
3 Months Ended
Mar. 31, 2019
Revenues [Abstract]  
REVENUES

NOTE 3. REVENUES

Revenue by Category

The following table presents the Company’s revenues disaggregated by LOB:

Three Months Ended March 31,
20192018
MIS:
Corporate finance (CFG) (1)
Investment-grade$97.4$87.2
High-yield57.357.9
Bank loans72.6110.1
Other accounts (2)128.1134.4
Total CFG355.4389.6
Structured finance (SFG) (1)
Asset-backed securities23.228.2
RMBS23.524.3
CMBS17.721.3
Structured credit35.243.4
Other accounts1.10.6
Total SFG100.7117.8
Financial institutions (FIG)
Banking79.677.0
Insurance29.028.3
Managed investments4.05.7
Other accounts3.23.3
Total FIG115.8114.3
Public, project and infrastructure finance (PPIF)
Public finance / sovereign46.246.9
Project and infrastructure46.546.3
Total PPIF92.793.2
Total ratings revenue664.6714.9
MIS Other5.55.0
Total external revenue670.1719.9
Intersegment royalty32.329.8
Total MIS702.4749.7
MA:
Research, data and analytics (RD&A) (3)307.7267.1
Enterprise risk solutions (ERS) (3)121.9102.2
Professional services (PS)42.437.5
Total external revenue472.0406.8
Intersegment revenue2.45.0
Total MA474.4411.8
Eliminations(34.7)(34.8)
Total MCO$1,142.1$1,126.7
(1) Pursuant to certain organizational realignments in the first quarter of 2019, MIS now reports revenue from REITs, which was previously classified in the SFG LOB, as a component of the CFG LOB. The amounts reclassified were not material and prior year revenue by LOB has been reclassified to conform to this new presentation.
(2) Other includes: recurring monitoring fees of a rated debt obligation and/or entities that issue such obligations as well as fees from programs such as commercial paper, medium term notes, and ICRA corporate finance revenue.
(3) Pursuant to organizational/product realignments in the first quarter of 2019, revenue relating to the Bureau van Dijk FACT product, a credit assessment and origination software solution, is now reported in the ERS LOB. This revenue was previously reported in the RD&A LOB. Prior year revenue by LOB has been reclassified to conform to this new presentation, and the amounts reclassified were not material.

The following table presents the Company’s revenues disaggregated by LOB and geographic area:

Three Months Ended March 31, 2019
U.S.Non-U.S.Total
MIS:
Corporate finance (CFG) (1)$242.6$112.8$355.4
Structured finance (SFG) (1)62.238.5100.7
Financial institutions (FIG)46.069.8115.8
Public, project and infrastructure finance (PPIF)60.232.592.7
Total ratings revenue411.0253.6664.6
MIS Other0.25.35.5
Total MIS411.2258.9670.1
MA:
Research, data and analytics (RD&A) (2)134.8172.9307.7
Enterprise risk solutions (ERS) (2)48.473.5121.9
Professional services (PS)17.724.742.4
Total MA200.9271.1472.0
Total MCO$612.1$530.0$1,142.1
Three Months Ended March 31, 2018
U.S.Non-U.S.Total
MIS:
Corporate finance (CFG) (1)$257.3$132.3$389.6
Structured finance (SFG) (1)74.043.8117.8
Financial institutions (FIG)48.565.8114.3
Public, project and infrastructure finance (PPIF)53.439.893.2
Total ratings revenue433.2281.7714.9
MIS Other0.24.85.0
Total MIS433.4286.5719.9
MA:
Research, data and analytics (RD&A) (2)112.6154.5267.1
Enterprise risk solutions (ERS) (2)38.563.7102.2
Professional services (PS)13.224.337.5
Total MA164.3242.5406.8
Total MCO$597.7$529.0$1,126.7
(1) Pursuant to certain organizational realignments in the first quarter of 2019, MIS now reports revenue from REITs, which was previously classified in the SFG LOB, as a component of the CFG LOB. The amounts reclassified were not material and prior year revenue by LOB has been reclassified to conform to this new presentation.
(2) Pursuant to organizational/product realignments in the first quarter of 2019, revenue relating to the Bureau van Dijk FACT product, a credit assessment and origination software solution, is now reported in the ERS LOB. This revenue was previously reported in the RD&A LOB. Prior year revenue by LOB has been reclassified to conform to this new presentation, and the amounts reclassified were not material.

The following table presents the Company’s reportable segment revenues disaggregated by segment and geographic region:

Three Months Ended March 31,
20192018
MIS:
U.S.$411.2$433.4
Non-U.S.
EMEA148.5181.1
Asia-Pacific78.972.6
Americas31.532.8
Total Non-U.S.258.9286.5
Total MIS670.1719.9
MA:
U.S.200.9164.3
Non-U.S.
EMEA184.1166.2
Asia-Pacific53.347.6
Americas33.728.7
Total Non-U.S.271.1242.5
Total MA472.0406.8
Total MCO$1,142.1$1,126.7

The tables below 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,
20192018
TransactionRelationshipTotalTransactionRelationshipTotal
Corporate Finance $249.5$105.9$355.4$283.4$106.2$389.6
70%30%100%73%27%100%
Structured Finance $57.3$43.4$100.7$74.6$43.2$117.8
57%43%100%63%37%100%
Financial Institutions$47.9$67.9$115.8$50.0$64.3$114.3
41%59%100%44%56%100%
Public, Project and Infrastructure Finance$54.7$38.0$92.7$54.4$38.8$93.2
59%41%100%58%42%100%
MIS Other$0.5$5.0$5.5$0.6$4.4$5.0
9%91%100%12%88%100%
Total MIS$409.9$260.2$670.1$463.0$256.9$719.9
61%39%100%64%36%100%
Moody's Analytics$71.5(1)$400.5$472.0$60.8(1)$346.0$406.8
15%85%100%15%85%100%
Total Moody's Corporation$481.4$660.7$1,142.1$523.8$602.9$1,126.7
42%58%100%46%54%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 (refer to the following table).

The following table presents the timing of revenue recognition:

Three Months Ended March 31, 2019
MISMATotal
Revenue recognized at a point in time$409.9$30.4$440.3
Revenue recognized over time260.2441.6701.8
Total$670.1$472.0$1,142.1
Three Months Ended March 31, 2018
MISMATotal
Revenue recognized at a point in time$463.0$15.5$478.5
Revenue recognized over time256.9391.3648.2
Total$719.9$406.8$1,126.7

Unbilled receivables, Deferred revenue and Remaining performance obligations

Unbilled receivables

At March 31, 2019 and December 31, 2018, accounts receivable included $364.9 million and $311.8 million, respectively, of unbilled receivables 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, 2019 and December 31, 2018, accounts receivable included $53.3 million and $59.5 million, respectively, of unbilled receivables 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, 2019 are as follows:

Three Months Ended March 31, 2019
MISMATotal
Balance at January 1, 2019$325.4$750.3$1,075.7
Changes in deferred revenue
Revenue recognized that was included in the deferred revenue balance at the beginning of the period(92.8)(306.7)(399.5)
Increases due to amounts billable excluding amounts recognized as revenue during the period155.2346.7501.9
Effect of exchange rate changes0.54.65.1
Total changes in deferred revenue62.944.6107.5
Balance at March 31, 2019 $388.3$794.9$1,183.2
Deferred revenue - current portion$271.6$790.7$1,062.3
Deferred revenue - noncurrent portion$116.7$4.2$120.9

Significant changes in the deferred revenue balances durin