Company Quick10K Filing
Quick10K
Moodys
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$188.88 190 $35,810
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-04-24 Earnings, Regulation FD, Exhibits
8-K 2019-04-16 Shareholder Vote
8-K 2019-02-15 Earnings, Regulation FD, Exhibits
8-K 2019-02-11 Officers, Officers, Regulation FD, Exhibits
8-K 2018-12-17 Other Events, Exhibits
8-K 2018-12-03 Other Events, Other Events, Exhibits
8-K 2018-11-14 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-11-08 Officers, Exhibits
8-K 2018-10-26 Earnings, Regulation FD, Exhibits
8-K 2018-07-31 Officers, Exhibits
8-K 2018-07-27 Earnings, Regulation FD, Exhibits
8-K 2018-06-01 Other Events, Other Events, Exhibits
8-K 2018-06-01 Other Events, Exhibits
8-K 2018-05-03 Officers, Officers
8-K 2018-04-27 Earnings, Regulation FD, Exhibits
8-K 2018-04-24 Shareholder Vote, Shareholder Vote
8-K 2018-04-19 Regulation FD, Regulation FD
8-K 2018-03-30 Officers
8-K 2018-02-12 Officers, Regulation FD
8-K 2018-02-09 Earnings, Regulation FD, Exhibits
8-K 2018-01-26 Officers, Exhibits
CHK Chesapeake Energy 4,380
MESA Mesa Air Group 223
PIRS Pieris Pharmaceuticals 157
PBPB Potbelly 157
HCHC HC2 121
SRTS Sensus Healthcare 105
RKFL B4MC Gold Mines 0
ABHD AbTech 0
CVSI CV Sciences 0
TECR Techcare 0
MCO 2019-03-31
Part I. Financial Information
Item 1. Financial Statements
Note 1. Description of Business and Basis of Presentation
Note 2. Summary of Significant Accounting Policies
Note 3. Revenues
Note 4. Stock-Based Compensation
Note 5. Income Taxes
Note 6. Weighted Average Shares Outstanding
Note 7. Accelerated Share Repurchase Program
Note 8. Cash Equivalents and Investments
Note 9. Acquisitions
Note 10. Derivative Instruments and Hedging Activities
Note 11. Goodwill and Other Acquired Intangible Assets
Note 12 Restructuring
Note 13. Fair Value
Note 14 Other Balance Sheet and Statement of Operations Information
Note 15. Comprehensive Income and Accumulated Other Comprehensive Income
Note 16. Pension and Other Retirement Benefits
Note 17. Indebtedness
Note 18. Leases
Note 19. Contingencies
Note 20. Segment Information
Note 21. Recently Issued Accounting Standards
Note 22. Subsequent Event
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 5. Other Information
Item 6. Exhibits
EX-10.1 d734583dex101.htm
EX-31.1 d734583dex311.htm
EX-31.2 d734583dex312.htm
EX-32.1 d734583dex321.htm
EX-32.2 d734583dex322.htm

Moodys Earnings 2019-03-31

MCO 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 d734583d10q.htm 10-Q 10-Q
Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

(Mark one)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

Or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to                 

Commission file number 1-14037

 

 

Moody’s Corporation

(Exact name of registrant as specified in its charter)

 

Delaware    13-3998945
(State of Incorporation)    (I.R.S. Employer Identification No.)

7 World Trade Center at

250 Greenwich Street, New York, N.Y.

   10007
(Address of Principal Executive Offices)    (Zip Code)

Registrant’s telephone number, including area code:

(212) 553-0300

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months, or for such shorter period that the registrant was required to submit such files.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  

Emerging growth company

      

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Title of Each Class

  

Shares Outstanding at March 31, 2019

Common Stock, par value $0.01 per share    189.6 million


Table of Contents

MOODY’S CORPORATION

INDEX TO FORM 10-Q

 

          Page(s)  
   Glossary of Terms and Abbreviations      3-9  
PART I. FINANCIAL INFORMATION  

Item 1.

  

Financial Statements

     10  
  

Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2019 and 2018

     10  
  

Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March  31, 2019 and 2018

     11  
   Consolidated Balance Sheets (Unaudited) at March 31, 2019 and December 31, 2018      12  
   Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2019 and 2018      13  
   Consolidated Statements of Shareholders’ Equity (Unaudited) for the Three Months Ended March 31, 2019 and 2018      14-15  
   Notes to Condensed Consolidated Financial Statements (Unaudited)      16-43  
Item 2.   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     44  
   The Company      44  
   Critical Accounting Estimates      44-45  
   Reportable Segments      45  
   Results of Operations      46-52  
   Liquidity and Capital Resources      52-57  
   Recently Issued Accounting Standards      57  
   Contingencies      57  
   Regulation      57-58  
   Forward-Looking Statements      58-59  
Item 3.    Quantitative and Qualitative Disclosures about Market Risk      59  
Item 4.    Controls and Procedures      60  
PART II. OTHER INFORMATION  

Item 1.

  

Legal Proceedings

     61  

Item 1A.

  

Risk Factors

     61  

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     61  

Item 5.

  

Other Information

     61  

Item 6.

  

Exhibits

     62  
SIGNATURES      63  
Exhibits Filed Herewith   

10.1

   Amendment to the Amended and Restated 2001 Moody’s Corporation Key Employees’ Stock Incentive Plan (as amended, December 18, 2017)   
31.1    Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002   
31.2    Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002   
32.1    Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002   
32.2    Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002   
101.DEF    XBRL Definitions Linkbase Document   
101.INS    XBRL Instance Document   
101.SCH    XBRL Taxonomy Extension Schema Document   
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document   
101.LAB    XBRL Taxonomy Extension Labels Linkbase Document   
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document   


Table of Contents

GLOSSARY OF TERMS AND ABBREVIATIONS

The following terms, abbreviations and acronyms are used to identify frequently used terms in this report:

 

TERM

  

DEFINITION

Acquisition-Related Amortization    Amortization of definite-lived intangible assets acquired by the Company from all business combination transactions
Acquisition-Related Expenses    Consists of expenses incurred to complete and integrate the acquisition of Bureau van Dijk for which the integration will be a multi-year effort
Adjusted Diluted EPS    Diluted EPS excluding the impact of certain items as detailed in the section entitled “Non-GAAP Financial Measures”

Adjusted Net Income

  

Net Income excluding the impact of certain items as detailed in the section entitled “Non-GAAP Financial Measures”

Adjusted Operating Income    Operating income excluding depreciation and amortization
Adjusted Operating Margin    Adjusted Operating Income divided by revenue
Americas    Represents countries within North and South America, excluding the U.S.
AOCI    Accumulated other comprehensive income (loss); a separate component of shareholders’ equity (deficit)
ASC    The FASB Accounting Standards Codification; the sole source of authoritative GAAP as of July 1, 2009 except for rules and interpretive releases of the SEC, which are also sources of authoritative GAAP for SEC registrants
Asia-Pacific    Represents Australia and countries in Asia including but not limited to: China, India, Indonesia, Japan, Korea, Malaysia, Singapore, Sri Lanka and Thailand
ASR    Accelerated Share Repurchase
ASU    The FASB Accounting Standards Update to the ASC. It also provides background information for accounting guidance and the bases for conclusions on the changes in the ASC. ASUs are not considered authoritative until codified into the ASC
Board    The board of directors of the Company
BPS    Basis points
Brexit    The withdrawal of the United Kingdom from the European Union
Bureau van Dijk    Bureau van Dijk Electronic Publishing, B.V.; a global provider of business intelligence and company information; acquired by the Company on August 10, 2017 via the acquisition of Yellow Maple I B.V., an indirect parent of Bureau van Dijk
CECL    Current expected credit losses
CFG    Corporate finance group; an LOB of MIS
CLO    Collateralized loan obligation

 

3


Table of Contents

TERM

  

DEFINITION

CMBS    Commercial mortgage-backed securities; an asset class within SFG
Common Stock    The Company’s common stock
Company    Moody’s Corporation and its subsidiaries; MCO; Moody’s
Content    A reporting unit within the MA segment that offers subscription based research, data and analytical products, including credit ratings produced by MIS, credit research, quantitative credit scores and other analytical tools, economic research and forecasts, business intelligence and company information products, and commercial real estate data and analytical tools
CP    Commercial Paper
CP Program    A program entered into on August 3, 2016 allowing the Company to privately place CP up to a maximum of $1 billion for which the maturity may not exceed 397 days from the date of issue and which is backstopped by the 2018 Facility
CRAs    Credit rating agencies
D&A    Depreciation and amortization
DBPPs    Defined benefit pension plans
EMEA    Represents countries within Europe, the Middle East and Africa
EPS    Earnings per share
ERS    Enterprise Risk Solutions; an LOB within MA, which offers risk management software solutions as well as related risk management advisory engagements services
ESG    Environmental, Social, and Governance
ESMA    European Securities and Markets Authority
ETR    Effective tax rate
EU    European Union
EUR    Euros
EURIBOR    The Euro Interbank Offered Rate
Excess Tax Benefits    The difference between the tax benefit realized at exercise of an option or delivery of a restricted share and the tax benefit recorded at the time the option or restricted share is expensed under GAAP
Exchange Act    The Securities Exchange Act of 1934, as amended
External Revenue    Revenue excluding any intersegment amounts

 

4


Table of Contents

TERM

  

DEFINITION

FASB    Financial Accounting Standards Board
FIG    Financial institutions group; an LOB of MIS
Financial Reform Act    Dodd-Frank Wall Street Reform and Consumer Protection Act
Free Cash Flow    Net cash provided by operating activities less cash paid for capital additions
FSTC    Financial Services Training and Certifications; now referred to as MALS
FX    Foreign exchange
GAAP    U.S. Generally Accepted Accounting Principles
GBP    British pounds
ICRA    ICRA Limited; a leading provider of credit ratings and research in India, for which the Company owns approximately 52%
IRS    Internal Revenue Service
IT    Information technology
KIS    Korea Investors Service, Inc.; a leading Korean rating agency and consolidated subsidiary of the Company
KIS Pricing    Korea Investors Service Pricing, Inc.; a leading Korean provider of fixed income securities pricing and consolidated subsidiary of the Company
KIS Research    Korea Investors Service Research; a Korean provider of financial research and consolidated subsidiary of the Company
Korea    Republic of South Korea
LIBOR    London Interbank Offered Rate
LOB    Line of business
M&A    Mergers and acquisitions
MA    Moody’s Analytics – a reportable segment of MCO; provides a wide range of products and services that support financial analysis and risk management activities of institutional participants in global financial markets; consists of three LOBs – RD&A, ERS and PS
MAKS    Moody’s Analytics Knowledge Services; formerly known as Copal Amba; provides offshore research and analytic services to the global financial and corporate sectors; part of the PS LOB and a reporting unit within the MA reportable segment
MALS    Moody’s Analytics Learning Solutions; a reporting unit within the MA segment that includes on-line and classroom-based training services as well as credentialing and certification services; formerly known as FSTC
MCO    Moody’s; Moody’s Corporation and its subsidiaries; the Company

 

5


Table of Contents

TERM

  

DEFINITION

MD&A    Management’s Discussion and Analysis of Financial Condition and Results of Operations
MIS    Moody’s Investors Service – a reportable segment of MCO; consists of five LOBs – SFG, CFG, FIG, PPIF and MIS Other
MIS Other    Consists of non-ratings revenue from ICRA, KIS Pricing and KIS Research. These businesses are components of MIS; MIS Other is an LOB of MIS
Moody’s    Moody’s Corporation and its subsidiaries; MCO; the Company
Net Income    Net income attributable to Moody’s Corporation, which excludes net income from consolidated noncontrolling interests belonging to the minority interest holder
New Lease Accounting Standard    Updates to the ASC pursuant to ASU No. 2016-02, “Leases (ASC Topic 842)”. This new accounting guidance requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses and cash flows depend on classification as either a finance or operating lease

New Revenue Accounting Standard

  

Updates to the ASC pursuant to ASU No. 2014-09, “Revenue from Contracts with Customers (ASC Topic 606)”. This new accounting guidance significantly changes the accounting framework under U.S. GAAP relating to revenue recognition and to the accounting for the deferral of incremental costs of obtaining or fulfilling a contract with a customer

NM    Percentage change is not meaningful
Non-GAAP    A financial measure not in accordance with GAAP; these measures, when read in conjunction with the Company’s reported results, can provide useful supplemental information for investors analyzing period-to-period comparisons of the Company’s performance, facilitate comparisons to competitors’ operating results and to provide greater transparency to investors of supplemental information used by management in its financial and operational decision making
NRSRO    Nationally Recognized Statistical Rating Organization, which is a credit rating agency registered with the SEC.
OCI    Other comprehensive income (loss); includes gains and losses on cash flow and net investment hedges, unrealized gains and losses on available for sale securities (in periods prior to January 1, 2018), certain gains and losses relating to pension and other retirement benefit obligations and foreign currency translation adjustments
Omega Performance    A leading provider of online credit training, acquired by the Company in August 2018
Operating segment    Term defined in the ASC relating to segment reporting; the ASC defines an operating segment as a component of a business entity that has each of the three following characteristics: i) the component engages in business activities from which it may recognize revenue and incur expenses; ii) the operating results of the component are regularly reviewed by the entity’s chief operating decision maker; and iii) discrete financial information about the component is available
Other Retirement Plans    The U.S. retirement healthcare and U.S. retirement life insurance plans
PPIF    Public, project and infrastructure finance; an LOB of MIS
Profit Participation Plan    Defined contribution profit participation plan that covers substantially all U.S. employees of the Company

 

6


Table of Contents

TERM

  

DEFINITION

PS    Professional Services, an LOB within MA consisting of MAKS and MALS that provides offshore analytical and research services as well as learning solutions and certification programs
RD&A    Research, Data and Analytics; an LOB within MA that offers subscription based research, data and analytical products, including credit ratings produced by MIS, credit research, quantitative credit scores and other analytical tools, economic research and forecasts, business intelligence and company information products, and commercial real estate data and analytical tools
Reform Act    Credit Rating Agency Reform Act of 2006
REIT    Real Estate Investment Trust

Reis, Inc. (Reis)

  

A leading provider of U.S. commercial real estate (CRE) data; acquired by the Company in October 2018

Relationship Revenue    For MIS, represents recurring monitoring fees of a rated debt obligation and/or entities that issue such obligations, as well as revenue from programs such as commercial paper, medium-term notes and shelf registrations. For MIS Other represents subscription-based revenue. For MA, represents subscription-based revenue and software maintenance revenue
Reporting unit    The level at which Moody’s evaluates its goodwill for impairment under U.S. GAAP; defined as an operating segment or one level below an operating segment
RMBS    Residential mortgage-backed securities; an asset class within SFG

ROU Asset

  

Assets recorded pursuant to the New Lease Accounting Standard which represent the Company’s right to use an underlying asset for the term of a lease

SaaS    Software-as-a-Service
SEC    U.S. Securities and Exchange Commission
Securities Act    Securities Act of 1933, as amended
SFG    Structured finance group; an LOB of MIS
SG&A    Selling, general and administrative expenses
Tax Act    The “Tax Cuts and Jobs Act” enacted into U.S. law on December 22, 2017, which significantly amends the tax code in the U.S.
Total Debt    All indebtedness of the Company as reflected on the consolidated balance sheets
Transaction Revenue    For MIS, represents the initial rating of a new debt issuance as well as other one-time fees. For MIS Other, represents revenue from professional services as well as data services, research and analytical engagements. For MA, represents perpetual software license fees and revenue from software implementation services, risk management advisory projects, training and certification services, and research and analytical engagements
U.K.    United Kingdom

 

7


Table of Contents

TERM

  

DEFINITION

U.S.    United States
USD    U.S. dollar
UTPs    Uncertain tax positions
Vigeo Eiris    A global leader in ESG research, data and assessments, acquired by the Company on April 11, 2019.
2010 Indenture    Supplemental indenture and related agreements dated August 19, 2010, relating to the 2010 Senior Notes
2010 Senior Notes    Principal amount of $500 million, 5.50% senior unsecured notes due in September 2020 pursuant to the 2010 Indenture
2012 Indenture    Supplemental indenture and related agreements dated August 18, 2012, relating to the 2012 Senior Notes
2012 Senior Notes    Principal amount of $500 million, 4.50% senior unsecured notes due in September 2022 pursuant to the 2012 Indenture
2013 Indenture    Supplemental indenture and related agreements dated August 12, 2013, relating to the 2013 Senior Notes
2013 Senior Notes    Principal amount of the $500 million, 4.875% senior unsecured notes due in February 2024 pursuant to the 2013 Indenture
2014 Indenture    Supplemental indenture and related agreements dated July 16, 2014, relating to the 2014 Senior Notes
2014 Senior Notes (5-Year)    Principal amount of $450 million, 2.75% senior unsecured notes due in July 2019 pursuant to the 2014 Indenture; repaid in 2019
2014 Senior Notes (30-Year)    Principal amount of $600 million, 5.25% senior unsecured notes due in July 2044 pursuant to the 2014 Indenture
2015 Facility    Five-year unsecured revolving credit facility, with capacity to borrow up to $1 billion; backstops CP issued under the CP Program
2015 Indenture    Supplemental indenture and related agreements dated March 9, 2015, relating to the 2015 Senior Notes
2015 Senior Notes    Principal amount of €500 million, 1.75% senior unsecured notes issued March 9, 2015 pursuant to the 2015 Indenture ; repaid in 2018
2017 Floating Rate Senior Notes    Principal amount of $300 million, floating rate senior unsecured notes due in September 2018 pursuant to the 2017 Indenture
2017 Indenture    Collectively the Supplemental indenture and related agreements dated March 2, 2017, relating to the 2017 Floating Rate Senior Notes and 2017 Notes Due 2023 and 2028, and the supplemental indenture and related agreements dated June 12, 2017, relating to the 2017 Notes Due 2023 and 2028
2017 Senior Notes Due 2023    Principal amount of $500 million, 2.625% senior unsecured notes due January 15, 2023 pursuant to the 2017 Indenture
2017 Senior Notes Due 2028    Principal amount of $500 million, 3.25% senior unsecured notes due January 15, 2028 pursuant to the 2017 Indenture

 

8


Table of Contents

TERM

  

DEFINITION

2017 Senior Notes Due 2021    Principal amount of $500 million, 2.75% senior unsecured notes due in December 2021
2018 Facility    Five-year unsecured revolving credit facility, with capacity to borrow up to $1 billion; replaced the 2015 Facility; backstops CP issued under the CP Program
2018 Senior Notes    Principal amount of $300 million, 3.25% senior unsecured notes due June 7, 2021
2018 Senior Notes (10-year)    Principal amount of $400 million, 4.25% senior unsecured notes due February 1, 2029

2018 Senior Notes (30-year)

  

Principal amount of $400 million, 4.875% senior unsecured notes December 17, 2048

 

9


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MOODY’S CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Amounts in millions, except per share data)

 

     Three Months Ended
March 31,
 
     2019     2018  

Revenue

  $ 1,142.1     $ 1,126.7  
 

 

 

   

 

 

 

Expenses

   

Operating

    341.7       314.9  

Selling, general and administrative

    281.5       271.1  

Restructuring

    5.5       —    

Depreciation and amortization

    50.3       49.1  

Acquisition-Related Expenses

    1.4       0.8  
 

 

 

   

 

 

 

Total expenses

    680.4       635.9  
 

 

 

   

 

 

 

Operating income

    461.7       490.8  

Non-operating (expense) income, net

   

Interest expense, net

    (52.5     (50.7

Other non-operating income, net

    2.3       1.0  
 

 

 

   

 

 

 

Non-operating expense, net

    (50.2     (49.7
 

 

 

   

 

 

 

Income before provision for income taxes

    411.5       441.1  

Provision for income taxes

    37.9       64.3  
 

 

 

   

 

 

 

Net income

    373.6       376.8  

Less: Net income attributable to noncontrolling interests

    0.7       3.9  
 

 

 

   

 

 

 

Net income attributable to Moody’s

  $ 372.9     $ 372.9  
 

 

 

   

 

 

 

Earnings per share

   

Basic

  $ 1.96     $ 1.95  
 

 

 

   

 

 

 

Diluted

  $ 1.93     $ 1.92  
 

 

 

   

 

 

 

Weighted average shares outstanding

   

Basic

    190.4       191.4  
 

 

 

   

 

 

 

Diluted

    192.8       194.5  
 

 

 

   

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

10


Table of Contents

MOODY’S CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Amounts in millions)

 

    Three Months Ended March 31,  
    2019     2018  
    Pre-tax
amounts
    Tax
amounts
    After-tax
amounts
    Pre-tax
amounts
     Tax
amounts
     After-tax
amounts
 

Net Income

      $ 373.6           $ 376.8  
     

 

 

         

 

 

 

Other Comprehensive Income (Loss):

             

Foreign Currency Adjustments:

             

Foreign currency translation adjustments, net

  $ (26.7   $ —         (26.7   $ 136.1      $ —          136.1  

Net gains (losses) on net investment hedges

    30.4       (6.9     23.5       (14.5      3.6        (10.9

Cash Flow Hedges:

             

Net realized and unrealized gains on cash flow hedges

    —         —         —         1.9        (0.4      1.5  

Reclassification of gains included in net income

    —         —         —         (0.1      —          (0.1

Pension and Other Retirement Benefits:

             

Amortization of actuarial losses and prior service costs included in net income

    0.8       (0.2     0.6       1.4        (0.4      1.0  

Net actuarial gains and prior service costs

    1.1       (0.3     0.8       —          —          —    
 

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total Other Comprehensive (Loss) Income

  $ 5.6     $ (7.4   $ (1.8   $ 124.8      $ 2.8      $ 127.6  
 

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Comprehensive Income

        371.8             504.4  

Less: comprehensive income attributable to noncontrolling interests

        8.2             8.9  
     

 

 

         

 

 

 

Comprehensive Income Attributable to Moody’s

      $ 363.6           $ 495.5  
     

 

 

         

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

11


Table of Contents

MOODY’S CORPORATION

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Amounts in millions, except share and per share data)

 

     March 31,
2019
    December 31,
2018
 

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 1,196.6     $ 1,685.0  

Short-term investments

     114.0       132.5  

Accounts receivable, net of allowances of $46.0 in 2019 and $43.5 in 2018

     1,301.2       1,287.1  

Other current assets

     286.6       282.3  
  

 

 

   

 

 

 

Total current assets

     2,898.4       3,386.9  

Property and equipment, net of accumulated depreciation of $834.9 in 2019 and $790.2 in 2018

     318.7       320.4  

Operating lease right-of-use assets

     508.1       —    

Goodwill

     3,762.5       3,781.3  

Intangible assets, net

     1,530.4       1,566.1  

Deferred tax assets, net

     178.8       197.2  

Other assets

     321.2       274.3  
  

 

 

   

 

 

 

Total assets

   $ 9,518.1     $ 9,526.2  
  

 

 

   

 

 

 

LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS’ EQUITY

 

 

Current liabilities:

    

Accounts payable and accrued liabilities

   $ 537.1     $ 695.2  

Current portion of operating lease liabilities

     87.4       —    

Commercial paper

     318.8       —    

Current portion of long-term debt

     —         449.9  

Deferred revenue

     1,062.3       953.4  
  

 

 

   

 

 

 

Total current liabilities

     2,005.6       2,098.5  

Non-current portion of deferred revenue

     120.9       122.3  

Long-term debt

     5,228.6       5,226.1  

Deferred tax liabilities, net

     353.4       351.7  

Uncertain tax positions

     474.5       494.6  

Operating lease liabilities

     523.5       —    

Other liabilities

     486.6       576.5  
  

 

 

   

 

 

 

Total liabilities

     9,193.1       8,869.7  
  

 

 

   

 

 

 

Contingencies (Note 19)

     —         —    

Shareholders’ equity:

    

Preferred stock, par value $.01 per share; 10,000,000 shares authorized; no shares issued and outstanding

     —         —    

Series common stock, par value $.01 per share; 10,000,000 shares authorized; no shares issued and outstanding

     —         —    

Common stock, par value $.01 per share; 1,000,000,000 shares authorized; 342,902,272 shares issued at March 31, 2019 and December 31, 2018, respectively.

     3.4       3.4  

Capital surplus

     435.7       600.9  

Retained earnings

     8,893.6       8,594.4  

Treasury stock, at cost; 153,299,621 and 151,598,695 shares of common stock at March 31, 2019 and December 31, 2018, respectively

     (8,754.0     (8,312.5

Accumulated other comprehensive loss

     (455.5     (426.3
  

 

 

   

 

 

 

Total Moody’s shareholders’ equity

     123.2       459.9  

Noncontrolling interests

     201.8       196.6  
  

 

 

   

 

 

 

Total shareholders’ equity

     325.0       656.5  
  

 

 

   

 

 

 

Total liabilities, noncontrolling interests and shareholders’ equity

   $ 9,518.1     $ 9,526.2  
  

 

 

   

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

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MOODY’S CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in millions)

 

      Three Months Ended
March 31,
 
      2019     2018  

Cash flows from operating activities

    

Net income

   $ 373.6     $ 376.8  

Reconciliation of net income to net cash provided by operating activities:

    

Depreciation and amortization

     50.3       49.1  

Stock-based compensation

     35.7       35.1  

Deferred income taxes

     13.8       (4.2

Changes in assets and liabilities:

    

Accounts receivable

     (8.5     (29.9

Other current assets

     (5.9     47.8  

Other assets

     (13.5     (14.5

Accounts payable and accrued liabilities

     (179.5     (224.1

Restructuring

     (2.5     (0.1

Deferred revenue

     103.9       167.7  

Unrecognized tax benefits and other non-current tax liabilities

     (21.9     (17.9

Other liabilities

     21.6       5.7  
  

 

 

   

 

 

 

Net cash provided by operating activities

     367.1       391.5  
  

 

 

   

 

 

 

Cash flows from investing activities

    

Capital additions

     (20.0     (15.0

Purchases of investments

     (37.8     (50.3

Sales and maturities of investments

     50.6       41.1  

Cash received upon disposal of a subsidiary, net of cash transferred to purchaser

     —         5.7  
  

 

 

   

 

 

 

Net cash used in investing activities

     (7.2     (18.5
  

 

 

   

 

 

 

Cash flows from financing activities

    

Repayment of notes

     (450.0     —    

Issuance of commercial paper

     402.8       219.6  

Repayment of commercial paper

     (85.0     (259.6

Proceeds from stock-based compensation plans

     14.2       28.5  

Repurchase of shares related to stock-based compensation

     (50.6     (42.0

Treasury shares

     (448.2     (43.4

Cash paid for ASR contract relating to shares retained by counterparty until final settlement

     (125.3     —    

Dividends

     (94.4     (84.1

Dividends to noncontrolling interests

     —         (1.1

Payment for noncontrolling interest

     (12.3     —    

Debt issuance costs, extinguishment costs and related fees

     —         (0.2
  

 

 

   

 

 

 

Net cash used in financing activities

     (848.8     (182.3
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     0.5       15.1  
  

 

 

   

 

 

 

(Decrease) increase in cash and cash equivalents

     (488.4     205.8  

Cash and cash equivalents, beginning of period

     1,685.0       1,071.5  
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 1,196.6     $ 1,277.3  
  

 

 

   

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements

 

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MOODY’S CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)

(Amounts in millions)

 

     Shareholders of Moody’s Corporation                    
     Common Stock     Capital
Surplus
    Retained
Earnings
    Treasury Stock     Accumulated
Other
Comprehensive
Loss
    Total
Moody’s
Shareholders’
(Deficit)
Equity
    Non-Controlling
Interests
    Total
Shareholders’
(Deficit)
Equity
 
     Shares     Amount     Shares     Amount  

Balance at December 31, 2017

    342.9     $ 3.4     $ 528.6     $ 7,465.4       (151.9   $ (8,152.9   $ (172.2   $ (327.7   $ 212.8     $ (114.9
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

          372.9             372.9       3.9       376.8  

Dividends ($0.44 per share)

          (83.7           (83.7     (1.4     (85.1

Adoption of New Revenue Accounting Standard

          156.1             156.1         156.1  

Adoption of ASU 2016-01 relating to financial instruments

          2.3           (2.3     —           —    

Stock-based compensation

        35.2               35.2         35.2  

Shares issued for stock-based compensation plans at average cost, net

        (57.2       1.2       24.9         (32.3       (32.3

Treasury shares repurchased

            (0.3     (43.4       (43.4       (43.4

Currency translation adjustment and net gain on net investment hedges (net of tax of $3.6 million)

                120.2       120.2       5.0       125.2  

Amortization of prior service costs and actuarial losses, (net of tax of $0.4 million)

                1.0       1.0         1.0  

Net realized gain on cash flow hedges (net of tax of $0.4 million)

                1.4       1.4         1.4  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2018

    342.9     $ 3.4     $ 506.6     $ 7,913.0       (151.0   $ (8,171.4   $ (51.9   $ 199.7     $ 220.3     $ 420.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

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MOODY’S CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)

(Amounts in millions)

 

     Shareholders of Moody’s Corporation                    
     Common Stock     Capital
Surplus
    Retained
Earnings
    Treasury Stock     Accumulated
Other
Comprehensive
Loss
    Total
Moody’s
Shareholders’
(Deficit)
Equity
    Non-Controlling
Interests
    Total
Shareholders’
(Deficit)
Equity
 
     Shares     Amount     Shares     Amount  

Balance at December 31, 2018

    342.9     $ 3.4     $ 600.9     $ 8,594.4       (151.6   $ (8,312.5   $ (426.3   $ 459.9     $ 196.6     $ 656.5  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

          372.9             372.9       0.7       373.6  

Dividends ($0.50 per share)

          (93.5           (93.5     (0.2     (93.7

Adoption of ASU 2018-02 (See Note 1)

          19.8           (19.8     —           —    

Stock-based compensation

        35.8               35.8         35.8  

Shares issued for stock-based compensation plans at average cost, net

        (66.3       1.0       6.7         (59.6       (59.6

Purchase of noncontrolling interest

        (9.4             (9.4     (2.9     (12.3

Treasury shares repurchased

            (2.7     (448.2       (448.2       (448.2

Accelerated Share Repurchase pending final settlement

        (125.3             (125.3       (125.3

Currency translation adjustment and net gain on net investment hedges (net of tax of $6.9 million)

                (10.8     (10.8     7.6       (3.2

Net actuarial gains and prior service cost (net of tax of $0.3 million)

                0.8       0.8         0.8  

Amortization of prior service costs and actuarial losses, (net of tax of $0.2 million)

                0.6       0.6         0.6  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2019

    342.9     $ 3.4     $ 435.7     $ 8,893.6       (153.3   $ (8,754.0   $ (455.5   $ 123.2     $ 201.8     $ 325.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

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MOODY’S CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(tabular dollar and share amounts in millions, except per share data)

NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Moody’s is a provider of (i) credit ratings; (ii) credit, capital markets and economic research, data and analytical tools; (iii) software solutions that support financial risk management activities; (iv) quantitatively derived credit scores; (v) learning solutions and certification services; (vi) offshore financial research and analytical services; and (vii) company information and business intelligence products. Moody’s reports in two reportable segments: MIS and MA.

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

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

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

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

Adoption of New Accounting Standards

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

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

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

 

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Table of Contents

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

Reclassification of Previously Reported Revenue by LOB

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

 

MIS

   As
previously
reported
     Reclassification     As
Reclassified
 

CFG

       

Q1

   $ 377.7      $ 11.9     $ 389.6  

Q2

     377.6        13.4       391.0  

Q3

     296.1        11.2       307.3  

Q4

     282.7        8.6       291.3  
  

 

 

    

 

 

   

 

 

 

Full year 2018

   $ 1,334.1      $ 45.1     $ 1,379.2  
  

 

 

    

 

 

   

 

 

 

SFG

       

Q1

   $ 129.7      $ (11.9   $ 117.8  

Q2

     141.6        (13.4     128.2  

Q3

     125.4        (11.2     114.2  

Q4

     129.8        (8.6     121.2  
  

 

 

    

 

 

   

 

 

 

Full year 2018

   $ 526.5      $ (45.1   $ 481.4  
  

 

 

    

 

 

   

 

 

 

MA

   As
previously
reported
     Reclassification     As
Reclassified
 

RD&A

       

Q1

   $ 269.2      $ (2.1   $ 267.1  

Q2

     279.9        (4.0     275.9  

Q3

     282.6        (2.3     280.3  

Q4

     302.4        (5.3     297.1  
  

 

 

    

 

 

   

 

 

 

Full year 2018

   $ 1,134.1      $ (13.7   $ 1,120.4  
  

 

 

    

 

 

   

 

 

 

ERS

       

Q1

   $ 100.1      $ 2.1     $ 102.2  

Q2

     105.5        4.0       109.5  

Q3

     113.0        2.3       115.3  

Q4

     118.8        5.3       124.1  
  

 

 

    

 

 

   

 

 

 

Full year 2018

   $ 437.4      $ 13.7     $ 451.1  
  

 

 

    

 

 

   

 

 

 
 

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Leases

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

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

 

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Table of Contents

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.

 

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Table of Contents

NOTE 3. REVENUES

Revenue by Category

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

 

     Three Months Ended March 31,  
     2019      2018  

MIS:

     

Corporate finance (CFG) (1)

     

Investment-grade

   $ 97.4      $ 87.2  

High-yield

     57.3        57.9  

Bank loans

     72.6        110.1  

Other accounts (2)

     128.1        134.4  
  

 

 

    

 

 

 

Total CFG

     355.4        389.6  
  

 

 

    

 

 

 

Structured finance (SFG) (1)

     

Asset-backed securities

     23.2        28.2  

RMBS

     23.5        24.3  

CMBS

     17.7        21.3  

Structured credit

     35.2        43.4  

Other accounts

     1.1        0.6  
  

 

 

    

 

 

 

Total SFG

     100.7        117.8  
  

 

 

    

 

 

 

Financial institutions (FIG)

     

Banking

     79.6        77.0  

Insurance

     29.0        28.3  

Managed investments

     4.0        5.7  

Other accounts

     3.2        3.3  
  

 

 

    

 

 

 

Total FIG

     115.8        114.3  
  

 

 

    

 

 

 

Public, project and infrastructure finance (PPIF)

     

Public finance / sovereign

     46.2        46.9  

Project and infrastructure

     46.5        46.3  
  

 

 

    

 

 

 

Total PPIF

     92.7        93.2  
  

 

 

    

 

 

 

Total ratings revenue

     664.6        714.9  
  

 

 

    

 

 

 

MIS Other

     5.5        5.0  
  

 

 

    

 

 

 

Total external revenue

     670.1        719.9  
  

 

 

    

 

 

 

Intersegment royalty

     32.3        29.8  
  

 

 

    

 

 

 

Total MIS

     702.4        749.7  
  

 

 

    

 

 

 

MA:

     

Research, data and analytics (RD&A) (3)

     307.7        267.1  

Enterprise risk solutions (ERS) (3)

     121.9        102.2  

Professional services (PS)

     42.4        37.5  
  

 

 

    

 

 

 

Total external revenue

     472.0        406.8  
  

 

 

    

 

 

 

Intersegment revenue

     2.4        5.0  
  

 

 

    

 

 

 

Total MA

     474.4        411.8  
  

 

 

    

 

 

 

Eliminations

     (34.7      (34.8
  

 

 

    

 

 

 

Total MCO

   $ 1,142.1      $ 1,126.7  
  

 

 

    

 

 

 

 

(1)  

Pursuant to certain organizational realignments in the first quarter of 2019, MIS now reports revenue from REITs, which was previously classified in the SFG LOB, as a component of the CFG LOB. The amounts reclassified were not material and prior year revenue by LOB has been reclassified to conform to this new presentation.

(2) 

Other includes: recurring monitoring fees of a rated debt obligation and/or entities that issue such obligations as well as fees from programs such as commercial paper, medium term notes, and ICRA corporate finance revenue.

(3) 

Pursuant to organizational/product realignments in the first quarter of 2019, revenue relating to the Bureau van Dijk FACT product, a credit assessment and origination software solution, is now reported in the ERS LOB. This revenue was previously reported in the RD&A LOB. Prior year revenue by LOB has been reclassified to conform to this new presentation, and the amounts reclassified were not material.

 

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

 

     Three Months Ended March 31, 2019  
     U.S.      Non-U.S.      Total  

MIS:

        

Corporate finance (CFG) (1)

   $ 242.6      $ 112.8      $ 355.4  

Structured finance (SFG) (1)

     62.2        38.5        100.7  

Financial institutions (FIG)

     46.0        69.8        115.8  

Public, project and infrastructure finance (PPIF)

     60.2        32.5        92.7  
  

 

 

    

 

 

    

 

 

 

Total ratings revenue

     411.0        253.6        664.6  
  

 

 

    

 

 

    

 

 

 

MIS Other

     0.2        5.3        5.5  
  

 

 

    

 

 

    

 

 

 

Total MIS

     411.2        258.9        670.1  
  

 

 

    

 

 

    

 

 

 

MA:

        

Research, data and analytics (RD&A) (2)

     134.8        172.9        307.7  

Enterprise risk solutions (ERS) (2)

     48.4        73.5        121.9  

Professional services (PS)

     17.7        24.7        42.4  
  

 

 

    

 

 

    

 

 

 

Total MA

     200.9        271.1        472.0  
  

 

 

    

 

 

    

 

 

 

Total MCO

   $ 612.1      $ 530.0      $ 1,142.1  
  

 

 

    

 

 

    

 

 

 
     Three Months Ended March 31, 2018  
     U.S.      Non-U.S.      Total  

MIS:

        

Corporate finance (CFG) (1)

   $ 257.3      $ 132.3      $ 389.6  

Structured finance (SFG) (1)

     74.0        43.8        117.8  

Financial institutions (FIG)

     48.5        65.8        114.3  

Public, project and infrastructure finance (PPIF)

     53.4        39.8        93.2  
  

 

 

    

 

 

    

 

 

 

Total ratings revenue

     433.2        281.7        714.9  
  

 

 

    

 

 

    

 

 

 

MIS Other

     0.2        4.8        5.0  
  

 

 

    

 

 

    

 

 

 

Total MIS

     433.4        286.5        719.9  
  

 

 

    

 

 

    

 

 

 

MA:

        

Research, data and analytics (RD&A) (2)

     112.6        154.5        267.1  

Enterprise risk solutions (ERS) (2)

     38.5        63.7        102.2  

Professional services (PS)

     13.2        24.3        37.5  
  

 

 

    

 

 

    

 

 

 

Total MA

     164.3        242.5        406.8  
  

 

 

    

 

 

    

 

 

 

Total MCO

   $ 597.7      $ 529.0      $ 1,126.7  
  

 

 

    

 

 

    

 

 

 

 

(1)  

Pursuant to certain organizational realignments in the first quarter of 2019, MIS now reports revenue from REITs, which was previously classified in the SFG LOB, as a component of the CFG LOB. The amounts reclassified were not material and prior year revenue by LOB has been reclassified to conform to this new presentation.

(2) 

Pursuant to organizational/product realignments in the first quarter of 2019, revenue relating to the Bureau van Dijk FACT product, a credit assessment and origination software solution, is now reported in the ERS LOB. This revenue was previously reported in the RD&A LOB. Prior year revenue by LOB has been reclassified to conform to this new presentation, and the amounts reclassified were not material.

 

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

 

     Three Months Ended March 31,  
     2019      2018  

MIS:

     

U.S.

   $ 411.2      $ 433.4  

Non-U.S.

     

EMEA

     148.5        181.1  

Asia-Pacific

     78.9        72.6  

Americas

     31.5        32.8  
  

 

 

    

 

 

 

Total Non-U.S.

     258.9        286.5  
  

 

 

    

 

 

 

Total MIS

     670.1        719.9  
  

 

 

    

 

 

 

MA:

     

U.S.

     200.9        164.3  

Non-U.S.

     

EMEA

     184.1        166.2  

Asia-Pacific

     53.3        47.6  

Americas

     33.7        28.7  
  

 

 

    

 

 

 

Total Non-U.S.

     271.1        242.5  
  

 

 

    

 

 

 

Total MA

     472.0        406.8  
  

 

 

    

 

 

 

Total MCO

   $ 1,142.1      $ 1,126.7  
  

 

 

    

 

 

 

The tables below summarize the split between transaction and relationship revenue. In the MIS segment, excluding MIS Other, transaction revenue represents the initial rating of a new debt issuance as well as other one-time fees while relationship revenue represents the recurring monitoring fees of a rated debt obligation and/or entities that issue such obligations, as well as revenue from programs such as commercial paper, medium-term notes and shelf registrations. In MIS Other, transaction revenue represents revenue from professional services and outsourcing engagements and relationship revenue represents subscription-based revenues. In the MA segment, relationship revenue represents subscription-based revenues and software maintenance revenue. Transaction revenue in MA represents perpetual software license fees and revenue from software implementation services, risk management advisory projects, training and certification services, and outsourced research and analytical engagements.

 

     Three Months Ended March 31,  
     2019     2018  
     Transaction     Relationship     Total     Transaction     Relationship     Total  

Corporate Finance

   $ 249.5     $ 105.9     $ 355.4     $ 283.4     $ 106.2     $ 389.6  
     70     30     100     73     27     100

Structured Finance

   $ 57.3     $ 43.4     $ 100.7     $ 74.6     $ 43.2     $ 117.8  
     57     43     100     63     37     100

Financial Institutions

   $ 47.9     $ 67.9     $ 115.8     $ 50.0     $ 64.3     $ 114.3  
     41     59     100     44     56     100

Public, Project and Infrastructure Finance

   $ 54.7     $ 38.0     $ 92.7     $ 54.4     $ 38.8     $ 93.2  
     59     41     100     58     42     100

MIS Other

   $ 0.5     $ 5.0     $ 5.5     $ 0.6     $ 4.4     $ 5.0  
     9     91     100     12     88     100

Total MIS

   $ 409.9     $ 260.2     $ 670.1     $ 463.0     $ 256.9     $ 719.9  
     61     39     100     64     36     100

Moody’s Analytics

   $ 71.5 (1)     $ 400.5     $ 472.0     $ 60.8 (1)     $ 346.0     $ 406.8  
     15     85     100     15     85     100

Total Moody’s Corporation

   $ 481.4     $ 660.7     $ 1,142.1     $ 523.8     $ 602.9     $ 1,126.7  
     42     58     100     46     54     100

 

(1)

Revenue from software implementation services and risk management advisory projects, while classified by management as transactional revenue, is recognized over time under the New Revenue Accounting Standard (refer to the following table).

 

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The following table presents the timing of revenue recognition:

 

     Three Months Ended March 31, 2019  
     MIS      MA      Total  

Revenue recognized at a point in time

   $ 409.9      $ 30.4      $ 440.3  

Revenue recognized over time

     260.2        441.6        701.8  
  

 

 

    

 

 

    

 

 

 

Total

   $ 670.1      $ 472.0      $ 1,142.1  
  

 

 

    

 

 

    

 

 

 
     Three Months Ended March 31, 2018  
     MIS      MA      Total  

Revenue recognized at a point in time

   $ 463.0      $ 15.5      $ 478.5  

Revenue recognized over time

     256.9        391.3        648.2  
  

 

 

    

 

 

    

 

 

 

Total

   $ 719.9      $ 406.8      $ 1,126.7  
  

 

 

    

 

 

    

 

 

 

Unbilled receivables, Deferred revenue and Remaining performance obligations

Unbilled receivables

At March 31, 2019 and December 31, 2018, accounts receivable included $364.9 million and $311.8 million, respectively, of unbilled receivables related to the MIS segment. Certain MIS arrangements contain contractual terms whereby the customers are billed in arrears for annual monitoring services, requiring revenue to be accrued as an unbilled receivable as such services are provided.

In addition, for certain MA arrangements, the timing of when the Company has the unconditional right to consideration and recognizes revenue occurs prior to invoicing the customer. Consequently, at March 31, 2019 and December 31, 2018, accounts receivable included $53.3 million and $59.5 million, respectively, of unbilled receivables related to the MA segment.

Deferred revenue

The Company recognizes deferred revenue when a contract requires a customer to pay consideration to the Company in advance of when revenue related to that contract is recognized. This deferred revenue is relieved when the Company satisfies the related performance obligation and revenue is recognized.

Significant changes in the deferred revenue balances during the three months ended March 31, 2019 are as follows:

 

     Three Months Ended March 31, 2019  
     MIS     MA     Total  

Balance at January 1, 2019

   $ 325.4     $ 750.3     $ 1,075.7  
  

 

 

   

 

 

   

 

 

 

Changes in deferred revenue

      

Revenue recognized that was included in the deferred revenue balance at the beginning of the period

     (92.8     (306.7     (399.5

Increases due to amounts billable excluding amounts recognized as revenue during the period

     155.2       346.7       501.9  

Effect of exchange rate changes

     0.5       4.6       5.1  
  

 

 

   

 

 

   

 

 

 

Total changes in deferred revenue

     62.9       44.6       107.5  
  

 

 

   

 

 

   

 

 

 

Balance at March 31, 2019

   $ 388.3     $ 794.9     $ 1,183.2  
  

 

 

   

 

 

   

 

 

 

Deferred revenue - current portion

   $ 271.6     $ 790.7     $ 1,062.3  

Deferred revenue - noncurrent portion

   $ 116.7     $ 4.2     $ 120.9  

 

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Significant changes in the deferred revenue balances during the three months ended March 31, 2018 are as follows:

 

     Three Months Ended March 31, 2018  
     MIS     MA     Total  

Balance at January 1, 2018 (after New Revenue Accounting Standard transition adjustment)

   $ 334.7     $ 611.6     $ 946.3  
  

 

 

   

 

 

   

 

 

 

Changes in deferred revenue

      

Revenue recognized that was included in the deferred revenue balance at the beginning of the period

     (93.4     (252.0     (267.3

Increases due to amounts billable excluding amounts recognized as revenue during the period

     154.9       357.9       434.7  

Effect of exchange rate changes

     1.3       11.5       12.8  
  

 

 

   

 

 

   

 

 

 

Total changes in deferred revenue

     62.8       117.4       180.2  
  

 

 

   

 

 

   

 

 

 

Balance at March 31, 2018

   $ 397.5     $ 729.0     $ 1,126.5  
  

 

 

   

 

 

   

 

 

 

Deferred revenue - current portion

   $ 273.4     $ 725.3     $ 998.7  

Deferred revenue - noncurrent portion

   $ 124.1     $ 3.7     $ 127.8  

The increase in deferred revenue during both the three months ended March 31, 2019 and 2018 is primarily due to the significant portion of contract renewals that occur during the first quarter within both segments.

Remaining performance obligations

The following tables include the expected recognition period for the remaining performance obligations for each reportable segment as of March 31, 2019:

 

MIS

Total

 

Less than 1 year

 

1 - 5 years

 

6 - 10 Years

 

11 - 15 years

 

16-20 years

 

Over 20 Years

$151.2

  $23.5   $70.2   $41.5   $6.5   $4.1   $5.4

The balances in the MIS table above largely reflect deferred revenue related to monitoring fees for certain structured finance products, primarily CMBS, where the issuers can elect to pay the monitoring fees for the life of the security in advance. With respect to the remaining performance obligations for the MIS segment, the Company has applied a practical expedient set forth in ASC Topic 606 permitting the omission from the table above for unsatisfied performance obligations relating to contracts with an original expected length of one year or less.

 

MA

        Total        

     Less than 1 Year      1 - 2 Years      Over 2 Years
$2,053.3      $1,334.0      $491.0      $228.3

The balances in the MA table above include both amounts recorded as deferred revenue on the balance sheet as of March 31, 2019 as well as amounts not yet invoiced to customers as of March 31, 2019 largely reflecting future revenue related to signed multi-year arrangements for hosted and installed subscription-based products.

 

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NOTE 4. STOCK-BASED COMPENSATION

Presented below is a summary of the stock-based compensation cost and associated tax benefit included in the accompanying consolidated statements of operations:

 

     Three Months Ended
March  31,
 
     2019      2018  

Stock-based compensation expense

   $ 35.7      $ 35.1  

Tax benefit

   $ 7.8      $ 7.2  

During the first three months of 2019, the Company granted 0.2 million employee stock options, which had a weighted average grant date fair value of $43.10 per share based on the Black-Scholes option-pricing model. The Company also granted 0.8 million shares of restricted stock in the first three months of 2019, which had a weighted average grant date fair value of $173.58 per share. Both the employee stock options and restricted stock generally vest ratably over a four-year period. Additionally, the Company granted 0.1 million shares of performance-based awards whereby the number of shares that ultimately vest is based on the achievement of certain non-market based performance metrics of the Company over a three-year period. The weighted average grant date fair value of these awards was $167.82 per share.

The following weighted average assumptions were used in determining the fair value for options granted in 2019:

 

Expected dividend yield

     1.15

Expected stock volatility

     23.62

Risk-free interest rate

     2.60

Expected holding period

     6.2 years  

Grant date fair value

   $ 43.10  

Unrecognized stock-based compensation expense at March 31, 2019 was $11.4 million and $239.2 million for stock options and unvested restricted stock, respectively, which is expected to be recognized over a weighted average period of 2.3 years and 2.7 years, respectively. Additionally, there was $40.8 million of unrecognized stock-based compensation expense relating to the aforementioned non-market based performance-based awards, which is expected to be recognized over a weighted average period of 2.2 years.

The following table summarize information relating to stock option exercises and restricted stock vesting:

 

    

Three Months Ended

 
     March 31,  
     2019      2018  

Exercise of stock options:

     

Proceeds from stock option exercises

   $ 11.9      $ 26.6  

Aggregate intrinsic value

   $ 35.6      $ 61.9  

Tax benefit realized upon exercise

   $ 8.5      $ 15.0  

Number of shares exercised

     0.3        0.5  

Vesting of restricted stock:

     

Fair value of shares vested

   $ 146.5      $ 146.7  

Tax benefit realized upon vesting

   $ 33.6      $ 33.9  

Number of shares vested

     0.8        0.9  

Vesting of performance-based restricted stock:

     

Fair value of shares vested

   $ 47.5      $ 23.0  

Tax benefit realized upon vesting

   $ 11.5      $ 5.5  

Number of shares vested

     0.3        0.1  

 

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Table of Contents

NOTE 5. INCOME TAXES

Moody’s effective tax rate was 9.2% and 14.6% for the three months ended March 31, 2019 and 2018, respectively. The decrease in the ETR was primarily due to favorable IRS Regulations issued in the first quarter of 2019 and lower non-U.S. taxes on certain software development. The Company’s quarterly tax expense differs from the tax computed by applying its estimated annual effective tax rate to this quarter’s pre-tax earnings due to Excess Tax Benefits from stock compensation of $26.6 million and net reductions to tax positions of $37.3 million.

The Company classifies interest related to UTPs in interest expense, net in its consolidated statements of operations. Penalties, if incurred, would be recognized in other non-operating (expense) income, net. The Company had a decrease in its UTPs of $20.2 million ($20.2 million, net of federal tax) during the first quarter of 2019.

Moody’s Corporation and subsidiaries are subject to U.S. federal income tax as well as income tax in various state, local and foreign jurisdictions. The Company’s U.S. federal income tax returns for 2015 through 2017 remain open to examination. The Company’s New York State tax returns for 2011 through 2014 are currently under examination and the Company’s New York City tax return for 2014 is currently under examination. The Company’s U.K. tax return for 2012 is currently under examination and its returns for 2013 through 2017 remain open to examination.

For ongoing audits, it is possible the balance of UTPs could decrease in the next twelve months as a result of the settlement of these audits, which might involve the payment of additional taxes, the adjustment of certain deferred taxes and/or the recognition of tax benefits. It is also possible that new issues might be raised by tax authorities, which could necessitate increases to the balance of UTPs. As the Company is unable to predict the timing or outcome of these audits, it is therefore unable to estimate the amount of changes to the balance of UTPs at this time. However, the Company believes that it has adequately provided for its financial exposure relating to all open tax years by tax jurisdiction in accordance with the applicable provisions of Topic 740 of the ASC regarding UTPs.

The following table shows the amount the Company paid for income taxes:

 

     Three Months Ended  
     March 31,  
     2019      2018  

Income taxes paid

   $ 36.9      $ 44.2  

NOTE 6. WEIGHTED AVERAGE SHARES OUTSTANDING

Below is a reconciliation of basic to diluted shares outstanding:

 

     Three Months Ended  
     March 31,  
     2019      2018  

Basic

     190.4        191.4  

Dilutive effect of shares issuable under stock-based compensation plans

     2.4        3.1  
  

 

 

    

 

 

 

Diluted

     192.8        194.5  
  

 

 

    

 

 

 

Anti-dilutive options to purchase common shares and restricted stock as well as contingently issuable restricted stock which are excluded from the table above

     0.4        0.7  
  

 

 

    

 

 

 

The calculation of diluted EPS requires certain assumptions regarding the use of both cash proceeds and assumed proceeds that would be received upon the exercise of stock options and vesting of restricted stock outstanding as of March 31, 2019 and 2018.

NOTE 7. ACCELERATED SHARE REPURCHASE PROGRAM

On February 20, 2019, the Company entered into an ASR agreement with a financial institution counterparty to repurchase $500 million of its outstanding common stock. The Company paid $500 million to the counterparty and received an initial delivery of 2.2 million shares of its common stock. Final settlement of the ASR agreement was completed on April 26, 2019 and the Company received delivery of an additional 0.6 million shares of the Company’s common stock.

 

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Table of Contents

In total, the Company repurchased 2.8 million shares of the Company’s common stock during the term of the ASR Agreement, based on the volume-weighted average price (net of discount) of $180.33/share over the duration of the program. The initial share repurchase and final share settlement were recorded as a reduction to shareholders’ equity.

NOTE 8. CASH EQUIVALENTS AND INVESTMENTS

The table below provides additional information on the Company’s cash equivalents and investments:

 

     As of March 31, 2019  
            Gross
Unrealized
Gains
            Balance sheet location  
     Cost      Fair
Value
     Cash and  cash
equivalents
     Short-term
investments
     Other
assets
 

Certificates of deposit and money market deposit accounts (1)

   $ 551.0      $ —        $ 551.0      $ 432.4      $ 110.9      $ 7.7  

Open-ended mutual funds

   $ 15.6      $ 2.1      $ 17.7      $ —        $ 3.1      $ 14.6  
     As of December 31, 2018  
            Gross
Unrealized
Gains
            Balance sheet location  
     Cost      Fair
Value
     Cash and cash
equivalents
     Short-term
investments
     Other
assets
 

Money market mutual funds

   $ 15.2      $ —        $ 15.2      $ 15.2      $ —        $ —    

Certificates of deposit and money market deposit accounts (1)

   $ 1,022.4      $ —        $ 1,022.4      $ 904.3      $ 115.8      $ 2.3  

Open-ended mutual funds

   $ 29.5      $ 3.8      $ 33.3      $ —        $ 16.7      $ 16.6  

 

(1)  

Consists of time deposits and money market deposit accounts. The remaining contractual maturities for the certificates of deposits classified as short-term investments were one to 12 months at both March 31, 2019 and December 31, 2018. The remaining contractual maturities for the certificates of deposits classified in other assets are 13 to 32 months at March 31, 2019 and 14 to 36 months at December 31, 2018. Time deposits with a maturity of less than 90 days at time of purchase are classified as cash and cash equivalents.

NOTE 9. ACQUISITIONS

Vigeo Eiris

On April 12, 2019, the Company acquired a majority stake in Vigeo Eiris, a global leader in Environmental, Social and Governance (ESG) research, data and assessments. The acquisition furthers Moody’s objective of promoting global standards for ESG for use by market participants. The aggregate purchase price was not material and the near term impact to the Company’s operations and cash flows is not expected to be material. Vigeo Eiris will operate in the MIS reportable segment and its revenue will be reported in the MIS Other LOB.

NOTE 10. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company is exposed to global market risks, including risks from changes in FX rates and changes in interest rates. Accordingly, the Company uses derivatives in certain instances to manage the aforementioned financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for speculative purposes.

Derivatives and non-derivative instruments designated as accounting hedges:

Fair Value Hedges

Interest Rate Swaps

The Company has entered into interest rate swaps to convert the fixed interest rate on certain of its long-term debt to a floating interest rate based on the 3-month LIBOR. The purpose of these hedges is to mitigate the risk associated with changes in the fair value of the long-term debt, thus the Company has designated these swaps as fair value hedges. The fair value of the swaps is adjusted quarterly with a corresponding adjustment to the carrying value of the debt. The changes in the fair value of the swaps and the underlying hedged item generally offset and the net cash settlements on the swaps are recorded each period within interest expense, net in the Company’s consolidated statements of operations.

 

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Table of Contents

The following table summarizes the Company’s interest rate swaps designated as fair value hedges:

 

Hedged Item

  

Nature of Swap

   Notional Amount      Floating Interest Rate  
   As of
March 31,
2019
     As of
December 31,
2018
 

2010 Senior Notes due 2020

   Pay Floating/Receive Fixed    $ 500.0      $ 500.0        3-month USD LIBOR  

2012 Senior Notes due 2022

   Pay Floating/Receive Fixed      330.0        330.0        3-month USD LIBOR  

2017 Senior Notes due 2021

   Pay Floating/Receive Fixed      500.0        500.0        3-month USD LIBOR  

2017 Senior Notes due 2023

   Pay Floating/Receive Fixed      250.0        —          3-month USD LIBOR  
     

 

 

    

 

 

    
Total       $ 1,580.0      $ 1,330.0     
     

 

 

    

 

 

    

Refer to Note 17 for information on the cumulative amount of fair value hedging adjustments included in the carrying amount of the above hedged items.

The following table summarizes the impact to the statement of operations of the Company’s interest rate swaps designated as fair value hedges:

 

          Amount of Income (Expense) Recognized in the
Statements of Operations
 

Total amounts of financial statement line item presented in

the statements of operations in which the effects of fair value hedges are recorded

   Three Months Ended
March 31,
 
          2019     2018  

Interest expense, net

      $ (52.5   $ (50.7

Descriptions

  

Location on Consolidated Statements of Operations

            

Net interest settlements and accruals on interest rate swaps

   Interest expense, net    $ (0.2   $ (0.1

Fair value changes on interest rate swaps

   Interest expense, net    $ 10.8     $ (9.2

Fair value changes on hedged debt

   Interest expense, net    $ (10.8   $ 9.2  

Net investment hedges

The Company has designated €500 million of the 2015 Senior Notes Due 2027 as a net investment hedge to mitigate FX exposure related to a portion of the Company’s euro net investment in certain foreign subsidiaries against changes in euro/USD exchange rates. This hedge is designated as an accounting hedge under the applicable sections of ASC Topic 815 and will end upon the repayment of the notes in 2027, unless terminated early at the discretion of the Company.

The Company has also entered into cross-currency swaps to mitigate FX exposure related to a portion of the Company’s euro net investment in certain foreign subsidiaries against changes in euro/USD exchange rates.

The following table provides information on the cross-currency swaps designated as net investment hedges:

 

     Pay     Receive  

Nature of Swap

   Notional
Amount
     Weighted Average
Interest Rate
    Notional
Amount
     Weighted Average
Interest Rate
 

Pay Fixed/Receive Fixed

   663.6        1.51%     $ 750.0        4.13%  

Pay Floating/Receive Floating

     931.2        Based on 3-month EURIBOR       1,080.0        Based on 3-month USD LIBOR  
  

 

 

      

 

 

    

Total

   1,594.8        $ 1,830.0     
  

 

 

      

 

 

    

 

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These hedges were designated as net investment hedges under ASC Topic 815 and the purpose of these hedges is to mitigate FX exposure related to a portion of the Company’s euro net investments in certain foreign subsidiaries against changes in euro/USD exchange rates. These hedges will expire and be settled in 2021, 2022, 2023, and 2024 for €422.5 million, €287.7 million, €441.9 million and €442.6 million of the total notional amount, respectively, unless terminated early at the discretion of the Company.

The following table provides information on the gains/(losses) on the Company’s net investment and cash flow hedges:

 

     Amount of Gain/
(Loss) Recognized
in AOCI on
Derivative, net of
Tax
     Amount of
Gain/(Loss)
Reclassified
from AOCI into
Income, net of
Tax
     Gain/(Loss)
Recognized in
Income on
Derivative
(Amount
Excluded from
Effectiveness
Testing)
 

Derivative and Non-Derivative Instruments in Net Investment Hedging
Relationships

   Three Months
Ended March 31,
     Three Months
Ended
March 31,
     Three Months
Ended
March 31,
 
     2019     2018      2019      2018      2019 (2)      2018  

Cross currency swaps

   $ 15.2     $ —          —          —          8.3        —    

Long-term debt

     8.3 (1)       (10.9      —          —          —          —    
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total net investment hedges

   $ 23.5     $ (10.9    $ —        $ —        $ 8.3      $ —    
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Derivatives in Cash Flow Hedging Relationships

                                        

Cross currency swap

   $ —       $ 1.5      $ 0.1      $ 0.1      $ —        $ —    

Interest rate contracts

     —         —          (0.1      —          —          —    
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total cash flow hedges

   $ —       $ 1.5      $ —        $ 0.1      $ —        $ —    
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 23.5     $ (9.4    $ —        $ 0.1      $ 8.3      $ —    
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  

Due to the Company’s adoption of ASU 2018-02 during the first quarter of 2019, $2.5 million related to the tax effect of this net investment hedge was reclassified to retained earnings. Refer to Note 1 for further details.

(2) 

Effective with the adoption of ASU 2017-12, the Company has elected to assess the effectiveness of its net investment hedges based on changes in spot exchange rates. Accordingly, amounts recognized directly into Net Income during the first quarter of 2019 related to its cross-currency swaps represent net periodic interest settlements and accruals, which are recognized in interest expense, net.

The cumulative amount of net investment hedge and cash flow hedge gains (losses) remaining in AOCI is as follows:

 

     Cumulative Gains/(Losses), net of tax  
     March 31, 2019      December 31, 2018  

Net investment hedges

     

Cross currency swaps

   $ 27.5      $ 12.3  

FX forwards

     23.5        23.5  

Long-term debt

     2.7        (3.1
  

 

 

    

 

 

 

Total net investment hedges

   $ 53.7      $ 32.7  
  

 

 

    

 

 

 

Cash flow hedges

     

Interest rate contracts

   $ (2.3    $ (2.4

Cross currency swap

     2.4        2.5  
  

 

 

    

 

 

 

Total cash flow hedges

     0.1        0.1  
  

 

 

    

 

 

 

Total net gain in AOCI

   $ 53.8      $ 32.8  
  

 

 

    

 

 

 

Derivatives not designated as accounting hedges:

Foreign exchange forwards

The Company also enters into foreign exchange forwards to mitigate the change in fair value on certain assets and liabilities denominated in currencies other than a subsidiary’s functional currency. These forward contracts are not designated as accounting hedges under the applicable sections of Topic 815 of the ASC. Accordingly, changes in the fair value of these contracts are recognized immediately in other non-operating (expense) income, net in the Company’s consolidated statements of operations along with the FX gain or loss recognized on the assets and liabilities denominated in a currency other than the subsidiary’s functional currency. These contracts have expiration dates at various times through May 2019.

 

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The following table summarizes the notional amounts of the Company’s outstanding foreign exchange forwards:

 

     March 31,
2019
     December 31,
2018
 
     Sell      Buy      Sell      Buy  
Notional amount of currency pair:            

Contracts to sell USD for GBP

   $ 492.5      £ 371.0      $ 310.3      £ 241.2  

Contracts to sell USD for Japanese Yen

   $ 14.4      ¥ 1,600.0      $ 14.3      ¥ 1,600.0  

Contracts to sell USD for Canadian dollars

   $ 87.4      C$ 115.0      $ 99.0      C$ 130.0  

Contracts to sell USD for Singapore dollars

   $ 35.7      S$ 48.0      $ —        S$ —    

Contracts to sell USD for Euros

   $ 68.6      60.0      $ 212.8      184.6  

NOTE: € = Euro, £ = British pound, $ = U.S. dollar, ¥ = Japanese Yen, C$ = Canadian dollar, S$= Singapore dollars

The following table summarizes the impact to the consolidated statements of operations relating to the net gain/(loss) on the Company’s derivatives which are not designated as hedging instruments:

 

        Three Months Ended
March  31,
 

Derivatives Not Designated as Accounting Hedges

  Location on Statements of Operations   2019      2018  

Foreign exchange forwards

  Other non-operating (expense) income, net   $ 1.4      $ (52.3

The table below shows the classification between assets and liabilities on the Company’s consolidated balance sheets for the fair value of the derivative instrument as well as the carrying value of its non-derivative debt instruments designated and qualifying as net investment hedges:

 

     Derivative and Non-Derivative Instruments  
     Balance Sheet Location      March 31, 2019      December 31, 2018  

Assets:

        

Derivatives designated as accounting hedges:

        

Cross-currency swaps designated as net investment hedges

     Other assets      $ 36.7      $ 19.4  

Interest rate swaps designated as fair value hedges

     Other assets        15.3        7.5  
     

 

 

    

 

 

 

Total derivatives designated as accounting hedges

        52.0        26.9  
     

 

 

    

 

 

 

Derivatives not designated as accounting hedges:

        

FX forwards on certain assets and liabilities

     Other current assets        0.3        1.4  
     

 

 

    

 

 

 

Total assets

      $ 52.3      $ 28.3  
     

 

 

    

 

 

 

Liabilities:

        

Derivatives designated as accounting hedges:

        

Cross-currency swaps designated as net investment hedges

     Other liabilities        —          2.9  

Interest rate swaps designated as fair value hedges

     Other liabilities        2.3        5.3  
     

 

 

    

 

 

 

Total derivatives designated as accounting hedges

        2.3        8.2  
     

 

 

    

 

 

 

Non-derivative instrument designated as accounting hedge

        

Long-term debt designated as net investment hedge

     Long-term debt        561.4        571.6  

Derivatives not designated as accounting hedges:

        

FX forwards on certain assets and liabilities

    
Accounts payable and
accrued liabilities
 
 
     10.9        8.2  
     

 

 

    

 

 

 

Total liabilities

      $ 574.6      $ 588.0  
     

 

 

    

 

 

 

 

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NOTE 11. GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS

The following table summarizes the activity in goodwill for the periods indicated:

 

     Three Months Ended March 31, 2019  
     MIS     MA     Consolidated  
     Gross
goodwill
    Accumulated
impairment
charge
     Net
goodwill
    Gross
goodwill
    Accumulated
impairment
charge
    Net
goodwill
    Gross
goodwill
    Accumulated
impairment
charge
    Net
goodwill
 

Balance at beginning of year

   $ 257.8     $ —        $ 257.8     $ 3,535.7     $ (12.2   $ 3,523.5     $ 3,793.5     $ (12.2   $ 3,781.3  

Foreign currency translation adjustments

     9.4       —          9.4       (28.2     —         (28.2     (18.8     —         (18.8
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 267.2     $ —        $ 267.2     $ 3,507.5     $ (12.2   $ 3,495.3     $ 3,774.7     $ (12.2   $ 3,762.5  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     Year ended December 31, 2018  
     MIS     MA     Consolidated  
     Gross
goodwill
    Accumulated
impairment
charge
     Net
goodwill
    Gross
goodwill
    Accumulated
impairment
charge
    Net
goodwill
    Gross
goodwill
    Accumulated
impairment
charge
    Net
goodwill
 

Balance at beginning of year

   $ 285.2     $ —        $ 285.2     $ 3,480.2     $ (12.2   $ 3,468.0     $ 3,765.4     $ (12.2   $ 3,753.2  

Additions/ adjustments

     —         —          —         211.5       —         211.5       211.5       —         211.5  

Foreign currency translation adjustments

     (27.4     —          (27.4     (156.0     —         (156.0     (183.4     —         (183.4
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 257.8     $ —        $ 257.8     $ 3,535.7     $ (12.2   $ 3,523.5     $ 3,793.5     $ (12.2   $ 3,781.3  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The 2018 additions/adjustments for the MA segment in the table above primarily relate to the acquisitions of Reis and Omega Performance.

 

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Acquired intangible assets and related amortization consisted of:

 

     March 31,
2019
     December 31,
2018
 

Customer relationships

   $ 1,360.7      $ 1,367.5  

Accumulated amortization

     (230.2      (214.2
  

 

 

    

 

 

 

Net customer relationships

     1,130.5        1,153.3  
  

 

 

    

 

 

 

Trade secrets

     29.9        29.8  

Accumulated amortization

     (28.3      (28.2
  

 

 

    

 

 

 

Net trade secrets

     1.6        1.6  
  

 

 

    

 

 

 

Software/product technology

     349.2        353.3  

Accumulated amortization

     (107.7      (101.8
  

 

 

    

 

 

 

Net software/product technology

     241.5        251.5  
  

 

 

    

 

 

 

Trade names

     155.9        155.1  

Accumulated amortization

     (36.5      (34.1
  

 

 

    

 

 

 

Net trade names

     119.4        121.0  
  

 

 

    

 

 

 

Other (1)

     70.8        70.4  

Accumulated amortization

     (33.4      (31.7
  

 

 

    

 

 

 

Net other

     37.4        38.7  
  

 

 

    

 

 

 

Total acquired intangible assets, net

   $ 1,530.4      $ 1,566.1  
  

 

 

    

 

 

 

 

(1)  

Other intangible assets primarily consist of databases, covenants not to compete, and acquired ratings methodologies and models.

Amortization expense relating to acquired intangible assets is as follows:

 

     Three Months Ended March 31,  
     2019      2018  

Amortization expense

   $ 26.4      $ 25.7  

Estimated future amortization expense for acquired intangible assets subject to amortization is as follows:

 

Year Ending December 31,

      

2019 (after March 31)

   $ 71.0  

2020

     100.5  

2021

     100.3  

2022

     100.3  

2023

     97.3  

Thereafter

     1,061.0  
  

 

 

 

Total estimated future amortization

   $ 1,530.4  
  

 

 

 

 

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NOTE 12 RESTRUCTURING

On October 26, 2018, the chief executive officer of Moody’s approved a restructuring program (the “2018 Restructuring Program”) that the Company estimates will result in annualized savings of approximately $40 to $50 million per year, a portion of which will benefit 2019. The 2018 Restructuring Program is estimated to result in total pre-tax charges of $70 to $80 million. The Program is expected to be substantially completed by June 30, 2019. The 2018 Restructuring Program includes relocation of certain functions from high-cost to lower-cost jurisdictions, a reduction of staff, including from recent acquisitions and pursuant to a review of the business criticality of certain positions, and the rationalization and exit of certain real estate leases due to consolidation of various business activities. The exit from certain leased office space began in the fourth quarter of 2018 and will entail approximately $35 to $40 million of the charges to either terminate or sublease the affected real estate leases. The 2018 Restructuring Program is also anticipated to represent approximately $35 to $40 million of personnel-related restructuring charges, an amount that includes severance and related costs primarily determined under the Company’s existing severance plans. Cash outlays associated with the employee termination cost component of the 2018 Restructuring Program are anticipated to be approximately $35 to $40 million, the majority of which will be paid in 2019.

Total expenses included in the accompanying consolidated statements of operations relating to the 2018 Restructuring Program are as follows:

 

     Three Months Ended March 31,  
     2019      2018  

2018 Restructuring Program

   $ 5.5      $ —    

Changes to the restructuring liability during the first three months of 2019 were as follows:

 

     Employee
Termination  Costs
     Contract
Termination  Costs
    Total
Restructuring
Liability
 

Balance as of December 31, 2018

   $ 29.9      $ 12.4     $ 42.3  

2018 Restructuring Program:

       

Adoption of New Lease Accounting Standard

     —          (10.9 ) (1)      (10.9 ) (1) 

Cost incurred and adjustments

     1.8        2.2   (2)       4.0   (2)  

Cash payments and adjustments

     (5.9      (0.7     (6.6
  

 

 

    

 

 

   

 

 

 

Balance as of March 31, 2019

   $ 25.8      $ 3.0     $ 28.8  
  

 

 

    

 

 

   

 

 

 

2018 Restructuring Program:

       
  

 

 

    

 

 

   

Cumulative expense incurred to date

   $ 34.6      $ 19.6    
  

 

 

    

 

 

   

 

(1)  

Upon the adoption of the New Lease Accounting Standard, the Company recorded a reclassification of $10.9 million of liabilities for costs associated with certain real estate leases which were exited in previous years, as a reduction of the ROU Asset capitalized upon adoption.

(2) 

Excludes $1.5 million of non-cash acceleration of amortization of leasehold improvements relating to the rationalization and exit of certain real estate leases.

As of March 31, 2019, the majority of the remaining $28.8 million restructuring liability is expected to be paid out during the next 12 months.

 

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NOTE 13. FAIR VALUE

The table below presents information about items that are carried at fair value at March 31, 2019 and December 31, 2018:

 

     Fair Value Measurement as of March 31, 2019  

Description

   Balance      Level 1      Level 2  

Assets:

        

Derivatives (1)

   $ 52.3      $ —        $ 52.3  

Mutual funds

     17.7        17.7        —    
  

 

 

    

 

 

    

 

 

 

Total

   $ 70.0      $ 17.7      $ 52.3  
  

 

 

    

 

 

    

 

 

 

Liabilities:

        

Derivatives (1)

   $ 13.2      $ —        $ 13.2  
  

 

 

    

 

 

    

 

 

 

Total

   $ 13.2      $ —        $ 13.2  
  

 

 

    

 

 

    

 

 

 
     Fair Value Measurement as of December 31, 2018  

Description

   Balance      Level 1      Level 2  

Assets:

        

Derivatives (1)

   $ 28.3      $ —        $ 28.3  

Money market mutual funds

     15.2        15.2        —    

Mutual funds

     33.3        33.3        —    
  

 

 

    

 

 

    

 

 

 

Total

   $ 76.8      $ 48.5      $ 28.3  
  

 

 

    

 

 

    

 

 

 

Liabilities:

        

Derivatives (1)

   $ 16.4      $ —        $ 16.4  
  

 

 

    

 

 

    

 

 

 

Total

   $ 16.4      $ —        $ 16.4  
  

 

 

    

 

 

    

 

 

 

 

(1) 

Represents FX forwards on certain assets and liabilities as well as interest rate swaps and cross-currency swaps as more fully described in Note 10 to the condensed consolidated financial statements.

The following are descriptions of the methodologies utilized by the Company to estimate the fair value of its derivative contracts, fixed maturity plans, and money market mutual funds:

Derivatives:

In determining the fair value of the derivative contracts in the table above, the Company utilizes industry standard valuation models. Where applicable, these models project future cash flows and discount the future amounts to a present value using spot rates, forward points, currency volatilities, interest rates as well as the risk of non-performance of the Company and the counterparties with whom it has derivative contracts. The Company established strict counterparty credit guidelines and only enters into transactions with financial institutions that adhere to these guidelines. Accordingly, the risk of counterparty default is deemed to be minimal.

Mutual funds and money market mutual funds:

The mutual funds in the table above are deemed to be equity securities with readily determinable fair values with changes in the fair value recognized through net income under ASC Topic 321. The fair value of these instruments is determined using Level 1 inputs as defined in the ASC.

 

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Table of Contents

NOTE 14 OTHER BALANCE SHEET AND STATEMENT OF OPERATIONS INFORMATION

The following tables contain additional detail related to certain balance sheet captions:

 

     March 31,      December 31,  
     2019      2018  

Other current assets:

     

Prepaid taxes

   $ 103.8      $ 100.1  

Prepaid expenses

     104.4        102.0  

Capitalized costs to obtain and fulfill sales contracts

     76.4        77.2  

Other

     2.0        3.0  
  

 

 

    

 

 

 

Total other current assets

   $ 286.6      $ 282.3  
  

 

 

    

 

 

 
     March 31,      December 31,  
     2019      2018  

Other assets:

     

Investments in non-consolidated affiliates

   $ 111.6      $ 104.6  

Deposits for real-estate leases

     13.7        13.5  

Indemnification assets related to acquisitions

     16.2        16.1  

Mutual funds and fixed deposits

     22.3        18.9  

Costs to obtain sales contracts

     86.1        78.0  

Other

     71.3        43.2  
  

 

 

    

 

 

 

Total other assets

   $ 321.2      $ 274.3  
  

 

 

    

 

 

 
     March 31,      December 31,  
     2019      2018  

Accounts payable and accrued liabilities:

     

Salaries and benefits

   $ 132.3      $ 112.5  

Incentive compensation

     51.0        154.5  

Customer credits, advanced payments and advanced billings

     22.9        20.4  

Self-insurance reserves

     9.3        10.6  

Dividends

     4.0        6.5  

Professional service fees

     58.1        47.7  

Interest accrued on debt

     36.4        70.5  

Accounts payable

     19.5        30.1  

Income taxes

     65.4        71.4  

Pension and other retirement employee benefits

     6.4        6.4  

Accrued royalties

     14.0        25.1  

Foreign exchange forwards on certain assets and liabilities

     10.9        8.2  

Restructuring liability

     25.6        35.5  

Other

     81.3        95.8  
  

 

 

    

 

 

 

Total accounts payable and accrued liabilities

   $ 537.1      $ 695.2  
  

 

 

    

 

 

 
     March 31,      December 31,  
     2019      2018  

Other liabilities:

     

Pension and other retirement employee benefits

   $ 256.5      $ 249.2  

Deferred rent - non-current portion (1)

     —          94.3  

Interest accrued on UTPs

     74.9        69.6  

Other tax matters

     1.3        1.3  

Income tax liability - non-current portion (2)

     125.3        125.3  

Interest rate swaps

     2.3        5.3  

Restructuring liability

     3.2        6.8  

Other

     23.1        24.7  
  

 

 

    

 

 

 

Total other liabilities

   $ 486.6      $ 576.5  
  

 

 

    

 

 

 

 

(1)  

Pursuant to the adoption of the New Lease Accounting Standard, deferred rent relating to operating leases was reclassified to operating lease ROU Asset.

(2) 

Primarily reflects the transition tax pursuant to the Tax Act, which was enacted into law in December 2018.

 

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Table of Contents

Other Non-Operating Income (Expense):

The following table summarizes the components of other non-operating income (expense):

 

     Three Months Ended March 31,  
     2019      2018  

FX loss

   $ (6.2    $ (5.9

Net periodic pension costs - other component

     4.5        2.3  

Income from investments in non-consolidated affiliates

     1.2        1.3  

Other

     2.8        3.3  
  

 

 

    

 

 

 

Total

   $ 2.3      $ 1.0  
  

 

 

    

 

 

 

NOTE 15. COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table provides details about the reclassifications out of AOCI:

 

     Three Months Ended March 31,     Location in the consolidated statements  of
operations
 
     2019     2018  

Gains (losses) on cash flow hedges

      

Cross-currency swap

   $ (0.1   $ 0.1      
Other non-operating income
(expense), net
 
 

Interest rate contract

     0.1       —         Interest expense, net  
  

 

 

   

 

 

   

Total before income taxes

     —         0.1    

Income tax effect of item above

     —         —         Provision for income taxes  
  

 

 

   

 

 

   

Total net gains (losses) on cash flow hedges

     —         0.1    
  

 

 

   

 

 

   

Pension and other retirement benefits

      

Amortization of actuarial losses and prior service costs included in net income

     (0.5     (0.9     Operating expense  

Amortization of actuarial losses and prior service costs included in net income

     (0.3     (0.5     SG&A expense  
  

 

 

   

 

 

   

Total before income taxes

     (0.8     (1.4 )