MOODYS CORP /DE/, 10-K filed on 2/22/2021
Annual Report
v3.20.4
Cover Page - USD ($)
shares in Millions, $ in Billions
12 Months Ended
Dec. 31, 2020
Jan. 31, 2021
Jun. 30, 2020
Entity Information [Line Items]      
Document Type 10-K    
Document Annual Report true    
Document Period End Date Dec. 31, 2020    
Current Fiscal Year End Date --12-31    
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 Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
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    
ICFR Auditor Attestation Flag true    
Entity Shell Company false    
Entity Public Float     $ 51.0
Entity Common Stock, Shares Outstanding (in shares)   187.1  
Documents Incorporated by Reference Portions of the Registrant’s definitive proxy statement for use in connection with its annual meeting of stockholders scheduled to be held on April 20, 2021, are incorporated by reference into Part III of this Form 10-K.    
Entity Central Index Key 0001059556    
Document Fiscal Period Focus FY    
Amendment Flag false    
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 $0.01 per share    
Trading Symbol MCO    
Security Exchange Name NYSE    
1.75% 2015 Senior Notes, due 2027      
Entity Information [Line Items]      
Title of 12(b) Security 1.75% Senior Notes Due 2027    
Trading Symbol MCO 27    
Security Exchange Name NYSE    
0.950% 2019 Senior Note, due 2030      
Entity Information [Line Items]      
Title of 12(b) Security 0.950% Senior Notes Due 2030    
Trading Symbol MCO 30    
Security Exchange Name NYSE    
v3.20.4
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
shares in Millions, $ in Millions
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Income Statement [Abstract]      
Revenue $ 5,371 $ 4,829 $ 4,443
Expenses      
Operating 1,475 1,387 1,246
Selling, general and administrative 1,229 1,167 1,080
Restructuring 50 60 49
Depreciation and amortization 220 200 192
Acquisition-Related Expenses 0 3 8
Loss pursuant to the divestiture of MAKS 9 14 0
Total expenses 2,983 2,831 2,575
Operating income 2,388 1,998 1,868
Non-operating (expense) income, net      
Interest expense, net (205) (208) (215)
Other non-operating income, net 46 20 19
Non-operating (expense) income, net (159) (188) (196)
Income before provision for income taxes 2,229 1,810 1,672
Provision for income taxes 452 381 352
Net income 1,777 1,429 1,320
Less: Net (loss) income attributable to noncontrolling interests (1) 7 10
Net income attributable to Moody’s $ 1,778 $ 1,422 $ 1,310
Earnings per share      
Basic (in USD per share) $ 9.48 $ 7.51 $ 6.84
Diluted (in USD per share) $ 9.39 $ 7.42 $ 6.74
Weighted average shares outstanding      
Basic (in shares) 187.6 189.3 191.6
Diluted (in shares) 189.3 191.6 194.4
v3.20.4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Statement of Comprehensive Income [Abstract]      
Net income $ 1,777 $ 1,429 $ 1,320
Foreign Currency Adjustments:      
Foreign currency translation adjustment - Pre Tax 361 (22) (315)
Foreign currency translation adjustment - Tax (13) (1) 0
Foreign currency translation adjustment - Net of Tax 348 (23) (315)
Foreign currency translation adjustments - reclassification of losses included in net income - Pre Tax 0 32 0
Foreign currency translation adjustments - reclassification of losses included in net income - Tax 0 0 0
Foreign currency translation adjustments - reclassification of losses included in net income - Net of Tax 0 32 0
Net (losses) gains on net investment hedges - Pre Tax (364) 35 41
Net (losses) gains on net investment hedges - Tax 91 (9) (7)
Net (losses) gains on net investment hedges - Net of Tax (273) 26 34
Net investment hedges - reclassification of gains included in net income - Pre Tax (1) (3) 0
Net investment hedges - reclassification of gains included in net income - Tax 0 1 0
Net investment hedges - reclassification of gains included in net income - Net of Tax (1) (2) 0
Cash Flow Hedges:      
Net losses on cash flow hedges - Pre Tax (68) 0 (1)
Net losses on cash flow hedges - Tax 17 0 0
Net losses on cash flow hedges - Net of Tax (51) 0 (1)
Reclassification of (losses) gains included in net income - Pre Tax 3 0 0
Reclassification of (losses) gains included in net income - Tax (1) 0 0
Reclassification of (losses) gains included in net income - Net of Tax 2 0 0
Pension and Other Retirement Benefits:      
Amortization of actuarial losses and prior service costs and settlement charge included in net income, before tax 8 3 5
Amortization of actuarial losses and prior service costs and settlement charge included in net income - Tax (2) (1) (1)
Amortization of actuarial losses and prior service costs and settlement charge included in net income - Net of Tax 6 2 4
Net actuarial (losses) gains and prior service costs - Pre Tax (42) (32) 6
Net actuarial losses and prior service costs, tax (10) (8) 2
Net actuarial (losses) gains and prior service costs - Net of Tax (32) (24) 4
Total other comprehensive (loss) income - Pre Tax (103) 13 (264)
Total other comprehensive (loss)income - Tax 102 (2) (10)
Total Other Comprehensive (Loss) Income (1) 11 (274)
Comprehensive Income 1,776 1,440 1,046
Less: comprehensive (loss) income attributable to noncontrolling interests (8) 11 (12)
Comprehensive Income Attributable to Moody’s $ 1,784 $ 1,429 $ 1,058
v3.20.4
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Dec. 31, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 2,597 $ 1,832
Short-term investments 99 98
Accounts receivable, net of allowances for credit losses of $34 in 2020 and $20 in 2019 1,430 1,419
Other current assets 383 330
Total current assets 4,509 3,679
Property and equipment, net 278 292
Operating lease right-of-use assets 393 456
Goodwill 4,556 3,722
Intangible assets, net 1,824 1,498
Deferred tax assets, net 334 229
Other assets 515 389
Total assets 12,409 10,265
Current liabilities:    
Accounts payable and accrued liabilities 1,039 773
Current portion of operating lease liabilities 94 89
Deferred revenue 1,089 1,050
Total current liabilities 2,222 1,912
Non-current portion of deferred revenue 98 112
Long-term debt 6,422 5,581
Deferred tax liabilities, net 404 357
Uncertain tax positions 483 477
Operating lease liabilities 427 485
Other liabilities 590 504
Total liabilities 10,646 9,428
Contingencies
Redeemable noncontrolling interest 0 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 735 642
Retained earnings 11,011 9,656
Treasury stock, at cost; 155,808,563 and 155,215,143 shares of common stock at December 31, 2020 and December 31, 2019, respectively (9,748) (9,250)
Accumulated other comprehensive loss (432) (439)
Total Moody’s shareholders’ equity 1,569 612
Noncontrolling interests 194 219
Total shareholders’ equity 1,763 831
Total liabilities, redeemable noncontrolling interest and shareholders’ equity 12,409 10,265
Series Common Stock    
Shareholders’ equity:    
Common stock $ 0 $ 0
v3.20.4
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
$ in Millions
Dec. 31, 2020
Dec. 31, 2019
Accounts receivable, allowances $ 34 $ 20
Preferred stock, par value (in usd per share) $ 0.01 $ 0.01
Preferred stock, shares authorized (in shares) 10,000,000.0 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) 155,808,563 155,215,143
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
v3.20.4
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
12 Months Ended 24 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2020
Cash flows from operating activities        
Net income $ 1,777 $ 1,429 $ 1,320  
Reconciliation of net income to net cash provided by operating activities:        
Depreciation and amortization 220 200 192  
Stock-based compensation 154 136 130  
Deferred income taxes (44) (38) (99)  
Prepayment penalty relating to early redemption of debt 24 12 0  
Settlement of treasury rate lock (68) 0 0  
ROU Asset impairment & other non-cash restructuring/impairment charges 36 38 0  
Loss pursuant to the divestiture of MAKS 9 14 0  
Changes in assets and liabilities:        
Accounts receivable 31 (134) (136)  
Other current assets (38) (88) (9)  
Other assets (49) (69) (17)  
Lease obligations (10) (16) 0  
Accounts payable and accrued liabilities 247 65 (99)  
Deferred revenue (29) 76 139  
Unrecognized tax positions and other non-current tax liabilities (12) 8 59  
Other liabilities (102) 42 (19)  
Net cash provided by operating activities 2,146 1,675 1,461  
Cash flows from investing activities        
Capital additions (103) (69) (91)  
Purchases of investments (181) (138) (193)  
Sales and maturities of investments 104 174 161  
Cash received upon disposal of a business, net of cash transferred to purchaser 0 226 6  
Cash paid for acquisitions, net of cash acquired (897) (162) (289)  
Receipts from settlements of net investment hedges 2 12 0  
Payments for settlements of net investment hedges (2) (7) 0  
Net cash (used in) provided by investing activities (1,077) 36 (406)  
Cash flows from financing activities        
Issuance of notes 1,491 824 1,090  
Repayment of notes (800) (950) (800)  
Issuance of commercial paper 789 1,317 989  
Repayment of commercial paper (792) (1,320) (1,120)  
Proceeds from stock-based compensation plans 51 45 47  
Repurchase of shares related to stock-based compensation (104) (77) (62)  
Treasury shares (503) (991) (203)  
Dividends (420) (378) (337)  
Dividends to noncontrolling interests (1) (3) (5)  
Payment for noncontrolling interest (23) (12) 0  
Debt issuance costs, extinguishment costs and related fees (39) (18) (11)  
Net cash used in financing activities (351) (1,563) (412)  
Effect of exchange rate changes on cash and cash equivalents 47 (1) (30)  
Increase in cash and cash equivalents 765 147 613  
Cash and cash equivalents, beginning of period 1,832 1,685 1,072 $ 1,685
Cash and cash equivalents, end of period $ 2,597 $ 1,832 $ 1,685 $ 2,597
v3.20.4
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) - USD ($)
shares in Millions, $ in Millions
Total
Cumulative Effect, Period of Adoption, Adjustment
Common Stock
Capital Surplus
Retained Earnings
Retained Earnings
Cumulative Effect, Period of Adoption, Adjustment
Treasury Stock
Accumulated Other Comprehensive Loss
Accumulated Other Comprehensive Loss
Cumulative Effect, Period of Adoption, Adjustment
Total Moody’s Shareholders’ Equity
Total Moody’s Shareholders’ Equity
Cumulative Effect, Period of Adoption, Adjustment
Non- Controlling Interests
Beginning Balance (in shares) at Dec. 31, 2017     342.9       151.9          
Beginning Balance at Dec. 31, 2017 $ (115)   $ 3 $ 529 $ 7,465   $ (8,153) $ (172)   $ (328)   $ 213
Beginning Balance (Accounting Standards Update 2014-09) at Dec. 31, 2017   $ 156       $ 156         $ 156  
Beginning Balance (Accounting Standards Update 2016-01) at Dec. 31, 2017   0       2     $ (2)   0  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                        
Net income 1,320       1,310         1,310   10
Dividends (343)       (339)         (339)   (4)
Stock-based compensation 131     131           131    
Shares issued for stock-based compensation plans at average cost, net (in shares)             1.5          
Shares issued for stock-based compensation plans at average cost, net (16)     (59)     $ 43     (16)    
Treasury shares repurchased (in shares)             (1.2)          
Treasury shares repurchased (203)           $ (203)     (203)    
Currency translation adjustment, net of net investment hedge activity (281)             (259)   (259)   (22)
Net actuarial gains and prior service cost 4             4   4    
Amortization of prior service costs and actuarial losses 4             4   4    
Net realized and unrealized gain on cash flow hedges (1)             (1)   (1)    
Ending Balance (in shares) at Dec. 31, 2018     342.9       151.6          
Ending Balance at Dec. 31, 2018 $ 656 $ 0 $ 3 601 8,594 20 $ (8,313) (426) $ (20) 459 0 197
Increase (Decrease) in Stockholders' Equity [Roll Forward]                        
Accounting Standards Update [Extensible List] us-gaap:AccountingStandardsUpdate201802Member us-gaap:AccountingStandardsUpdate201802Member                    
Net income $ 1,429       1,422         1,422   7
Dividends (383)       (380)         (380)   (3)
Stock-based compensation 136     136           136    
Shares issued for stock-based compensation plans at average cost, net (in shares)             1.6          
Shares issued for stock-based compensation plans at average cost, net (32)     (70)     $ 38     (32)    
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)             (5.2)          
Treasury shares repurchased (991)     (16)     $ (975)     (991)    
Currency translation adjustment, net of net investment hedge activity 33             29   29   4
Net actuarial gains and prior service cost (24)             (24)   (24)    
Amortization of prior service costs and actuarial losses 2             2   2    
Ending Balance (in shares) at Dec. 31, 2019     342.9       155.2          
Ending Balance at Dec. 31, 2019 $ 831 $ (2) $ 3 642 9,656 $ (2) $ (9,250) (439)   612 $ (2) 219
Increase (Decrease) in Stockholders' Equity [Roll Forward]                        
Accounting Standards Update [Extensible List] us-gaap:AccountingStandardsUpdate201613Member                      
Net income $ 1,777                      
Dividends (424)       (421)         (421)   (3)
Stock-based compensation 154     154           154    
Shares issued for stock-based compensation plans at average cost, net (in shares)             1.4          
Shares issued for stock-based compensation plans at average cost, net (53)     (58)     $ 5     (53)    
Purchase of noncontrolling interest (17)     (3)           (3)   (14)
Treasury shares repurchased (in shares)             (2.0)          
Treasury shares repurchased (503)     0     $ (503)     (503)    
Currency translation adjustment, net of net investment hedge activity 74             82   82   (8)
Net actuarial gains and prior service cost (32)             (32)   (32)    
Amortization of prior service costs and actuarial losses 6             6   6    
Net realized and unrealized gain on cash flow hedges (49)             (49)   (49)    
Ending Balance (in shares) at Dec. 31, 2020     342.9       155.8          
Ending Balance at Dec. 31, 2020 1,763   $ 3 $ 735 11,011   $ (9,748) $ (432)   1,569   194
Increase (Decrease) in Stockholders' Equity [Roll Forward]                        
Net Income (Loss), Including Portion Attributable to Nonredeemable Noncontrolling Interest $ 1,778       $ 1,778         $ 1,778   $ 0
v3.20.4
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Parenthetical) - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Statement of Stockholders' Equity [Abstract]      
Dividends declared per share attributable to Moody's common shareholders (in USD per share) $ 2.24 $ 2.00 $ 1.76
Currency translation adjustment, tax $ (78) $ 9 $ 7
Net actuarial losses and prior service costs, tax (10) (8) 2
Amortization of actuarial losses and prior service costs included in net income, tax 2 $ 1 1
Net unrealized and unrealized gain on cash flow hedges, tax $ (16)   $ (1)
v3.20.4
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
12 Months Ended
Dec. 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 global integrated risk assessment firm that empowers organizations and investors to make better decisions. Moody’s reports in two reportable segments: MIS and MA.
MIS publishes credit ratings and provides assessment services on a wide range of debt obligations, programs and facilities, and the entities that issue such obligations in markets worldwide, including various corporate, financial institution and governmental obligations, and structured finance securities. Revenue is primarily derived from the originators and issuers of such transactions who use MIS ratings to support 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 providing ESG research, data and assessments and 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 is a global provider of data and analytic solutions which help companies make better and faster decisions. MA’s analytic models, industry insights, software tools and proprietary data assets allow companies to inform and perform many critical business activities with trust and confidence. MA’s approach to aggregating, broadening and deepening available data, research, analytic tools and software solutions fosters a more integrated and efficient delivery to MA's customers resulting in better decisions around risks and opportunities.
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 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 did not restate prior year comparative periods for the impact of the New Lease Accounting Standard.
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 is now 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.
On December 31, 2020, the Company adopted ASU No. 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans”. This ASU eliminates requirements for certain disclosures and requires additional disclosures under defined benefit pension plans and other postretirement plans. The Company is also now required to present a narrative description of significant gains or losses in the benefit obligation over the past year. The Company adopted this ASU retrospectively for all periods presented with the new required disclosures presented in Note 15.
COVID-19
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 annual report on Form 10-K, 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, including the length of time to distribute a vaccine. 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 could impact the results of operations and cash flows of the Company in the near term, Moody's believes that it has adequate liquidity to maintain its operations with minimal disruption and to maintain compliance with its debt covenants.
In order to maximize liquidity and to increase available cash on hand through this period of uncertainty, the Company increased its long-term borrowings by $700 million as more fully discussed in Note 18. In addition, the Company reduced discretionary spending, including temporarily suspending its share repurchase program beginning late in the first quarter of 2020 and spanning through the third quarter. The Company resumed its share repurchase program in the fourth quarter of 2020.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States. The Company utilized certain provisions in the CARES Act and other IRS guidance which permit the deferral of certain income and payroll tax remittances.
v3.20.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Dec. 31, 2020
Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include those of Moody’s Corporation and its majority- and wholly-owned subsidiaries. The effects of all intercompany transactions have been eliminated. Investments in companies for which the Company has significant influence over operating and financial policies but not a controlling interest are accounted for on an equity basis whereby the Company records its proportional share of the investment’s net income or loss as part of other non-operating income (expense), net and any dividends received reduce the carrying amount of the investment. The Company applies the guidelines set forth in Topic 810 of the ASC in assessing its interests in variable interest entities to decide whether to consolidate an entity. The Company has reviewed the potential variable interest entities and determined that there are no consolidation requirements under Topic 810 of the ASC. The Company consolidates its ICRA subsidiaries on a three month lag.
Cash and Cash Equivalents
Cash equivalents principally consist of investments in money market mutual funds and money market deposit accounts as well as high-grade commercial paper and certificates of deposit with maturities of three months or less when purchased.
Short-term Investments
Short-term investments are securities with maturities greater than 90 days at the time of purchase that are available for operations in the next 12 months. The Company’s short-term investments primarily consist of certificates of deposit and their cost approximates fair value due to the short-term nature of the instruments. Interest and dividends on these investments are recorded into income when earned.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives. Expenditures for maintenance and repairs that do not extend the economic useful life of the related assets are charged to expense as incurred.
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, website and other systems. Such costs generally consist of direct costs for third-party 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. 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).
Goodwill and Other Acquired Intangible Assets
Moody’s evaluates its goodwill for impairment at the reporting unit level, defined as an operating segment (i.e., MIS and MA), or one level below an operating segment (i.e., a component of an operating segment), annually as of July 31 or more frequently if impairment indicators arise in accordance with ASC Topic 350.
The Company evaluates the recoverability of goodwill using a two-step impairment test approach at the reporting unit level. In the first step, the Company assesses various qualitative factors to determine whether the fair value of a reporting unit may be less than its carrying amount. If a determination is made based on the qualitative factors that an impairment does not exist, the Company is not required to perform further testing. If the aforementioned qualitative assessment results in the Company concluding that it is more likely than not that the fair value of a reporting unit may be less than its carrying amount, the fair value of the reporting unit will be quantitatively determined and compared to its carrying value including goodwill. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and the Company is not required to perform further testing. If the fair value of the reporting unit is less than the carrying value, the Company will record a goodwill impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value.
The Company evaluates its reporting units on an annual basis, or more frequently if there are changes in the reporting structure of the Company due to acquisitions, reporting unit realignments or if there are indicators of potential impairment. For the reporting units where the Company is consistently able to conclude that no impairment exists using only a qualitative approach, the Company’s accounting policy is to perform the second step of the aforementioned goodwill impairment assessment at least once every three years. Goodwill is assigned to a reporting unit at the date when an acquisition is integrated into one of the established reporting units, and is based on which reporting unit is expected to benefit from the synergies of the acquisition.
For purposes of assessing the recoverability of goodwill, the Company has seven primary reporting units: two within the Company’s ratings business (one for the ICRA business and one that encompasses all of Moody’s other ratings operations) and five reporting units within MA: Content, ERS, MALS, Bureau van Dijk and Reis.
Impairment of long-lived assets and definite-lived intangible assets
Long-lived assets (including ROU Assets) and amortizable intangible assets are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Under the first step of the recoverability assessment, the Company compares the estimated undiscounted future cash flows attributable to the asset or asset group to their carrying value. If the undiscounted future cash flows are greater than the carrying value, no further assessment is required. If the undiscounted future cash flows are less than the carrying value, Moody's proceeds with step two of the assessment. Under step two of this assessment, Moody's is required to determine the fair value of the asset or asset group (reduced by the estimated cost to sell the asset for assets or disposal groups classified as held-for-sale) and recognize an impairment loss if the carrying amount exceeds its fair value.
Stock-Based Compensation
The Company records compensation expense for all share-based payment award transactions granted to employees based on the fair value of the equity instrument at the time of grant. This includes shares issued under stock option and restricted stock plans.
Derivative Instruments and Hedging Activities
Based on the Company’s risk management policy, from time to time the Company may use derivative financial instruments to reduce exposure to changes in foreign exchange rates and interest rates. The Company does not enter into derivative financial instruments for speculative purposes. All derivative financial instruments are recorded on the balance sheet at their respective fair values on a gross basis. The changes in the value of derivatives that qualify as fair value hedges are recorded in the same income statement line item in earnings in which the corresponding adjustment to the carrying value of the hedged item is presented. The entire change in the fair value of derivatives that qualify as cash flow hedges is recorded to OCI and such amounts are reclassified from AOCI to the same income statement line in earnings in the same period or periods during which the hedged transaction affects income. Effective with the Company’s early adoption of ASC 2017-12, the Company changed the method by which it assesses effectiveness for net investment hedges from the forward-method to the spot-method. The Company considers the spot-method an improved method of assessing hedge effectiveness, as spot rate changes relating to the hedging instrument’s notional amount perfectly offset the currency translation adjustment on the hedged net investment in the Company’s foreign subsidiaries. The entire change in the fair value of derivatives that qualify as net investment hedges is initially recorded to OCI. Those changes in fair value attributable to components included in the assessment of hedge effectiveness in a net investment hedge are recorded in the currency translation adjustment component of OCI and remain in AOCI until the period in which the hedged item affects earnings. Those changes in fair value attributable to components excluded from the assessment of hedge effectiveness in a net investment hedge are recorded to OCI and amortized to earnings using a systematic and rational method over the duration of the hedge. Any changes in the fair value of derivatives that the Company does not designate as hedging instruments under Topic 815 of the ASC are recorded in the consolidated statements of operations in the period in which they occur.
Revenue Recognition and Costs to Obtain or Fulfill a Contract with a Customer
Revenue recognition:
Revenue is recognized when control of promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
When contracts with customers contain multiple performance obligations, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to each distinct performance obligation on a relative SSP basis. The Company determines the SSP by using the price charged for a deliverable when sold separately or uses management’s best estimate of SSP for goods or services not sold separately using estimation techniques that maximize observable data points, including: internal factors relevant to its pricing practices such as costs and margin objectives; standalone sales prices of similar products; pricing policies; percentage of the fee charged for a primary product or service relative to a related product or service; and customer segment and geography. Additional consideration is also given to market conditions such as competitor pricing strategies and market trends.
Sales, usage-based, value added and other taxes are excluded from revenues.
MIS Revenue
In the MIS segment, revenue arrangements with multiple elements are generally comprised of two distinct performance obligations, a rating and the related monitoring service. Revenue attributed to ratings of issued securities is generally recognized when the rating is delivered to the issuer. Revenue attributed to monitoring of issuers or issued securities is recognized ratably over the period in which the monitoring is performed, generally one year. In the case of certain structured finance products, primarily CMBS, issuers can elect to pay all of the annual monitoring fees upfront. These fees are deferred and recognized over the future monitoring periods based on the expected lives of the rated securities.
MIS arrangements generally have standard contractual terms for which the stated payments are due at conclusion of the ratings process for ratings and either upfront or in arrears for monitoring services; and are signed by customers either on a per issue basis or at the beginning of the relationship with the customer. In situations when customer fees for an arrangement may be variable, the Company estimates the variable consideration at inception using the expected value method based on analysis of similar contracts in the same line of business, which is constrained based on the Company’s assessment of the realization of the adjustment amount.
The Company allocates the transaction price within arrangements that include multiple performance obligations based upon the relative SSP of each service. The SSP for both rating and monitoring services is generally based upon observable selling prices where the rating or monitoring service is sold separately to similar customers.
MA Revenue
In the MA segment, products and services offered by the Company include hosted research and data subscriptions, installed software subscriptions, perpetual installed software licenses and related maintenance, or PCS, and professional services. Subscription and PCS contracts are generally invoiced in advance of the contractual coverage period, which is principally one year, but can range from 3-5 years; while perpetual software licenses are generally invoiced upon delivery and professional services are invoiced as those services are provided. Payment terms and conditions vary by contract type, but primarily include a requirement of payment within 30 to 60 days.
Revenue from research, data and other hosted subscriptions is recognized ratably over the related subscription period as MA's performance obligation to provide access to these products is progressively fulfilled over the stated term of the contract. A large portion of these services are invoiced in the months of November, December and January.
Revenue from the sale of a software license, when considered distinct from the related software implementation services, is generally recognized at the time the product master or first copy is delivered or transferred to the customer. PCS is generally recognized ratably over the contractual period commencing when the software license is fully delivered. Revenue from installed software subscriptions, which includes PCS, is bifurcated into a software license performance obligation and a PCS performance obligation, which follow the patterns of recognition described above. However, in instances where the software license (perpetual or subscription) and related implementation services are considered to be one combined performance obligation, revenue is recognized over time using cost based input methods. Due to the strategic shift in the MA business towards SaaS solutions, revenue generated from these types of arrangements were not material in the years ended December 31, 2020, 2019 and 2018.
For implementation services and other service projects within the ERS and ESA businesses for which fees are fixed, the Company determined progress towards completion is most accurately measured on a percentage-of-completion basis (input method) as this approach utilizes the most directly observable data points and is therefore used to recognize the related revenue. For implementation services where price varies based on time expended, a time-based measure of progress towards completion of the performance obligation is utilized.
Revenue from professional services rendered is generally recognized as the services are performed over time.
Products and services offered within the MA segment are sold either stand-alone or together in various combinations. In instances where an arrangement contains multiple performance obligations, the Company accounts for the individual performance obligations separately if they are considered distinct. Revenue is generally allocated to all performance obligations based upon the relative SSP at contract inception. For certain performance obligations, judgment is required to determine the SSP. Revenue is recognized for each performance obligation based upon the conditions for revenue recognition noted above.
In the MA segment, customers usually pay a fixed fee for the products and services based on signed contracts. However, accounting for variable consideration is applied mainly for: i) estimates for cancellation rights and price concessions and ii) T&M based services.
The Company estimates the variable consideration associated with cancellation rights and price concessions based on the expected amount to be provided to customers and reduces the amount of revenue to be recognized. T&M based contracts represent about half of MA’s service projects within the ERS and ESA businesses. The Company provides agreed upon services at a contracted daily or hourly rate. The commitment represents a series of goods and services that are substantially the same and have the same pattern of transfer to the customer. As such, if T&M services are sold with other MA products, the Company allocates the variable consideration entirely to the T&M performance obligation if the services are sold at standard pricing or at a similar discount level compared to other performance obligations in the same revenue contract. If these criteria are not met, the Company estimates variable consideration for each performance obligation upfront. Each form of variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal of any incremental revenue will not occur.
Costs to Obtain or Fulfill a Contract with a Customer:
Costs to obtain a contract with a customer
Costs incurred to obtain customer contracts, such as sales commissions, are deferred and recorded within other current assets and other assets when such costs are determined to be incremental to obtaining a contract, would not have been incurred otherwise and the Company expects to recover those costs. These costs are amortized to expense on a systematic basis consistent with the transfer of the products or services to the customer. Depending on the line of business to which the contract relates, this may be based upon the average economic life of the products sold or average period for which services are provided, inclusive of anticipated contract renewals. Determining the estimated economic life of the products sold requires judgment with respect to anticipated future technological changes. The Company had a balance of $180 million and $159 million in such deferred costs as of December 31, 2020 and December 31, 2019, respectively, and recognized $59 million, $53 million and $38 million of related amortization during the years ended December 31, 2020, December 31, 2019 and December 31, 2018, respectively, which is included within SG&A expenses in the consolidated statement of operations. Costs incurred to obtain customer contracts are only in the MA segment.
Cost to fulfill a contract with a customer
Costs incurred to fulfill customer contracts, are deferred and recorded within other current assets and other assets when such costs relate directly to a contract, generate or enhance resources of the Company that will be used in satisfying performance obligations in the future and the Company expects to recover those costs.
The Company capitalizes work-in-process costs for in-progress MIS ratings, which is recognized consistent with the rendering of the related services to the customers, as ratings are issued. The Company had a balance of $12 million and $11 million in such deferred costs as of December 31, 2020 and December 31, 2019, respectively, and recognized $47 million, $42 million and $40 million of amortization of the costs during the years ended December 31, 2020, December 31, 2019 and December 31, 2018, respectively, which is included within operating expenses in the consolidated statement of operations.
In addition, within the MA segment, the Company capitalizes royalty costs related to third-party information data providers associated with hosted company information and business intelligence products. These costs are amortized to expense consistent with the recognition pattern of the related revenue over time. The Company had a balance of $35 million and $40 million in such deferred costs as of December 31, 2020 and December 31, 2019, respectively, and recognized $66 million, $56 million and $54 million of related amortization during the years ended December 31, 2020, December 31, 2019 and December 31, 2018, respectively, which is included within operating expenses in the consolidated statement of operations.
Accounts Receivable Allowances
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, and 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.
During the year ended December 31, 2020, the Company recorded a net provision for expected credit losses of $26 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.
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 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.
Contingencies
Moody’s is involved in legal and tax proceedings, governmental, regulatory and legislative investigations and inquiries, claims and litigation that are incidental to the Company’s business, including claims based on ratings assigned by MIS. Moody’s is also subject to ongoing tax audits in the normal course of business. Management periodically assesses the Company’s liabilities and contingencies in connection with these matters based upon the latest information available. Moody’s discloses material pending legal proceedings pursuant to SEC rules and other pending matters as it may determine to be appropriate.
For claims, litigation and proceedings and governmental investigations and inquiries not related to income taxes, the Company records liabilities in the consolidated financial statements when it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated and periodically adjusts these as appropriate. When the reasonable estimate of the loss is within a range of amounts, the minimum amount of the range is accrued unless some higher amount within the range is a better estimate than another amount within the range. In instances when a loss is reasonably possible but uncertainties exist related to the probable outcome and/or the amount or range of loss, management does not record a liability but discloses the contingency if material. As additional information becomes available, the Company adjusts its assessments and estimates of such matters accordingly. Moody’s also discloses material pending legal proceedings pursuant to SEC rules and other pending matters as it may determine to be appropriate.
In view of the inherent difficulty of assessing the potential outcome of legal proceedings, governmental, regulatory and legislative investigations and inquiries, claims and litigation and similar matters and contingencies, particularly when the claimants seek large or indeterminate damages or assert novel legal theories or the matters involve a large number of parties, the Company often cannot predict what the eventual outcome of the pending matters will be or the timing of any resolution of such matters. The Company also may be unable to predict the impact (if any) that any such matters may have on how its business is conducted, on its competitive position or on its financial position, results of operations or cash flows. As the process to resolve any pending matters progresses, management will continue to review the latest information available and assess its ability to predict the outcome of such matters and the effects, if any, on its operations and financial condition and to accrue for and disclose such matters as and when required. However, because such matters are inherently unpredictable and unfavorable developments or resolutions can occur, the ultimate outcome of such matters, including the amount of any loss, may differ from those estimates.
Operating Expenses
Operating expenses include costs associated with the development and production of the Company’s products and services and their delivery to customers. These expenses principally include employee compensation and benefits and travel costs that are incurred in connection with these activities. Operating expenses are charged to income as incurred.
Selling, General and Administrative Expenses
SG&A expenses include such items as compensation and benefits for corporate officers and staff and compensation and other expenses related to sales. They also include items such as office rent, business insurance, professional fees and gains and losses from sales and disposals of assets. SG&A expenses are charged to income as incurred.
Foreign Currency Translation
For all operations outside the U.S. where the Company has designated the local currency as the functional currency, assets and liabilities are translated into U.S. dollars using end of year exchange rates, and revenue and expenses are translated using average exchange rates for the year. For these foreign operations, currency translation adjustments are recorded to other comprehensive income.
Comprehensive Income
Comprehensive income represents the change in net assets of a business enterprise during a period due to transactions and other events and circumstances from non-owner sources including foreign currency translation impacts, net actuarial gains and losses and net prior service costs related to pension and other retirement plans and gains and losses on derivative instruments designated as net investment hedges or cash flow hedges. Comprehensive income items, including cumulative translation adjustments of entities that are less-than-wholly-owned subsidiaries, will be reclassified to noncontrolling interests and thereby, adjusting accumulated other comprehensive income proportionately in accordance with the percentage of ownership interest of the NCI shareholder.
Income Taxes
The Company accounts for income taxes under the asset and liability method in accordance with ASC Topic 740. Therefore, income tax expense is based on reported income before income taxes and deferred income taxes reflect the effect of temporary differences between the amounts of assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes.
The Company classifies interest related to unrecognized tax benefits as a component of interest expense in its consolidated statements of operations. Penalties are recognized in other non-operating expenses. For UTPs, the Company first determines whether it is more-likely-than-not (defined as a likelihood of more than fifty percent) that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more-likely-than-not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority.
On December 22, 2017, the Tax Act was signed into law, resulting in all previously undistributed foreign earnings being subject to U.S. tax. The Company has provided deferred taxes for those entities whose earnings are not considered indefinitely reinvested.
Fair Value of Financial Instruments
The Company’s financial instruments include cash, cash equivalents, trade receivables and payables, and certain short-term investments consisting primarily of certificates of deposit and money market deposits, all of which are short-term in nature and, accordingly, approximate fair value.
The Company also invests in mutual funds, which are accounted for as equity securities with readily determinable fair values under ASC Topic 321. The Company measures these investments at fair value with both realized gains and losses and unrealized holding gains and losses for these investments included in net income.
Also, the Company uses derivative instruments to manage certain financial exposures that occur in the normal course of business. These derivative instruments are carried at fair value in the Company’s consolidated balance sheets.
Fair value is defined by the ASC 820 as the price that would be received from selling an asset or paid to transfer a liability (i.e., an exit price) in an orderly transaction between market participants at the measurement date. The determination of this fair value is based on the principal or most advantageous market in which the Company could commence transactions and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance. Also, determination of fair value assumes that market participants will consider the highest and best use of the asset.
The ASC establishes a fair value hierarchy whereby the inputs contained in valuation techniques used to measure fair value are categorized into three broad levels as follows:
Level 1: quoted market prices in active markets that the reporting entity has the ability to access at the date of the fair value measurement;
Level 2: inputs other than quoted market prices described in Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities;
Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value measurement of the assets or liabilities.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk principally consist of cash and cash equivalents, short-term investments, trade receivables and derivatives.
The Company manages its credit risk exposure by allocating its cash equivalents among various money market mutual funds, money market deposit accounts, certificates of deposits and high-grade commercial paper. Short-term investments primarily consist of certificates of deposit as of December 31, 2020 and 2019. The Company manages its credit risk exposure on cash equivalents and short-term investments by limiting the amount it can invest with any single entity. No customer accounted for 10% or more of accounts receivable at December 31, 2020 or 2019.
Earnings per Share of Common Stock
Basic shares outstanding is calculated based on the weighted average number of shares of common stock outstanding during the reporting period. Diluted shares outstanding is calculated giving effect to all potentially dilutive common shares, assuming that such shares were outstanding and dilutive during the reporting period.
Pension and Other Retirement Benefits
Moody’s maintains various noncontributory DBPPs as well as other contributory and noncontributory retirement plans. The expense and assets/liabilities that the Company reports for its pension and other retirement benefits are dependent on many assumptions concerning the outcome of future events and circumstances. These assumptions represent the Company’s best estimates and may vary by plan. The differences between the assumptions for the expected long-term rate of return on plan assets and actual experience is spread over a five-year period to the market-related value of plan assets, which is used in determining the expected return on assets component of annual pension expense. All other actuarial gains and losses are generally deferred and amortized over the estimated average future working life of active plan participants.
The Company recognizes as an asset or liability in its consolidated balance sheet the funded status of its defined benefit retirement plans, measured on a plan-by-plan basis. Changes in the funded status due to actuarial gains/losses are recorded as part of other comprehensive income during the period the changes occur.
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.
Recently Issued Accounting Pronouncements
In April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825 Financial Instruments”. This ASU clarifies and improves guidance related to the recently issued standards updates on credit losses, hedging, and recognition and measurement of financial instruments. This ASU is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company does not anticipate that the adoption of this ASU will have a significant impact on its consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes". This ASU simplifies the accounting for income taxes by eliminating certain exceptions to the general principles in Topic 740, Income Taxes, and clarifies certain aspects of the existing guidance to promote consistency among reporting entities. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. This ASU is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company does not anticipate that the adoption of this ASU will have a significant impact on its consolidated financial statements.
In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform - Scope,” which clarified the scope and application of the original guidance, ASU No. 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU No. 2020-04"), issued in March 2020. ASU No. 2020-04 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. Both ASU's were effective upon issuance, and the Company may elect to apply the amendments prospectively through December 31, 2022 as the transition from LIBOR is completed.
v3.20.4
REVENUES
12 Months Ended
Dec. 31, 2020
Revenue from Contract with Customer [Abstract]  
REVENUES REVENUES
Revenue by Category
The following table presents the Company’s revenues disaggregated by LOB:
Year Ended December 31,
202020192018
MIS:
Corporate finance (CFG)
Investment-grade$636 $379 $271 
High-yield352 258 175 
Bank loans287 313 379 
Other accounts (CFG) (1)
582 547 554 
Total CFG1,857 1,497 1,379 
Structured finance (SFG)
Asset-backed securities98 99 107 
RMBS96 95 98 
CMBS61 81 78 
Structured credit105 148 196 
Other accounts (SFG)2 
Total SFG362 427 481 
Financial institutions (FIG)
Banking355 320 290 
Insurance137 119 114 
Managed investments28 25 25 
Other accounts (FIG)10 12 13 
Total FIG530 476 442 
Public, project and infrastructure finance (PPIF)
Public finance / sovereign250 222 185 
Project and infrastructure246 224 206 
Total PPIF496 446 391 
Total ratings revenue3,245 2,846 2,693 
MIS Other47 29 19 
Total external revenue3,292 2,875 2,712 
Intersegment royalty148 134 124 
Total MIS3,440 3,009 2,836 
MA:
Research, data and analytics (RD&A)1,514 1,273 1,121 
Enterprise risk solutions (ERS)565 522 451 
Professional services (PS)(2)
 159 159 
Total external revenue2,079 1,954 1,731 
Intersegment revenue7 12 
Total MA2,086 1,963 1,743 
Eliminations(155)(143)(136)
Total MCO$5,371 $4,829 $4,443 
(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:
Year Ended December 31, 2020Year Ended December 31, 2019Year Ended December 31, 2018
U.S.Non-U.S.TotalU.S.Non-U.S.TotalU.S.Non-U.S.Total
MIS:
Corporate finance$1,291 $566 $1,857 $968 $529 $1,497 $894 $485 $1,379 
Structured finance214 148 362 270 157 427 301 180 481 
Financial institutions250 280 530 200 276 476 194 248 442 
Public, project and infrastructure finance311 185 496 282 164 446 229 162 391 
Total ratings revenue2,066 1,179 3,245 1,720 1,126 2,846 1,618 1,075 2,693 
MIS Other2 45 47 28 29 18 19 
Total MIS2,068 1,224 3,292 1,721 1,154 2,875 1,619 1,093 2,712 
MA:
Research, data and analytics668 846 1,514 558 715 1,273 481 640 1,121 
Enterprise risk solutions219 346 565 201 321 522 170 281 451 
Professional services (PS)(1)
   64 95 159 60 99 159 
Total MA887 1,192 2,079 823 1,131 1,954 711 1,020 1,731 
Total MCO$2,955 $2,416 $5,371 $2,544 $2,285 $4,829 $2,330 $2,113 $4,443 
(1)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 reportable segment revenues disaggregated by segment and geographic region:
Year Ended December 31,
2020
2019
2018
MIS:
  U.S.$2,068 $1,721 $1,619 
  Non-U.S.:
   EMEA727 686 669 
   Asia-Pacific345 320 300 
   Americas152 148 124 
   Total Non-U.S.1,224 1,154 1,093 
  Total MIS3,292 2,875 2,712 
MA:
  U.S.887 823 711 
  Non-U.S.:
   EMEA818 760 708 
   Asia-Pacific226 231 193 
   Americas148 140 119 
   Total Non-U.S.1,192 1,131 1,020 
  Total MA2,079 1,954 1,731 
Total MCO$5,371 $4,829 $4,443 
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, and training and certification services.
Year Ended December 31,
20202019
2018
TransactionRelationshipTotalTransactionRelationshipTotalTransactionRelationshipTotal
Corporate Finance$1,401 $456 $1,857 $1,057 $440 $1,497 $949 $430 $1,379 
75 %25 %100 %71 %29 %100 %69 %31 %100 %
Structured Finance$175 $187 $362 $246 $181 $427 $310 $171 $481 
48 %52 %100 %58 %42 %100 %64 %36 %100 %
Financial Institutions$265 $265 $530 $212 $264 $476 $187 $255 $442 
50 %50 %100 %45 %55 %100 %42 %58 %100 %
Public, Project and Infrastructure Finance$337 $159 $496 $292 $154 $446 $238 $153 $391 
68 %32 %100 %65 %35 %100 %61 %39 %100 %
MIS Other$4 $43 $47 $$27 $29 $$17 $19 
%91 %100 %%93 %100 %11 %89 %100 %
Total MIS$2,182 $1,110 $3,292 $1,809 $1,066 $2,875 $1,686 $1,026 $2,712 
66 %34 %100 %63 %37 %100 %62 %38 %100 %
Research, data and analytics$74 $1,440 $1,514 $16 $1,257 $1,273 $18 $1,103 $1,121 
%95 %100 %%99 %100 %%98 %100 %
Enterprise risk solutions$118 $447 $565 $118 $404 $522 $99 $352 $451 
21 %79 %100 %23 %77 %100 %22 %78 %100 %
Professional services(1)
$ $ $ $159 $— $159 $159 $— $159 
— %— %— %100 %— %100 %100 %— %100 %
Total MA$192 $1,887 $2,079 $293 $1,661 $1,954 $276 $1,455 $1,731 
%91 %100 %15 %85 %100 %16 %84 %100 %
Total Moody’s Corporation$2,374 $2,997 $5,371 $2,102 $2,727 $4,829 $1,962 $2,481 $4,443 
44 %56 %100 %44 %56 %100 %44 %56 %100 %
(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 timing of revenue recognition:
Year Ended December 31, 2020Year Ended December 31, 2019Year Ended December 31, 2018
MISMATotalMISMATotalMISMATotal
Revenue recognized at a point in time$2,182 $121 $2,303 $1,809 $132 $1,941 $1,686 $99 $1,785 
Revenue recognized over time1,110 1,958 3,068 1,066 1,822 2,888 1,026 1,632 2,658 
Total$3,292 $2,079 $5,371 $2,875 $1,954 $4,829 $2,712 $1,731 $4,443 
Unbilled Receivables, Deferred Revenue and Remaining Performance Obligations
Unbilled receivables
At December 31, 2020 and December 31, 2019, accounts receivable included approximately $361 million and $346 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 and rating fees, 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 December 31, 2020 and December 31, 2019, accounts receivable included approximately $98 million and $53 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 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 year ended December 31, 2020 are as follows:
Year Ended December 31, 2020
MISMATotal
Balance at December 31, 2019$322 $840 $1,162 
Changes in deferred revenue
Revenue recognized that was included in the deferred revenue balance at the beginning of the period(229)(800)(1,029)
Increases due to amounts billable excluding amounts recognized as revenue during the period215 792 1,007 
Increases due to acquisitions during the period 24 24 
Effect of exchange rate changes5 18 23 
Total changes in deferred revenue(9)