MOODYS CORP /DE/, 10-K filed on 2/24/2020
Annual Report
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Cover Page - USD ($)
shares in Millions, $ in Billions
12 Months Ended
Dec. 31, 2019
Jan. 31, 2020
Jun. 30, 2019
Entity Information [Line Items]      
Document Type 10-K    
Document Annual Report true    
Document Period End Date Dec. 31, 2019    
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    
Entity Shell Company false    
Entity Public Float     $ 37.0
Entity Common Stock, Shares Outstanding (in shares)   187.4  
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 21, 2020, 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    
Current Fiscal Year End Date --12-31    
Document Fiscal Year Focus 2019    
Common Stock, par value $0.01 per share      
Entity Information [Line Items]      
Title of 12(b) Security Common Stock, par value $0.01 per share    
Trading Symbol MCO    
Security Exchange Name NYSE    
1.75% Senior Notes Due 2027      
Entity Information [Line Items]      
Title of 12(b) Security 1.75% Senior Notes Due 2027    
Trading Symbol MCO 27    
Security Exchange Name NYSE    
0.950% Senior Notes Due 2030      
Entity Information [Line Items]      
Title of 12(b) Security 0.950% Senior Notes Due 2030    
Trading Symbol MCO 30    
Security Exchange Name NYSE    
v3.19.3.a.u2
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
shares in Millions, $ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Income Statement [Abstract]      
Revenue $ 4,829 $ 4,443 $ 4,204
Expenses      
Operating 1,387 1,246 1,216
Selling, general and administrative 1,167 1,080 986
Restructuring 60 49 0
Depreciation and amortization 200 192 158
Acquisition-Related Expenses 3 8 23
Loss pursuant to the divestiture of MAKS 14 0 0
Total expenses 2,831 2,575 2,383
Operating income 1,998 1,868 1,821
Non-operating (expense) income, net      
Interest expense, net (208) (215) (209)
Other non-operating income, net 20 19 4
Purchase Price Hedge Gain 0 0 111
CCXI Gain 0 0 60
Non-operating (expense) income, net (188) (196) (34)
Income before provision for income taxes 1,810 1,672 1,787
Provision for income taxes 381 352 779
Net income 1,429 1,320 1,008
Less: Net income attributable to noncontrolling interests 7 10 7
Net income attributable to Moody’s $ 1,422 $ 1,310 $ 1,001
Earnings per share      
Basic (in USD per share) $ 7.51 $ 6.84 $ 5.24
Diluted (in USD per share) $ 7.42 $ 6.74 $ 5.15
Weighted average shares outstanding      
Basic (in shares) 189.3 191.6 191.1
Diluted (in shares) 191.6 194.4 194.2
v3.19.3.a.u2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Statement of Comprehensive Income [Abstract]      
Net income $ 1,429 $ 1,320 $ 1,008
Foreign Currency Adjustments:      
Foreign currency translation adjustment - Pre Tax (22) (315) 225
Foreign currency translation adjustment - Tax (1) 0 0
Foreign currency translation adjustment - Net of Tax (23) (315) 225
Foreign currency translation adjustments - reclassification of losses included in net income - Pre Tax 32 0 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 32 0 0
Net gains (losses) on net investment hedges - Pre Tax 35 41 (59)
Net gains (losses) on net investment hedges, Tax (9) (7) 23
Net gains (losses) on net investment hedges, Net of Tax 26 34 (36)
Net investment hedges - reclassification of gains included in net income - Pre Tax (3) 0 0
Net investment hedges - reclassification of gains included in net income - Tax 1 0 0
Net investment hedges - reclassification of gains included in net income - Net of Tax (2) 0 0
Cash Flow Hedges:      
Net realized and unrealized gain (loss) on cash flow hedges - Pre Tax 0 (1) 10
Net realized and unrealized gain (loss) on cash flow hedges - Tax 0 0 (4)
Net realized and unrealized gain (loss) on cash flow hedges - Net of Tax 0 (1) 6
Reclassification of (losses) gains included in net income - Pre Tax 0 0 (12)
Reclassification of (losses) gains included in net income - Tax 0 0 5
Reclassification of (losses) gains included in net income - Net of Tax 0 0 (7)
Available for Sale Securities:      
Net unrealized gains on available for sale securities - Pre Tax 0 0 2
Net unrealized gains on available for sale securities - Tax 0 0 0
Net unrealized gains on available for sale securities - Net of Tax 0 0 2
Reclassification of gains included in net income - Pre Tax 0 0 (4)
Reclassification of gains included in net income - Tax 0 0 0
Reclassification of gains included in net income - Net of Tax 0 0 (4)
Pension and Other Retirement Benefits:      
Amortization of actuarial losses and prior service costs included in net income - Pre Tax 3 5 8
Amortization of actuarial losses and prior service costs included in net income - Tax (1) (1) (3)
Amortization of actuarial losses and prior service costs included in net income - Net of Tax 2 4 5
Net actuarial (loss)/gain arising during the period (32) 6 21
Net actuarial (losses) gains and prior service costs - Tax 8 (2) (8)
Net actuarial (losses) gains and prior service costs - Net of Tax (24) 4 13
Total other comprehensive (loss) income - Pre Tax 13 (264) 191
Total other comprehensive (loss)income - Tax (2) (10) 13
Total Other Comprehensive Income (Loss) 11 (274) 204
Comprehensive Income 1,440 1,046 1,212
Less: comprehensive income (loss) attributable to noncontrolling interests 11 (12) 19
Comprehensive Income Attributable to Moody’s $ 1,429 $ 1,058 $ 1,193
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CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Dec. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 1,832 $ 1,685
Short-term investments 98 133
Accounts receivable, net of allowances of $43 in 2019 and $43 in 2018 1,419 1,287
Other current assets 330 282
Total current assets 3,679 3,387
Property and equipment, net 292 320
Operating lease right-of-use assets 456  
Goodwill 3,722 3,781
Intangible assets, net 1,498 1,566
Deferred tax assets, net 229 197
Other assets 389 275
Total assets 10,265 9,526
Current liabilities:    
Accounts payable and accrued liabilities 773 696
Current portion of operating lease liabilities 89  
Current portion of long-term debt 0 450
Deferred revenue 1,050 953
Total current liabilities 1,912 2,099
Non-current portion of deferred revenue 112 122
Long-term debt 5,581 5,226
Deferred tax liabilities, net 357 352
Uncertain tax positions 477 495
Operating lease liabilities 485  
Other liabilities 504 576
Total liabilities 9,428 8,870
Contingencies (Note 22)
Redeemable noncontrolling interest 6 0
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 642 601
Retained earnings 9,656 8,594
Treasury stock, at cost; 155,215,143 and 151,598,695 shares of common stock at December 31, 2019 and December 31, 2018, respectively (9,250) (8,313)
Accumulated other comprehensive loss (439) (426)
Total Moody’s shareholders’ equity 612 459
Noncontrolling interests 219 197
Total shareholders’ equity 831 656
Total liabilities, redeemable noncontrolling interest and shareholders’ equity 10,265 9,526
Series Common Stock    
Shareholders’ equity:    
Common stock $ 0 $ 0
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CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
$ in Millions
Dec. 31, 2019
Dec. 31, 2018
Accounts receivable, allowances $ 43 $ 43
Preferred stock, par value (in usd per share) $ 0.01 $ 0.01
Preferred stock, shares authorized (in shares) 10,000,000 10,000,000
Preferred stock, shares issued (in shares) 0 0
Preferred stock, shares outstanding (in shares) 0 0
Common stock, par value (in usd per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 1,000,000,000.0 1,000,000,000
Common stock, shares issued (in shares) 342,902,272 342,902,272
Treasury stock, shares (in shares) 155,215,143 151,598,695
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
v3.19.3.a.u2
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Cash flows from operating activities      
Net income $ 1,429 $ 1,320 $ 1,008
Reconciliation of net income to net cash provided by operating activities:      
Depreciation and amortization 200 192 158
Stock-based compensation 136 130 123
Deferred income taxes (38) (99) 88
CCXI Gain 0 0 (60)
Purchase Price Hedge Gain 0 0 (111)
ROU Asset impairment & other non-cash restructuring/impairment charges 38    
Loss pursuant to the divestiture of MAKS (14) 0 0
Changes in assets and liabilities:      
Accounts receivable (134) (136) (148)
Other current assets (88) (9) (70)
Other assets (69) (17) 12
Lease obligations (16) 0 0
Accounts payable and accrued liabilities 77 (134) (638)
Restructuring liability 0 42 (6)
Deferred revenue 76 139 73
Unrecognized tax positions and other non-current tax liabilities 8 59 63
Other liabilities 42 (26) 263
Net cash provided by operating activities 1,675 1,461 755
Cash flows from investing activities      
Capital additions (69) (91) (91)
Purchases of investments (138) (193) (170)
Sales and maturities of investments 174 161 239
Receipts from Purchase Price Hedge 0 0 111
Cash received upon disposal of a business, net of cash transferred to purchaser 226 6 0
Cash paid for acquisitions, net of cash acquired (162) (289) (3,511)
Receipts from settlements of net investment hedges 12 0 2
Payments for settlements of net investment hedges (7) 0 0
Net cash provided by (used in) investing activities 36 (406) (3,420)
Cash flows from financing activities      
Issuance of notes 824 1,090 2,292
Repayment of notes (950) (800) (300)
Issuance of commercial paper 1,317 989 1,837
Repayment of commercial paper (1,320) (1,120) (1,707)
Proceeds from stock-based compensation plans 45 47 56
Repurchase of shares related to stock-based compensation (77) (62) (49)
Treasury shares (991) (203) (200)
Dividends (378) (337) (290)
Dividends to noncontrolling interests (3) (5) (3)
Payment for noncontrolling interest (12) 0 (9)
Debt issuance costs, extinguishment costs and related fees (18) (11) (27)
Net cash used in financing activities (1,563) (412) 1,600
Effect of exchange rate changes on cash and cash equivalents (1) (30) 85
Increase (decrease) in cash and cash equivalents 147 613 (980)
Cash and cash equivalents, beginning of period 1,685 1,072 2,052
Cash and cash equivalents, end of period $ 1,832 $ 1,685 $ 1,072
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CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) - USD ($)
shares in Millions, $ in Millions
Total
Common Stock
Capital Surplus
Retained Earnings
Treasury Stock
Accumulated Other Comprehensive Loss
Total Moody’s Shareholders’ Equity
Non- Controlling Interests
Beginning Balance (in shares) at Dec. 31, 2016   342.9     152.2      
Beginning Balance at Dec. 31, 2016 $ (1,027) $ 3 $ 477 $ 6,689 $ (8,030) $ (364) $ (1,225) $ 198
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 1,008     1,001     1,001 7
Dividends (223)     (220)     (220) (3)
Stock-based compensation 123   123       123  
Shares issued for stock-based compensation plans at average cost, net (in shares)         1.9      
Shares issued for stock-based compensation plans at average cost, net 10   (67)   $ 77   10  
Purchase of noncontrolling interest (5)   (4)       (4) (1)
Treasury shares repurchased (in shares)         (1.6)      
Treasury shares repurchased (200)       $ (200)   (200)  
Currency translation adjustment, net of net investment hedge activity 189         176 176 13
Net actuarial gains (losses) and prior service costs 13         13 13  
Amortization of prior service costs and actuarial losses 5         5 5  
Net unrealized gain on available for sale securities (2)         (1) (1) (1)
Net realized and unrealized gain on cash flow hedges (net of tax of $1 million) (1)         (1) (1)  
Ending Balance (in shares) at Dec. 31, 2017   342.9     151.9      
Ending Balance at Dec. 31, 2017 (115) $ 3 529 7,465 $ (8,153) (172) (328) 213
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 (losses) and prior service costs 4         4 4  
Amortization of prior service costs and actuarial losses 4         4 4  
Net realized and unrealized gain on cash flow hedges (net of tax of $1 million) (1)         (1) (1)  
Ending Balance (in shares) at Dec. 31, 2018   342.9     151.6      
Ending Balance at Dec. 31, 2018 656 $ 3 601 8,594 $ (8,313) (426) 459 197
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
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             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 (losses) and prior service costs (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 $ 3 $ 642 $ 9,656 $ (9,250) $ (439) $ 612 $ 219
v3.19.3.a.u2
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Parenthetical) - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Statement of Stockholders' Equity [Abstract]      
Dividends declared per share attributable to Moody's common shareholders (in USD per share) $ 2.00 $ 1.76 $ 1.14
Currency translation adjustment, tax $ 9 $ 7 $ 23
Net actuarial losses and prior service costs, tax 8 (2) (8)
Amortization of actuarial losses and prior service costs included in net income, tax $ 1 1 3
Net unrealized and unrealized gain on cash flow hedges, tax   $ 1 $ 1
v3.19.3.a.u2
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
12 Months Ended
Dec. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Moody’s is a provider of (i) credit ratings and assessment services; (ii) credit, capital markets and economic research, data and analytical tools; (iii) software solutions that support financial risk management activities; (iv) quantitatively derived credit scores; (v) learning solutions and certification services; (vi) offshore financial research and analytical services (this business was divested with the sale of MAKS in the fourth quarter of 2019); 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 and provides assessment services on a wide range of debt obligations and the entities that issue such obligations in markets worldwide. Revenue is primarily derived from the originators and issuers of such transactions who use MIS ratings in the distribution of their debt issues to investors. Additionally, MIS earns revenue from certain non-ratings-related operations which consist primarily of financial instrument pricing services in the Asia-Pacific region 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.
On November 8, 2019, the Company sold the MAKS business to Equistone Partners Europe Limited, a European private equity firm. The operating results of MAKS are reported within the MA segment (and PS LOB) through the closing of the transaction in the fourth quarter.
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 did 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 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 an 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 previous GAAP, adjustments to deferred tax assets and liabilities related to a change in tax laws or rates were 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 $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.
On January 1, 2018, the Company adopted ASU No. 2014-09, “Revenue from Contracts with Customers (ASC Topic 606)” using the modified retrospective approach. Under the previous accounting guidance, the reduction to reported 2018 revenue, operating income and Net Income would have been a reduction of $13 million, $24 million and $19 million, respectively.
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 and 2017 revenue by LOB was reclassified to conform with this new presentation, as follows:
MIS
As previously
reported
Reclassification
As Reclassified

MA
As previously
reported
Reclassification
As
Reclassified
Full year 2018
CFG
$1,334  $45  $1,379  
RD&A
$1,134  $(13) $1,121  
SFG
$526  $(45) $481  ERS$438  $13  $451  
Full year 2017
CFG
$1,393  $55  $1,448  
RD&A
$833  $(7) $826  
SFG
$495  $(55) $440  ERS$448  $ $455  
v3.19.3.a.u2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Dec. 31, 2019
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 that 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.
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 that, based on the qualitative factors, 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 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 recognize the difference as an impairment charge.
The Company evaluates its reporting units for impairment on an annual basis, or more frequently if there are changes in the reporting structure of the Company due to acquisitions or realignments or if there are indicators of potential impairment. For the reporting units where the Company is consistently able to conclude that an impairment does not exist 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 at December 31, 2019: 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 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. 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. These methods require judgment to evaluate assumptions, including the total estimated costs to determine progress towards contract completion and to calculate the corresponding amount of revenue to recognize, which is consistent with the pattern of recognition for the software implementation services if considered to be a separate distinct performance obligation. The Company exercises judgment in determining the level of integration and interdependency between the promise to grant the software license and the promise to deliver the related implementation services. This determination influences whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the implementation services and recognized over time. 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.
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 within the PS LOB 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 $159 million and $110 million in such deferred costs as of December 31, 2019 and December 31, 2018, respectively, and recognized $53 million and $38 million of related amortization during the years ended 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 $11 million in such deferred costs as of December 31, 2019 and December 31, 2018 and recognized $42 million and $40 million of amortization of the costs during the years ended 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 $40 million and $35 million in such deferred costs as of December 31, 2019 and December 31, 2018, respectively, and recognized $56 million and $54 million of related amortization during the years ended December 31, 2019 and December 31, 2018, respectively, which is included within operating expenses in the consolidated statement of operations.
Accounts Receivable Allowances
Moody’s records variable consideration in respect of estimated future adjustments to customer billings as an adjustment to revenue using the expected value method based on analysis of similar contracts in the same line of business. Such amounts are reflected as additions to the accounts receivable allowance. Additionally, estimates of uncollectible accounts are recorded as bad debt expense and are reflected as additions to the accounts receivable allowance. Actual billing adjustments are recorded against the allowance, depending on the nature of the adjustment. Actual uncollectible account write-offs are recorded against the allowance. Moody’s evaluates its accounts receivable allowance by reviewing and assessing historical collection and adjustment experience and the current status of customer accounts. Moody’s also considers the economic environment of the customers, both from an industry and geographic perspective, in evaluating the need for allowances. Based on its analysis, Moody’s adjusts its allowance as considered appropriate in the circumstances.
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, except for certain costs related to software implementation services, which may be deferred until related revenue is recognized. Additionally, certain costs incurred to develop internal use software are capitalized and amortized over their estimated useful life.
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, except for certain expenses incurred to develop internal use software (which are capitalized and amortized over their estimated useful life) and the deferral of sales commissions in the MA segment (which are recognized in the period in which the related revenue is recognized).
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, gains and losses on derivative instruments designated as net investment hedges or cash flow hedges and unrealized gains and losses on securities designated as ‘available-for-sale’ under ASC Topic 320 (for periods prior to January 1, 2018). 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. Beginning in the first quarter of 2018, 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.
Prior to January 1, 2018, the investments in mutual funds were designated as ‘available for sale’ under Topic 320 of the ASC. Accordingly, unrealized gains and losses on these investments were recorded to other comprehensive income and were reclassified out of accumulated other comprehensive income to the statement of operations when the investment matured or was sold using a specific identification method.
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 on 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, 2019 and 2018. 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, 2019 or 2018.
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 June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The amendments in this ASU require the use of an “expected credit loss” impairment model for most financial assets reported at amortized cost, which will require entities to estimate expected credit losses over the lifetime of the instrument. This may result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, an allowance for credit losses will be recognized as a contra account to the amortized cost carrying value of the asset rather than a direct reduction to the carrying value, with changes in the allowance impacting earnings. In November 2018, the FASB issued ASU No. 2018-19 “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” which clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20, but instead should be accounted for in accordance with Topic 842, Leases.
ASU No. 2016-13 is effective for annual and interim reporting periods beginning after December 15, 2019, with early adoption permitted in annual and interim reporting periods beginning after December 15, 2018. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first effective reporting period. This ASU also sets forth new disclosure requirements relating to financial assets within its scope.
The most notable impact of this ASU to Moody's relates to the Company's processes around the assessment of its allowance for doubtful accounts on accounts receivable. The Company has updated its policies and procedures in order to implement the “expected credit loss” impairment model, which includes (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. The cumulative-effect adjustment to retained earnings upon adoption of this ASU is not material, and the Company does not expect the ASU to have a significant future impact on its consolidated financial statements.
In August 2018, the FASB issued 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 premises of authoritative guidance for internal-use software, and deferred 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 ASU is effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The Company will be required to present the amortization of capitalized implementation costs in the same line item in the statement of operations as the fees associated with the hosting service (i.e. operating and SG&A expense) and classify the related payments in the statement of cash flows in the same manner as payments made for fees associated with the hosting service (i.e. cash flows from operating activities). This ASU also requires capitalization of implementation costs in the balance sheet to be consistent with the location of prepayment of fees for the hosting element (i.e. within other current assets or other assets). The Company will adopt this ASU prospectively to all implementation costs incurred after the date of adoption. The future impact to the Company's financial statements will relate to the aforementioned classification of these capitalized costs and related amortization.
In August 2018, the FASB issued 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 ASU is effective for all entities for fiscal years beginning after December 15, 2020 on a retrospective basis to all periods presented, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.
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. Certain amendments within this ASU are required to be applied on a prospective basis, while other 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 is currently evaluating the impact of this ASU on its consolidated financial statements.
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REVENUES
12 Months Ended
Dec. 31, 2019
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,
20192018
2017 (1)
MIS:
Corporate finance (CFG)(3)
Investment-grade$379  $271  $335  
High-yield258  175  254  
Bank loans313  379  351  
Other accounts (CFG) (2)
547  554  508  
Total CFG1,497  1,379  1,448  
Structured finance (SFG)(3)
Asset-backed securities99  107  97  
RMBS95  98  89  
CMBS81  78  87  
Structured credit148  196  165  
Other accounts (SFG)   
Total SFG427  481  440  
Financial institutions (FIG)
Banking320  290  300  
Insurance119  114  102  
Managed investments25  25  22  
Other accounts (FIG)12  13  12  
Total FIG476  442  436  
Public, project and infrastructure finance (PPIF)
Public finance / sovereign222  185  218  
Project and infrastructure224  206  213  
Total PPIF446  391  431  
Total ratings revenue2,846  2,693  2,755  
MIS Other29  19  19  
Total external revenue2,875  2,712  2,774  
Intersegment royalty134  124  112  
Total MIS3,009  2,836  2,886  
MA:
Research, data and analytics (RD&A)(4)
1,273  1,121  826  
Enterprise risk solutions (ERS)(4)
522  451  455  
Professional services (PS)159  159  149  
Total external revenue1,954  1,731  1,430  
Intersegment revenue 12  16  
Total MA1,963  1,743  1,446  
Eliminations(143) (136) (128) 
Total MCO$4,829  $4,443  $4,204  
(1)Prior period amounts have not been adjusted under the modified retrospective method of adoption for the New Revenue Accounting Standard.
(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 certain organizational realignments in 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.
(4)Pursuant to organizational/product realignments in 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:
Year Ended December 31, 2019Year Ended December 31, 2018
Year Ended December 31, 2017 (1)
U.S.Non-U.S.TotalU.S.Non-U.S.TotalU.S.Non-U.S.Total
MIS:
Corporate finance(2)
$968  $529  $1,497  $894  $485  $1,379  $961  $487  $1,448  
Structured finance(2)
270  157  427  301  180  481  288  152  440  
Financial institutions200  276  476  194  248  442  186  250  436  
Public, project and infrastructure finance282  164  446  229  162  391  266  165  431  
Total ratings revenue1,720  1,126  2,846  1,618  1,075  2,693  1,701  1,054  2,755  
MIS Other 28  29   18  19   18  19  
Total MIS1,721  1,154  2,875  1,619  1,093  2,712  1,702  1,072  2,774  
MA:
Research, data and analytics (3)
558  715  1,273  481  640  1,121  424  402  826  
Enterprise risk solutions (3)
201  321  522  170  281  451  167  288  455  
Professional services64  95  159  60  99  159  55  94  149  
Total MA823  1,131  1,954  711  1,020  1,731  646  784  1,430  
Total MCO$2,544  $2,285  $4,829  $2,330  $2,113  $4,443  $2,348  $1,856  $4,204  
(1)Prior period amounts have not been adjusted under the modified retrospective method of adoption for the New Revenue Accounting Standard.
(2)Pursuant to certain organizational realignments in 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 years revenue by LOB has been reclassified to conform to this new presentation.
(3)Pursuant to organizational/product realignments in 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 years 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:
Year Ended December 31,
2019
2018
2017
MIS:
  U.S.$1,721  $1,619  $1,702  
  Non-U.S.:
   EMEA686  669  638  
   Asia-Pacific320  300  292  
   Americas148  124  142  
   Total Non-U.S.1,154  1,093  1,072  
  Total MIS2,875  2,712  2,774  
MA:
  U.S.823  711  646  
  Non-U.S.:
   EMEA760  708  494  
   Asia-Pacific231  193  179  
   Americas140  119  111  
   Total Non-U.S.1,131  1,020  784  
  Total MA1,954  1,731  1,430  
Total MCO$4,829  $4,443  $4,204  
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.
Year Ended December 31,
20192018
2017 (2)
Transaction (1)
RelationshipTotal
Transaction (1)
RelationshipTotal
Transaction (1)
RelationshipTotal
Corporate Finance$1,057  $440  $1,497  $949  $430  $1,379  $1,053  $395  $1,448  
71 %29 %100 %69 %31 %100 %73 %27 %100 %
Structured Finance$246  $181  $427  $310  $171  $481  $279  $161  $440  
58 %42 %100 %64 %36 %100 %63 %37 %100 %
Financial Institutions$212  $264  $476  $187  $255  $442  $195  $241  $436  
45 %55 %100 %42 %58 %100 %45 %55 %100 %
Public, Project and Infrastructure Finance$292  $154  $446  $238  $153  $391  $278  $153  $431  
65 %35 %100 %61 %39 %100 %65 %35 %100 %
MIS Other$ $27  $29  $ $17  $19  $ $16  $19  
%93 %100 %11 %89 %100 %16 %