UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form10-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, 20182019
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 number1-14037
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, and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T during the preceding 12 months, or for such shorter period that the registrant was required to submit and post such files. Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-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 Rule12b-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 Rule12b-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, | |
| Common Stock, par value $0.01 per share |
| Page(s) | ||||||||||||
| Glossary of Terms and Abbreviations | ||||||||||||
| PART I. FINANCIAL INFORMATION | ||||||||||||
Item 1. | 10 | |||||||||||
| Consolidated Balance Sheets (Unaudited) at March 31, | ||||||||||||
| Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, | ||||||||||||
| 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) | ||||||||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 44 | ||||||||||
| The Company | ||||||||||||
| Critical Accounting Estimates | ||||||||||||
| Reportable Segments | ||||||||||||
| Results of Operations | ||||||||||||
| Liquidity and Capital Resources | ||||||||||||
| Recently Issued Accounting Standards | ||||||||||||
| Contingencies | ||||||||||||
| Regulation | ||||||||||||
| Forward-Looking Statements | ||||||||||||
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 59 | ||||||||||
| Item 4. | Controls and Procedures | |||||||||||
| PART II. OTHER INFORMATION | ||||||||||||
Item 1. | ||||||||||||
Item 1A. | ||||||||||||
Item 2. | ||||||||||||
Item 5. | ||||||||||||
Item 6. | ||||||||||||
| SIGNATURES | 63 | |||||||||||
| Exhibits Filed Herewith | ||||||||||||
10.1 | ||||||||||||
| 31.1 | Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||||||||
| 31.2 | ||||||||||||
| 32.1 | Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||||||||
| 32.2 | ||||||||||||
| 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 | |||||||||||
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: | |
| 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. | |
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| CFG | Corporate finance group; an LOB of MIS | |
| CLO | Collateralized loan obligation | |
TERM | DEFINITION | |
| CMBS | Commercial mortgage-backed securities; | |
| Common Stock | The Company’s common stock | |
| Company | Moody’s Corporation and its subsidiaries; MCO; Moody’s | |
| 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 | |
| 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 | ||
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| 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 | |
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; | |
| 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 | |
| IRS | Internal Revenue Service | |
| IT | Information technology | |
| KIS | Korea Investors Service, | |
| KIS Pricing | Korea Investors Service Pricing, | |
| 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 | |
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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 | |
| Moody’s Analytics Learning Solutions; a reporting unit within the MA segment that includeson-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 | |
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 ofnon-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 ASUNo. 2016-02, “Leases (ASC Topic 842)”. This new accounting guidance requires lessees to recognize aright-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 ASUNo. 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 | |
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 analyzingperiod-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 | The U.S. retirement healthcare and U.S. retirement life insurance plans | |
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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 | |
TERM | DEFINITION | |
PS | Professional Services, an LOB within MA consisting of MAKS and | |
RD&A | Research, Data and Analytics; an LOB within MA that | |
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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 | |
| The level at which Moody’s | |
| RMBS | Residential mortgage-backed securities; an asset class within SFG | |
| 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 | |
SaaS | Software-as-a-Service | |
| SEC | U.S. Securities and Exchange Commission | |
Securities Act | Securities Act of 1933, as amended | |
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SFG | Structured finance group; an LOB of MIS | |
SG&A | Selling, general and administrative expenses | |
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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 otherone-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 | |
TERM | DEFINITION | |
U.S. | United States | |
USD | U.S. dollar | |
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UTPs | Uncertain tax positions | |
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| 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 | |
| 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 | |
| 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, | |
TERM | DEFINITION | |
| 2017 Senior Notes Due 2021 | Principal amount of $500 million, 2.75% senior unsecured notes due in December 2021 | |
| 2018 Senior Notes | Principal amount of $300 million, | |
| 2018 Senior Notes(10-year) | Principal amount of $400 million, | |
2018 Senior Notes(30-year) | Principal amount of | |
MOODY’S CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in millions, except per share data)
| Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
| 2018 | 2017 | 2019 | 2018 | |||||||||||||
Revenue | $ | 1,126.7 | $ | 975.2 | $ | 1,142.1 | $ | 1,126.7 | ||||||||
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Expenses | ||||||||||||||||
Operating | 314.9 | 275.3 | 341.7 | 314.9 | ||||||||||||
Selling, general and administrative | 271.1 | 220.7 | 281.5 | 271.1 | ||||||||||||
Restructuring | 5.5 | — | ||||||||||||||
Depreciation and amortization | 49.1 | 32.5 | 50.3 | 49.1 | ||||||||||||
Acquisition-Related Expenses | 0.8 | — | 1.4 | 0.8 | ||||||||||||
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Total expenses | 635.9 | 528.5 | 680.4 | 635.9 | ||||||||||||
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Operating income | 490.8 | 446.7 | 461.7 | 490.8 | ||||||||||||
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Non-operating (expense) income, net | ||||||||||||||||
Interest expense, net | (50.7 | ) | (47.4 | ) | (52.5 | ) | (50.7 | ) | ||||||||
Othernon-operating income (expense), net | 1.0 | (7.7 | ) | |||||||||||||
CCXI Gain | — | 59.7 | ||||||||||||||
Othernon-operating income, net | 2.3 | 1.0 | ||||||||||||||
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Totalnon-operating (expense) income, net | (49.7 | ) | 4.6 | |||||||||||||
Non-operating expense, net | (50.2 | ) | (49.7 | ) | ||||||||||||
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Income before provision for income taxes | 441.1 | 451.3 | 411.5 | 441.1 | ||||||||||||
Provision for income taxes | 64.3 | 105.4 | 37.9 | 64.3 | ||||||||||||
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Net income | 376.8 | 345.9 | 373.6 | 376.8 | ||||||||||||
Less: Net income attributable to noncontrolling interests | 3.9 | 0.3 | 0.7 | 3.9 | ||||||||||||
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Net income attributable to Moody’s | $ | 372.9 | $ | 345.6 | $ | 372.9 | $ | 372.9 | ||||||||
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Earnings per share | ||||||||||||||||
Basic | $ | 1.95 | $ | 1.81 | $ | 1.96 | $ | 1.95 | ||||||||
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Diluted | $ | 1.92 | $ | 1.78 | $ | 1.93 | $ | 1.92 | ||||||||
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Weighted average shares outstanding | ||||||||||||||||
Basic | 191.4 | 191.1 | 190.4 | 191.4 | ||||||||||||
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Diluted | 194.5 | 194.3 | 192.8 | 194.5 | ||||||||||||
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Dividends declared per share attributable to Moody’s common shareholders | $ | 0.44 | $ | — | ||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
MOODY’S CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Amounts in millions)
| Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2018 | 2017 | 2019 | 2018 | |||||||||||||||||||||||||||||||||||||||||||||
| Pre-tax amounts | Tax amounts | After-tax amounts | Pre-tax amounts | Tax amounts | After-tax amounts | Pre-tax amounts | Tax amounts | After-tax amounts | Pre-tax amounts | Tax amounts | After-tax amounts | |||||||||||||||||||||||||||||||||||||
Net Income | $ | 376.8 | $ | 345.9 | $ | 373.6 | $ | 376.8 | ||||||||||||||||||||||||||||||||||||||||
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Other Comprehensive Income: | ||||||||||||||||||||||||||||||||||||||||||||||||
Other Comprehensive Income (Loss): | ||||||||||||||||||||||||||||||||||||||||||||||||
Foreign Currency Adjustments: | ||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments, net | $ | 121.6 | $ | 3.6 | 125.2 | $ | 14.4 | $ | (2.3 | ) | 12.1 | $ | (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 (loss) gain on cash flow hedges | 1.9 | (0.4 | ) | 1.5 | (0.3 | ) | 0.1 | (0.2 | ) | |||||||||||||||||||||||||||||||||||||||
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 | ) | (1.4 | ) | 0.5 | (0.9 | ) | — | — | — | (0.1 | ) | — | (0.1 | ) | |||||||||||||||||||||||||||||||
Available for sale securities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Net unrealized gains on available for sale securities | — | — | — | 0.5 | — | 0.5 | ||||||||||||||||||||||||||||||||||||||||||
Pension and Other Retirement Benefits: | ||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of actuarial losses and prior service costs included in net income | 1.4 | (0.4 | ) | 1.0 | 2.4 | (0.9 | ) | 1.5 | 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 | — | — | — | |||||||||||||||||||||||||||||||||||||||||
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Total Other Comprehensive Income | $ | 124.8 | $ | 2.8 | 127.6 | $ | 15.6 | $ | (2.6 | ) | 13.0 | |||||||||||||||||||||||||||||||||||||
Total Other Comprehensive (Loss) Income | $ | 5.6 | $ | (7.4 | ) | $ | (1.8 | ) | $ | 124.8 | $ | 2.8 | $ | 127.6 | ||||||||||||||||||||||||||||||||||
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Comprehensive Income | 504.4 | 358.9 | 371.8 | 504.4 | ||||||||||||||||||||||||||||||||||||||||||||
Less: comprehensive income attributable to noncontrolling interests | 8.9 | 5.7 | 8.2 | 8.9 | ||||||||||||||||||||||||||||||||||||||||||||
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Comprehensive Income Attributable to Moody’s | $ | 495.5 | $ | 353.2 | $ | 363.6 | $ | 495.5 | ||||||||||||||||||||||||||||||||||||||||
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The accompanying notes are an integral part of the condensed consolidated financial statements.
MOODY’S CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in millions, except share and per share data)
| March 31, 2018 | December 31, 2017 | March 31, 2019 | December 31, 2018 | |||||||||||||
| ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 1,277.3 | $ | 1,071.5 | $ | 1,196.6 | $ | 1,685.0 | ||||||||
Short-term investments | 100.5 | 111.8 | 114.0 | 132.5 | ||||||||||||
Accounts receivable, net of allowances of $36.0 in 2018 and $36.6 in 2017 | 1,207.4 | 1,147.2 | ||||||||||||||
Accounts receivable, net of allowances of $46.0 in 2019 and $43.5 in 2018 | 1,301.2 | 1,287.1 | ||||||||||||||
Other current assets | 233.6 | 250.1 | 286.6 | 282.3 | ||||||||||||
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Total current assets | 2,818.8 | 2,580.6 | 2,898.4 | 3,386.9 | ||||||||||||
Property and equipment, net of accumulated depreciation of $731.8 in 2018 and $706.6 in 2017 | 321.6 | 325.1 | ||||||||||||||
Property and equipment, net of accumulated depreciation of $834.9 in 2019 and $790.2 in 2018 | 318.7 | 320.4 | ||||||||||||||
Operating leaseright-of-use assets | 508.1 | — | ||||||||||||||
Goodwill | 3,831.5 | 3,753.2 | 3,762.5 | 3,781.3 | ||||||||||||
Intangible assets, net | 1,641.6 | 1,631.6 | 1,530.4 | 1,566.1 | ||||||||||||
Deferred tax assets, net | 142.5 | 143.8 | 178.8 | 197.2 | ||||||||||||
Other assets | 258.0 | 159.9 | 321.2 | 274.3 | ||||||||||||
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Total assets | $ | 9,014.0 | $ | 8,594.2 | $ | 9,518.1 | $ | 9,526.2 | ||||||||
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| LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||
LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS’ EQUITY | LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS’ EQUITY |
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Current liabilities: | ||||||||||||||||
Accounts payable and accrued liabilities | $ | 532.6 | $ | 750.3 | $ | 537.1 | $ | 695.2 | ||||||||
Current portion of operating lease liabilities | 87.4 | — | ||||||||||||||
Commercial paper | 89.9 | 129.9 | 318.8 | — | ||||||||||||
Current portion of long-term debt | 299.7 | 299.5 | — | 449.9 | ||||||||||||
Deferred revenue | 998.7 | 883.6 | 1,062.3 | 953.4 | ||||||||||||
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Total current liabilities | 1,920.9 | 2,063.3 | 2,005.6 | 2,098.5 | ||||||||||||
Non-current portion of deferred revenue | 127.8 | 140.0 | 120.9 | 122.3 | ||||||||||||
Long-term debt | 5,118.0 | 5,111.1 | 5,228.6 | 5,226.1 | ||||||||||||
Deferred tax liabilities, net | 382.2 | 341.6 | 353.4 | 351.7 | ||||||||||||
Unrecognized tax benefits | 490.9 | 389.1 | ||||||||||||||
Uncertain tax positions | 474.5 | 494.6 | ||||||||||||||
Operating lease liabilities | 523.5 | — | ||||||||||||||
Other liabilities | 554.2 | 664.0 | 486.6 | 576.5 | ||||||||||||
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Total liabilities | 8,594.0 | 8,709.1 | 9,193.1 | 8,869.7 | ||||||||||||
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Contingencies (Note 16) | — | — | ||||||||||||||
Shareholders’ equity (deficit): | ||||||||||||||||
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, 2018 and December 31, 2017, respectively. | 3.4 | 3.4 | ||||||||||||||
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 | 506.6 | 528.6 | 435.7 | 600.9 | ||||||||||||
Retained earnings | 7,913.0 | 7,465.4 | 8,893.6 | 8,594.4 | ||||||||||||
Treasury stock, at cost; 150,981,594 and 151,932,157 shares of common stock at March 31, 2018 and December 31, 2017, respectively | (8,171.4 | ) | (8,152.9 | ) | ||||||||||||
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 | (51.9 | ) | (172.2 | ) | (455.5 | ) | (426.3 | ) | ||||||||
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Total Moody’s shareholders’ equity (deficit) | 199.7 | (327.7 | ) | |||||||||||||
Total Moody’s shareholders’ equity | 123.2 | 459.9 | ||||||||||||||
Noncontrolling interests | 220.3 | 212.8 | 201.8 | 196.6 | ||||||||||||
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Total shareholders’ equity (deficit) | 420.0 | (114.9 | ) | |||||||||||||
Total shareholders’ equity | 325.0 | 656.5 | ||||||||||||||
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Total liabilities, noncontrolling interests and shareholders’ equity (deficit) | $ | 9,014.0 | $ | 8,594.2 | ||||||||||||
Total liabilities, noncontrolling interests and shareholders’ equity | $ | 9,518.1 | $ | 9,526.2 | ||||||||||||
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The accompanying notes are an integral part of the condensed consolidated financial statements.
MOODY’S CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in millions)
| Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
| 2018 | 2017 | 2019 | 2018 | |||||||||||||
Cash flows from operating activities | ||||||||||||||||
Net income | $ | 376.8 | $ | 345.9 | $ | 373.6 | $ | 376.8 | ||||||||
Reconciliation of net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 49.1 | 32.5 | 50.3 | 49.1 | ||||||||||||
Stock-based compensation | 35.1 | 28.4 | 35.7 | 35.1 | ||||||||||||
CCXI Gain | — | (59.7 | ) | |||||||||||||
Deferred income taxes | (4.2 | ) | 185.0 | 13.8 | (4.2 | ) | ||||||||||
Changes in assets and liabilities: | ||||||||||||||||
Accounts receivable | (29.9 | ) | (61.9 | ) | (8.5 | ) | (29.9 | ) | ||||||||
Other current assets | 47.8 | (128.3 | ) | (5.9 | ) | 47.8 | ||||||||||
Other assets | (14.5 | ) | (3.2 | ) | (13.5 | ) | (14.5 | ) | ||||||||
Accounts payable and accrued liabilities | (224.2 | ) | (988.6 | ) | (179.5 | ) | (224.1 | ) | ||||||||
Restructuring | (2.5 | ) | (0.1 | ) | ||||||||||||
Deferred revenue | 167.7 | 125.9 | 103.9 | 167.7 | ||||||||||||
Unrecognized tax benefits and othernon-current tax liabilities | (17.9 | ) | 0.9 | (21.9 | ) | (17.9 | ) | |||||||||
Other liabilities | 5.7 | 10.7 | 21.6 | 5.7 | ||||||||||||
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Net cash provided by (used in) operating activities | 391.5 | (512.4 | ) | |||||||||||||
Net cash provided by operating activities | 367.1 | 391.5 | ||||||||||||||
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Cash flows from investing activities | ||||||||||||||||
Capital additions | (15.0 | ) | (18.7 | ) | (20.0 | ) | (15.0 | ) | ||||||||
Purchases of investments | (50.3 | ) | (34.5 | ) | (37.8 | ) | (50.3 | ) | ||||||||
Sales and maturities of investments | 41.1 | 76.8 | 50.6 | 41.1 | ||||||||||||
Cash paid for acquisitions, net of cash acquired and equity investments | — | (5.0 | ) | |||||||||||||
Cash received upon disposal of a subsidiary, net of cash transferred to purchaser | 5.7 | — | — | 5.7 | ||||||||||||
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Net cash (used in) provided by investing activities | (18.5 | ) | 18.6 | |||||||||||||
Net cash used in investing activities | (7.2 | ) | (18.5 | ) | ||||||||||||
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Cash flows from financing activities | ||||||||||||||||
Issuance of notes | — | 798.5 | ||||||||||||||
Repayment of notes | — | (300.0 | ) | (450.0 | ) | — | ||||||||||
Issuance of commercial paper | 219.6 | 653.7 | 402.8 | 219.6 | ||||||||||||
Repayment of commercial paper | (259.6 | ) | (440.4 | ) | (85.0 | ) | (259.6 | ) | ||||||||
Proceeds from stock-based compensation plans | 28.5 | 22.1 | 14.2 | 28.5 | ||||||||||||
Repurchase of shares related to stock-based compensation | (42.0 | ) | (47.5 | ) | (50.6 | ) | (42.0 | ) | ||||||||
Treasury shares | (43.4 | ) | (55.0 | ) | (448.2 | ) | (43.4 | ) | ||||||||
Cash paid for ASR contract relating to shares retained by counterparty until final settlement | (125.3 | ) | — | |||||||||||||
Dividends | (84.1 | ) | (72.6 | ) | (94.4 | ) | (84.1 | ) | ||||||||
Dividends to noncontrolling interests | (1.1 | ) | (0.2 | ) | — | (1.1 | ) | |||||||||
Debt issuance costs and related fees | (0.2 | ) | (4.9 | ) | ||||||||||||
Payment for noncontrolling interest | (12.3 | ) | — | |||||||||||||
Debt issuance costs, extinguishment costs and related fees | — | (0.2 | ) | |||||||||||||
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Net cash (used in) provided by financing activities | (182.3 | ) | 553.7 | |||||||||||||
Net cash used in financing activities | (848.8 | ) | (182.3 | ) | ||||||||||||
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Effect of exchange rate changes on cash and cash equivalents | 15.1 | 18.2 | 0.5 | 15.1 | ||||||||||||
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Increase in cash and cash equivalents | 205.8 | 78.1 | ||||||||||||||
(Decrease) increase in cash and cash equivalents | (488.4 | ) | 205.8 | |||||||||||||
Cash and cash equivalents, beginning of period | 1,071.5 | 2,051.5 | 1,685.0 | 1,071.5 | ||||||||||||
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Cash and cash equivalents, end of period | $ | 1,277.3 | $ | 2,129.6 | $ | 1,196.6 | $ | 1,277.3 | ||||||||
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The accompanying notes are an integral part of the condensed consolidated financial statements
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 | ) | |||||||||||||||||
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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 ASU2016-01 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 | |||||||||||||||||||||||||||||||||||||
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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 | |||||||||||||||||||
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The accompanying notes are an integral part of the condensed consolidated financial statements.
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 | |||||||||||||||||||
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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 ASU2018-02 (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 | |||||||||||||||||||||||||||||||||||||
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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 | |||||||||||||||||||
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The accompanying notes are an integral part of the condensed consolidated financial statements.
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) financial services traininglearning 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 certainnon-ratings-related operations which consist primarily of financial instrument pricing services in the Asia-Pacific region as well as revenue from ICRA’snon-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.
The MA segment develops a wide rangeprovides financial intelligence and analytical tools to assist businesses in making decisions. MA’s portfolio of productssolutions consists of specialized research, data, software, and professional services, thatwhich are assembled to support the financial analysis and risk management activities of institutional participants in global financial markets. Within its RD&A business, MA distributes research and data developed by MIS as part of its ratings process, includingin-depth research on major debt issuers, industry studies and commentary on topical credit-related events. The RD&A business also produces economic research and data and analytical tools such as quantitative credit risk scores as well as business intelligence and company information products. Within its ERS business, MA provides software solutions as well as related risk management services. The PS business provides offshore analytical and research services along with financial training and certification programs.customers worldwide.
These interim financial statements have been prepared in accordance with the instructions to Form10-Q and should be read in conjunction with the Company’s consolidated financial statements and related notes in the Company’s 20172018 annual report on Form10-K filed with the SEC on February 27, 2018.22, 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. Theyear-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, 2018,2019, the Companyadopted 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 adoptedASU No. 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. Under current GAAP, adjustments to deferred tax assets and liabilities related to a change in tax laws or rates are included in income from continuing operations, even in situations where the related items were originally recognized in OCI (commonly referred to as a “stranded tax effect”). The provisions of this ASU permit the reclassification of the stranded tax effect related to the Tax Act from AOCI to retained earnings. In the first quarter of 2019, the Company reclassified approximately $20 million of tax benefits from AOCI to retained earnings relating to the aforementioned stranded tax effect of the Tax Act.
On January 1, 2019, the Company adopted ASUNo. 2014-09,2018-16, “Revenue from Contracts with Customers (ASC Topic 606)” using“Derivatives and Hedging (Topic 815): Inclusion of the modified retrospective approach which Moody’s has electedSecured 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 apply only to those contracts which were not completed as of January 1, 2018. Additionally,the currently permissible benchmark interest rates. This ASU provides the Company has not retrospectively restated contract positions for contract modifications made priorthe ability to utilize the adoption. ASUNo. 2014-09 also includes updates related to the accounting for the deferral of incremental costs of obtaining or fulfilling a contract with a customer (“ASC Subtopic340-40”). Hereunder, discussion of the provisions of ASC Topic 606 and ASC Subtopic340-40 are both individually and collectively referred toOIS rate based on SOFR as the “New Revenue Accounting Standard.” Results for reporting periods beginningbenchmark interest rate on January 1, 2018 are presented under the guidance set forth in the New Revenue Accounting Standard, while prior period amounts have not been adjusted and continue to be reported in accordance with the previous accounting guidance.
The most significant impacts to the Company’s financial statements from adopting the New Revenue Accounting Standard are primarily related to: i) the accounting for certain installed software subscription revenue in MA whereby the license rights within the arrangement are recognized at the inceptionhedges of the contract based on SSP with the remainder recognized over the subscription period (compared to ASC Topic 605 whereby all installed software subscription revenue was previously recognized over the subscription period); ii) the accounting for certain ERS and ESA revenue arrangements where VSOE was not available under ASC Topic 605 now results in the acceleration of revenue recognition (compared to ASC Topic 605 whereby revenue was deferred due to lack of VSOE until all elements without VSOE had been delivered); iii) sales commissions incurred in the MA segment will be capitalized and amortized over an extended period which is generally based upon the average economic life of products / services sold and incorporates anticipated subscription renewals (compared to previous accounting guidance whereby capitalized sales commissions were amortized over the committed subscription period only); iv) the immediate expensing of software implementation project costs to fulfill a contract for its ERS and ESA businesses which under previous accounting guidance were capitalized and expensed when related project revenue was recognized; v) the capitalization ofwork-in-process costsfor in-progress MIS ratings at the end of each reporting period which under ASC Topic 605 were expensed as incurred; vi) the timing of when revenue for certain MIS ratings products is recognized; and vii) the estimation of variable consideration at contract inception whereas under ASC Topic 605 companies were not required to consider the amount of consideration for which it expected to be entitled.
The Company does not anticipate that applying the provisions of the New Revenue Accounting Standard will have a material impact to its 2018 consolidated Net Income. However, there could be quarterly fluctuations in the financial results of both MIS and MA, or there could be increases or decreases in revenues and expenses which would largely offset and not be material to total consolidated Net Income for the full year.
The table below provides detail relating to the adjustment to the Company’s retained earnings balance upon adoption of the New Revenue Accounting Standard:
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The table below presents the cumulative effect of the changes made to the Company’s consolidated balance sheet at January 1, 2018 for the adoption of the New Revenue Accounting Standard:
| As reported December 31, 2017 | Adjustment Due to New Revenue Accounting Standard | Balance at January 1, 2018 | ||||||||||
ASSETS |
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Current assets: | ||||||||||||
Cash and cash equivalents | $ | 1,071.5 | $ | — | $ | 1,071.5 | ||||||
Short-term investments | 111.8 | — | 111.8 | |||||||||
Accounts receivable, net of allowances | 1,147.2 | 16.8 | 1,164.0 | |||||||||
Other current assets | 250.1 | 32.9 | 283.0 | |||||||||
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Total current assets | 2,580.6 | 49.7 | 2,630.3 | |||||||||
Property and equipment, net | 325.1 | — | 325.1 | |||||||||
Goodwill | 3,753.2 | — | 3,753.2 | |||||||||
Intangible assets, net | 1,631.6 | — | 1,631.6 | |||||||||
Deferred tax assets, net | 143.8 | — | 143.8 | |||||||||
Other assets | 159.9 | 71.3 | 231.2 | |||||||||
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Total assets | 8,594.2 | 121.0 | 8,715.2 | |||||||||
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LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS’ (DEFICIT)/EQUITY |
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Current liabilities: |
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Accounts payable and accrued liabilities | 750.3 | (0.8 | ) | 749.5 | ||||||||
Commercial paper | 129.9 | — | 129.9 | |||||||||
Current portion of long-term debt | 299.5 | — | 299.5 | |||||||||
Deferred revenue | 883.6 | (69.3 | ) | 814.3 | ||||||||
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Total current liabilities | 2,063.3 | (70.1 | ) | 1,993.2 | ||||||||
Non-current portion of deferred revenue | 140.0 | (8.0 | ) | 132.0 | ||||||||
Long-term debt | 5,111.1 | — | 5,111.1 | |||||||||
Deferred tax liabilities, net | 341.6 | 42.7 | 384.3 | |||||||||
Unrecognized tax benefits | 389.1 | — | 389.1 | |||||||||
Other liabilities | 664.0 | 0.3 | 664.3 | |||||||||
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Total liabilities | 8,709.1 | (35.1 | ) | 8,674.0 | ||||||||
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Shareholders’ (deficit)/equity: |
| |||||||||||
Common stock | 3.4 | — | 3.4 | |||||||||
Capital surplus | 528.6 | — | 528.6 | |||||||||
Retained earnings | 7,465.4 | 156.1 | 7,621.5 | |||||||||
Treasury stock | (8,152.9 | ) | — | (8,152.9 | ) | |||||||
Accumulated other comprehensive loss | (172.2 | ) | — | (172.2 | ) | |||||||
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|
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| |||||||
Total Moody’s shareholders’ (deficit) equity | (327.7 | ) | 156.1 | (171.6 | ) | |||||||
Noncontrolling interests | 212.8 | — | 212.8 | |||||||||
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Total shareholders’ (deficit) equity | (114.9 | ) | 156.1 | 41.2 | ||||||||
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Total liabilities, noncontrolling interests and shareholders’ (deficit) equity | $ | 8,594.2 | $ | 121.0 | $ | 8,715.2 | ||||||
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The below table presents the impacts on the Company’s statement of operations for the current reporting period from applying the provisions of the New Revenue Accounting Standard compared to the accounting standard in effect before the change:
| For the Three Months Ended March 31, 2018 | ||||||||||||
| As Reported | Under previous accounting guidance | Effect of Change Higher/(Lower) | ||||||||||
Revenue | $ | 1,126.7 | $ | 1,126.4 | $ | 0.3 | ||||||
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Expenses | ||||||||||||
Operating | 314.9 | 315.5 | (0.6 | ) | ||||||||
Selling, general and administrative | 271.1 | 271.5 | (0.4 | ) | ||||||||
Depreciation and amortization | 49.1 | 49.1 | — | |||||||||
Acquisition-related expenses | 0.8 | 0.8 | — | |||||||||
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| |||||||
Total expenses | 635.9 | 636.9 | (1.0 | ) | ||||||||
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| |||||||
Operating income | 490.8 | 489.5 | 1.3 | |||||||||
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Non-operating (expense) income, net | ||||||||||||
Interest expense, net | (50.7 | ) | (50.7 | ) | — | |||||||
Othernon-operating income (expense), net | 1.0 | 1.0 | — | |||||||||
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| |||||||
Totalnon-operating (expense) income, net | (49.7 | ) | (49.7 | ) | — | |||||||
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| |||||||
Income before provision for income taxes | 441.1 | 439.8 | 1.3 | |||||||||
Provision for income taxes | 64.3 | 63.5 | 0.8 | |||||||||
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| |||||||
Net income | 376.8 | 376.3 | 0.5 | |||||||||
Less: Net income attributable to noncontrolling interests | 3.9 | 3.9 | — | |||||||||
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| |||||||
Net income attributable to Moody’s | $ | 372.9 | $ | 372.4 | $ | 0.5 | ||||||
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Earnings per share | ||||||||||||
Basic | $ | 1.95 | $ | 1.95 | $ | — | ||||||
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Diluted | $ | 1.92 | $ | 1.91 | $ | 0.01 | ||||||
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Weighted average shares outstanding | ||||||||||||
Basic | 191.4 | 191.4 | ||||||||||
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Diluted | 194.5 | 194.5 | ||||||||||
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The below table presents the impacts on the Company’s consolidated balance sheet at the end of the current reporting period from applying the provisions of the New Revenue Accounting Standard compared to the accounting standard in effect before the change:
| As Reported March 31, 2018 | Under previous accounting guidance March 31, 2018 | Effect of Change Higher/(Lower) | ||||||||||
ASSETS | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 1,277.3 | $ | 1,277.3 | $ | — | ||||||
Short-term investments | 100.5 | 100.5 | — | |||||||||
Accounts receivable, net of allowances | 1,207.4 | 1,183.0 | 24.4 | |||||||||
Other current assets | 233.6 | 212.4 | 21.2 | |||||||||
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| |||||||
Total current assets: | 2,818.8 | 2,773.2 | 45.6 | |||||||||
Property and equipment, net | 321.6 | 321.6 | — | |||||||||
Goodwill | 3,831.5 | 3,831.5 | — | |||||||||
Intangible assets, net | 1,641.6 | 1,641.6 | — | |||||||||
Deferred tax assets, net | 142.5 | 142.6 | (0.1 | ) | ||||||||
Other assets | 258.0 | 182.8 | 75.2 | |||||||||
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| |||||||
Total assets | $ | 9,014.0 | $ | 8,893.3 | $ | 120.7 | ||||||
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LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS’ EQUITY |
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Accounts payable and accrued liabilities | $ | 532.6 | $ | 532.5 | $ | 0.1 | ||||||
Commercial paper | 89.9 | 89.9 | — | |||||||||
Current portion of long-term debt | 299.7 | 299.7 | — | |||||||||
Deferred revenue | 998.7 | 1,065.6 | (66.9 | ) | ||||||||
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| |||||||
Total current liabilities | 1,920.9 | 1,987.7 | (66.8 | ) | ||||||||
Non-current portion of deferred revenue | 127.8 | 135.0 | (7.2 | ) | ||||||||
Long-term debt | 5,118.0 | 5,118.0 | — | |||||||||
Deferred tax liabilities, net | 382.2 | 348.7 | 33.5 | |||||||||
Unrecognized tax benefits | 490.9 | 490.9 | — | |||||||||
Other liabilities | 554.2 | 553.9 | 0.3 | |||||||||
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| |||||||
Total liabilities | 8,594.0 | 8,634.2 | (40.2 | ) | ||||||||
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Shareholders’ equity: | ||||||||||||
Common stock | 3.4 | 3.4 | — | |||||||||
Capital surplus | 506.6 | 506.6 | — | |||||||||
Retained earnings | 7,913.0 | 7,752.1 | 160.9 | |||||||||
Treasury stock | (8,171.4 | ) | (8,171.4 | ) | — | |||||||
Accumulated other comprehensive loss | (51.9 | ) | (51.9 | ) | — | |||||||
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| |||||||
Total Moody’s shareholders’ equity | 199.7 | 38.8 | 160.9 | |||||||||
Noncontrolling interests | 220.3 | 220.3 | — | |||||||||
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| |||||||
Total shareholders’ equity | 420.0 | 259.1 | 160.9 | |||||||||
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Total liabilities, noncontrolling interests and shareholders’ equity | $ | 9,014.0 | $ | 8,893.3 | $ | 120.7 | ||||||
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The below table presents the impacts on various line items within the operating cash flow within the Company’s statement of cash flows for the current reporting period from applying the provisions of the New Revenue Accounting Standard compared to the accounting standard in effect before the change.
| For the Three Months Ended March 31, 2018 | ||||||||||||
| As Reported | Under previous accounting guidance | Effect of Change | ||||||||||
Cash flows from operating activities | ||||||||||||
Net income | $ | 376.8 | $ | 376.3 | $ | 0.5 | ||||||
Reconciliation of net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 49.1 | 49.1 | — | |||||||||
Stock-based compensation | 35.1 | 35.1 | — | |||||||||
Deferred income taxes | (4.2 | ) | 4.0 | (8.2 | ) | |||||||
Changes in assets and liabilities: | ||||||||||||
Accounts receivable | (29.9 | ) | (22.3 | ) | (7.6 | ) | ||||||
Other current assets | 47.8 | 36.1 | 11.7 | |||||||||
Other assets | (14.5 | ) | (10.6 | ) | (3.9 | ) | ||||||
Accounts payable and accrued liabilities | (224.2 | ) | (229.4 | ) | 5.2 | |||||||
Deferred revenue | 167.7 | 164.5 | 3.2 | |||||||||
Unrecognized tax benefits and othernon-current tax liabilities | (17.9 | ) | (17.9 | ) | — | |||||||
Other liabilities | 5.7 | 6.6 | (0.9 | ) | ||||||||
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Net cash provided by operating activities | $ | 391.5 | $ | 391.5 | $ | — | ||||||
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The New Revenue Accounting Standard did not have any impact on individual line items within investing or financing cash flows in the Company’s consolidated statement of cash flows. In 2018, the adoption of the New Revenue Accounting Standard will likely result in higher cash taxes as the cumulativecatch-up adjustment to retained earnings is taxable and there is expected to be acceleration of revenue recognition under the New Revenue Accounting Standard.
On January 1, 2018, the Company adoptedASU No. 2017-07, “Compensation—Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”. As required by this ASU, the components of net periodic pension costs were disaggregated in the statement of operations on a retrospective basis. The Company has continued to reflect the service cost component in either Operating or SG&A expenses in Moody’s statement of operations. The other components of net benefit cost are presented withinnon-operating (expense) income, net, within the statement of operations.interest rate risk. The adoption of this ASU hashad no impact on Net Income in the Company’s statements of operations. The impact to the Company’s statements of operations for the three months ended March 31, 2018 and March 31, 2017 related to the adoption of this ASU are set forth in the table below:
| For the Three Months Ended March 31, 2018 | For the Three Months Ended March 31, 2017 | |||||||||||||||||||||||
| As Reported | Under previous accounting guidance | Effect of Change Higher/(Lower) | As Adjusted | Under previous accounting guidance | Effect of Change Higher/(Lower) | |||||||||||||||||||
Operating expenses | $ | 314.9 | $ | 316.3 | $ | (1.4 | ) | $ | 275.3 | $ | 277.4 | $ | (2.1 | ) | ||||||||||
Selling, general and administrative expenses | 271.1 | 272.0 | (0.9 | ) | 220.7 | 221.9 | (1.2 | ) | ||||||||||||||||
Operating income | 490.8 | 488.5 | 2.3 | 446.7 | 443.4 | 3.3 | ||||||||||||||||||
Interest expense, net | (50.7 | ) | (46.0 | ) | 4.7 | (47.4 | ) | (42.4 | ) | 5.0 | ||||||||||||||
Othernon-operating income (expense), net | 1.0 | (1.4 | ) | 2.4 | (7.7 | ) | (9.4 | ) | (1.7 | ) | ||||||||||||||
On January 1, 2018, the Company adoptedASU No. 2016-01 “Financial Instruments—Overall(Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU2016-01”). The amendments in this ASU update various aspects of recognition, measurement, presentation and disclosures relating to financial instruments. Upon adoption, the Company recorded a $2.3 million cumulative adjustment to reclassify net unrealized gains on investments in equity securities previously classified asavailable-for-sale under the previous guidance from AOCI to retained earnings. Beginning in the first quarter of 2018, the Company will measure equity investments with readily determinable fair values (except those accounted for under the equity method, those that result in consolidation of the investee and certain other investments) at fair value and recognize any changes in fair value in net income. The adoption of this ASU did not have material impact on the Company’s financial statements forupon adoption.
Reclassification of Previously Reported Revenue by LOB
There were certain organizational/product realignments in both MIS and MA in the three months ended March 31, 2018.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 | |||||||||
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Full year 2018 | $ | 1,334.1 | $ | 45.1 | $ | 1,379.2 | ||||||
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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 | ||||||||
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Full year 2018 | $ | 526.5 | $ | (45.1 | ) | $ | 481.4 | |||||
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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 | ||||||||
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Full year 2018 | $ | 1,134.1 | $ | (13.7 | ) | $ | 1,120.4 | |||||
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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 | |||||||||
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Full year 2018 | $ | 437.4 | $ | 13.7 | $ | 451.1 | ||||||
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NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
TheOn January 1, 2019, the Company adopted the New RevenueLease Accounting Standard on January 1, 2018 usingas more fully discussed in Note 1. Accordingly, the modified retrospective transition method. Below are the Company’sCompany revised its lease accounting policies reflectingpolicy to reflect the provisions of the New Revenue Accounting Standard and ASU 2016-01 (as codified under ASC Topic 321) as furthernew standard, which is discussed in Note 1.below. All other significant accounting policies described in the Form10-K for the year ended December 31, 20172018 remain unchanged. AlsoAdditionally, refer to Note 3 of the condensed consolidated financial statements18 for certain quantitativeadditional disclosures relating to the Company’s revenue from contracts with customers.lease obligations.
Revenue Recognition and Costs to Obtain or Fulfill a Contract with a CustomerLeases
Revenue recognition:
Revenue is recognized when controlThe Company has operating leases, of promised goods or services is transferredwhich substantially all relate to the customer, in an amount that reflectslease of office space. The Company’s leases which are classified as finance leases are not material to the consideration the Company expects to be entitled to in exchange for those goods or services.condensed consolidated financial statements.
When contracts with customers contain multiple performance obligations, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to each distinct performance obligation on a relative SSP basis. The Company determines if an arrangement meets the SSP by usingdefinition 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 price chargedlength of the lease term, the Company utilizes judgment in assessing the likelihood of whether it is reasonably certain that it will exercise an option to extend or early-terminate a lease, if such options are provided in the lease agreement.
ROU Assets represent the Company’s right to use an underlying asset for a deliverable when sold separately or uses management’s best estimate of SSP for goods or services not sold separatelythe 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 maximum numberpresent value of observable data points, including: internal factors relevant to its pricing practices such as costs and margin objectives; standalone sales prices of similar products; percentagelease payments over the lease term. As substantially all of the fee chargedCompany’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 primary product or service relative tostraight-line basis over the lease term. This straight-line lease expense represents a related product or service; and customer segment and geography. Additional considerationsingle lease cost which is also given to market conditions such as competitor pricing strategies and market trends.
Sales, usage-based, value added and other taxes are excluded from revenues.
MIS Revenue
In the MIS segment, revenue arrangements are generally comprised of two distinct performance obligations,both an initial rating and the related monitoring service. Revenue attributed to initial ratings of issued securities is generally recognized when the rating is deliveredinterest accretion component relating to the issuer. Revenue attributedlease 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 monitoringresult 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 andnon-lease components. For the Company’s office space leases, the lease components (e.g., fixed rent payments) andnon-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 issuersthe lease liability to the extent those payments depend on an index or issued securities isa rate. Variable lease payments not included in the lease liability are recognized ratably overin net income in the period in which the monitoringobligation for those payments is performed, generally one year. In the case of certain structured finance products, primarily CMBS, issuers can elect to pay all of the annual monitoring fees upfront. These fees are deferred and recognized over the future monitoring periods based on the expected lives of the rated securities.incurred.
MIS arrangements generally have standard contractual terms for which the stated payments are due at conclusion of the ratings process for initial ratings and either upfront or in arrears for monitoring services; and are signed by customers either on a per issue basis or at the beginning of the relationship with the customer. However, customer fee arrangements may be adjusted for which the Company accounts for as variable consideration at inception, which is constrained based on the Company’s assessment of the realization of the adjustment amount.
The Company allocates the transaction price within arrangements that include both the initial rating and the related monitoring service based upon the relative SSP of each service. The Company generally uses management’s best estimate based on observable pricing points in determining SSP for its initial ratings as the Company rarely provides initial ratings separately without providing related monitoring services. The SSP for monitoring fees in these arrangements are generally based upon directly observable selling prices where the monitoring service is sold separately.
MA Revenue
In the MA segment, products and services offered by the Company include hosted research and data subscriptions, installed software subscriptions, perpetual installed software licenses and related maintenance, or PCS, and professional services. Subscription and PCS contracts are generally invoiced in advance of the contractual coverage period, which is principally one year, but can range from3-5 years; while perpetual software licenses are generally invoiced upon delivery and professional services are invoiced as those services are provided. Payment terms and conditions vary by contract type, but primarily include a requirement of payment within 30 to 60 days.
Revenue from research, data and other hosted subscriptions is recognized ratably over the related subscription period. A large portion of these services are invoiced in the months of November, December and January.
Revenue from the sale of a software license, when considered distinct from the related software implementation services, is generally recognized at the time the product master or first copy is delivered or transferred to the customer. However, in instances where the software license (perpetual or subscription) and related implementation services are considered to be one combined performance obligation, revenue is recognized on apercentage-of-completion basis (input method) as implementation services are performed over time, which is consistent with the pattern of recognition for the software implementation services if considered to be a separate distinct performance obligation. The Company exercises judgment in determining the level of integration and interdependency between the promise to grant the software license and the promise to deliver the related implementation services. This determination influences whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the implementation services and recognized over time. PCS is generally recognized ratably over the contractual period commencing when the software license is fully delivered. Revenue from installed software subscriptions, which includes PCS, is bifurcated into a software license performance obligation and a PCS performance obligation, which follow the patterns of recognition described above.
For implementation services and other service projects within the ERS and ESA LOBs for which fees are fixed, the Company determined progress towards completion is most accurately measured on apercentage-of-completion basis (input method) as this approach utilizes the most directly observable data points and is therefore used to recognize the related revenue. For implementation services where price varies based on time expended, a time-based measure of progress towards completion of the performance obligation is utilized.
Revenue from professional services rendered within the PS LOB is generally recognized as the services are performed.
Products and services offered within the MA segment are sold either stand-alone or together in various combinations. In instances where an arrangement contains multiple performance obligations, the Company accounts for the individual performance obligations separately if they are considered distinct. Revenue is generally allocated to all performance obligations based upon the relative SSP at contract inception. Judgment is often required to determine the SSP for each distinct performance obligation. Revenue is recognized for each performance obligation based upon the conditions for revenue recognition noted above.
In the MA segment, customers usually pay a fixed fee for the products and services based on signed contracts. However, accounting for variable consideration is applied mainly for: i) estimates for cancellation rights and price concessions and ii) T&M based services.
The Company estimates the variable consideration associated with cancellation rights and price concessions based on the expected amount to be provided to customers and reduces the amount of revenue to be recognized. T&M based contracts represent about half of MA’s service projects within the ERS and ESA LOBs. The Company provides agreed upon services at a contracted daily or hourly rate. The commitment represents a series of goods and services that are substantially the same and have the same pattern of transfer to the customer. As such, if T&M services are sold with other MA products, the Company allocates the variable consideration entirely to the T&M performance obligation if the services are sold at standard pricing or at a similar discount level compared to other performance obligations in the same revenue contract. If these criteria are not met, the Company estimates variable consideration for each performance obligation upfront.
Each form of variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal of any incremental revenue will not occur.
Costs to Obtain or Fulfill a Contract with a Customer:
Costs incurred to obtain customer contracts, such as sales commissions, are deferred and recorded within other current assets and other assets when such costs are determined to be incremental to obtaining a contract, would not have been incurred otherwise and the Company expects to recover those costs. These costs are amortized to expense consistent with the recognition pattern of the related revenue. Depending on the line of business to which the contract relates, this may be based upon the average economic life of the products sold or average period for which services are provided, inclusive of anticipated contract renewals. Determining the estimated economic life of the products sold requires judgment with respect to anticipated future technological changes. The Company had a balance of $95.5 million in such deferred costs as of March 31, 2018 and recognized $8.6 million of related amortization during the three-month period ended March 31, 2018, which is included within SG&A expenses in the consolidated statement of operations. Costs incurred to obtain customer contracts are only in the MA segment.
The Company also capitalizeswork-in-process costsfor in-progress MIS ratings, which is amortized consistent with the rendering of the related services to the customers. The Company had a balance of $10.2 million in such deferred costs as of March 31, 2018 and recognized $9.4 million of amortization of the costs deferred as of January 1, 2018 during the three-month period ended March 31, 2018, which is included within operating expenses in the consolidated statement of operations.
In addition, within the MA segment, the Company capitalizes royalty costs related to third-party information data providers associated with hosted company information and business intelligence products. The Company had a balance of $32.4 million in such deferred costs as of March 31, 2018 and recognized $14.2 million of related amortization during the three-month period ended March 31, 2018, which is included within operating expenses in the consolidated statement of operations.
Fair Value of Financial Instruments
The Company’s financial instruments include cash, cash equivalents, trade receivables and payables, all of which are short-term in nature and, accordingly, approximate fair value. Additionally, the Company invests in certain short-term investments consisting primarily of certificates of deposit that are carried at cost, which approximates fair value due to their short-term maturities.
The Company also has certain investments in closed-ended and open-ended mutual funds in India which are accounted for as equity securities with readily determinable fair values under ASC Topic 321. Beginning in the first quarter of 2018, the Company will measure these investments at fair value with both realized gains and losses and unrealized holding gains and losses for these investments included in net income.
Prior to January 1, 2018, the investments in closed-ended and open-ended mutual funds in India were designated as ‘available for sale’ under Topic 320 of the ASC. Accordingly, unrealized gains and losses on these investments were recorded to other comprehensive income and were reclassified out of accumulated other comprehensive income to the statement of operations when the investment matured or was sold using a specific identification method.
Also, the Company uses derivative instruments to manage certain financial exposures that occur in the normal course of business. These derivative instruments are carried at fair value on the Company’s consolidated balance sheets.
Fair value is defined by the ASC as the price that would be received from selling an asset or paid to transfer a liability (i.e., an exit price) in an orderly transaction between market participants at the measurement date. The determination of this fair value is based on the principal or most advantageous market in which the Company could commence transactions and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance. Also, determination of fair value assumes that market participants will consider the highest and best use of the asset.
The ASC establishes a fair value hierarchy whereby the inputs contained in valuation techniques used to measure fair value are categorized into three broad levels as follows:
Level 1: quoted market prices in active markets that the reporting entity has the ability to access at the date of the fair value measurement;
Level 2: inputs other than quoted market prices described in Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities;
Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value measurement of the assets or liabilities.
NOTE 3. REVENUES
Revenue by Category
The following table presents the Company’s revenues disaggregated by LOB:
| Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
| 2018 | 2017(1) | 2019 | 2018 | |||||||||||||
MIS: | ||||||||||||||||
Corporate finance (CFG) | ||||||||||||||||
Investment-grade | $ | 81.1 | $ | 72.1 | $ | 97.4 | $ | 87.2 | ||||||||
High-yield | 57.9 | 64.2 | 57.3 | 57.9 | ||||||||||||
Bank loans | 108.1 | 101.4 | 72.6 | 110.1 | ||||||||||||
Other accounts(2) | 130.6 | 115.1 | 128.1 | 134.4 | ||||||||||||
|
|
|
| |||||||||||||
Total CFG | 377.7 | 352.8 | 355.4 | 389.6 | ||||||||||||
|
|
|
| |||||||||||||
Structured finance (SFG) | ||||||||||||||||
Asset-backed securities | 28.2 | 22.7 | 23.2 | 28.2 | ||||||||||||
Residential mortgage backed securities | 24.3 | 20.4 | ||||||||||||||
Commercial real estate finance | 33.2 | 29.3 | ||||||||||||||
RMBS | 23.5 | 24.3 | ||||||||||||||
CMBS | 17.7 | 21.3 | ||||||||||||||
Structured credit | 43.4 | 27.4 | 35.2 | 43.4 | ||||||||||||
Other accounts | 0.6 | 0.4 | 1.1 | 0.6 | ||||||||||||
|
|
|
| |||||||||||||
Total SFG | 129.7 | 100.2 | 100.7 | 117.8 | ||||||||||||
|
|
|
| |||||||||||||
Financial institutions (FIG) | ||||||||||||||||
Banking | 77.0 | 79.1 | 79.6 | 77.0 | ||||||||||||
Insurance | 28.3 | 25.1 | 29.0 | 28.3 | ||||||||||||
Managed investments | 5.7 | 5.1 | 4.0 | 5.7 | ||||||||||||
Other accounts | 3.3 | 3.0 | 3.2 | 3.3 | ||||||||||||
|
|
|
| |||||||||||||
Total FIG | 114.3 | 112.3 | 115.8 | 114.3 | ||||||||||||
|
|
|
| |||||||||||||
Public, project and infrastructure finance (PPIF) | ||||||||||||||||
Public finance / sovereign | 46.9 | 53.0 | 46.2 | 46.9 | ||||||||||||
Project and infrastructure | 46.3 | 45.1 | 46.5 | 46.3 | ||||||||||||
|
|
|
| |||||||||||||
Total PPIF | 93.2 | 98.1 | 92.7 | 93.2 | ||||||||||||
|
|
|
| |||||||||||||
Total ratings revenue | 714.9 | 663.4 | 664.6 | 714.9 | ||||||||||||
|
|
|
| |||||||||||||
MIS Other | 5.0 | 4.8 | 5.5 | 5.0 | ||||||||||||
|
|
|
| |||||||||||||
Total external revenue | 719.9 | 668.2 | 670.1 | 719.9 | ||||||||||||
|
|
|
| |||||||||||||
Intersegment royalty | 29.8 | 26.0 | 32.3 | 29.8 | ||||||||||||
|
|
|
| |||||||||||||
Total MIS | 749.7 | 694.2 | 702.4 | 749.7 | ||||||||||||
|
|
|
| |||||||||||||
MA: | ||||||||||||||||
Research, data and analytics (RD&A) | 269.2 | 175.4 | 307.7 | 267.1 | ||||||||||||
Enterprise risk solutions (ERS) | 100.1 | 95.9 | 121.9 | 102.2 | ||||||||||||
Professional services (PS) | 37.5 | 35.7 | 42.4 | 37.5 | ||||||||||||
|
|
|
| |||||||||||||
Total external revenue | 406.8 | 307.0 | 472.0 | 406.8 | ||||||||||||
|
|
|
| |||||||||||||
Intersegment revenue | 5.0 | 3.7 | 2.4 | 5.0 | ||||||||||||
|
|
|
| |||||||||||||
Total MA | 411.8 | 310.7 | 474.4 | 411.8 | ||||||||||||
|
|
|
| |||||||||||||
Eliminations | (34.8 | ) | (29.7 | ) | (34.7 | ) | (34.8 | ) | ||||||||
|
|
|
| |||||||||||||
Total MCO | $ | 1,126.7 | $ | 975.2 | $ | 1,142.1 | $ | 1,126.7 | ||||||||
|
|
|
| |||||||||||||
| (1) |
|
| (2) | Other includes: recurring monitoring fees of a rated debt obligation and/or entities that issue such obligations as well as fees from programs such as commercial paper, medium term notes, and ICRA corporate finance revenue. |
| (3) | Pursuant to organizational/product realignments in the first quarter of 2019, revenue relating to the Bureau van Dijk FACT product, a credit assessment and origination software solution, is now reported in the ERS LOB. This revenue was previously reported in the RD&A LOB. Prior year revenue by LOB has been reclassified to conform to this new presentation, and the amounts reclassified were not material. |
The following table presents the Company’s revenues disaggregated by LOB and geographic area:
| Three Months Ended March 31, 2018 | Three Months Ended March 31, 2019 | |||||||||||||||||||||||
| United States | International | Total | U.S. | Non-U.S. | Total | |||||||||||||||||||
MIS: | ||||||||||||||||||||||||
Corporate finance (CFG) | $ | 246.7 | $ | 131.0 | $ | 377.7 | ||||||||||||||||||
Structured finance (SFG) | 84.6 | 45.1 | 129.7 | |||||||||||||||||||||
Corporate finance (CFG)(1) | $ | 242.6 | $ | 112.8 | $ | 355.4 | ||||||||||||||||||
Structured finance (SFG)(1) | 62.2 | 38.5 | 100.7 | |||||||||||||||||||||
Financial institutions (FIG) | 48.5 | 65.8 | 114.3 | 46.0 | 69.8 | 115.8 | ||||||||||||||||||
Public, project and infrastructure finance (PPIF) | 53.4 | 39.8 | 93.2 | 60.2 | 32.5 | 92.7 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total ratings revenue | 433.2 | 281.7 | 714.9 | 411.0 | 253.6 | 664.6 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
MIS Other | 0.2 | 4.8 | 5.0 | 0.2 | 5.3 | 5.5 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total | 433.4 | 286.5 | 719.9 | |||||||||||||||||||||
Total MIS | 411.2 | 258.9 | 670.1 | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
MA: | ||||||||||||||||||||||||
Research, data and analytics (RD&A) | 112.6 | 156.6 | 269.2 | |||||||||||||||||||||
Enterprise risk solutions (ERS) | 38.5 | 61.6 | 100.1 | |||||||||||||||||||||
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) | 13.2 | 24.3 | 37.5 | 17.7 | 24.7 | 42.4 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total | 164.3 | 242.5 | 406.8 | |||||||||||||||||||||
Total MA | 200.9 | 271.1 | 472.0 | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total MCO | $ | 597.7 | $ | 529.0 | $ | 1,126.7 | $ | 612.1 | $ | 530.0 | $ | 1,142.1 | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||
| Three Months Ended March 31, 2017(1) | Three Months Ended March 31, 2018 | |||||||||||||||||||||||
| United States | International | Total | U.S. | Non-U.S. | Total | |||||||||||||||||||
MIS: | ||||||||||||||||||||||||
Corporate finance (CFG) | $ | 243.8 | $ | 109.0 | $ | 352.8 | ||||||||||||||||||
Structured finance (SFG) | 65.0 | 35.2 | 100.2 | |||||||||||||||||||||
Corporate finance (CFG)(1) | $ | 257.3 | $ | 132.3 | $ | 389.6 | ||||||||||||||||||
Structured finance (SFG)(1) | 74.0 | 43.8 | 117.8 | |||||||||||||||||||||
Financial institutions (FIG) | 50.6 | 61.7 | 112.3 | 48.5 | 65.8 | 114.3 | ||||||||||||||||||
Public, project and infrastructure finance (PPIF) | 63.0 | 35.1 | 98.1 | 53.4 | 39.8 | 93.2 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total ratings revenue | 422.4 | 241.0 | 663.4 | 433.2 | 281.7 | 714.9 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
MIS Other | 0.1 | 4.7 | 4.8 | 0.2 | 4.8 | 5.0 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total | 422.5 | 245.7 | 668.2 | |||||||||||||||||||||
Total MIS | 433.4 | 286.5 | 719.9 | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
MA: | ||||||||||||||||||||||||
Research, data and analytics (RD&A) | 101.4 | 74.0 | 175.4 | |||||||||||||||||||||
Enterprise risk solutions (ERS) | 40.2 | 55.7 | 95.9 | |||||||||||||||||||||
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) | 13.7 | 22.0 | 35.7 | 13.2 | 24.3 | 37.5 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total | 155.3 | 151.7 | 307.0 | |||||||||||||||||||||
Total MA | 164.3 | 242.5 | 406.8 | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total MCO | $ | 577.8 | $ | 397.4 | $ | 975.2 | $ | 597.7 | $ | 529.0 | $ | 1,126.7 | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||
| (1) |
|
| (2) | Pursuant to organizational/product realignments in the first quarter of 2019, revenue relating to the Bureau van Dijk FACT product, a credit assessment and origination software solution, is now reported in the ERS LOB. This revenue was previously reported in the RD&A LOB. Prior year revenue by LOB has been reclassified to conform to this new presentation, and the amounts reclassified were not material. |
The following table presents the Company’s reportable segment revenues disaggregated by segment and geographic region:
| Three Months Ended March 31, | ||||||||
| 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 | ||||||
|
|
|
| |||||
TotalNon-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 | ||||||
|
|
|
| |||||
TotalNon-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 otherone-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, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2018 | 2017(2) | 2019 | 2018 | |||||||||||||||||||||||||||||||||||||||||||||
| Transaction | Relationship | Total | Transaction | Relationship | Total | Transaction | Relationship | Total | Transaction | Relationship | Total | |||||||||||||||||||||||||||||||||||||
Corporate Finance | $ | 274.9 | $ | 102.8 | $ | 377.7 | $ | 260.6 | $ | 92.2 | $ | 352.8 | $ | 249.5 | $ | 105.9 | $ | 355.4 | $ | 283.4 | $ | 106.2 | $ | 389.6 | ||||||||||||||||||||||||
| 73 | % | 27 | % | 100 | % | 74 | % | 26 | % | 100 | % | 70 | % | 30 | % | 100 | % | 73 | % | 27 | % | 100 | % | |||||||||||||||||||||||||
Structured Finance | $ | 83.1 | $ | 46.6 | $ | 129.7 | $ | 57.5 | $ | 42.7 | $ | 100.2 | $ | 57.3 | $ | 43.4 | $ | 100.7 | $ | 74.6 | $ | 43.2 | $ | 117.8 | ||||||||||||||||||||||||
| 64 | % | 36 | % | 100 | % | 57 | % | 43 | % | 100 | % | 57 | % | 43 | % | 100 | % | 63 | % | 37 | % | 100 | % | |||||||||||||||||||||||||
Financial Institutions | $ | 50.0 | $ | 64.3 | $ | 114.3 | $ | 53.4 | $ | 58.9 | $ | 112.3 | $ | 47.9 | $ | 67.9 | $ | 115.8 | $ | 50.0 | $ | 64.3 | $ | 114.3 | ||||||||||||||||||||||||
| 44 | % | 56 | % | 100 | % | 48 | % | 52 | % | 100 | % | 41 | % | 59 | % | 100 | % | 44 | % | 56 | % | 100 | % | |||||||||||||||||||||||||
Public, Project and Infrastructure Finance | $ | 54.4 | $ | 38.8 | $ | 93.2 | $ | 59.2 | $ | 38.9 | $ | 98.1 | $ | 54.7 | $ | 38.0 | $ | 92.7 | $ | 54.4 | $ | 38.8 | $ | 93.2 | ||||||||||||||||||||||||
| 58 | % | 42 | % | 100 | % | 60 | % | 40 | % | 100 | % | 59 | % | 41 | % | 100 | % | 58 | % | 42 | % | 100 | % | |||||||||||||||||||||||||
MIS Other | $ | 0.6 | $ | 4.4 | $ | 5.0 | $ | 0.3 | $ | 4.5 | $ | 4.8 | $ | 0.5 | $ | 5.0 | $ | 5.5 | $ | 0.6 | $ | 4.4 | $ | 5.0 | ||||||||||||||||||||||||
| 12 | % | 88 | % | 100 | % | 6 | % | 94 | % | 100 | % | 9 | % | 91 | % | 100 | % | 12 | % | 88 | % | 100 | % | |||||||||||||||||||||||||
Total MIS | $ | 463.0 | $ | 256.9 | $ | 719.9 | $ | 431.0 | $ | 237.2 | $ | 668.2 | $ | 409.9 | $ | 260.2 | $ | 670.1 | $ | 463.0 | $ | 256.9 | $ | 719.9 | ||||||||||||||||||||||||
| 64 | % | 36 | % | 100 | % | 65 | % | 35 | % | 100 | % | 61 | % | 39 | % | 100 | % | 64 | % | 36 | % | 100 | % | |||||||||||||||||||||||||
Moody’s Analytics | $ | 60.8 | (1) | $ | 346.0 | $ | 406.8 | $ | 64.6 | $ | 242.4 | $ | 307.0 | $ | 71.5 | (1) | $ | 400.5 | $ | 472.0 | $ | 60.8 | (1) | $ | 346.0 | $ | 406.8 | |||||||||||||||||||||
| 15 | % | 85 | % | 100 | % | 21 | % | 79 | % | 100 | % | 15 | % | 85 | % | 100 | % | 15 | % | 85 | % | 100 | % | |||||||||||||||||||||||||
Total Moody’s Corporation | $ | 523.8 | $ | 602.9 | $ | 1,126.7 | $ | 495.6 | $ | 479.6 | $ | 975.2 | $ | 481.4 | $ | 660.7 | $ | 1,142.1 | $ | 523.8 | $ | 602.9 | $ | 1,126.7 | ||||||||||||||||||||||||
| 46 | % | 54 | % | 100 | % | 51 | % | 49 | % | 100 | % | 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 |
|
The following table presents the timing of revenue recognition:
| 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 | ||||||
|
|
|
|
|
| |||||||
Revenue recognized at a point in time Revenue recognized over time Total Revenue recognized at a point in time Revenue recognized over time Total Three Months Ended March 31, 2019 MIS MA Total $ 409.9 $ 30.4 $ 440.3 260.2 441.6 701.8 $ 670.1 $ 472.0 $ 1,142.1 Three Months Ended March 31, 2018 MIS MA Total $ 463.0 $ 15.5 $ 478.5 256.9 391.3 648.2 $ 719.9 $ 406.8 $ 1,126.7
Contract balances, Unbilled receivables, Deferred revenue and Remaining performance obligations
Unbilled receivables
At March 31, 2019 and December 31, 2018, accounts receivable included approximately $344.0$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. Additionally, there are other instances in which the timing of when the Company has the unconditional right to consideration and recognizes revenue prior to invoicing the customer, for which an unbilled receivable is recorded.
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 approximately $40.1$53.3 million and $59.5 million, respectively, of unbilled receivables related to the MA segment.
Historically, the Company has not had material differences between the estimated revenue and the actual billings.
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, 20182019 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 | ) | (173.9 | ) | (267.3 | ) | ||||||
Increases due to amounts billable excluding amounts recognized as revenue during the period | 154.9 | 279.8 | 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 | $ | 273.4 | $ | 725.3 | $ | 998.7 | ||||||
Deferred revenue - noncurrent | $ | 124.1 | $ | 3.7 | $ | 127.8 | ||||||
| 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 | ||||||
Deferred
Significant changes in the deferred revenue increasedbalances 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, 2018:2019:
| MIS | MIS | MIS | ||||||||||||||||||||||||||||||||||||
| Total | Total | Less than 1 year | 1 - 5 years | 6 - 10 Years | 11 - 15 years | 16-20 years | Over 20 Years | Less than 1 year | 1 - 5 years | 6 - 10 Years | 11 - 15 years | 16-20 years | Over 20 Years | |||||||||||||||||||||||||
| $ | 150.5 | $ | 21.9 | $ | 65.2 | $ | 43.6 | $ | 8.7 | $ | 4.5 | $ | 6.6 | |||||||||||||||||||||||||
$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 | MA | MA | ||||||||||||||||||
| Total | Total | Less than 1 Year | 1 - 2 Years | Over 2 Years | Less than 1 Year | 1 - 2 Years | Over 2 Years | |||||||||||||
| $ | 1,418.6 | $ | 1,089.0 | $ | 217.6 | $ | 112.0 | |||||||||||||
| $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, 20182019 as well as amounts not yet invoiced to customers as of March 31, 20182019 largely reflecting future revenue related to signed multi-year arrangements for hosted and installed subscription basedsubscription-based products.
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, | Three Months Ended March 31, | |||||||||||||||
| 2018 | 2017 | 2019 | 2018 | |||||||||||||
Stock-based compensation expense | $ | 35.1 | $ | 28.4 | $ | 35.7 | $ | 35.1 | ||||||||
Tax benefit | $ | 7.2 | $ | 9.1 | $ | 7.8 | $ | 7.2 | ||||||||
During the first three months of 2018,2019, the Company granted 0.2 million employee stock options, which had a weighted average grant date fair value of $45.87$43.10 per share based on the Black-Scholes option-pricing model. The Company also granted 0.70.8 million shares of restricted stock in the first three months of 2018,2019, which had a weighted average grant date fair value of $167.50$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 areis based on the achievement of certainnon-market based performance metrics of the Company over a three-year period. The weighted average grant date fair value of these awards was $162.42$167.82 per share.
The following weighted average assumptions were used in determining the fair value for options granted in 2018:2019:
Expected dividend yield | 1.05 | % | 1.15 | % | ||||
Expected stock volatility | 25.6 | % | 23.62 | % | ||||
Risk-free interest rate | 2.81 | % | 2.60 | % | ||||
Expected holding period | 6.2 years | 6.2 years | ||||||
Grant date fair value | $ | 45.87 | $ | 43.10 |
Unrecognized stock-based compensation expense at March 31, 20182019 was $11.7$11.4 million and $220.1$239.2 million for stock options and unvested restricted stock, respectively, which is expected to be recognized over a weighted average period of 1.42.3 years and 1.82.7 years, respectively. Additionally, there was $43.1$40.8 million of unrecognized stock-based compensation expense relating to the aforementionednon-market based performance-based awards, which is expected to be recognized over a weighted average period of 1.12.2 years.
The following tablestable summarize information relating to stock option exercises and restricted stock vesting:
Three Months Ended | ||||||||||||||||
| Three Months Ended | March 31, | |||||||||||||||
| March 31, | 2019 | 2018 | ||||||||||||||
| Exercise of stock options: | 2018 | 2017 | ||||||||||||||
Proceeds from stock option exercises | $ | 26.6 | $ | 20.6 | $ | 11.9 | $ | 26.6 | ||||||||
Aggregate intrinsic value | $ | 61.9 | $ | 21.6 | $ | 35.6 | $ | 61.9 | ||||||||
Tax benefit realized upon exercise | $ | 15.0 | $ | 7.9 | $ | 8.5 | $ | 15.0 | ||||||||
Number of shares exercised | 0.5 | 0.4 | 0.3 | 0.5 | ||||||||||||
| Three Months Ended | ||||||||||||||||
| March 31, | ||||||||||||||||
| Vesting of restricted stock: | 2018 | 2017 | ||||||||||||||
Fair value of shares vested | $ | 146.7 | $ | 106.8 | $ | 146.5 | $ | 146.7 | ||||||||
Tax benefit realized upon vesting | $ | 33.9 | $ | 33.7 | $ | 33.6 | $ | 33.9 | ||||||||
Number of shares vested | 0.9 | 0.9 | 0.8 | 0.9 | ||||||||||||
| Three Months Ended | ||||||||||||||||
| March 31, | ||||||||||||||||
| Vesting of performance-based restricted stock: | 2018 | 2017 | ||||||||||||||
Fair value of shares vested | $ | 23.0 | $ | 19.5 | $ | 47.5 | $ | 23.0 | ||||||||
Tax benefit realized upon vesting | $ | 5.5 | $ | 6.9 | $ | 11.5 | $ | 5.5 | ||||||||
Number of shares vested | 0.1 | 0.2 | 0.3 | 0.1 | ||||||||||||
NOTE 5. INCOME TAXES
Moody’s effective tax rate was 9.2% and 14.6% for the first quarter ofthree months ended March 31, 2019 and 2018, was 14.6%, down from 23.4% for the prior-year period.respectively. The declinedecrease in the tax rateETR was primarily reflects the impact of an enacted lower corporate tax rate in the U.S. pursuantdue to the Tax Act. Additionally, the ETR in 2018 includes an approximate $31 million benefit relating to Excess Tax Benefits on stock-based compensation as well as a net uncertain tax position benefit pursuant to statute of limitation lapses. The ETRfavorable IRS Regulations issued in the first quarter of 2017 reflected2019 and lowernon-U.S. taxes on certain software development. The Company’s quarterly tax expense differs from the non-taxable CCXI Gain as well as approximately $19 million intax computed by applying its estimated annual effective tax rate to this quarter’spre-tax earnings due to Excess Tax Benefits on stock-based compensation.
On December 22, 2017, the Tax Cutfrom stock compensation of $26.6 million and Jobs Act was signed into law which resulted in significant changesnet reductions to U.S. corporate tax laws. The Tax Act includes a mandatory one-time deemed repatriation tax (“transition tax”) on previously untaxed accumulated earningspositions of foreign subsidiaries and beginning in 2018 reduces the statutory federal corporate income tax rate from 35% to 21%. Due to the complexities of the Tax Act, the SEC issued guidance requiring that companies provide a reasonable estimate of the impact of the Tax Act to the extent such reasonable estimate has been determined. Accordingly, as of December 31, 2017 the Company recorded a provisional estimate for the transition tax of $247.3 million, a portion of which will be payable over eight years, starting in 2018, and will not accrue interest. The above provisional estimate may be impacted by a number of additional considerations, including but not limited to the issuance of regulations and our ongoing analysis of the new law.
As a result of the Tax Act, all previously net undistributed foreign earnings have now been subject to U.S. tax. However, the Company intends to continue to indefinitely reinvest earnings outside the U.S. and accordingly the Company has not provided non-U.S. deferred income taxes on these indefinitely reinvested earnings. It is not practicable to determine the amount of non-U.S. deferred taxes that might be required to be provided if such earnings were distributed in the future, due to complexities in the tax laws and in the hypothetical calculations that would have to be made.$37.3 million.
The Company classifies interest related to UTBsUTPs in interest expense, net in its consolidated statements of operations. Penalties, if incurred, would be recognized in othernon-operating (expense) income, net. The Company had an increasea decrease in its UTBsUTPs of $101.8$20.2 million ($109.620.2 million, net of federal tax) during the first quarter of 2018.2019.
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 the years 2011 and 2012 are under examination and its returns for 20132015 through 20162017 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 20162017 remain open to examination.
For ongoing audits, it is possible the balance of UTBsUTPs 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 UTBs.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 UTBsUTPs 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 UTBs.UTPs.
The following table shows the amount the Company paid for income taxes:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2018 | 2017 | |||||||
Income taxes paid | $ | 44.2 | $ | 23.4 | ||||
| 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 | Three Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2018 | 2017 | 2019 | 2018 | |||||||||||||
Basic | 191.4 | 191.1 | 190.4 | 191.4 | ||||||||||||
Dilutive effect of shares issuable under stock-based compensation plans | 3.1 | 3.2 | 2.4 | 3.1 | ||||||||||||
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Diluted | 194.5 | 194.3 | 192.8 | 194.5 | ||||||||||||
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Anti-dilutive options to purchase common shares and restricted stock as well as contingently issuable restricted stock excluded from the table above | 0.7 | 1.0 | ||||||||||||||
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 | ||||||||||||||
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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, 20182019 and 2017.2018.
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.
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 7.8. 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 March 31, 2018 | As of December 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||
| Gross Unrealized Gains | Balance sheet location | Gross Unrealized Gains | Balance sheet location | |||||||||||||||||||||||||||||||||||||||||||||
| Cost | Fair Value | Cash and cash equivalents | Short-term investments | Other assets | Cost | Fair Value | Cash and cash equivalents | Short-term investments | Other assets | |||||||||||||||||||||||||||||||||||||||
Money market mutual funds | $ | 24.8 | $ | — | $ | 24.8 | $ | 24.8 | $ | — | $ | — | $ | 15.2 | $ | — | $ | 15.2 | $ | 15.2 | $ | — | $ | — | ||||||||||||||||||||||||
Certificates of deposit and money market deposit accounts(1) | $ | 281.7 | $ | — | $ | 281.7 | $ | 176.6 | $ | 100.5 | $ | 4.6 | $ | 1,022.4 | $ | — | $ | 1,022.4 | $ | 904.3 | $ | 115.8 | $ | 2.3 | ||||||||||||||||||||||||
Fixed maturity and open ended mutual funds(2) | $ | 35.0 | $ | 4.7 | $ | 39.7 | $ | — | $ | — | $ | 39.7 | ||||||||||||||||||||||||||||||||||||
| As of December 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance sheet location | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cost | Gross Unrealized Gains | Fair Value | Cash and cash equivalents | Short-term investments | Other assets | |||||||||||||||||||||||||||||||||||||||||||
Money market mutual funds | $ | 42.2 | $ | — | $ | 42.2 | $ | 42.2 | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||
Certificates of deposit and money market deposit accounts(1) | $ | 351.4 | $ | — | $ | 351.4 | $ | 238.6 | $ | 111.8 | $ | 1.0 | ||||||||||||||||||||||||||||||||||||
Fixed maturity and open ended mutual funds(2) | $ | 16.8 | $ | 4.3 | $ | 21.1 | $ | — | $ | — | $ | 21.1 | ||||||||||||||||||||||||||||||||||||
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 |
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As a result of the adoption of ASU2016-01, as further discussed in Note 1 and Note 2, the money market mutual funds and the fixed maturity and open-ended 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.NOTE 9. ACQUISITIONS
NOTE 8. ACQUISITIONS
The business combinations described below are accounted for using the acquisition method of accounting whereby assets acquired and liabilities assumed were recognized at fair value on the date of the transaction. Any excess of the purchase price over the fair value of the assets acquired and liabilities assumed was recorded to goodwill.
Bureau van DijkVigeo Eiris
On August 10, 2017, a subsidiary ofApril 12, 2019, the Company acquired 100% of Yellow Maple I B.V., an indirect parent company of Bureau van Dijk Electronic Publishing B.V.,a majority stake in Vigeo Eiris, a global provider of business intelligenceleader in Environmental, Social and company information products. The cash payment of $3,542.0 million was funded with a combination of cash on hand, primarily offshore,Governance (ESG) research, data and new debt financing.assessments. The acquisition extendsfurthers Moody’s position as a leader in risk data and analytical insight.
Shown below is the purchase price allocation, which summarizes the fair valueobjective of the assets and liabilities assumed, at the date of acquisition:
(Amounts in millions) | ||||||||
Current assets | $ | 158.4 | ||||||
Property and equipment, net | 4.2 | |||||||
Intangible assets: | ||||||||
Customer relationships (23 year weighted average life) | $ | 998.7 | ||||||
Product technology (12 year weighted average life) | 258.5 | |||||||
Trade name (18 year weighted average life) | 82.3 | |||||||
Database (10 year weighted average life) | 12.9 | |||||||
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Total intangible assets (21 year weighted average life) | 1,352.4 | |||||||
Goodwill | 2,619.0 | |||||||
Other assets | 5.9 | |||||||
Liabilities | ||||||||
Deferred revenue | $ | (101.1 | ) | |||||
Accounts payable and accrued liabilities | (48.6 | ) | ||||||
Deferred tax liabilities, net | (329.8 | ) | ||||||
Other liabilities | (118.4 | ) | ||||||
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Total liabilities | (597.9 | ) | ||||||
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Net assets acquired | $ | 3,542.0 | ||||||
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The Company has performed a preliminary valuation analysis of the fairpromoting global standards for ESG for use by market value of assets and liabilities of the Bureau van Dijk business. The final purchase price allocation will be determined when the Company has completed and fully reviewed the detailed valuations. The final allocation could differ materially from the preliminary allocation. The final allocation may include changes in allocations to acquired intangible assets as well as goodwill and other changes to assets and liabilities including reserves for uncertain tax positions and deferred tax liabilities. The estimated useful lives of acquired intangibles assets are also preliminary. Additionally, at March 31, 2018, the Company has not finalized its allocation of certain of the goodwill acquired to other MA reporting units that are anticipated to benefit from synergies resulting from the acquisition.
Current assets in the table above include acquired cash of $36.0 million. Additionally, current assets include accounts receivable of approximately $88.0 million (net of an allowance for uncollectible accounts of 3.7 million).
The acquired deferred revenue balance of approximately $154 million was reduced by $53 million as part of acquisition accounting to establish the fair value of deferred revenue. This will reduce reported revenue by $53 million over the remaining contractual period ofin-progress customer arrangements assumed as of the acquisition date. This resulted in approximately $10 million less in reported revenue for the three months ended March 31, 2018 with the remaining $7 million to reduce revenue in subsequent quarterly periods during 2018. Amortization of acquired intangible assets was approximately $19 million for the three months ended March 31, 2018.
Goodwill
Under the acquisition method of accounting for business combinations, the excess of the purchase price over the fair value of the net assets acquired is allocated to goodwill. Goodwill typically results through expected synergies from combining operations of an acquiree and an acquirer, anticipated new customer acquisition and products, as well as from intangible assets that do not qualify for separate recognition. The goodwill recognized as a result of this acquisition includes, among other things, the value of combining the complementary product portfolios of the Company and Bureau van Dijk, which is expected to extend the Company’s reach to new and evolving market segments as well as cost savings synergies, expected new customer acquisitions and products.
Goodwill, which has been assigned to the MA segment, is not deductible for tax purposes.
Bureau van Dijk is a separate reporting unit for purposes of the Company’s annual goodwill impairment assessment.
Other Liabilities Assumed
In connection with the acquisition, the Company assumed liabilities relating to UTBs as well as deferred tax liabilities which relate to acquired intangible assets. These items are included in other liabilities in the table above.
Supplementary Unaudited Pro Forma Information
Supplemental information on an unaudited pro forma basis is presented below for the three months ended March 31, 2017 as if the acquisition of Bureau van Dijk occurred on January 1, 2016. The pro forma financial information is presented for comparative purposes only, based on certain estimates and assumptions, which the Company believes to be reasonable but not necessarily indicative of future results of operations or the results that would have been reported if the acquisition had been completed at January 1, 2016. The unaudited pro forma information includes amortization of acquired intangible assets, based on the preliminary purchase price allocation and an estimate of useful lives reflected above, and incremental financing costs resulting from the acquisition, net of income tax, which was estimated using the weighted average statutory tax rates in effect in the jurisdiction for which the pro forma adjustment relates.
| (Amounts in millions) | For three months ended March 31, 2017 | |||
Pro forma Revenue | $ | 1,041.6 | ||
Pro forma Net Income attributable to Moody’s | $ | 339.6 | ||
The unaudited pro forma results do not include any anticipated cost savings or other effects of the planned integration of Bureau van Dijk. Accordingly, the pro forma results above are not necessarily indicative of the results that would have been reported if the acquisition had occurred on the dates indicated, nor are the pro forma results indicative of results which may occur in the future. The Bureau van Dijk results included in the table above have been converted to U.S. GAAP from IFRS as issued by the IASB and have been translated to USD at rates in effect for the periods presented.
SCDM Financial
On February 13, 2017, a subsidiary of the Company acquired the structured finance data and analytics business of SCDM Financial.participants. The aggregate purchase price was not material and the near term impact to the Company’s operations and cash flowflows is not expected to be material. This business unit operatesVigeo Eiris will operate in the MAMIS reportable segment and goodwill related to this acquisition has been allocated toits revenue will be reported in the RD&A reporting unit.MIS Other LOB.
NOTE 9.10. 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 andnon-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 the3-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 statementstatements of operations.
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 | Nature of Swap | Notional Amount | Floating Interest Rate | ||||||||||||||||
| As of March 31, 2018 | As of December 31, 2017 | 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 LIBOR | Pay Floating/Receive Fixed | $ | 500.0 | $ | 500.0 | 3-month USD LIBOR | ||||||||||||
2014 Senior Notes due 2019 | Pay Floating/Receive Fixed | $450.0 | $450.0 | 3-month LIBOR | ||||||||||||||||||
2012 Senior Notes due 2022 | Pay Floating/Receive Fixed | $ 80.0 | $ 80.0 | 3-month LIBOR | 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 | ||||||||||||||||||
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| Total | $ | 1,580.0 | $ | 1,330.0 | ||||||||||||||||||
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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 Recognized in the Consolidated Statements of Operations | ||||||||||
| Three Months Ended March 31, | ||||||||||
Derivatives Designated as Fair Value Accounting Hedges | Location on Consolidated Statement of Operations | 2018 | 2017 | |||||||
Interest rate swaps | Interest expense, net | $ | (0.1 | ) | $ | 2.4 | ||||
| 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 | ||||
Cross-currency swaps and netNet investment hedges
In conjunction with the issuance of the 2015 Senior Notes, the Company entered into a cross-currency swap to exchange €100 million for U.S. dollars on the date of the settlement of the notes. The purpose of this cross-currency swap was to mitigate FX risk on the remaining principal balance on the 2015 Senior Notes that initially was not designated as a net investment hedge. Under the terms of the swap, the Company paid the counterparty interest on the $110.5 million received at 3.945% per annum and the counterparty paid the Company interest on the €100 million paid at 1.75% per annum. These interest payments were settled in March of each year, beginning in 2016, until either the maturity of the cross-currency swap in 2027 or upon early termination at the discretion of the Company. The principal payments on this cross currency swap were to be settled in 2027, concurrent with the repayment of the 2015 Senior Notes at maturity or upon early termination at the discretion of the Company. In March 2016, the Company designated these cross-currency swaps as cash flow hedges. Accordingly, changes in fair value subsequent to the date the swaps were designated as cash flow hedges were recognized in OCI. Gains and losses on the swaps initially recognized in OCI were reclassified to the statement of operations in the period in which changes in the underlying hedged item affects net income. On December 18, 2017, the Company terminated the cross-currency swap and designated the full €500 million principal of the 2015 Senior Notes as a net investment hedge as discussed below.
The Company has designated €500 million of the 2015 Senior Notes Due 2027 as a net investment hedge. This hedge is intended 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 | ||||||||||||
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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. This net investment hedge is designated as accountingThese hedges under the applicable sections of Topic 815will 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 ASC and will end upon the repayment of the notes in 2027total notional amount, respectively, unless terminated earlierearly at the discretion of the Company.
Hedge effectiveness is assessed based on the overall changes in the fair value of the hedge. For hedges that meet the effectiveness requirements, any change in the fair value is recorded in OCI in the foreign currency translation account. Any change in the fair value of the Company’s outstanding net hedges that is the result of ineffectiveness would be recognized immediately in othernon-operating (expense) income, net in the Company’s consolidated statement of operations.
The following table provides information on the gains/(losses) on the Company’s net investment and cash flow hedges:
Non-Derivative Instruments in Net Investment Hedging Relationships | Amount of Gain/(Loss) Recognized in AOCI on Derivative (Effective Portion), net of Tax | Amount of Gain/(Loss) Reclassified from AOCI into Income (Effective Portion), net of Tax | Amount of Gain/(Loss) Recognized Directly into Income (Ineffective Portion), net of tax | |||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, | Three Months Ended March 31, | Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 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 andNon-Derivative Instruments in Net Investment Hedging | 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 | $ | (10.9 | ) | $ | (3.6 | ) | $ | — | $ | — | $ | — | $ | — | 8.3 | (1) | (10.9 | ) | — | — | — | — | ||||||||||||||||||||||||||
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Total net investment hedges | $ | (10.9 | ) | $ | (3.6 | ) | $ | — | $ | — | $ | — | $ | — | $ | 23.5 | $ | (10.9 | ) | $ | — | $ | — | $ | 8.3 | $ | — | |||||||||||||||||||||
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Derivatives in Cash Flow Hedging Relationships | ||||||||||||||||||||||||||||||||||||||||||||||||
Cross currency swap | $ | 1.5 | $ | (0.2 | ) | $ | 0.1 | * | $ | 1.0 | * | $ | (0.5 | )** | $ | — | $ | — | $ | 1.5 | $ | 0.1 | $ | 0.1 | $ | — | $ | — | ||||||||||||||||||||
Interest rate contracts | — | — | — | (0.1 | ) | — | — | — | — | (0.1 | ) | — | — | — | ||||||||||||||||||||||||||||||||||
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Total cash flow hedges | $ | 1.5 | $ | (0.2 | ) | $ | 0.1 | $ | 0.9 | $ | (0.5 | ) | $ | — | $ | — | $ | 1.5 | $ | — | $ | 0.1 | $ | — | $ | — | ||||||||||||||||||||||
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Total | $ | (9.4 | ) | $ | (3.8 | ) | $ | 0.1 | $ | 0.9 | $ | (0.5 | ) | $ | — | $ | 23.5 | $ | (9.4 | ) | $ | — | $ | 0.1 | $ | 8.3 | $ | — | ||||||||||||||||||||
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The cumulative amount of realized and unrecognized net investment hedge and cash flow hedge gains (losses) recordedremaining in AOCI is as follows:
| Cumulative Gains/(Losses), net of tax | ||||||||
| March 31, 2018 | December 31, 2017 | |||||||
Net investment hedges | ||||||||
FX forwards | $ | 23.5 | $ | 23.5 | ||||
Long-term debt | (35.6 | ) | (24.7 | ) | ||||
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Total net investment hedges | $ | (12.1 | ) | $ | (1.2 | ) | ||
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Cash flow hedges | ||||||||
Interest rate contracts | $ | (0.4 | ) | $ | (0.4 | ) | ||
Cross currency swap | 2.7 | 1.3 | ||||||
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Total cash flow hedges | 2.3 | 0.9 | ||||||
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Total net losses in AOCI | $ | (9.8 | ) | $ | (0.3 | ) | ||
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Net investment hedges Cross currency swaps FX forwards Long-term debt Total net investment hedges Cash flow hedges Interest rate contracts Cross currency swap Total cash flow hedges Total net gain in AOCI Cumulative Gains/(Losses), net of tax March 31, 2019 December 31, 2018 $ 27.5 $ 12.3 23.5 23.5 2.7 (3.1 ) $ 53.7 $ 32.7 $ (2.3 ) $ (2.4 ) 2.4 2.5 0.1 0.1 $ 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 othernon-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 July 2018.May 2019.
The following table summarizes the notional amounts of the Company’s outstanding foreign exchange forwards:
| March 31, | December 31, | |||||||||||||||||||||||||||||||
| 2018 | 2017 | March 31, 2019 | December 31, 2018 | |||||||||||||||||||||||||||||
| Sell | Buy | Sell | Buy | Sell | Buy | Sell | Buy | |||||||||||||||||||||||||
Notional amount of currency pair: | ||||||||||||||||||||||||||||||||
Contracts sell USD for GBP | $ | 708.7 | £ | 512.9 | $ | 484.7 | £ | 362.3 | ||||||||||||||||||||||||
Contracts to sell USD for GBP | $ | 492.5 | £ | 371.0 | $ | 310.3 | £ | 241.2 | ||||||||||||||||||||||||
Contracts to sell USD for Japanese Yen | $ | 24.9 | ¥ | 2,700.0 | $ | 24.3 | ¥ | 2,700.0 | $ | 14.4 | ¥ | 1,600.0 | $ | 14.3 | ¥ | 1,600.0 | ||||||||||||||||
Contracts to sell USD for Canadian dollars | $ | 51.7 | C$ | 64.0 | $ | 51.7 | C$ | 64.0 | $ | 87.4 | C$ | 115.0 | $ | 99.0 | C$ | 130.0 | ||||||||||||||||
Contracts to sell USD for Singapore dollars | $ | — | S$ | — | $ | 39.2 | S$ | 53.0 | $ | 35.7 | S$ | 48.0 | $ | — | S$ | — | ||||||||||||||||
Contracts to sell USD for Euros | $ | 74.8 | € | 60.0 | $ | 465.2 | € | 390.0 | $ | 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 (losses) gainsgain/(loss) on the Company’s derivatives which are not designated as hedging instruments:
| Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||||||
Derivatives Not Designated as Accounting Hedges | Location on Statement of Operations | 2018 | 2017 | Location on Statements of Operations | 2019 | 2018 | ||||||||||||||
Foreign exchange forwards | Othernon-operating income, net | $ | 27.6 | $ | (2.3 | ) | 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 itsnon-derivative debt instruments designated and qualifying as net investment hedges:
| Derivative andNon-Derivative Instruments | Derivative andNon-Derivative Instruments | |||||||||||||||||||||||
| Balance Sheet Location | March 31, 2018 | December 31, 2017 | Balance Sheet Location | March 31, 2019 | December 31, 2018 | |||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Derivatives designated as accounting hedges: | ||||||||||||||||||||||||
Interest rate swaps | Other assets | $ | — | $ | 0.5 | |||||||||||||||||||
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 | |||||||||||||||||||||
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Total derivatives designated as accounting hedges | — | 0.5 | 52.0 | 26.9 | ||||||||||||||||||||
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Derivatives not designated as accounting hedges: | ||||||||||||||||||||||||
FX forwards on certain assets and liabilities | Other current assets | 14.5 | 12.5 | Other current assets | 0.3 | 1.4 | ||||||||||||||||||
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Total assets | $ | 14.5 | $ | 13.0 | $ | 52.3 | $ | 28.3 | ||||||||||||||||
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Liabilities: | ||||||||||||||||||||||||
Derivatives designated as accounting hedges: | ||||||||||||||||||||||||
Interest rate swaps | Other non-current liabilities | $ | 12.2 | $ | 3.5 | |||||||||||||||||||
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 | |||||||||||||||||||||
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Total derivatives designated as accounting hedges | 12.2 | 3.5 | 2.3 | 8.2 | ||||||||||||||||||||
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Non-derivative instrument designated as accounting hedge | ||||||||||||||||||||||||
Long-term debt designated as net investment hedge | Long-term debt | 614.9 | 600.4 | 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 |
| 4.1 | 2.0 | | Accounts payable and accrued liabilities | | 10.9 | 8.2 | ||||||||||||||
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Total liabilities | $ | 631.2 | $ | 605.9 | $ | 574.6 | $ | 588.0 | ||||||||||||||||
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NOTE 10.11. GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS
The following table summarizes the activity in goodwill for the periods indicated:
| Three Months Ended March 31, 2018 | Three Months Ended March 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| MIS | MA | Consolidated | MIS | MA | Consolidated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross goodwill | Accumulated impairment charge | Net goodwill | Gross goodwill | Accumulated impairment charge | Net goodwill | Gross goodwill | Accumulated impairment charge | Net goodwill | 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 | $ | 257.8 | $ | — | $ | 257.8 | $ | 3,535.7 | $ | (12.2 | ) | $ | 3,523.5 | $ | 3,793.5 | $ | (12.2 | ) | $ | 3,781.3 | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | 6.4 | — | 6.4 | 71.9 | — | 71.9 | 78.3 | — | 78.3 | 9.4 | — | 9.4 | (28.2 | ) | — | (28.2 | ) | (18.8 | ) | — | (18.8 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Ending balance | $ | 291.6 | $ | — | $ | 291.6 | $ | 3,552.1 | $ | (12.2 | ) | $ | 3,539.9 | $ | 3,843.7 | $ | (12.2 | ) | $ | 3,831.5 | $ | 267.2 | $ | — | $ | 267.2 | $ | 3,507.5 | $ | (12.2 | ) | $ | 3,495.3 | $ | 3,774.7 | $ | (12.2 | ) | $ | 3,762.5 | ||||||||||||||||||||||||||||||||
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| Year ended December 31, 2017 | Year ended December 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| MIS | MA | Consolidated | MIS | MA | Consolidated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross goodwill | Accumulated impairment charge | Net goodwill | Gross goodwill | Accumulated impairment charge | Net goodwill | Gross goodwill | Accumulated impairment charge | Net goodwill | 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 | $ | 277.0 | $ | — | $ | 277.0 | $ | 758.8 | $ | (12.2 | ) | $ | 746.6 | $ | 1,035.8 | $ | (12.2 | ) | $ | 1,023.6 | $ | 285.2 | $ | — | $ | 285.2 | $ | 3,480.2 | $ | (12.2 | ) | $ | 3,468.0 | $ | 3,765.4 | $ | (12.2 | ) | $ | 3,753.2 | ||||||||||||||||||||||||||||||||
Additions/adjustments | — | — | — | 2,622.6 | — | 2,622.6 | 2,622.6 | — | 2,622.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Additions/ adjustments | — | — | — | 211.5 | — | 211.5 | 211.5 | — | 211.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | 8.2 | — | 8.2 | 98.8 | — | 98.8 | 107.0 | — | 107.0 | (27.4 | ) | — | (27.4 | ) | (156.0 | ) | — | (156.0 | ) | (183.4 | ) | — | (183.4 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
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Ending balance | $ | 285.2 | $ | — | $ | 285.2 | $ | 3,480.2 | $ | (12.2 | ) | $ | 3,468.0 | $ | 3,765.4 | $ | (12.2 | ) | $ | 3,753.2 | $ | 257.8 | $ | — | $ | 257.8 | $ | 3,535.7 | $ | (12.2 | ) | $ | 3,523.5 | $ | 3,793.5 | $ | (12.2 | ) | $ | 3,781.3 | ||||||||||||||||||||||||||||||||
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The 20172018 additions/adjustments for the MA segment in the table above primarily relate to the acquisitionacquisitions of Bureau van DijkReis and structured finance data and analytics business of SCDM.Omega Performance.
Acquired intangible assets and related amortization consisted of:
| March 31, | December 31, | |||||||||||||||
| 2018 | 2017 | March 31, 2019 | December 31, 2018 | |||||||||||||
Customer relationships | $ | 1,371.7 | $ | 1,345.1 | $ | 1,360.7 | $ | 1,367.5 | ||||||||
Accumulated amortization | (175.4 | ) | (159.9 | ) | (230.2 | ) | (214.2 | ) | ||||||||
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Net customer relationships | 1,196.3 | 1,185.2 | 1,130.5 | 1,153.3 | ||||||||||||
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Trade secrets | 30.1 | 30.2 | 29.9 | 29.8 | ||||||||||||
Accumulated amortization | (28.1 | ) | (28.1 | ) | (28.3 | ) | (28.2 | ) | ||||||||
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Net trade secrets | 2.0 | 2.1 | 1.6 | 1.6 | ||||||||||||
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Software/product technology | 366.1 | 358.6 | 349.2 | 353.3 | ||||||||||||
Accumulated amortization | (86.7 | ) | (78.0 | ) | (107.7 | ) | (101.8 | ) | ||||||||
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Net Software/product technology | 279.4 | 280.6 | ||||||||||||||
Net software/product technology | 241.5 | 251.5 | ||||||||||||||
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Trade names | 164.6 | 161.6 | 155.9 | 155.1 | ||||||||||||
Accumulated amortization | (29.2 | ) | (26.7 | ) | (36.5 | ) | (34.1 | ) | ||||||||
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Net trade names | 135.4 | 134.9 | 119.4 | 121.0 | ||||||||||||
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Other(1) | 58.2 | 57.4 | 70.8 | 70.4 | ||||||||||||
Accumulated amortization | (29.7 | ) | (28.6 | ) | (33.4 | ) | (31.7 | ) | ||||||||
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Net other | 28.5 | 28.8 | 37.4 | 38.7 | ||||||||||||
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Total acquired intangible assets, net | $ | 1,641.6 | $ | 1,631.6 | $ | 1,530.4 | $ | 1,566.1 | ||||||||
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| (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, | ||||||||
| 2018 | 2017 | |||||||
Amortization expense | $ | 25.7 | $ | 8.5 | ||||
| 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, | ||||||||
2018 (after March 31) | $ | 77.0 | ||||||
2019 | 98.9 | |||||||
2019 (after March 31) | $ | 71.0 | ||||||
2020 | 96.5 | 100.5 | ||||||
2021 | 96.3 | 100.3 | ||||||
2022 | 95.8 | 100.3 | ||||||
2023 | 97.3 | |||||||
Thereafter | 1,177.1 | 1,061.0 | ||||||
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Total estimated future amortization | $ | 1,641.6 | $ | 1,530.4 | ||||
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Amortizable intangible assets are reviewed for recoverability whenever events or changes in circumstances indicate
NOTE 12 RESTRUCTURING
On October 26, 2018, the chief executive officer of Moody’s approved a restructuring program (the “2018 Restructuring Program”) that the carrying amount may notCompany 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 totalpre-tax charges of $70 to $80 million. The Program is expected to be recoverable. If the estimated undiscounted future cash flows are lower than the carrying amountsubstantially 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 related asset, a loss is recognized for the difference between the carrying amountbusiness criticality of certain positions, and the estimated fair valuerationalization 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 asset. There were no impairmentscharges to intangible assetseither 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 endedof 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 | ) | ||||||
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Balance as of March 31, 2019 | $ | 25.8 | $ | 3.0 | $ | 28.8 | ||||||
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2018 Restructuring Program: | ||||||||||||
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Cumulative expense incurred to date | $ | 34.6 | $ | 19.6 | ||||||||
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| (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 ofnon-cash acceleration of amortization of leasehold improvements relating to the rationalization and exit of certain real estate leases. |
As of March 31, 2018 and 2017.2019, the majority of the remaining $28.8 million restructuring liability is expected to be paid out during the next 12 months.
NOTE 11.13. FAIR VALUE
The table below presents information about items that are carried at fair value at March 31, 20182019 and December 31, 2017:2018:
| Fair Value Measurement as of March 31, 2018 | Fair Value Measurement as of March 31, 2019 | |||||||||||||||||||||||
Description | Balance | Level 1 | Level 2 | Balance | Level 1 | Level 2 | ||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Derivatives(a) | $ | 14.5 | $ | — | $ | 14.5 | ||||||||||||||||||
Money market mutual funds | 24.8 | 24.8 | — | |||||||||||||||||||||
Fixed maturity and open ended mutual funds | 39.7 | 39.7 | — | |||||||||||||||||||||
Derivatives(1) | $ | 52.3 | $ | — | $ | 52.3 | ||||||||||||||||||
Mutual funds | 17.7 | 17.7 | — | |||||||||||||||||||||
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Total | $ | 79.0 | $ | 64.5 | $ | 14.5 | $ | 70.0 | $ | 17.7 | $ | 52.3 | ||||||||||||
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Liabilities: | ||||||||||||||||||||||||
Derivatives(a) | $ | 16.3 | $ | — | $ | 16.3 | ||||||||||||||||||
Derivatives(1) | $ | 13.2 | $ | — | $ | 13.2 | ||||||||||||||||||
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Total | $ | 16.3 | $ | — | $ | 16.3 | $ | 13.2 | $ | — | $ | 13.2 | ||||||||||||
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| Fair Value Measurement as of December 31, 2017 | Fair Value Measurement as of December 31, 2018 | |||||||||||||||||||||||
Description | Balance | Level 1 | Level 2 | Balance | Level 1 | Level 2 | ||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Derivatives(a) | $ | 13.0 | $ | — | $ | 13.0 | ||||||||||||||||||
Derivatives(1) | $ | 28.3 | $ | — | $ | 28.3 | ||||||||||||||||||
Money market mutual funds | 42.2 | 42.2 | — | 15.2 | 15.2 | — | ||||||||||||||||||
Fixed maturity and open ended mutual funds | 21.1 | 21.1 | — | |||||||||||||||||||||
Mutual funds | 33.3 | 33.3 | — | |||||||||||||||||||||
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Total | $ | 76.3 | $ | 63.3 | $ | 13.0 | $ | 76.8 | $ | 48.5 | $ | 28.3 | ||||||||||||
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Liabilities: | ||||||||||||||||||||||||
Derivatives(a) | $ | 5.5 | $ | — | $ | 5.5 | ||||||||||||||||||
Derivatives(1) | $ | 16.4 | $ | — | $ | 16.4 | ||||||||||||||||||
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Total | $ | 5.5 | $ | — | $ | 5.5 | $ | 16.4 | $ | — | $ | 16.4 | ||||||||||||
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Represents FX forwards on certain assets and liabilities |
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 ofnon-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.
Fixed maturityMutual funds and open-endedmoney market mutual funds:
As a result of the adoption of ASU2016-01, as further discussed in Note 1 and Note 2, the fixed maturity and open-endedThe 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. Prior to the Company’s adoption of ASUNo. 2016-01, any unrealized gains and losses were recognized through OCI until the instruments matured or were sold. The fair value of these instruments is determined using Level 1 inputs as defined in the ASC.
Money market mutual funds:
Similar to fixed maturity and open-ended mutual funds, the money market 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 as required by ASU2016-01. The money market mutual funds represent publicly traded funds with a stable $1 net asset value.
NOTE 12.14 OTHER BALANCE SHEET AND STATEMENT OF OPERATIONS INFORMATION
The following tables contain additional detail related to certain balance sheet captions:
| March 31, | December 31, | March 31, | December 31, | |||||||||||||
| 2018 | 2017 | 2019 | 2018 | |||||||||||||
Other current assets: | ||||||||||||||||
Prepaid taxes | $ | 55.5 | $ | 94.9 | $ | 103.8 | $ | 100.1 | ||||||||
Prepaid expenses | 95.7 | 91.7 | 104.4 | 102.0 | ||||||||||||
Capitalized costs to obtain and fulfill sales contracts | 39.2 | 15.9 | 76.4 | 77.2 | ||||||||||||
Other | 43.2 | 47.6 | 2.0 | 3.0 | ||||||||||||
|
|
|
| |||||||||||||
Total other current assets | $ | 233.6 | $ | 250.1 | $ | 286.6 | $ | 282.3 | ||||||||
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| |||||||||||||
| March 31, | December 31, | March 31, | December 31, | |||||||||||||
| 2018 | 2017 | 2019 | 2018 | |||||||||||||
Other assets: | ||||||||||||||||
Investments in joint ventures | $ | 100.4 | $ | 99.1 | ||||||||||||
Investments innon-consolidated affiliates | $ | 111.6 | $ | 104.6 | ||||||||||||
Deposits for real-estate leases | 12.2 | 12.3 | 13.7 | 13.5 | ||||||||||||
Indemnification assets related to acquisitions | 16.8 | 17.0 | 16.2 | 16.1 | ||||||||||||
Mutual funds and fixed deposits | 44.3 | 22.1 | 22.3 | 18.9 | ||||||||||||
Costs to obtain sales contracts | 69.3 | — | 86.1 | 78.0 | ||||||||||||
Other | 15.0 | 9.4 | 71.3 | 43.2 | ||||||||||||
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| |||||||||||||
Total other assets | $ | 258.0 | $ | 159.9 | $ | 321.2 | $ | 274.3 | ||||||||
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| 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 | ||||||||||||||
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| |||||||||||||||
Total accounts payable and accrued liabilities | $ | 537.1 | $ | 695.2 | ||||||||||||
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| 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 | ||||||||||||||
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Total other liabilities | $ | 486.6 | $ | 576.5 | ||||||||||||
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| (1) |
|
Accounts payable and accrued liabilities: Salaries and benefits Incentive compensation Customer credits, advanced payments and advanced billings Self-insurance reserves Dividends Professional service fees Interest accrued on debt Accounts payable Income taxes Pension and other retirement employee benefits (see Note 14) Accrued royalties Other Total accounts payable and accrued liabilities March 31, December 31, 2018 2017 $ 136.6 $ 129.6 51.0 246.7 27.4 22.2 9.9 8.1 4.8 6.2 49.9 47.1 30.2 73.9 32.0 21.8 86.7 79.2 5.9 5.9 19.6 26.4 78.6 83.2 $ 532.6 $ 750.3
| March 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
Other liabilities: | ||||||||
Pension and other retirement employee benefits (see Note 14) | $ | 256.0 | $ | 244.5 | ||||
Deferred rent -non-current portion | 101.7 | 103.1 | ||||||
Interest accrued on UTPs | 52.8 | 54.7 | ||||||
Other tax matters | 1.3 | 1.3 | ||||||
Income tax liability -non-current(2) | 108.0 | 232.2 | ||||||
Other | 34.4 | 28.2 | ||||||
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| |||||
Total other liabilities | $ | 554.2 | $ | 664.0 | ||||
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| (2) | Primarily reflects the transition tax pursuant to the Tax Act, which was enacted into law in December |
Changes in the Company’s self-insurance reserves for claims insured by the Company’s wholly-owned insurance subsidiary, which primarily relate to legal defense costs for claims from prior years, are as follows:
| Three Months Ended | Year Ended | |||||||
| March 31, 2018 | December 31, 2017 | |||||||
Balance January 1, | $ | 8.1 | $ | 11.1 | ||||
Accruals (reversals), net | 2.4 | 9.6 | ||||||
Payments | (0.6 | ) | (12.6 | ) | ||||
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Balance | $ | 9.9 | $ | 8.1 | ||||
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OtherNon-Operating Income (Expense):
The following table summarizes the components of othernon-operating income (expense):
| Three Months Ended March 31, | ||||||||
| 2018 | 2017 | |||||||
FX loss | $ | (5.9 | ) | $ | (9.6 | ) | ||
Net periodic pension costs - other component (1) | 2.3 | 1.7 | ||||||
Joint venture income | 1.3 | 1.0 | ||||||
Other | 3.3 | (0.8 | ) | |||||
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Total | $ | 1.0 | $ | (7.7 | ) | |||
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| 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 innon-consolidated affiliates | 1.2 | 1.3 | ||||||
Other | 2.8 | 3.3 | ||||||
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Total | $ | 2.3 | $ | 1.0 | ||||
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NOTE 13.15. COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table provides details about the reclassifications out of AOCI:
| Three Months Ended | Affected line in the consolidated statement of operations | |||||||||
| March 31, 2018 | March 31, 2017 | |||||||||
Gain on cash flow hedges | ||||||||||
Cross-currency swap | $ | 0.1 | $ | 1.5 | Other non-operating (expense) income, net | |||||
Treasury rate lock | — | (0.1 | ) | Interest expense, net | ||||||
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Total before income taxes | 0.1 | 1.4 | ||||||||
Income tax effect of items above | — | (0.5 | ) | Provision for income taxes | ||||||
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Total gains on cash flow hedges | 0.1 | 0.9 | ||||||||
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Pension and other retirement benefits | ||||||||||
Amortization of actuarial losses and prior service costs included in net income | (0.9 | ) | (1.5 | ) | Operating expense | |||||
Amortization of actuarial losses and prior service costs included in net income | (0.5 | ) | (0.9 | ) | SG&A expense | |||||
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Total before income taxes | (1.4 | ) | (2.4 | ) | ||||||
Income tax effect of item above | 0.4 | 0.9 | Provision for income taxes | |||||||
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Total pension and other retirement benefits | (1.0 | ) | (1.5 | ) | ||||||
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| |||||||
Total losses included in Net Income attributable to reclassifications out of AOCI | $ | (0.9 | ) | $ | (0.6 | ) | ||||
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Gains (losses) on cash flow hedges Cross-currency swap Interest rate contract Total before income taxes Income tax effect of item above Total net gains (losses) on cash flow hedges Pension and other retirement benefits Amortization of actuarial losses and prior service costs included in net income Amortization of actuarial losses and prior service costs included in net income Total before income taxes Income tax effect of item above Total pension and other retirement benefits Total (losses) gains included in Net Income attributable to reclassifications out of AOCI Three Months Ended March 31, Location in the consolidated statements of
operations 2019 2018 $ (0.1 ) $ 0.1 Other non-operating income
(expense), net
0.1 — Interest expense, net — 0.1 — — Provision for income taxes — 0.1 (0.5 ) (0.9 ) Operating expense (0.3 ) (0.5 ) SG&A expense (0.8 ) (1.4 ) 0.2 0.4 Provision for income taxes (0.6 ) (1.0 ) $ (0.6 ) $ (0.9 )
The following table shows changes in AOCI by component (net of tax):
| Three Months Ended March 31, 2018 | ||||||||||||||||||||
| Pension and Other Retirement Benefits | Gains / (Losses) on Cash Flow Hedges | Foreign Currency Translation Adjustments | Gains on Available for Sale Securities | Total | ||||||||||||||||
Balance December 31, 2017 | $ | (61.5 | ) | $ | 0.9 | $ | (113.9 | ) | $ | 2.3 | $ | (172.2 | ) | |||||||
Adoption of ASU2016-01 (Refer to Note 1 and Note 2) | — | — | — | (2.3 | ) | (2.3 | ) | |||||||||||||
Other comprehensive income before reclassifications | — | 1.5 | 120.2 | — | 121.7 | |||||||||||||||
Amounts reclassified from AOCI | 1.0 | (0.1 | ) | — | — | 0.9 | ||||||||||||||
|
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|
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| |||||||||||
Other comprehensive income/(loss) | 1.0 | 1.4 | 120.2 | (2.3 | ) | 120.3 | ||||||||||||||
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| |||||||||||
Balance March 31, 2018 | $ | (60.5 | ) | $ | 2.3 | $ | 6.3 | $ | — | $ | (51.9 | ) | ||||||||
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| |||||||||||
| Three Months Ended March 31, 2017 | ||||||||||||||||||||
| Pension and Other Retirement Benefits | Gains / (Losses) on Cash Flow Hedges | Foreign Currency Translation Adjustments | Gains on Available for Sale Securities | Total | ||||||||||||||||
Balance December 31, 2016 | $ | (79.5 | ) | $ | 1.7 | $ | (290.2 | ) | $ | 3.1 | $ | (364.9 | ) | |||||||
Other comprehensive income before reclassifications | — | (0.2 | ) | 6.9 | 0.3 | 7.0 | ||||||||||||||
Amounts reclassified from AOCI | 1.5 | (0.9 | ) | — | — | 0.6 | ||||||||||||||
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| |||||||||||
Other comprehensive income/(loss) | 1.5 | (1.1 | ) | 6.9 | 0.3 | 7.6 | ||||||||||||||
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Balance March 31, 2017 | $ | (78.0 | ) | $ | 0.6 | $ | (283.3 | ) | $ | 3.4 | $ | (357.3 | ) | |||||||
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| Three Months Ended March 31, 2019 | ||||||||||||||||||||
| Pension and Other Retirement Benefits | Gains / (Losses) on Cash Flow Hedges | Foreign Currency Translation Adjustments | Net Gains / (Losses) on Net Investment Hedges | Total | ||||||||||||||||
Balance December 31, 2018 | $ | (53.1 | ) | $ | 0.1 | $ | (406.0 | ) | $ | 32.7 | $ | (426.3 | ) | |||||||
Other comprehensive income/(loss) before reclassifications | 0.8 | — | (34.3 | ) | 23.5 | (10.0 | ) | |||||||||||||
Amounts reclassified from AOCI | 0.6 | — | — | — | 0.6 | |||||||||||||||
Adoption of ASU2018-02 (See Note 1) | (17.3 | ) | — | — | (2.5 | ) | (19.8 | ) | ||||||||||||
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Other comprehensive income/(loss) | (15.9 | ) | — | (34.3 | ) | 21.0 | (29.2 | ) | ||||||||||||
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| |||||||||||
Balance March 31, 2019 | $ | (69.0 | ) | $ | 0.1 | $ | (440.3 | ) | $ | 53.7 | $ | (455.5 | ) | |||||||
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| |||||||||||
| Three Months Ended March 31, 2018 | ||||||||||||||||||||||||
| Pension and Other Retirement Benefits | Gains / (Losses) on Cash Flow Hedges | Foreign Currency Translation Adjustments | Net Losses on Net Investment Hedges | Gains on Available for Sale Securities | Total | |||||||||||||||||||
Balance December 31, 2017 | $ | (61.5 | ) | $ | 0.9 | $ | (112.6 | ) | $ | (1.3 | ) | $ | 2.3 | $ | (172.2 | ) | ||||||||
Adoption of ASU2016-01 relating to financial instruments | — | — | — | — | (2.3 | ) | (2.3 | ) | ||||||||||||||||
Other comprehensive income/(loss) before reclassifications | — | 1.5 | 131.1 | (10.9 | ) | — | 121.7 | |||||||||||||||||
Amounts reclassified from AOCI | 1.0 | (0.1 | ) | — | — | — | 0.9 | |||||||||||||||||
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Other comprehensive income/(loss) | 1.0 | 1.4 | 131.1 | (10.9 | ) | (2.3 | ) | 120.3 | ||||||||||||||||
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Balance March 31, 2018 | $ | (60.5 | ) | $ | 2.3 | $ | 18.5 | $ | (12.2 | ) | $ | — | $ | (51.9 | ) | |||||||||
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NOTE 14.16. PENSION AND OTHER RETIREMENT BENEFITS
Moody’s maintains funded and unfunded noncontributory Defined Benefit Pension Plans. The U.S. plans provide defined benefits using a cash balance formula based on years of service and career average salary for its employees or final average pay for selected executives. The Company also provides certain healthcare and life insurance benefits for retired U.S. employees. The retirement healthcare plans are contributory; the life insurance plans are noncontributory. Moody’s funded and unfunded U.S. pension plans, the U.S. retirement healthcare plans and the U.S. retirement life insurance plans are collectively referred to herein as the “Retirement Plans”. The U.S. retirement healthcare plans and the U.S. retirement life insurance plans are collectively referred to herein as the “Other Retirement Plans”. Thenon-U.S. defined benefit pension plan are immaterial.
Effective January 1, 2008, the Company no longer offers DBPPs to U.S. employees hired or rehired on or after January 1, 2008. New U.S. employees will instead receive a retirement contribution of similar benefit value under the Company’s Profit Participation Plan. Current participants of the Company’s DBPPs continue to accrue benefits based on existing plan formulas.
The components of net periodic benefit expense related to the Retirement Plans are as follows:
| Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||
| Pension Plans | Other Retirement Plans | Pension Plans | Other Retirement Plans | |||||||||||||||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||
Components of net periodic expense | ||||||||||||||||||||||||||||||||
Service cost | $ | 4.8 | $ | 4.9 | $ | 0.7 | $ | 0.6 | $ | 4.3 | $ | 4.8 | $ | 0.7 | $ | 0.7 | ||||||||||||||||
Interest cost | 4.4 | 4.7 | 0.3 | 0.3 | 5.1 | 4.4 | 0.3 | 0.3 | ||||||||||||||||||||||||
Expected return on plan assets | (3.8 | ) | (4.1 | ) | — | — | (5.0 | ) | (3.8 | ) | — | — | ||||||||||||||||||||
Amortization of net actuarial loss from earlier periods | 1.6 | 2.4 | — | — | 0.9 | 1.6 | — | — | ||||||||||||||||||||||||
Amortization of net prior service costs from earlier periods | (0.1 | ) | — | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | |||||||||||||||||
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| |||||||||||||||||||||||||
Net periodic expense | $ | 6.9 | $ | 7.9 | $ | 0.9 | $ | 0.8 | $ | 5.2 | $ | 6.9 | $ | 0.9 | $ | 0.9 | ||||||||||||||||
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The Company made payments of $0.9$2.4 million related to its unfunded U.S. DBPPs and $0.1 million to its U.S. other retirement plans during the three months ended March 31, 2018. The2019. Additionally, the Company anticipates making payments of $4.0approximately $3 million and $0.9$1 million to its unfunded U.S. DBPPs and U.S. other retirement plans, respectively, during the remainder of 2018.2019.
NOTE 15.17. INDEBTEDNESS
The Company’s debt is recorded at its carrying amount, which represents the issuance amount plus or minus any issuance premium or discount, except for the 2010 Senior Notes, the 2012 Senior Notes, the 2017 Senior Notes due 2021 and the 2017 Senior Notes due 2023, which are recorded at the carrying amount adjusted for the fair value of an interest rate swap used to hedge the fair value of the note.
The following table summarizes total indebtedness:
| March 31, 2018 | March 31, 2019 | |||||||||||||||||||||||||||||||||||||||
| Principal Amount | Fair Value of Interest Rate Swaps (1) | Unamortized (Discount) Premium | Unamortized Debt Issuance Costs | Carrying Value | Principal Amount | Fair Value of Interest Rate Swaps (1) | Unamortized (Discount) Premium | Unamortized Debt Issuance Costs | Carrying Value | |||||||||||||||||||||||||||||||
Notes Payable: | ||||||||||||||||||||||||||||||||||||||||
5.50% 2010 Senior Notes, due 2020 | $ | 500.0 | $ | (5.6 | ) | $ | (0.9 | ) | $ | (1.0 | ) | $ | 492.5 | $ | 500.0 | $ | (1.5 | ) | $ | (0.5 | ) | $ | (0.6 | ) | $ | 497.4 | ||||||||||||||
4.50% 2012 Senior Notes, due 2022 | 500.0 | (2.3 | ) | (1.9 | ) | (1.7 | ) | 494.1 | 500.0 | 4.8 | (1.5 | ) | (1.3 | ) | 502.0 | |||||||||||||||||||||||||
4.875% 2013 Senior Notes, due 2024 | 500.0 | — | (1.8 | ) | (2.3 | ) | 495.9 | 500.0 | — | (1.5 | ) | (1.9 | ) | 496.6 | ||||||||||||||||||||||||||
2.75% 2014 Senior Notes(5-Year), due 2019 | 450.0 | (4.3 | ) | (0.2 | ) | (0.9 | ) | 444.6 | ||||||||||||||||||||||||||||||||
5.25% 2014 Senior Notes(30-Year), due 2044 | 600.0 | — | 3.3 | (5.6 | ) | 597.7 | 600.0 | — | 3.2 | (5.4 | ) | 597.8 | ||||||||||||||||||||||||||||
1.75% 2015 Senior Notes, due 2027 | 614.9 | — | — | (3.5 | ) | 611.4 | 561.4 | — | — | (2.9 | ) | 558.5 | ||||||||||||||||||||||||||||
2.75% 2017 Senior Notes, due 2021 | 500.0 | — | (1.2 | ) | (3.0 | ) | 495.8 | 500.0 | 6.9 | (0.9 | ) | (2.2 | ) | 503.8 | ||||||||||||||||||||||||||
2017 Floating Rate Senior Notes, due 2018 | 300.0 | — | — | (0.3 | ) | 299.7 | ||||||||||||||||||||||||||||||||||
2.625% 2017 Notes, due 2023 | 500.0 | — | (1.0 | ) | (3.4 | ) | 495.6 | |||||||||||||||||||||||||||||||||
3.25% 2017 Notes, due 2028 | 500.0 | — | (5.1 | ) | (3.9 | ) | 491.0 | |||||||||||||||||||||||||||||||||
2017 Term Loan Facility, due 2020 | 500.0 | — | — | (0.6 | ) | 499.4 | ||||||||||||||||||||||||||||||||||
2.625% 2017 Senior Notes, due 2023 | 500.0 | 2.8 | (0.8 | ) | (2.8 | ) | 499.2 | |||||||||||||||||||||||||||||||||
3.25% 2017 Senior Notes, due 2028 | 500.0 | — | (4.6 | ) | (3.6 | ) | 491.8 | |||||||||||||||||||||||||||||||||
3.25% 2018 Senior Notes, due 2021 | 300.0 | — | (0.3 | ) | (1.3 | ) | 298.4 | |||||||||||||||||||||||||||||||||
4.25% 2018 Senior Notes, due 2029 | 400.0 | — | (2.9 | ) | (3.2 | ) | 393.9 | |||||||||||||||||||||||||||||||||
4.875% 2018 Senior Notes, due 2048 | 400.0 | — | (6.7 | ) | (4.1 | ) | 389.2 | |||||||||||||||||||||||||||||||||
Commercial Paper | 90.0 | — | (0.1 | ) | — | 89.9 | 320.0 | — | (1.2 | ) | — | 318.8 | ||||||||||||||||||||||||||||
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Total debt | $ | 5,554.9 | $ | (12.2 | ) | $ | (8.9 | ) | $ | (26.2 | ) | $ | 5,507.6 | $ | 5,581.4 | $ | 13.0 | $ | (17.7 | ) | $ | (29.3 | ) | $ | 5,547.4 | |||||||||||||||
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Current portion | (389.6 | ) | (318.8 | ) | ||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||
Total long-term debt | $ | 5,118.0 | $ | 5,228.6 | ||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||
| December 31, 2017 | December 31, 2018 | |||||||||||||||||||||||||||||||||||||||
| Principal Amount | Fair Value of Interest Rate Swaps (1) | Unamortized (Discount) Premium | Unamortized Debt Issuance Costs | Carrying Value | Principal Amount | Fair Value of Interest Rate Swaps (1) | Unamortized (Discount) Premium | Unamortized Debt Issuance Costs | Carrying Value | |||||||||||||||||||||||||||||||
Notes Payable: | ||||||||||||||||||||||||||||||||||||||||
5.50% 2010 Senior Notes, due 2020 | $ | 500.0 | $ | — | $ | (1.0 | ) | $ | (1.2 | ) | $ | 497.8 | $ | 500.0 | $ | (3.7 | ) | $ | (0.6 | ) | $ | (0.7 | ) | $ | 495.0 | |||||||||||||||
4.50% 2012 Senior Notes, due 2022 | 500.0 | (0.8 | ) | (2.0 | ) | (1.7 | ) | 495.5 | 500.0 | 1.9 | (1.6 | ) | (1.4 | ) | 498.9 | |||||||||||||||||||||||||
4.875% 2013 Senior Notes, due 2024 | 500.0 | — | (1.8 | ) | (2.4 | ) | 495.8 | 500.0 | — | (1.5 | ) | (2.0 | ) | 496.5 | ||||||||||||||||||||||||||
2.75% 2014 Senior Notes(5-Year), due 2019 | 450.0 | (2.2 | ) | (0.2 | ) | (1.1 | ) | 446.5 | 450.0 | — | (0.1 | ) | — | 449.9 | ||||||||||||||||||||||||||
5.25% 2014 Senior Notes(30-Year), due 2044 | 600.0 | — | 3.3 | (5.7 | ) | 597.6 | 600.0 | — | 3.2 | (5.5 | ) | 597.7 | ||||||||||||||||||||||||||||
1.75% 2015 Senior Notes, due 2027 | 600.4 | — | — | (3.6 | ) | 596.8 | 571.6 | — | — | (3.1 | ) | 568.5 | ||||||||||||||||||||||||||||
2.75% 2017 Senior Notes, due 2021 | 500.0 | — | (1.3 | ) | (3.2 | ) | 495.5 | 500.0 | 4.0 | (1.0 | ) | (2.4 | ) | 500.6 | ||||||||||||||||||||||||||
2017 Floating Rate Senior Notes, due 2018 | 300.0 | — | — | (0.5 | ) | 299.5 | ||||||||||||||||||||||||||||||||||
2.625% 2017 Notes, due 2023 | 500.0 | — | (1.1 | ) | (3.5 | ) | 495.4 | |||||||||||||||||||||||||||||||||
3.25% 2017 Notes, due 2028 | 500.0 | — | (5.2 | ) | (3.9 | ) | 490.9 | |||||||||||||||||||||||||||||||||
2017 Term Loan Facility, due 2020 | 500.0 | — | — | (0.7 | ) | 499.3 | ||||||||||||||||||||||||||||||||||
Commercial Paper | 130.0 | — | (0.1 | ) | — | 129.9 | ||||||||||||||||||||||||||||||||||
2.625% 2017 Senior Notes, due 2023 | 500.0 | — | (0.9 | ) | (2.8 | ) | 496.3 | |||||||||||||||||||||||||||||||||
3.25% 2017 Senior Notes, due 2028 | 500.0 | — | (4.7 | ) | (3.7 | ) | 491.6 | |||||||||||||||||||||||||||||||||
3.25% 2017 Senior Notes, due 2021 | 300.0 | — | (0.4 | ) | (1.5 | ) | 298.1 | |||||||||||||||||||||||||||||||||
4.25% 2018 Senior Notes, due 2029 | 400.0 | — | (3.0 | ) | (3.3 | ) | 393.7 | |||||||||||||||||||||||||||||||||
4.875% 2018 Senior Notes, due 2048 | 400.0 | — | (6.7 | ) | (4.1 | ) | 389.2 | |||||||||||||||||||||||||||||||||
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Total debt | $ | 5,580.4 | $ | (3.0 | ) | $ | (9.4 | ) | $ | (27.5 | ) | $ | 5,540.5 | $ | 5,721.6 | $ | 2.2 | $ | (17.3 | ) | $ | (30.5 | ) | $ | 5,676.0 | |||||||||||||||
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Current portion | (429.4 | ) | (449.9 | ) | ||||||||||||||||||||||||||||||||||||
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Total long-term debt | $ | 5,111.1 | $ | 5,226.1 | ||||||||||||||||||||||||||||||||||||
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| (1) | The Company has entered into interest rate swaps on the 2010 Senior Notes, the 2012 Senior Notes, the 2017 Senior Notes due 2021 and the |
Commercial Paper
As of March 31, 2018,2019, the Company has CP borrowings outstanding of $90$318.8 million with a weighted average maturity date at the time of issuance of 3179 days. At March 31, 2018,2019, the weighted average remaining maturity and interest rate on CP outstanding was 744 days and 2.11%3.03% respectively.
At March 31, 2018,2019, the Company was in compliance with all covenants contained within all of the debt agreements. All the debt agreements contain cross default provisions which state that default under one of the aforementioned debt instruments could in turn permit lenders under other debt instruments to declare borrowings outstanding under those instruments to be immediately due and payable. As of March 31, 2018,2019, there were no such cross defaults.
Notes Payable
On January 3, 2019, the Company fully repaid the $450 million 2014 Senior Notes(5-year).
The repayment schedule for the Company’s borrowings is as follows:
Year Ending December 31, | 2010 Senior Notes due 2020 | 2012 Senior Notes due 2022 | 2013 Senior Notes due 2024 | 2014 Senior Notes (5-year) due 2019 | 2014 Senior Notes (30-year) due 2044 | 2015 Senior Notes due 2027 | Term Loan Facility due 2020 | 2017 Floating Rate Senior Notes due 2018 | 2017 Senior Notes due 2021 | 2017 Notes due 2023 | 2017 Notes due 2028 | Commercial Paper | Total | 2010 Senior Notes due 2020 | 2012 Senior Notes due 2022 | 2013 Senior Notes due 2024 | 2014 Senior Notes (30-year) due 2044 | 2015 Senior Notes due 2027 | 2017 Senior Notes due 2021 | 2017 Senior Notes due 2023 | 2017 Senior Notes due 2028 | 2018 Senior Notes due 2021 | 2018 Senior Notes due 2029 | 2018 Senior Notes due 2048 | Commercial Paper | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2018 (after March 31,) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 300.0 | $ | — | $ | — | $ | — | $ | 90.0 | $ | 390.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2019 | — | — | — | 450.0 | — | — | — | — | — | — | — | — | 450.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2019 (After March 31) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 320.0 | $ | 320.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2020 | 500.0 | — | — | — | — | — | 500.0 | — | — | — | — | — | 1,000.0 | 500.0 | — | — | — | — | — | — | — | — | — | — | — | 500.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2021 | — | — | — | — | — | — | — | — | 500.0 | — | — | — | 500.0 | — | — | — | — | — | 500.0 | — | — | 300.0 | — | — | — | 800.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2022 | — | 500.0 | — | — | — | — | — | — | — | — | — | — | 500.0 | — | 500.0 | — | — | — | — | — | — | — | — | — | — | 500.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2023 | — | — | — | — | — | — | 500.0 | — | — | — | — | — | 500.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Thereafter | — | — | 500.0 | — | 600.0 | 614.9 | — | — | — | 500.0 | 500.0 | — | 2,714.9 | — | — | 500.0 | 600.0 | 561.4 | — | — | 500.0 | — | 400.0 | 400.0 | — | 2,961.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | $ | 500.0 | $ | 500.0 | $ | 500.0 | $ | 450.0 | $ | 600.0 | $ | 614.9 | $ | 500.0 | $ | 300.0 | $ | 500.0 | $ | 500.0 | $ | 500.0 | $ | 90.0 | $ | 5,554.9 | $ | 500.0 | $ | 500.0 | $ | 500.0 | $ | 600.0 | $ | 561.4 | $ | 500.0 | $ | 500.0 | $ | 500.0 | $ | 300.0 | $ | 400.0 | $ | 400.0 | $ | 320.0 | $ | 5,581.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Interest expense, net
The following table summarizes the components of interest as presented in the consolidated statements of operations:
| Three Months Ended March 31, | ||||||||
| 2018 | 2017 | |||||||
Income | $ | 3.2 | $ | 4.1 | ||||
Expense on borrowings | (51.3 | ) | (44.7 | ) | ||||
Expense on UTPs and other tax related liabilities | 1.8 | (2.1 | ) | |||||
Net periodic pension costs - interest component(1) | (4.7 | ) | (5.0 | ) | ||||
Capitalized | 0.3 | 0.3 | ||||||
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Total Interest (expense) income, net | $ | (50.7 | ) | $ | (47.4 | ) | ||
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| 2019 | 2018 | |||||||
Income | $ | 5.0 | $ | 3.2 | ||||
Expense on borrowings | (46.6 | ) | (51.3 | ) | ||||
UTPs and other tax related liabilities | (5.6 | ) | 1.8 | |||||
Net periodic pension costs - interest component | (5.6 | ) | (4.7 | ) | ||||
Capitalized | 0.3 | 0.3 | ||||||
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Total | $ | (52.5 | ) | $ | (50.7 | ) | ||
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The following table shows the cash paid for interest:
| Three Months Ended March 31, | ||||||||
| 2018 | 2017 | |||||||
Interest paid | $ | 80.5 | $ | 74.7 | ||||
| Three Months Ended March 31, | ||||||||
| 2019 | 2018 | |||||||
Interest paid | $ | 72.8 | $ | 80.5 | ||||
The Company’s debt is recorded at its carrying amount, which represents the issuance amount plus or minus any issuance premium or discount, except for the 2010 Senior Notes, the 2014 Senior Notes(5-Year) and the 2012 Senior Notes which are recorded at the carrying amount adjusted for the fair value of an interest rate swap used to hedge the fair value of the note.
The fair value and carrying value of the Company’s debt (excluding Commercial Paper)commercial paper) as of March 31, 20182019 and December 31, 20172018 are as follows:
| March 31, 2018 | December 31, 2017 | |||||||||||||||
| Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||||
2010 Senior Notes | $ | 492.5 | $ | 527.8 | $ | 497.8 | $ | 537.9 | ||||||||
2012 Senior Notes | 494.1 | 521.9 | 495.5 | 535.6 | ||||||||||||
2013 Senior Notes | 495.9 | 531.1 | 495.8 | 547.8 | ||||||||||||
2014 Senior Notes(5-Year) | 444.6 | 448.9 | 446.5 | 452.8 | ||||||||||||
2014 Senior Notes(30-Year) | 597.7 | 692.2 | 597.6 | 722.4 | ||||||||||||
2015 Senior Notes | 611.4 | 630.5 | 596.8 | 617.7 | ||||||||||||
2017 Senior Notes(5-Year) | 495.8 | 490.4 | 495.5 | 500.0 | ||||||||||||
2017 Floating Rate Senior Notes | 299.7 | 300.2 | 299.5 | 300.2 | ||||||||||||
2.65% 2017 Notes, due 2023 | 495.6 | 481.9 | 495.4 | 494.8 | ||||||||||||
3.25% 2017 Notes, due 2028 | 491.0 | 475.3 | 490.9 | 493.6 | ||||||||||||
2017 Term Loan Facility, due 2020 | 499.4 | 499.4 | 499.3 | 499.3 | ||||||||||||
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Total | $ | 5,417.7 | $ | 5,599.6 | $ | 5,410.6 | $ | 5,702.1 | ||||||||
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| March 31, 2019 | December 31, 2018 | |||||||||||||||
| Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||||
5.50% 2010 Senior Notes, due 2020 | $ | 497.4 | $ | 519.2 | $ | 495.0 | $ | 517.7 | ||||||||
4.50% 2012 Senior Notes, due 2022 | 502.0 | 526.0 | 498.9 | 513.7 | ||||||||||||
4.875% 2013 Senior Notes, due 2024 | 496.6 | 537.3 | 496.5 | 522.4 | ||||||||||||
2.75% 2014 Senior Notes(5-Year), due 2019 | — | — | 449.9 | 449.9 | ||||||||||||
5.25% 2014 Senior Notes(30-Year), due 2044 | 597.8 | 676.5 | 597.7 | 638.1 | ||||||||||||
1.75% 2015 Senior Notes, due 2027 | 558.5 | 592.3 | 568.5 | 585.3 | ||||||||||||
2.75% 2017 Senior Notes, due 2021 | 503.8 | 499.6 | 500.6 | 489.7 | ||||||||||||
2.625% 2017 Senior Notes, due 2023 | 499.2 | 492.3 | 496.3 | 476.9 | ||||||||||||
3.25% 2017 Senior Notes, due 2028 | 491.8 | 489.1 | 491.6 | 472.8 | ||||||||||||
3.25% 2018 Senior Notes, due 2021 | 298.4 | 302.6 | 298.1 | 298.6 | ||||||||||||
4.25% 2018 Senior Notes, due 2029 | 393.9 | 420.0 | 393.7 | 407.6 | ||||||||||||
4.875% 2018 Senior Notes, due 2048 | 389.2 | 435.4 | 389.2 | 409.8 | ||||||||||||
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Total | $ | 5,228.6 | $ | 5,490.3 | $ | 5,676.0 | $ | 5,782.5 | ||||||||
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The fair value of the Company’s long-term debt is estimated based on quoted market prices for similar instruments. Accordingly, the inputs used to estimate the fair value of the Company’s long-term debt are classified as Level 2 inputs within the fair value hierarchy.
NOTE 16.18. LEASES
The Company has operating leases, substantially all of which 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. Certain of the Company’s leases include options to renew, with renewal terms that can extend the lease term from one to 20 years at the Company’s discretion.
The following table presents the components of the Company’s lease cost:
| Three Months Ended March 31, 2019 | ||||
Operating lease cost | $ | 24.6 | ||
Short-term lease cost | 0.4 | |||
Variable least cost | 3.6 | |||
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Total lease cost | $ | 28.6 | ||
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The following tables present other information related to the Company’s operating leases:
| Three Months Ended March 31, 2019 | ||||
Cash paid for amounts included in the measurement of operating lease liabilities | $ | 26.2 | ||
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 9.0 | ||
| March 31, 2019 | ||||
Weighted-average remaining lease term | 7.3 years | |||
Weighted-average discount rate applied to operating leases | 3.6 | % | ||
The following table presents a maturity analysis of the future minimum lease payments included within the Company’s operating lease liabilities at March 31, 2019:
Year Ending December 31, | Operating Leases | |||
2019 (After March 31) | $ | 80.7 | ||
2020 | 104.8 | |||
2021 | 98.2 | |||
2022 | 85.1 | |||
2023 | 80.6 | |||
After 2023 | 245.1 | |||
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Total lease payments (undiscounted) | 694.5 | |||
Less: Interest | 83.6 | |||
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Present value of lease liabilities: | $ | 610.9 | ||
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Lease liabilities - current | $ | 87.4 | ||
Lease liabilities - noncurrent | $ | 523.5 | ||
NOTE 19. CONTINGENCIES
Given the nature of their activities, Moody’s and its subsidiaries are subject to legal and tax proceedings, governmental, regulatory and legislative investigations, subpoenas and other inquiries, and claims and litigation by governmental and private parties that are based on ratings assigned by MIS or that are otherwise incidental to the Company’s business. Moody’s and MIS also are subject to periodic reviews, inspections, examinations and investigations by regulators in the U.S. and other jurisdictions, and Moody’s is subject to ongoing tax audits as addressed in Note 5 to the financial statements, any of which may result in claims, legal proceedings, assessments, fines, penalties or restrictions on business activities. Moody’s also is subject to ongoing tax audits as addressed in Note 5 to the financial statements.
In May 2013, the Company and five subsidiaries (collectively, the “Company Defendants”) were served with a qui tam complaint filed by a former employee (“Plaintiff”) in New York Supreme Court (the “Court”) on behalf of New York State (the “State”) and New York City (the “City”) asserting purported claims under the New York False Claims Act (“NYFCA”). Both the State and the City were given an opportunity to intervene as plaintiffs in the action but declined to do so. In August 2013, Plaintiff filed an Amended Complaint adding Marsh & McLennan Companies, Inc. as a defendant. Plaintiff’s central allegation against the Company Defendants is that their treatment of the Company’s wholly-owned captive insurance subsidiary, Moody’s Assurance Company, Inc. (“MAC”), in their State and City tax filings between 2002 and 2014 was contrary to the State and City tax codes. Plaintiff also asserts a cause of action for retaliation under the NYFCA and alleges that his employment was improperly terminated after he reported his concerns regarding MAC’s tax treatment internally. Plaintiff alleges that the Company underpaid State and City taxes by more than $120 million (which the Company believes is unsupported as a matter of fact and law), and requests statutory damages of triple that amount, as well as unspecified damages related to the retaliation claim. In December 2016, the Court issued a decision largely denying the Company Defendants’ motion to dismiss. The Company Defendants appealed, and in August 2018, the Appellate Division of the New York Supreme Court upheld the Court’s decision. Discovery is ongoing and, absent earlier disposition, the Company expects the case to go to trial no earlier than late 2019. The Company is unable to estimate a range of loss, and is contesting Plaintiff’s claims, which it believes are meritless.
Management periodically assesses the Company’s liabilities and contingencies in connection with these matters based upon the latest information available. For claims, litigation and proceedings and governmental investigations and inquiries not related to income taxes, the Company records liabilities in the consolidated financial statements when it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated and periodically adjusts these as appropriate. When the reasonable estimate of the loss is within a range of amounts, the minimum amount of the range is accrued unless some higher amount within the range is a better estimate than another amount within the range. In instances when a loss is reasonably possible but uncertainties exist related to the probable outcome and/or the amount or range of loss, management does not record a liability but discloses the contingency if material. As additional information becomes available, the Company adjusts its assessments and estimates of such matters accordingly. Moody’s also discloses material pending legal proceedings pursuant to SEC rules and other pending matters as it may determine to be appropriate.
In view of the inherent difficulty of assessing the potential outcome of legal proceedings, governmental, regulatory and legislative investigations and inquiries, claims and litigation and similar matters and contingencies, particularly when the claimants seek large or indeterminate damages or assert novel legal theories or the matters involve a large number of parties, the Company often cannot predict what the eventual outcome of the pending matters will be or the timing of any resolution of such matters. The Company also may be unable to predict the impact (if any) that any such matters may have on how its business is conducted, on its competitive position or on its financial position, results of operations or cash flows. As the process to resolve any pending matters progresses, management will continue to review the latest information available and assess its ability to predict the outcome of such matters and the effects, if any, on its operations and financial condition and to accrue for and disclose such matters as and when required. However, because such matters are inherently unpredictable and unfavorable developments or resolutions can occur, the ultimate outcome of such matters, including the amount of any loss, may differ from those estimates.
NOTE 1720. SEGMENT INFORMATION
The Company is organized into two operating segments: MIS and MA and accordingly, the Company reports in two reportable segments: MIS and MA.
The MIS segment consists of five LOBs. The CFG, SFG, FIG and PPIF LOBs generate revenue principally from fees for the assignment and ongoing monitoring of credit ratings on debt obligations and the entities that issue such obligations in markets worldwide. The MIS Other LOB primarily consists of financial instruments pricing services in the Asia-Pacific region as well as ICRAnon-ratings revenue.
The MA segment develops a wide range of products and services that support the risk management activities of institutional participants in global financial markets. The MA segment consists of three LOBs—RD&A, ERS and PS.
In August 2017, a subsidiary of the Company acquired Yellow Maple I B.V., an indirect parent of Bureau van Dijk. Bureau van Dijk is part of the MA reportable segment and its revenue is included in the RD&A LOB. Refer to Note 8 for further discussion on the acquisition.
Revenue for MIS and expenses for MA include an intersegment royalty charged to MA for the rights to use and distribute content, data and products developed by MIS. The royalty rate charged by MIS approximates the fair value of the aforementioned content, data and products and is generally based on comparable market transactions. Also, revenue for MA and expenses for MIS include an intersegment fee charged to MIS from MA for certain MA products and services utilized in MIS’s ratings process. These fees charged by MA are generally equal to the costs incurred by MA to produce these products and services. Additionally, overhead costs and corporate expenses of the Company that exclusively benefit only one segment are fully charged to that segment. Overhead costs and corporate expenses of the Company that benefit both segments are allocated to each segment based on a revenue-split methodology. Accordingly, a reportable segment’s share of these costs will increase as its proportion of revenue relative to Moody’s total revenue increases.
Overhead expenses include costs such as rent and occupancy, information technology and support staff such as finance, human resources and information technology. “Eliminations”legal. Such costs and corporate expenses that exclusively benefit one segment are fully charged to that segment. For overhead and corporate expenses that benefit both segments, in years prior to 2019, the Company generally allocated costs ratably based on each segment’s share of total revenue.
Beginning in 2019, the Company refined its methodology such that costs allocated to each segment based on the segment’s share of 2018 revenue comprise a “Baseline Pool” that will remain fixed over time. In subsequent periods, incremental overhead costs (or reductions thereof) will be allocated to each segment based on the prevailing shares of total revenue represented by each segment. The Company believes that this allocation method will better align the amount of overhead costs consumed by each segment and contribute stability to each segment’s costs over time. The impact of this refined methodology would not have resulted in a material change to previously reported segment results.
“Eliminations” in the following table below represent intersegment revenue/expense. Moody’s does not report the Company’s assets by reportable segment, as this metric is not used by the chief operating decision maker to allocate resources to the segments. Consequently, it is not practical to show assets by reportable segment.
Financial Information by Segment
The table below shows revenue, Adjusted Operating Income and operating income by reportable segment. Adjusted Operating Income is a financial metric utilized by the Company’s chief operating decision maker to assess the profitability of each reportable segment. Refer to Note 3 for further details on the components of the Company’s revenue.
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||
| 2018 | 2017 | |||||||||||||||||||||||||||||||
| MIS | MA | Eliminations | Consolidated | MIS | MA | Eliminations | Consolidated* | |||||||||||||||||||||||||
Revenue | $ | 749.7 | $ | 411.8 | $ | (34.8 | ) | $ | 1,126.7 | $ | 694.2 | $ | 310.7 | $ | (29.7 | ) | $ | 975.2 | ||||||||||||||
Operating, SG&A* | 310.4 | 310.4 | (34.8 | ) | 586.0 | 286.2 | 239.5 | (29.7 | ) | 496.0 | ||||||||||||||||||||||
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Adjusted Operating Income* | 439.3 | 101.4 | — | 540.7 | 408.0 | 71.2 | — | 479.2 | ||||||||||||||||||||||||
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Less: Depreciation and amortization | 16.8 | 32.3 | — | 49.1 | 18.9 | 13.6 | — | 32.5 | ||||||||||||||||||||||||
Acquisition-Related Expenses | — | 0.8 | — | 0.8 | — | — | — | — | ||||||||||||||||||||||||
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Operating income* | $ | 422.5 | $ | 68.3 | $ | — | $ | 490.8 | $ | 389.1 | $ | 57.6 | $ | — | $ | 446.7 | ||||||||||||||||
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| 2019 | 2018 | |||||||||||||||||||||||||||||||
| MIS | MA | Eliminations | Consolidated | MIS | MA | Eliminations | Consolidated | |||||||||||||||||||||||||
Revenue | $ | 702.4 | $ | 474.4 | $ | (34.7 | ) | $ | 1,142.1 | $ | 749.7 | $ | 411.8 | $ | (34.8 | ) | $ | 1,126.7 | ||||||||||||||
Operating, SG&A | 316.8 | 341.1 | (34.7 | ) | 623.2 | 310.4 | 310.4 | (34.8 | ) | 586.0 | ||||||||||||||||||||||
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Adjusted Operating Income | 385.6 | 133.3 | — | 518.9 | 439.3 | 101.4 | — | 540.7 | ||||||||||||||||||||||||
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Restructuring | 2.7 | 2.8 | — | 5.5 | — | — | — | — | ||||||||||||||||||||||||
Depreciation and amortization | 17.0 | 33.3 | — | 50.3 | 16.8 | 32.3 | — | 49.1 | ||||||||||||||||||||||||
Acquisition-Related Expenses | — | 1.4 | — | 1.4 | — | 0.8 | — | 0.8 | ||||||||||||||||||||||||
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Operating income | $ | 365.9 | $ | 95.8 | $ | — | $ | 461.7 | $ | 422.5 | $ | 68.3 | $ | — | $ | 490.8 | ||||||||||||||||
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The cumulative restructuring charges related to the 2018 Restructuring Program, as more fully discussed in Note 12, for the MIS and MA reportable segments are $34.9 million and $19.3 million, respectively. The total costs expected to be incurred related to the 2018 Restructuring Program for MIS and MA are approximately $43 million to $48 million and $27 million to $32 million, respectively.
CONSOLIDATED REVENUE INFORMATION BY GEOGRAPHIC AREAConsolidated Revenue Information by Geographic Area
| Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
| 2018 | 2017 | 2019 | 2018 | |||||||||||||
Revenue: | ||||||||||||||||
U.S. | $ | 597.7 | $ | 577.8 | $ | 612.1 | $ | 597.7 | ||||||||
International: | ||||||||||||||||
Non-U.S.: | ||||||||||||||||
EMEA | 347.3 | 236.3 | 332.6 | 347.3 | ||||||||||||
Asia-Pacific | 120.2 | 99.4 | 132.2 | 120.2 | ||||||||||||
Americas | 61.5 | 61.7 | 65.2 | 61.5 | ||||||||||||
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Total International | 529.0 | 397.4 | ||||||||||||||
TotalNon-U.S. | 530.0 | 529.0 | ||||||||||||||
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Total | $ | 1,126.7 | $ | 975.2 | $ | 1,142.1 | $ | 1,126.7 | ||||||||
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NOTE 18.21. RECENTLY ISSUED ACCOUNTING STANDARDS
In February 2016, the FASB issuedASU No. 2016-02, “Leases (Topic 842)” requiring lessees to recognizea right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses and cash flows will depend on classification as either a finance or operating lease. This ASU is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. This standard must be adopted using a modified retrospective approach whereby leases will be presented in accordance with the new standard as of the earliest period presented. The Company is currently evaluating the impact of this ASU on the Company’s financial statements. The Company believes that the most notable impact to its financial statements upon the adoption of this ASU will be the recognition of amaterial right-of-use asset and lease liability for its real estate leases.
In June 2016, the FASB issued ASUASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326),: Measurement of Credit Losses on Financial Instruments”. The amendments in this ASU require the use of an “expected credit loss” impairment model for most financial assets reported at amortized cost, which will require entities to estimate expected credit losses over the lifetime of the instrument. This may result in the earlier recognition of allowances for losses. ForFor available-for-sale debt securities with unrealized losses, an allowance for credit losses will be recognized as a contra account to the amortized cost carrying value of the asset rather than a direct reduction to the carrying value, with changes in the allowance impacting earnings. ThisIn November 2018, the FASB issued ASUNo. 2018-19 “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” which clarifies that receivables arising from operating leases are not within the scope of Subtopic326-20, but instead should be accounted for in accordance with Topic 842, Leases.
ASUNo. 2016-13 is effective for annual and interim reporting periods beginning after December 15, 2019, with early adoption permitted in annual and interim reporting periods beginning after December 15, 2018. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first effective reporting period. The Company is currently evaluating the impact of this ASU on its financial statements. Currently, the Company believes that the most notable impact of this ASU will relate to its processes around the assessment of the adequacy of its allowance for doubtful accounts on accounts receivable.
In July 2017,June 2018, the FASB issued ASUASU No. 2017-12, “Derivatives2018-07, and Hedging“Compensation—Stock Compensation (Topic 815)718): Targeted Improvements to Accounting for Hedging Activities”. This ASU enables entities to enhance transparency relating to risk management activities andNonemployee Share-Based Payment Accounting”, which simplifies the application of hedge accounting for nonemployee share-based payment transactions. The amendments specify that ASC Topic 718 applies to all share-based payment transactions in certain circumstances. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those years with early adoption permitted.which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The Company is currently in the process of assessing the impact that this ASU will have on its financial statements.
In February 2018, FASB issued ASU2018-02, “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. This ASU is effective for all entities for fiscal years beginning after December 15, 2018,2019, and interim periods within those fiscal years, with early adoption permitted. AdoptionThe Company does not anticipate that the adoption of this ASU will have a significant impact on its condensed consolidated financial statements.
In August 2018, the FASB issued ASUNo. 2018-15, “Intangibles—Goodwill andOther—Internal-Use Software (Subtopic350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract”, which requires implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be applied either incapitalized under the periodsame premises of adoptionauthoritative guidance forinternal-use software, and deferred over thenon-cancellable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised by the customer or retrospectively to each period infor which the effect ofexercise is controlled by the Tax Act were recognized.service provider. The ASU is effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its financial statements.
In MarchAugust 2018, the FASB issued ASU2018-05,No. 2018-14, “Income Taxes (Topic 740)—Amendments“Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic715-20): Disclosure Framework—Changes to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118”the Disclosure Requirements for Defined Benefit Plans”. This ASU adds SEC paragraphseliminates requirements for certain disclosures and requires additional disclosures under defined benefit pension plans and other postretirement plans. The ASU is effective for all entities for fiscal years beginning after December 15, 2020 on a retrospective basis to the codification pursuant to the SEC Staff Accounting Bulletin No. 118, which addresses the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to finalize the calculations for the 2017 income tax effects of the Tax Act. This ASU provides entitiesall periods presented, with a one year measurement period from the December 22, 2017 enactment date, in order to complete the accounting for the effects of the Tax Act.early adoption permitted. The Company is currently evaluating the impact of the adoption of this guidanceASU on its financial statements.
NOTE 19.22. SUBSEQUENT EVENT
On April 24, 2018,15, 2019, the Board approved the declaration of a quarterly dividend of $0.44$0.50 per share of Moody’s common stock, payable on June 11, 201810, 2019 to shareholders of record at the close of business on May 21, 2018.20, 2019.
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This discussion and analysis of financial condition and results of operations should be read in conjunction with the Moody’s Corporation condensed consolidated financial statements and notes thereto included elsewhere in this quarterly report on Form10-Q.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains Forward-Looking Statements. See “Forward-Looking Statements” commencing on page 6358 for a discussion of uncertainties, risks and other factors associated with these statements.
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) financial services traininglearning 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 certainnon-ratings-related operations, which consist primarily of financial instrumentsinstrument pricing services in the Asia-Pacific region as well as revenue from ICRA’snon-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.
The MA segment develops a wide rangeprovides financial intelligence and analytical tools to assist businesses in making decisions. MA’s portfolio of productssolutions consists of specialized research, data, software, and professional services, thatwhich are assembled to support the financial analysis and risk management activities of institutional customers worldwide.
Corporate Social Responsibility
Moody’s believes that knowledge fuels opportunity. The core of Moody’s business is to provide credit ratings, research, tools and analysis that help to equip participants in the global financial markets. Withinmarkets to understand risks and make important investment decisions with critical insight. Moody’s global corporate social responsibility (CSR) efforts are rooted in that same approach. Moody’s is committed to working to empower people with the knowledge, resources and confidence they need to create a better future – for themselves, their communities and the environment. In addition, Moody’s uses its RD&A business, MA distributes researchexpertise and data developed by MIS as part of its ratings process, includingin-depth research on major debt issuers, industry studies and commentary on topical credit-related events. The RD&A business also produces economic research and data and analyticalassets to make a positive difference through technology tools, such as quantitative credit risk scores as well as business intelligence and company information products. Within its ERS business, MA provides software solutions as well as related risk management services. The PS business provides offshore research and analytical services that help other organizations and financial trainingthe investor community better understand the links between environmental, social and certification programs.governance (ESG) considerations and the global markets.
Moody’s own corporate CSR strategy seeks to address ESG issues that it determines could affect its business and operations in an impactful way. The CSR Council, chaired by President and CEO Raymond W. McDaniel, Jr. convenes senior management team members to oversee these efforts. The CSR Working Group then is charged with implementing the Company’s strategy. For more information on Moody’s approach to CSR, see moodys.com/csr.
Critical Accounting EstimatesCRITICAL ACCOUNTING ESTIMATES
Moody’s discussion and analysis of its financial condition and results of operations are based on the Company’s condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires Moody’s to make estimates and judgments that affect reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the dates of the financial statements and revenue and expenses during the reporting periods. These estimates are based on historical experience and on other assumptions that are believed to be reasonable under the circumstances. On an ongoing basis, Moody’s evaluates its estimates, including those related to revenue recognition, accounts receivable allowances, contingencies, restructuring, goodwill and acquired intangible assets, pension and other retirement benefits, stock-based compensation, and income taxes. Actual results may differ from these estimates under different assumptions or conditions. Item 7, MD&A, in the Company’s annual report on Form10-K for the year ended December 31, 2017,2018, includes descriptions of some of the judgments that Moody’s makes in applying its accounting estimates in these areas. Since the date of the annual report on Form10-K, there have been no material changes to the Company’s critical accounting estimates other than the update below to the critical accounting estimate disclosures relating to revenue recognition due tolease accounting resulting from the adoption of the New RevenueLease Accounting Standard and goodwill and other acquired intangible assets pursuant to a reallocation of goodwill among certainStandard.
Leases
The discussion below outlines areas of the Company’s reporting units as further discussed below.
Revenue recognition:
accounting for leases that require management judgment and estimates. Refer to Note 2 of the condensed consolidated financial statements for a comprehensive discussion of significant estimates relatingregarding the Company’s lease accounting policies under the New Lease Accounting Standard.
As the Company’s operating leases do not provide an implicit interest rate, the Company must estimate the secured incremental borrowing rate attributable to the recognitioncurrency in which the lease is denominated. This secured incremental borrowing rate is based on the information available at the lease commencement date and is utilized in the determination of revenue.
Goodwill and Other Acquired Intangible Assets
The following is an updateIn addition, certain of Moody’s leases have the option to extend the lease beyond the initial term or terminate the lease prior to the Company’s critical accounting estimate disclosures relating to goodwill and other acquired intangible assets which were presented in Moody’s Form10-K for the year ended December 31, 2017. This update should be read in conjunction with the disclosures made in the aforementioned Form10-K, and relates to the Company’s allocation of goodwill among its reporting units. In the first quarter of 2018, the Company preliminarily estimated its allocation of goodwill acquired in the acquisition of Bureau van Dijk to the reporting units that are expected to benefit from the synergies anticipated to result from the business combination. In addition, due to a business realignment whereby a componentend of the RD&A reporting unit was transferredterm. For these leases, Moody’s may be required to exercise significant judgment to determine when that option is reasonably certain of being exercised, which will impact the Bureau van Dijk reporting unit, a corresponding amount of goodwill was reassigned from the RD&A reporting unit to the Bureau van Dijk reporting unit.
Sensitivity Analyseslease term and Key Assumptions for Deriving the Fair Value of a Reporting Unit
The following table identifies the amount of goodwill allocated to each reporting unit as of March 31, 2018 and the amount by which the net assets of each reporting unit would exceed the fair value under Step 2determination of the goodwill impairment test as prescribed in ASC Topic 350, assuming hypothetical reductions in their fair values as of the date of the last quantitative goodwill impairment assessment for each reporting unit (July 31, 2017 for MAKSlease liability and ICRA; July 31, 2016 for the remaining reporting units excluding Bureau van Dijk).corresponding ROU Asset.
| Sensitivity Analysis | ||||||||||||||||||||
| Deficit Caused by a Hypothetical Reduction to Fair Value | ||||||||||||||||||||
| Goodwill | 10% | 20% | 30% | 40% | ||||||||||||||||
MIS | $ | 51.1 | $ | — | $ | — | $ | — | $ | — | ||||||||||
RD&A | 360.6 | — | — | — | — | |||||||||||||||
ERS | 643.1 | — | — | — | — | |||||||||||||||
FSTC | 98.6 | — | — | (14.4 | ) | (34.6 | ) | |||||||||||||
MAKS | 184.2 | — | — | (2.9 | ) | (35.6 | ) | |||||||||||||
ICRA | 244.1 | — | — | — | — | |||||||||||||||
Bureau van Dijk* | 2,249.8 | N/A | N/A | N/A | N/A | |||||||||||||||
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Totals | $ | 3,831.5 | $ | — | $ | — | $ | (17.3 | ) | $ | (70.2 | ) | ||||||||
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Reportable SegmentsREPORTABLE SEGMENTS
The Company is organized into two reportable segments at March 31, 2018:2019: MIS and MA.
The MIS segment is comprised primarily of all of the Company’s ratings operations consisting of five LOBs—CFG, SFG, FIG, PPIF and MIS Other. The ratings LOBs generate revenue principally from fees for the assignment and ongoing monitoring of credit ratings on debt obligations and the entities that issue such obligations in markets worldwide. The MIS Other LOB consists of certainnon-ratings operations managed by MISMA, which consists ofnon-rating revenue from ICRA and fixed income pricing service operationsare more fully described in the Asia-Pacific region.section entitled “The Company” above and in Note 20 to the condensed consolidated financial statements.
RECLASSIFICATION OF PREVIOUSLY REPORTED REVENUE BY LOB
TheThere were certain organizational/product realignments in both MIS and MA segment develops a wide range of products and services that support financial analysis and risk management activities of institutional participants in global financial markets as well as serving as a provider of business intelligence and company information. The MA segment consists of three lines of business—RD&A, ERS and PS. The results of operations for MA and revenue for the RD&A LOB for the first quarter of 2018 include2019. Accordingly, in MIS, revenue from REITs, which was previously classified in the financial results fromSFG 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 acquired on August 10, 2017.
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 | |||||||||
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Full year 2018 | $ | 1,334.1 | $ | 45.1 | $ | 1,379.2 | ||||||
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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 | ||||||||
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Full year 2018 | $ | 526.5 | $ | (45.1 | ) | $ | 481.4 | |||||
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The following is a discussion of the results of operations of the Company and its reportable segments. Total MIS revenue and total MA expenses include the intersegment royalty revenue for MIS and expense charged to MA for the rights to use and distribute content, data and products developed by MIS. The royalty rate charged by MIS approximates the fair value of the aforementioned content, data and products developed by MIS. Total MA revenue and total MIS expenses include intersegment fees charged to MIS from MA for the use of certain MA products and services in MIS’s ratings process. These fees charged by MA are generally equal to the costs incurred by MA to provide these products and services. Overhead charges and corporate expenses that exclusively benefit one segment are fully charged to that segment. Additionally, overhead costs and corporate expenses of the Company that benefit both segments are generally allocated to each segment based on a revenue-split methodology. Overhead expenses include costs such as rent and occupancy, information technology and support staff such as finance, human resources and information technology.
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 | ||||||||
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Full year 2018 | $ | 1,134.1 | $ | (13.7 | ) | $ | 1,120.4 | |||||
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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 | |||||||||
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Full year 2018 | $ | 437.4 | $ | 13.7 | $ | 451.1 | ||||||
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Three months ended March 31, 20182019 compared with three months ended March 31, 20172018
Executive Summary
Moody’s completed the acquisitionacquisitions of Bureau van DijkReis and Omega Performance on August 10, 2017. Moody’s results of operations include Bureau van Dijk’s operating results beginning as of August 10, 2017.
Moody’s16, 2018 and October 15, 2018, respectively. In the discussion below, reference to inorganic revenue in the first quarter of 2018 totaled $1,126.7 million, an increase of $151.5 million, or 16%, comparedand expense growth refers to 2017 reflecting growth in both segments.
MISReis and Omega Performance revenue was 8% higher compared to the prior year with the main driver of the growth reflecting increased structured credit activity, primarily in the CLO and CMBS asset classes. Additionally, the growth reflected benefits from changes in the mix of fee type and pricing increases coupled with favorable changes in FX rates.
MA revenue grew 33% compared to the prior year reflecting growth across all LOBs and included approximately $74 million in revenue (net of an approximate $10 million reduction relating to a deferred revenue required as part of acquisition accounting as further described in Note 8 to the financial statements), or approximately 24 percentage points of the growth, from Bureau van Dijk. Favorable changes in FX rates also contributed to the growth.
Total operating expenses excluding D&A increased $90.8 million, or 18% compared to 2017, primarily driven by approximately $43 million in Bureau Van Dijk operating expenses, or eight percentage points of the growth, $18 million due to higher salaries and employee benefit costs relating to headcount growth and annual compensation increases, as well as the unfavorable impact of foreign exchange and higher legal accruals.
D&A increased $16.6 million primarily due to amortization of intangible assets acquired as part of the Bureau van Dijk acquisition.
Operating margin was 43.6% in the first quarter of 2018, compared to 45.8% in the prior year. Adjusted Operating Margin was 48.0% in the first quarter of 2018 compared to 49.1% in the prior year.
The change in totalnon-operating (expense) income net, compared to the prior year is primarily due to the $59.7 million CCXI Gain in 2017.January 1, 2019 through March 31, 2019.
The ETR in the first quarterfollowing table provides an executive summary of 2018 was 14.6%, down from 23.4%key operating results for the prior-year period. The decline inquarter ended March 31, 2019. Following this executive summary is a more fulsome discussion of the tax rate primarily reflects the impact of an enacted lower corporate tax rate in the U.S. pursuant to the Tax Act. Additionally, the ETR in 2018 includes an approximate $31 million benefit relating to Excess Tax Benefits on stock-based compensation compared to approximately $19 million in 2017,Company’s operating results as well as net uncertain tax position benefits pursuant to statutea discussion of limitations lapses.the operating results of the Company’s reportable segments.
| Three months ended March 31, | ||||||||||||
| 2019 | 2018 | % Change | ||||||||||
| Financial measure: | Key Drivers of Change Compared to Prior Year | |||||||||||
Moody’s total revenue | $ | 1,142.1 | $ | 1,126.7 | 1% | • strong growth in MA was offset by declines in MIS | ||||||
MIS External Revenue | $ | 670.1 | $ | 719.9 | (7%) | • decline due to lower refinancing activity in the bank loan sector and CLO asset class primarily resulting from higher borrowing costs | ||||||
MA External Revenue | $ | 472.0 | $ | 406.8 | 16% | • strong growth in the credit research and ratings data feeds product lines within RD&A; • inorganic growth from the acquisitions of Reis and Omega Performance; and • growth from ongoing demand in ERS for SaaS-based solutions coupled with increased demand for actuarial modeling tools | ||||||
Total operating and SG&A expenses | $ | 623.2 | $ | 586.0 | 6% | • additional compensation expense resulting from hiring activity and merit increases in 2018; and • operating expenses attributable to Reis and Omega Performance | ||||||
Operating Margin | 40.4 | % | 43.6 | % | (320 BPS) | • margin contraction was primarily due to aforementioned decline in MIS revenue | ||||||
Adjusted Operating Margin | 45.4 | % | 48.0 | % | (260 BPS) | |||||||
ETR | 9.2 | % | 14.6 | % | (540 BPS) | • the decrease reflects regulations issued in the first quarter of 2019 relating to the Tax Act, as well as lowernon-U.S. taxes relating to certain software development | ||||||
Diluted EPS | $ | 1.93 | $ | 1.92 | 1% | • modest growth includes the benefit of a lower ETR coupled with lower diluted shares outstanding resulting from the Company’s ASR executed in the first quarter of 2019 | ||||||
Adjusted Diluted EPS | $ | 2.07 | $ | 2.02 | 2% | |||||||
Diluted EPS of $1.92 increased $0.14 compared to 2017, which included the $0.31 CCXI Gain. Adjusted Diluted EPS of $2.02 in the first quarter of 2018 increased $0.52 (refer to the section entitled“Non-GAAP Financial Measures” of this MD&A for items excluded from the derivation of Adjusted EPS).
Moody’s Corporation
| Three Months Ended March 31, | % Change Favorable (Unfavorable) | Three Months Ended March 31, | % Change Favorable (Unfavorable) | |||||||||||||||||||||
| 2018 | 2017 | 2019 | 2018 | |||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||
United States | $ | 597.7 | $ | 577.8 | 3 | % | $ | 612.1 | $ | 597.7 | 2 | % | ||||||||||||
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Non-U.S.: | ||||||||||||||||||||||||
EMEA | 347.3 | 236.3 | 47 | % | 332.6 | 347.3 | (4 | %) | ||||||||||||||||
Asia-Pacific | 120.2 | 99.4 | 21 | % | 132.2 | 120.2 | 10 | % | ||||||||||||||||
Americas | 61.5 | 61.7 | — | 65.2 | 61.5 | 6 | % | |||||||||||||||||
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Total International | 529.0 | 397.4 | 33 | % | ||||||||||||||||||||
TotalNon-U.S. | 530.0 | 529.0 | — | |||||||||||||||||||||
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Total | 1,126.7 | 975.2 | 16 | % | 1,142.1 | 1,126.7 | 1 | % | ||||||||||||||||
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Expenses: | ||||||||||||||||||||||||
Operating | 314.9 | 275.3 | (14 | %) | 341.7 | 314.9 | (9 | %) | ||||||||||||||||
SG&A | 271.1 | 220.7 | (23 | %) | 281.5 | 271.1 | (4 | %) | ||||||||||||||||
Restructuring | 5.5 | — | NM | |||||||||||||||||||||
Depreciation and amortization | 49.1 | 32.5 | (51 | %) | 50.3 | 49.1 | (2 | %) | ||||||||||||||||
Acquisition-Related Expenses | 0.8 | — | NM | 1.4 | 0.8 | (75 | %) | |||||||||||||||||
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Total | 635.9 | 528.5 | 20 | % | 680.4 | 635.9 | (7 | %) | ||||||||||||||||
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Operating income | $ | 490.8 | $ | 446.7 | 10 | % | $ | 461.7 | $ | 490.8 | (6 | %) | ||||||||||||
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Adjusted Operating Income(1) | $ | 540.7 | $ | 479.2 | 13 | % | $ | 518.9 | $ | 540.7 | (4 | %) | ||||||||||||
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Interest expense, net | $ | (50.7 | ) | $ | (47.4 | ) | (7 | %) | (52.5 | ) | (50.7 | ) | (4 | %) | ||||||||||
Othernon-operating (expense) income, net | $ | 1.0 | $ | (7.7 | ) | 113 | % | |||||||||||||||||
CCXI Gain | $ | — | $ | 59.7 | NM | |||||||||||||||||||
Othernon-operating income, net | 2.3 | 1.0 | 130 | % | ||||||||||||||||||||
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Non-operating expense, net | $ | (49.7 | ) | $ | 4.6 | NM | (50.2 | ) | (49.7 | ) | (1 | %) | ||||||||||||
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Net income attributable to Moody’s | $ | 372.9 | $ | 345.6 | 8 | % | $ | 372.9 | $ | 372.9 | — | |||||||||||||
Diluted weighted average shares outstanding | 194.5 | 194.3 | — | 192.8 | 194.5 | 1 | % | |||||||||||||||||
Diluted EPS attributable to Moody’s common shareholders | $ | 1.92 | $ | 1.78 | 8 | % | $ | 1.93 | $ | 1.92 | 1 | % | ||||||||||||
Adjusted Diluted EPS attributable to Moody’s common shareholders(1) | $ | 2.02 | $ | 1.50 | 35 | % | ||||||||||||||||||
Adjusted Diluted EPS(1) | $ | 2.07 | $ | 2.02 | 2 | % | ||||||||||||||||||
Operating margin | 43.6 | % | 45.8 | % | 40.4 | % | 43.6 | % | ||||||||||||||||
Adjusted Operating Margin(1) | 48.0 | % | 49.1 | % | 45.4 | % | 48.0 | % | ||||||||||||||||
Effective tax rate | 9.2 | % | 14.6 | % | ||||||||||||||||||||
| (1) | Adjusted Operating Income, Adjusted Operating Margin and Adjusted Diluted EPS attributable to Moody’s common shareholders arenon-GAAP financial measures. Refer to the section entitled“Non-GAAP Financial Measures” of this Management Discussion and Analysis for further information regarding these measures. |
The table below shows Moody’s global staffing by geographic area:
| March 31 | % Change | March 31, | % Change | |||||||||||||||||||||
| 2018 | 2017 | 2019 | 2018 | |||||||||||||||||||||
United States | 3,589 | 3,411 | 5 | % | 3,984 | 3,589 | 11 | % | ||||||||||||||||
International | 8,445 | 7,247 | 17 | % | ||||||||||||||||||||
Non-U.S. | 9,253 | 8,445 | 10 | % | ||||||||||||||||||||
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Total | 12,034 | * | 10,658 | 13 | % | 13,237 | (1) | 12,034 | 10 | % | ||||||||||||||
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* Includes approximately 900 employees from the acquisition of Bureau van Dijk. |
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| (1) | As a result of the acquisitions of Reis and Omega Performance, Moody’s global staffing increased by 275 employees. |
Global revenue of $1,126.7$1,142.1 million in the first quarter of 20182019 increased $151.5$15.4 million, or 16%1%, compared to 2017the same period in 2018 and reflected strong growth in both MIS and MA.MA being mostly offset by declines in MIS. Refer to the section entitled “Segment Results” of this MD&A for a more fulsome discussion of the Company’s segment revenue.
Transaction revenueRevenue accounted for 46%42% of global MCO revenue in the first quarter of 20182019 compared to 51%46% in the prior year.2018.
U.S. revenue of $597.7$612.1 million in the first quarter of 20182019 increased $19.9$14.4 million over the same period in the prior year reflecting strong growth in both reportable segments.MA being partially offset by declines in MIS.
Non-U.S. revenue increased $131.6of $530.0 million from 2017 reflectingwas flat compared to the same period in the prior year with strong growth in both reportable segments.all regions within MA being offset by declines in MIS, most notably in the EMEA region.
Operating expenses were $314.9$341.7 million in the first quarter of 2018,2019, up $39.6$26.8 million from 2017,the same period in 2018, primarily due to approximately $25 millionincreases in compensation costs reflecting hiring activity and merit increases in 2018. The increase also reflects growth from the acquisitions of Bureau van Dijk expensesReis and $8 million related to the negative impact of foreign exchange translation.Omega Performance.
SG&A expenses of $271.1$281.5 million in the first quarter of 20182019 increased $50.4$10.4 million from the same period in the prior year, period primarily due to approximately $18 million of Bureau van Dijk expenses and an approximate $9 millionreflecting higher compensation costs. The increase in salariescompensation costs primarily reflects hiring activity and employee benefit expenses which includesmerit increases in 2018 coupled with costs from the impactacquisitions of annual compensation increases. Additionally,Reis and Omega Performance.Non-compensation costs were flat compared to the increase reflectedsame period in 2018 and included the unfavorable impactoffsetting impacts of foreign exchange translationhigher costs to support the Company’s initiative to enhance technology infrastructure to enable automation, innovation and higherefficiency, offset by lower legal accruals.
D&A increased $16.6 million primarily due to amortization of intangible assets acquired as part of the Bureau van Dijk acquisition.costs.
Operating income of $490.8$461.7 million in the first quarter of 2018 increased $44.12019 decreased $29.1 million compared to 2017the same period in 2018 and resulted in an operating margin of 43.6%40.4%, compared to 45.8%43.6% in the same period of the prior year. Adjusted Operating Income of $540.7$518.9 million in 2018 increased $61.5the first quarter of 2019 decreased $21.8 million compared to 2017,the same period in 2018, resulting in an Adjusted Operating Margin of 48.0%45.4% compared to 49.1%48.0% in the same period in the prior year.
Interest (expense) income,expense, net in the first quarter of 20182019 was ($50.7)$52.5 million, a $3.3$1.8 million increase in expense compared to 2017 primarily due tothe same period in 2018, reflecting highertax-related interest on the 2017 Notes Due 2023 and 2028 both issued in June 2017 coupled withUTPs being partially offset by lower interest on borrowings. The increase intax-related interest of approximately $7 million included a higher benefit relating to the 2017 Term Loan drawn downfavorable resolution of UTPs in August 2017, allthe first quarter of which were issued2018 compared to fund the acquisition of Bureau van Dijk.same period in 2019. This increase was partially offset by lowertax-related interest dueexpense on borrowings of approximately $5 million primarily reflecting benefits from the interest element of cross-currency swaps that were executed in 2018 and first quarter of 2019 (more fully discussed in Note 10 to a statutethe condensed consolidated financial statements). Refer to the section entitled “Liquidity and Capital Resources” of limitations lapsethis MD&A for further discussion regarding cash flows relating to the Company’s indebtedness.
The reduction in the ETR to 9.2% in the first quarter of 2018 relating to uncertain tax positions. Additionally, interest expense2019 primarily reflects regulations issued in the first quarter of 2017 included approximately $7 million due2019 relating to the Make Whole Amount on the prepayment of the Series 2007-1 Notes.Tax Act as well as lowernon-U.S. taxes relating to certain software development.
Othernon-operating income (expense), net was $1.0 millionDiluted EPS in the first quarter of 2018, an $8.7 million change2019 of $1.93 increased modestly compared to 2017 primarily reflecting higher FX lossesthe same period in the prior year period.
The ETR2018. Adjusted Diluted EPS of 14.6%$2.07 in the first quarter of 2019 increased $0.05, compared to the same period in 2018 includes(refer to the impactsection entitled“Non-GAAP Financial Measures” of an enacted lower corporate tax ratethis MD&A for items excluded in the U.S. pursuant toderivation of Adjusted Diluted EPS). Diluted EPS and Adjusted Diluted EPS both benefited from a lower ETR coupled with lower diluted weighted average shares outstanding resulting from the Tax Act. Additionally, the first quarter 2018 ETR includes an approximate $31 million benefit relating to Excess Tax Benefits on stock-based compensation as well as net uncertain tax position benefits pursuant to statute of limitations lapses. The ETRCompany’s ASR, which was executed in the first quarter of 2017 of 23.4% reflected thenon-taxable CCXI Gain as well as approximately $19 million in Excess Tax Benefits on stock-based compensation.2019.
Diluted EPS of $1.92 increased $0.14 compared to 2017, which included the $0.31 CCXI Gain. Excluding Acquisition-Related Amortization in both 2018 and 2017 and the CCXI Gain in 2017, Adjusted Diluted EPS of $2.02 in the first quarter of 2018 increased $0.52. Diluted EPS in 2018 and 2017 included $0.15 and $0.10, respectively, relating to Excess Tax Benefits on stock-based compensation.
Segment Results
Moody’s Investors Service
The table below provides a summary of revenue and operating results, followed by further insight and commentary:
| Three Months Ended March 31, | % Change Favorable (Unfavorable) | Three Months Ended March 31, | % Change Favorable (Unfavorable) | |||||||||||||||||||||
| 2018 | 2017 | 2019 | 2018 | |||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||
Corporate finance (CFG) | $ | 377.7 | $ | 352.8 | 7 | % | $ | 355.4 | $ | 389.6 | (9 | %) | ||||||||||||
Structured finance (SFG) | 129.7 | 100.2 | 29 | % | 100.7 | 117.8 | (15 | %) | ||||||||||||||||
Financial institutions (FIG) | 114.3 | 112.3 | 2 | % | 115.8 | 114.3 | 1 | % | ||||||||||||||||
Public, project and infrastructure finance (PPIF) | 93.2 | 98.1 | (5 | %) | 92.7 | 93.2 | (1 | %) | ||||||||||||||||
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Total ratings revenue | 714.9 | 663.4 | 8 | % | 664.6 | 714.9 | (7 | %) | ||||||||||||||||
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MIS Other | 5.0 | 4.8 | 4 | % | 5.5 | 5.0 | 10 | % | ||||||||||||||||
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Total external revenue | 719.9 | 668.2 | 8 | % | 670.1 | 719.9 | (7 | %) | ||||||||||||||||
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Intersegment royalty | 29.8 | 26.0 | 15 | % | 32.3 | 29.8 | 8 | % | ||||||||||||||||
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Total MIS Revenue | 749.7 | 694.2 | 8 | % | ||||||||||||||||||||
Total | 702.4 | 749.7 | (6 | %) | ||||||||||||||||||||
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Expenses: | ||||||||||||||||||||||||
Operating and SG&A (external) | 305.4 | 282.5 | (8 | %) | 314.4 | 305.4 | (3 | %) | ||||||||||||||||
Operating and SG&A (intersegment) | 5.0 | 3.7 | (35 | %) | 2.4 | 5.0 | 52 | % | ||||||||||||||||
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Adjusted Operating Income | 439.3 | 408.0 | 8 | % | 385.6 | 439.3 | (12 | %) | ||||||||||||||||
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Restructuring | 2.7 | — | NM | |||||||||||||||||||||
Depreciation and amortization | 16.8 | 18.9 | 11 | % | 17.0 | 16.8 | (1 | %) | ||||||||||||||||
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Operating income | $ | 422.5 | $ | 389.1 | 9 | % | $ | 365.9 | $ | 422.5 | (13 | %) | ||||||||||||
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Adjusted Operating Margin | 54.9 | % | 58.6 | % | ||||||||||||||||||||
Operating margin | 56.4 | % | 56.1 | % | 52.1 | % | 56.4 | % | ||||||||||||||||
Adjusted Operating Margin | 58.6 | % | 58.8 | % | ||||||||||||||||||||
The following is a discussion of external MIS revenue and operating expenses:
Pursuant to certain organizational realignments in the first quarter of 2019, revenue from REITs, which was previously classified in the SFG LOB, is now reported 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.
Global MIS revenue of $719.9$670.1 million in the first quarter of 20182019 was up 8%down 7% compared to 2017, most notably from growththe same period in the SFG2018, primarily reflecting declines in CFG and CFG LOBs. Also contributing to the growth was the favorable impact of changes in the mix of fee type and pricing increases in all LOBs. Favorable changesSFG. Changes in FX rates contributed threeunfavorably impacted MIS revenue by two percentage points to thepoints.
Transaction Revenue for MIS growthwas 61% in the first quarter of 2018.
Transaction revenue for MIS was2019, compared to 64% in the first quartersame period of 2018 compared to 65% in the first quarter of 2017.2018.
In the U.S., revenue was $433.4$411.2 million in the first quarter of 2019, down $22.2 million from the same period in 2018, an increase of $10.9 million or 3%, compared to 2017 primarily reflecting strong growth in SFG being partially offset by declines in all ratings LOBs excluding PPIF.
Non-U.S. revenue was $286.5$258.9 million in the first quarter of 2018, an increase2019, a decrease of $40.8$27.6 million or 17%10%, compared to 2017the same period in 2018, reflecting growth acrossdeclines in all LOBs.ratings LOBs excluding FIG.
Global CFG revenue of $377.7$355.4 million in the first quarter of 2018 was up 7%2019 declined 9% compared to 2017a strong prior year comparative period, with both lower U.S. andnon-U.S. revenue. In the U.S., revenue was $242.6 million, or 6% lower compared to the same period in the prior year, primarily reflecting highera decline in rated issuance volumes in the bank loan sector as higher borrowing costs suppressed refinancing activity. These declines were partially offset by growth in corporate bond revenue (both investment-grade and speculative-grade) resulting fromM&A-driven financing coupled with benefits from favorable changes in product mix and pricing increases.Non-U.S. revenue of $112.8 million declined 15% compared to the same period in the prior year, mainly due to lower leveraged finance rated issuance in EMEA resulting from favorable issuance mix and M&A activityissuers in the region being well funded coupled with benefits from changesunattractive pricing in the mix of fee typesector suppressing refinancing activity. Transaction Revenue represented 70% and pricing increases across various other sectors within CFG. The growth also reflects higher investment-grade corporate debt revenue in the U.S. and Asia-Pacific reflecting M&A activity. These increases were partially offset by lower U.S. speculative-grade corporate debt and bank loan revenue. Additionally, the increase over the prior year reflects higher monitoring fees across all regions. Transaction revenue represented 73% and 74% of total CFG revenue in the first quarter of 2019 and 2018, and 2017, respectively. In the U.S., revenue was $246.7 million, or 1% higher compared to the prior year. Internationally, revenue of $131.0 million increased 20% compared to the prior year. Favorable changes in FX rates contributed two percentage points to the CFG growth in the first quarter of 2018.
Global SFG revenue of $129.7$100.7 million in the first quarter of 2018 increased $29.52019 decreased $17.1 million, or 29%15%, compared to 2017.the same period in 2018. In the U.S., revenue of $84.6$62.2 million increased $19.6decreased $11.8 million or 30% over 2017 primarily due to continued strength in CLO issuance reflecting an increase in bank loan supply and favorable market conditions which enabled both new securitizations and refinancing activity. Additionally, the growth in the U.S. reflects higher CMBS activity compared to the first quartersame period in 2018, reflecting a decline in refinancing activity in the CLO asset class as wider credit spreads suppressed issuance. Additionally, the decline in U.S. revenue also reflected lower CMBS revenue primarily resulting from an unfavorable mix of 2017 when issuance was suppressed by the introduction of risk-retention regulations.deals.Non-U.S. revenue in the first quarter of 20182019 of $45.1$38.5 million increased $9.9decreased $5.3 million or 28% compared to the same period in the prior year primarily reflecting growthdeclines across most asset classes in EMEA, as uncertainties relating to Brexit and the EMEA region, most notablyregulatory environment resulted in structured credit.postponement of certain securitization transactions. Transaction revenueRevenue was 64%57% of total SFG revenue in the first quarter of 20182019 compared to 57%63% in the prior year. Favorable changessame period in 2018. Changes in FX translation rates contributed fourunfavorably impacted SFG revenue by two percentage points to the SFG growth in the first quarter of 2018.points.
Global FIG revenue of $114.3$115.8 million in the first quarter of 20182019 increased $2.0 million, or 2%,modestly compared to 2017 primarilythe same period in the prior year, with growth innon-U.S. revenue being mostly offset by declines in the U.S.Non-U.S. revenue was $69.8 million in the first quarter of 2019, up 6% compared to the same period in 2018, mainly due to favorable changes in FX rates, benefits from changes in the mix of fee type, pricing increases and higher banking-related rated issuance volumes in EMEA. These increases were partially offset by lower banking revenue in the U.S. and Asia-Pacific following elevated issuance activity in the prior year.Asia-Pacific. In the U.S., revenue of $48.5$46.0 million decreased $2.1 million5% compared to the prior year. Internationally, revenue was $65.8 millionsame period in the first quarter of 2018, up $4.1 million compared to 2017 due to favorable changesprior year primarily reflecting lower rated issuance volumes in FX rates.the insurance sector. Transaction revenue was 44%41% of total FIG revenue in the first quarter of 20182019, compared to 48%44% in the same period in 2017. Favorable changes2018. Changes in FX translation rates contributed fourunfavorably impacted FIG revenue by two percentage points to the FIG growth in the first quarter of 2018.points.
Global PPIF revenue was $93.2$92.7 million in the first quarter of 20182019 and decreased $4.9 million, or 5%,modestly compared to 2017. Inthe first quarter of 2018 with declines innon-U.S. revenue being mostly offset by growth in the U.S., first quarter 2018 revenue was $53.4 million, a decrease of $9.6 million compared to 2017 primarily due to lower PFG rated issuance volumes following the enactment of the Tax Act, which disallowed certain tax exemptions for advance refunding transactions. These decreases were partially offset by benefits from changes in the mix of fee type and pricing increases. Outside the U.S., PPIF revenue was $39.8$32.5 million and increased $4.7 million, or 13% compared to 2017 primarily reflecting a favorable issuance mix in EMEA infrastructure finance. Transaction revenue was 58% in the first quarter of 20182019 and declined $7.3 million compared to 60% of total PPIFa strong prior year comparative period primarily due to declines in public and infrastructure finance in EMEA. In the U.S., revenue in first quarter of 2017. Favorable changes in FX rates contributed three percentage points to the PPIF growth in the first quarter of 2019 was $60.2 million, an increase of $6.8 million compared to the same period in 2018, primarily due to higher public and infrastructure finance revenue relative to a challenging prior year period. Transaction Revenue was 59% in the first quarter of 2019, compared to 58% in the same period of 2018. Changes in FX translation rates unfavorably impacted PPIF revenue by two percentage points.
Operating and SG&A expenses in the first quarter of 20182019 increased $22.9$9.0 million compared to 2017the same period in 2018 and reflected an approximate $15 million increase in compensation costs partially offset by an approximate $6 million decrease innon-compensation costs. The increase in compensation costs primarily due to $7 million ofreflects higher salaries and employee benefits reflecting hiring activity and merit increases in 2018. The decline innon-compensationcosts reflecting headcount growth and annual compensation increases mostlyprimarily reflects lower legal costs partially offset by lower incentive compensation accruals. Additionally,higher costs to support the increase reflects the unfavorable impact of foreign currency translationCompany’s initiative to enhance technology infrastructure to enable automation, innovation and higher legal accruals.efficiency.
Adjusted Operating Income and operating income in the first quarter of 2018,2019, which includes intersegment royalty revenue and intersegment expenses, were $439.3$385.6 million and $422.5$365.9 million, respectively, and increased $31.3down $53.7 million and $33.4$56.6 million, respectively, compared to 2017.the same period in the prior year. Adjusted Operating Margin in the first quarter of 2019 was 58.6%54.9%, or in line with370BPS lower than the prior year. Operating margin was 56.4%52.1% in the first quarter of 20182019, compared to 56.1%56.4% in the same period in the prior year.
Moody’s Analytics
The table below provides a summary of revenue and operating results, followed by further insight and commentary:
| Three Months Ended March 31, | % Change Favorable (Unfavorable) | Three Months Ended March 31, | % Change Favorable (Unfavorable) | |||||||||||||||||||||
| 2018 | 2017 | 2019 | 2018 | |||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||
Research, data and analytics (RD&A) | $ | 269.2 | $ | 175.4 | 53 | % | $ | 307.7 | $ | 267.1 | 15 | % | ||||||||||||
Enterprise risk solutions (ERS) | 100.1 | 95.9 | 4 | % | 121.9 | 102.2 | 19 | % | ||||||||||||||||
Professional services (PS) | 37.5 | 35.7 | 5 | % | 42.4 | 37.5 | 13 | % | ||||||||||||||||
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Total external revenue | 406.8 | 307.0 | 33 | % | 472.0 | 406.8 | 16 | % | ||||||||||||||||
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Intersegment revenue | 5.0 | 3.7 | 35 | % | 2.4 | 5.0 | (52 | %) | ||||||||||||||||
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Total MA Revenue | 411.8 | 310.7 | 33 | % | 474.4 | 411.8 | 15 | % | ||||||||||||||||
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Expenses: | ||||||||||||||||||||||||
Operating and SG&A (external) | 280.6 | 213.5 | (31 | %) | 308.8 | 280.6 | (10 | %) | ||||||||||||||||
Operating and SG&A (intersegment) | 29.8 | 26.0 | (15 | %) | 32.3 | 29.8 | (8 | %) | ||||||||||||||||
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Adjusted Operating Income | 101.4 | 71.2 | 42 | % | 133.3 | 101.4 | 31 | % | ||||||||||||||||
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Restructuring | 2.8 | — | NM | |||||||||||||||||||||
Depreciation and amortization | 32.3 | 13.6 | (138 | %) | 33.3 | 32.3 | (3 | %) | ||||||||||||||||
Acquisition-Related Expenses | 0.8 | — | NM | 1.4 | 0.8 | (75 | %) | |||||||||||||||||
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Operating income | $ | 68.3 | $ | 57.6 | 19 | % | $ | 95.8 | $ | 68.3 | 40 | % | ||||||||||||
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Adjusted Operating Margin | 28.1 | % | 24.6 | % | ||||||||||||||||||||
Operating margin | 16.6 | % | 18.5 | % | 20.2 | % | 16.6 | % | ||||||||||||||||
Adjusted Operating Margin | 24.6 | % | 22.9 | % | ||||||||||||||||||||
The following is a discussion of external MA revenue and operating expenses:
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.
Global MA revenue increased $99.8$65.2 million, or 33%16%, compared to 2017 primarily due tothe same period in 2018 reflecting strong growth across all LOBs. The acquisitions of Reis and Omega Performance contributed approximately $11 million of revenue, or three percentage points of the growth. Recurring revenue comprised 85% of total MA revenue in both the first quarter of 2019 and 2018, respectively. Changes in FX translation rates unfavorably impacted MA revenue by three percentage points.
In the U.S., revenue of $200.9 million in the first quarter of 2019 increased $36.6 million, reflecting growth across all LOBs, most notably in RD&A.
Non-U.S. revenue of $271.1 million in the first quarter of 2019 was $28.6 million higher than in the same period in 2018 reflecting growth in RD&A whichand ERS. Changes in FX translation rates unfavorably impactednon-U.S. MA revenue by five percentage points.
Global RD&A revenue of $307.7 million increased $40.6 million, or 15%, over the prior year period. RD&A revenue in the first quarter of 2019 included approximately $74$9 million inof revenue, (netor three percentage points of an approximatethe growth, from the Reis acquisition. RD&A revenue growth was also favorably impacted by a $10 million reduction of revenue in the prior year relating to a deferred revenue adjustment required as part of acquisition accounting as further described in Note 8 to the financial statements), or 24 percentage points of the growth, from thefor Bureau van Dijk acquisition. Additionally, the growth over the prior year reflects benefits from higher fees within MA’s recurring revenue base due to enhanced content and continued alignment of usage and licensing parameters. Recurring revenue comprised 85% and 79% of total MA revenue in the first quarter 2018 and 2017, respectively. Favorable changes in FX rates contributed three percentage points to MA revenue growth in the first quarter of 2018.
In the U.S., revenue of $164.3 million in the first quarter of 2018 increased $9.0 million, and reflected growth in RD&A.
Non-U.S. revenue of $242.5 million in the first quarter of 2018 was $90.8 million higher than in 2017 reflecting growth in RD&A, which included approximately $65 million innon-U.S. Bureau van Dijk revenue. Favorable changes in FX rates contributed six percentage points to international MA revenue growth in the first quarter of 2018.
Global RD&A revenue of $269.2 million, which comprised 66% and 57% of total external MA revenue in the first quarter of 2018 and 2017, respectively, increased $93.8 million, or 53%, over the prior year period. In the U.S., revenue of $112.6 million increased $11.2 million compared to 2017.Non-U.S. revenue of $156.6 million increased $82.6 million compared to the prior year. RD&A revenue in the first quarter of 2018 included approximately $74 million in revenue, or 41 percentage points of the growth, from the Bureau van Dijk acquisition (net of an approximate $10 million reduction relating to a deferred revenue adjustment required as part of acquisition accounting as further described in Note 8 to the financial statements).Dijk. Organic RD&A revenue growth also reflectsreflected strong results in the credit research and rating data feeds product lines, where enhanced content on the new CreditView platform and continued alignment of usage and licensing parameters have generated higher fees. Favorable changes in FX rates contributed three percentage points to RD&A revenueAdditionally, the growth in the first quarter of 2018.
Global ERS2019 reflected higher revenue from Bureau van Dijk (notwithstanding the aforementioned deferred revenue adjustment) as a result of increased market demand for data to fulfill compliance requirements across multiple customer segments. U.S. revenue of $100.1$134.8 million andnon-U.S. revenue of $172.9 million in the first quarter of 20182019 increased $4.220% and 12%, respectively, compared to the same period in 2018. Changes in FX translation rates unfavorably impacted RD&A revenue by four percentage points.
Global ERS revenue of $121.9 million in the first quarter of 2019 increased $19.7 million, or 4%19%, over 2017compared to the same period in 2018. The growth reflects increases across all regions primarily due to favorable changesthe ongoing demand for SaaS-based CECL solutions coupled with increased demand for actuarial modeling tools in FX rates which contributed four percentage pointssupport of certain international accounting standards relating to the overall growth.insurance contracts. The growth also reflected strength in software subscription revenues, partially offset by a revenue decline forone-time projects and perpetual software licenses. Additionally, the increase over the prior year reflects benefits from pricing increases withinin ERS’s recurring revenue base.base, which together resulted in an approximate $15 million increase in revenue from subscription-based products. Revenue in ERS is subject to quarterly volatility resultingfromone-time licenses and services also grew by approximately $6 million mainly from the variable natureimplementation of project timing and the concentration of software implementation and license revenue in a relatively small number of engagements.insurance modeling solutions. In the U.S., revenue of $38.5$48.4 million decreased $1.7 millionin the first quarter of 2019 increased 26% compared to the same period in the prior year.Non-U.S. revenue of $61.6 million increased $5.9 million compared to the prior year.
Global PS revenue of $37.5$73.5 million in the first quarter of 20182019 increased $1.815% compared to the same period in the prior year. Changes in FX translation rates unfavorably impacted ERS revenue by three percentage points.
Global PS revenue of $42.4 million in the first quarter of 2019 increased $4.9 million compared to 2017the same period in 2018 with approximately half of the growth reflecting higher revenue from the acquisition of Omega Performance. The increase compared to the prior year also reflects organic growth in online learning solutions coupled with growth from outsourced analytical and research services in EMEA.services. In the U.S., revenue in the first quarter of 20182019 was $13.2$17.7 million, down slightlyup 34% compared to 2017. Internationalthe same period in 2018.Non-U.S. revenue in the first quarter of 2019 was $24.3$24.7 million, up 10%2% compared to 2017 with roughly half of the growth due to favorable changessame period in 2018. Changes in FX rates.translation rates unfavorably impacted PS revenue by three percentage points.
Operating and SG&A expenses in the first quarter of 20182019 increased $67.1 million compared to 2017. The expense growth includes approximately $43 million in Bureau van Dijk expenses coupled with higher compensation costs primarily reflecting annual salary increases and headcount growth.
Depreciation and amortization increased $18.7 million primarily due to the amortization of Bureau van Dijk’s intangible assets.
Adjusted Operating Income was $101.4 million in the first quarter of 2018 and increased $30.2$28.2 million compared to the same period in 2017.2018. This growth reflected increases in both compensation andnon-compensation costs of approximately $22 million and $6 million, respectively, and included approximately $9 million in inorganic expense growth from the acquisitions of Reis and Omega Performance. Organic growth in compensation costs primarily reflects hiring activity and merit increases in 2018. Organic growth innon-compensation expenses primarily reflects higher costs to support the Company’s initiative to enhance technology infrastructure to enable automation, innovation and efficiency.
Adjusted Operating income of $68.3Income was $133.3 million in the first quarter of 20182019 and increased $10.7$31.9 million compared to the same period in 2017.2018. Operating income of $95.8 million in the first quarter of 2019 increased $27.5 million compared to the same period in 2018. Adjusted Operating Margin in 2018the first quarter of 2019 was 24.6%28.1%, up 170 BPS350BPS from 2017.the same period in 2018. Operating margin was 16.6%20.2% in 2018, down 190 BPSthe first quarter of 2019, up 360BPS from the same period in the prior year reflecting the aforementioned higher D&A primarily relating to Bureau van Dijk’s intangible assets.year. Adjusted Operating Income and operating income both include intersegment revenue and expense.
Liquidity and Capital Resources
Cash Flow
The Company is currently financing its operations, capital expenditures, acquisitions and share repurchases from cash flow from operating and financing activities.cash flow. The following is a summary of the changes in the Company’s cash flows followed by a brief discussion of these changes:
| Three Months Ended March 31, | $ Change Favorable (Unfavorable) | |||||||||||
| 2018 | 2017 | |||||||||||
Net cash provided by (used by) operating activities | $ | 391.5 | $ | (512.4 | ) | $ | 903.9 | |||||
Net cash (used in) provided by investing activities | $ | (18.5 | ) | $ | 18.6 | $ | (37.1 | ) | ||||
Net cash (used in) provided by financing activities | $ | (182.3 | ) | $ | 553.7 | $ | (736.0 | ) | ||||
Free Cash Flow* | $ | 376.5 | $ | (531.1 | ) | $ | 907.6 | |||||
| Three Months Ended March 31, | $ Change Favorable (Unfavorable) | |||||||||||
| 2019 | 2018 | |||||||||||
Net cash provided by operating activities | $ | 367.1 | $ | 391.5 | $ | (24.4 | ) | |||||
Net cash used in investing activities | $ | (7.2 | ) | $ | (18.5 | ) | $ | 11.3 | ||||
Net cash used in financing activities | $ | (848.8 | ) | $ | (182.3 | ) | $ | (666.5 | ) | |||
Free Cash Flow(1) | $ | 347.1 | $ | 376.5 | $ | (29.4 | ) | |||||
Free Cash Flow is |
Net cash provided by (used in) operating activities
NetThe decline in net cash flows from operating activities increased $903.9 million compared to the prior year primarily due to the approximate $864 million payment for the Settlement Charge in 2017 and higher Adjusted Operating Income in the first quarter of 2018 partially offset by higher incentive compensation payouts2019 was primarily due to the decrease in 2018operating income compared to 2017.the same period in the prior year (see section entitled “Results of Operations” for further discussion).
Net cash (used in) provided byused in investing activities
The $37.1$11.3 million increasedecrease in cash flows used in investing activities compared to 20172018 primarily reflects higher net purchases of investments$5.7 million in cash received in the first quarter of 2018.2018 from a notes receivable issued in connection with a disposal of a subsidiary coupled with a $5.0 million increase in capital additions.
Net cash (used in) provided byused in financing activities
The $736.0$666.5 million increase in cash used byin financing activities was primarily attributed to net debt issuanceto:
the repayment of $711.8$450 million infor the first quarter of 2017 reflecting the issuance of the 2017 Floating Rate2014 Senior Notes the 2017 Senior Notes and net issuance under the CP Program(5-year), partially offset by higher net issuance of CP of approximately $358 million; and
higher cash paid for share repurchases in 2019 of approximately $530 million, which includes a $125 million payment for shares made under the repaymentASR agreement that were retained by a financial institution counterparty until final settlement of the Series2007-1 Notes.
Partially offset by:
net repayments of $40.0 million relating to the Company’s CP Programcontract in the first quarter of 2018.April 2019.
Cash and short-term investments held innon-U.S. jurisdictions
The Company’s aggregate cash and cash equivalents and short-term investments of $1,377.8 million$1.3 billion at March 31, 20182019 consisted of approximately $1.1 billion located outside of the U.S. Approximately 30%33% of the Company’s aggregate cash and cash equivalents and short-term investments is denominated in euros and British pounds. The Company manages both its U.S. and international cash flow to maintain sufficient liquidity in all regions to effectively meet its operating needs.
As a result of the Tax Act, all previously net undistributed foreign earnings have now been subject to U.S. tax. The Company continues to evaluate which entities it will indefinitely reinvest earnings outside the U.S. The Company has provided deferred taxes for those entities whose earnings are not considered indefinitely reinvested. Accordingly, the Company has commenced repatriating a portion of itsnon-U.S. cash in these subsidiaries and will continue to repatriate certain of its offshore cash in a manner that addresses compliance with local statutory requirements, sufficient offshore working capital and any other factors that may be relevant in certain jurisdictions. Notwithstanding the Tax Act, which generally eliminated federal income tax on future cash repatriation to the U.S., cash repatriation may be subject to state and local taxes or withholding or similar taxes.
Indebtedness
At March 31, 2018,2019, Moody’s had $5.5 billion of outstanding debt and approximately $910$680 million of additional borrowing capacity available under the Company’s CP program, which is backstopped by the 2015 Facility as more fully discussed in Note 15 to the consolidated financial statements.2018 Facility. At March 31, 2018,2019, the Company was in compliance with all covenants contained within all of the debt agreements. All of the Company’s long-term debt agreements contain cross default provisions which state that default under one of the aforementioned debt instruments could in turn permit lenders under other debt instruments to declare borrowings outstanding under those instruments to be immediately due and payable. At March 31, 2018,2019, there were no such cross defaults.
The repayment schedule for the Company’s borrowings outstanding at March 31, 20182019 is as follows:
Year Ending December 31, | 2010 Senior Notes due 2020 | 2012 Senior Notes due 2022 | 2013 Senior Notes due 2024 | 2014 Senior Notes (5-year) due 2019 | 2014 Senior Notes (30-year) due 2044 | 2015 Senior Notes due 2027 | Term Loan Facility due 2020 | 2017 Floating Rate Senior Notes due 2018 | 2017 Senior Notes due 2021 | 2017 Notes due 2023 | 2017 Notes due 2028 | Commercial Paper | Total | 2010 Senior Notes due 2020 | 2012 Senior Notes due 2022 | 2013 Senior Notes due 2024 | 2014 Senior Notes (30-year) due 2044 | 2015 Senior Notes due 2027 | 2017 Senior Notes due 2021 | 2017 Senior Notes due 2023 | 2017 Senior Notes due 2028 | 2018 Senior Notes due 2021 | 2018 Senior Notes due 2029 | 2018 Senior Notes due 2048 | Commercial Paper | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2018 (after March 31,) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 300.0 | $ | — | $ | — | $ | — | $ | 90.0 | $ | 390.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2019 | — | — | — | 450.0 | — | — | — | — | — | — | — | — | 450.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2019 (After March 31) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 320.0 | $ | 320.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2020 | 500.0 | — | — | — | — | — | 500.0 | — | — | — | — | — | 1,000.0 | 500.0 | — | — | — | — | — | — | — | — | — | — | — | 500.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2021 | — | — | — | — | — | — | — | — | 500.0 | — | — | — | 500.0 | — | — | — | — | — | 500.0 | — | — | 300.0 | — | — | — | 800.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2022 | — | 500.0 | — | — | — | — | — | — | — | — | — | — | 500.0 | — | 500.0 | — | — | — | — | — | — | — | — | — | — | 500.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2023 | — | — | — | — | — | — | 500.0 | — | — | — | — | — | 500.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Thereafter | — | — | 500.0 | — | 600.0 | 614.9 | — | — | — | 500.0 | 500.0 | — | 2,714.9 | — | — | 500.0 | 600.0 | 561.4 | — | — | 500.0 | — | 400.0 | 400.0 | — | 2,961.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total | $ | 500.0 | $ | 500.0 | $ | 500.0 | $ | 450.0 | $ | 600.0 | $ | 614.9 | $ | 500.0 | $ | 300.0 | $ | 500.0 | $ | 500.0 | $ | 500.0 | $ | 90.0 | $ | 5,554.9 | $ | 500.0 | $ | 500.0 | $ | 500.0 | $ | 600.0 | $ | 561.4 | $ | 500.0 | $ | 500.0 | $ | 500.0 | $ | 300.0 | $ | 400.0 | $ | 400.0 | $ | 320.0 | $ | 5,581.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Management may consider pursuing additional long-term financing when it is appropriate in light of cash requirements for operations, share repurchases and other strategic opportunities, which would result in higher financing costs.
Other Material Future Cash Requirements
The Company believes that it has the financial resources needed to meet its cash requirements and expects to have positive operating cash flow for the next twelve months. Cash requirements for periods beyond the next twelve months will depend, among other things, on the Company’s profitability and its ability to manage working capital requirements. The Company may also borrow from various sources.
The Company remains committed to using its strong cash flow to create value for shareholders by investing in growing areas of the business, reinvesting in ratings quality initiatives, making selective acquisitions, repurchasing stock and paying a dividend,dividends, all in a manner consistent with maintaining sufficient liquidity after giving effect to any additional indebtedness that may be incurred.
InOn April 2018,15, 2019, the Board of Directors of the Company declared a quarterly dividend of $0.44$0.50 per share of Moody’s common stock, payable June 11, 201810, 2019 to shareholders of record at the close of business on May 21, 2018.20, 2019. The continued payment of dividends at this rate, or at all, is subject to the discretion of the Board. In December 2015, the Board authorized $1.0 billion of share repurchase authority, which had a remaining repurchase authority of approximately $484 million at March 31, 2018.
Full-year 20182019 total share repurchases (including shares repurchased via the aforementioned ASR) are expected to be approximately $200 million,$1 billion, subject to available cash, market conditions and other ongoing capital allocation decisions.
The Company has future cash requirements, including operating leases and debt service and payments as noted in the tables that follow as well as future payments related to the transition tax under the Tax Act.
Off-Balance Sheet Arrangements
At March 31, 2018,2019, Moody’s did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as special purpose or variable interest entities where Moody’s is the primary beneficiary, which would have been established for the purpose of facilitatingoff-balance sheet arrangements or other contractually narrow or limited purposes. As such, Moody’s is not exposed to any financing, liquidity market or credit risk that could arise if it had engaged in such relationships.
Contractual Obligations
The following table presents payments due under the Company’s contractual obligations as of March 31, 2018:2019:
| Payments Due by Period | Payments Due by Period | |||||||||||||||||||||||||||||||||||||||
(in millions) | Total | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | Over 5 Years | Total | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | Over 5 Years | ||||||||||||||||||||||||||||||
Indebtedness(1) | $ | 7,128.9 | $ | 577.2 | $ | 2,404.3 | $ | 1,689.2 | $ | 2,458.2 | $ | 7,735.7 | $ | 530.3 | $ | 1,672.0 | $ | 1,768.9 | $ | 3,764.5 | ||||||||||||||||||||
Operating lease obligations | 706.7 | 108.3 | 172.7 | 151.8 | 273.9 | 694.5 | 107.1 | 199.4 | 161.3 | 226.7 | ||||||||||||||||||||||||||||||
Purchase obligations | 134.2 | 75.6 | 52.2 | 4.2 | 2.2 | 171.4 | 104.1 | 67.3 | — | — | ||||||||||||||||||||||||||||||
Capital lease obligations | 0.1 | 0.1 | — | — | — | |||||||||||||||||||||||||||||||||||
Pension obligations(2) | 133.6 | 6.4 | 40.0 | 18.0 | 69.2 | 138.8 | 4.4 | 42.7 | 25.4 | 66.3 | ||||||||||||||||||||||||||||||
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Total | $ | 8,103.5 | $ | 767.6 | $ | 2,669.2 | $ | 1,863.2 | $ | 2,803.5 | ||||||||||||||||||||||||||||||
Total(3) | $ | 8,740.4 | $ | 745.9 | $ | 1,981.4 | $ | 1,955.6 | $ | 4,057.5 | ||||||||||||||||||||||||||||||
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| (1) | Reflects principal payments, related interest and applicable fees due on all indebtedness outstanding as described in Note |
| (2) | Reflects projected benefit payments relating to the Company’s U.S. unfunded DBPPs and Retirement and Other Plans described in Note |
| (3) | The table above does not include the Company’s net long-term tax liabilities of $474.5 million relating to UTPs, since the expected cash outflow of such amounts by period cannot be reasonably estimated. The table above also does not include an additional $119.0 million relating to the remaining unpaid deemed repatriation liability resulting from the Tax Act enacted into law in the U.S. in December 2017, which the Company had elected to pay in eight annual installments. |
Non-GAAP Financial Measures:
In addition to its reported results, Moody’s has included in this MD&A certain adjusted results that the SEC defines as“non-GAAP financial measures.” Management believes that such adjustednon-GAAP financial measures, when read in conjunction with the Company’s reported results, can provide useful supplemental information for investors analyzingperiod-to-period period to period comparisons of the Company’s performance, facilitate comparisons to competitors’ operating results and can provide greater transparency to investors of supplemental information used by management in its financial and operational decision-making. These adjustednon-GAAP measures, as defined by the Company, are not necessarily comparable to similarly defined measures of other companies. Furthermore, these adjustednon-GAAP measures should not be viewed in isolation or used as a substitute for other GAAP measures in assessing the operating performance or cash flows of the Company. Below are brief descriptions of the Company’s adjustednon-GAAP financial measures accompanied by a reconciliation of the adjustednon-GAAP measure to its most directly comparable GAAP measure:
Adjusted Operating Income and Adjusted Operating Margin:Margin:
The Company presents Adjusted Operating Income because management deems this metric to be a useful measure of assessing the operating performance of Moody’s. Adjusted Operating Income excludes depreciation and amortization, restructuring, and Acquisition-Related Expenses. Depreciation and amortization are excluded because companies utilize productive assets of different ages and use different methods of acquiring and depreciating productive assets. Restructuring charges are excluded as the frequency and magnitude of these charges may vary widely across periods and companies. Acquisition-Related Expenses consist of expenses incurred to complete and integrate the acquisition of Bureau van Dijk and are excluded due to the material nature of these expenses on an annual basis in both the current and prior years, which are not expected to recur at this dollar magnitude subsequent to the completion of the multi-year integration effort. Acquisition-Related ExpensesAcquisition-related expenses from previousother acquisitions were not material. Management believes that the exclusion of depreciation and amortization, restructuring charges, and Acquisition-Related Expenses, as detailed in the reconciliation below, allows for an additional perspective on the Company’s operating results from period to period and across companies. The Company defines Adjusted Operating Margin as Adjusted Operating Income divided by revenue.
| Three Months Ended | Three Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2018 | 2017 | 2019 | 2018 | |||||||||||||
Operating income | $ | 490.8 | $ | 446.7 | $ | 461.7 | $ | 490.8 | ||||||||
Adjustments: | ||||||||||||||||
Restructuring | 5.5 | — | ||||||||||||||
Depreciation and amortization | 49.1 | 32.5 | 50.3 | 49.1 | ||||||||||||
Acquisition-Related Expenses | 0.8 | — | 1.4 | 0.8 | ||||||||||||
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Adjusted Operating Income | $ | 540.7 | $ | 479.2 | $ | 518.9 | $ | 540.7 | ||||||||
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Operating margin | 43.6 | % | 45.8 | % | 40.4 | % | 43.6 | % | ||||||||
Adjusted Operating Margin | 48.0 | % | 49.1 | % | 45.4 | % | 48.0 | % | ||||||||
Adjusted Net Income and Adjusted Diluted EPS attributable to Moody’s common shareholders:
Beginning inThe Company presents Adjusted Net Income and Adjusted Diluted EPS because management deems these metrics to be useful measures to provide additional perspective on the third quarteroperating performance of 2017,Moody’s. Adjusted Net Income and Adjusted Diluted EPS exclude the impact of amortization of acquired intangible assets, Acquisition-Related Expenses and restructuring charges.
The Company modified this adjusted measure to excludeexcludes the impact of amortization of acquired intangible assets as companies utilize intangible assets with different ages and have different methods of acquiring and amortizing intangible assets. Furthermore, the timing and magnitude of business combination transactions are not predictable and the purchase price allocated to amortizable intangible assets and the related amortization period are unique to each acquisition and can vary significantly from period to period and across companies. Also, management believes that excluding acquisition-related amortization expense provides additional perspective when comparing operating results from period to period, and with both acquisitive andnon-acquisitive peer companies. The Company modified the adjusted measures to exclude amortization of acquired intangible assets to provide additional perspective when comparing net income and diluted EPS from period to period and across companies.
In addition to excluding acquisition-related amortization expense, adjusted net income and adjusted diluted earnings per share exclude the CCXI Gain and Acquisition-Related Expenses. The Company excludes these items to provide additional perspective on the Company’s operating results from period to period and across companies as the frequency and magnitude of similar transactions may vary widely across periods. Additionally, the Acquisition-Related Expenses are excluded due to the material nature of these expenses on an annual basis, which are not expected to recur at this dollar magnitude subsequent to the completion of the multi-year integration effort relating to Bureau van Dijk. Acquisition-Related ExpensesAcquisition-related expenses from previousother acquisitions were not material.
Below is a reconciliation of this measure to its most directly comparable U.S. GAAP amount:
| Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||
| 2018 | 2017 | |||||||||||||||||||||||||||||||
| Amounts in millions | 2019 | 2018 | ||||||||||||||||||||||||||||||
Net income attributable to Moody’s common shareholders | $ | 372.9 | $ | 345.6 | $ | 372.9 | $ | 372.9 | ||||||||||||||||||||||||
CCXI Gain | — | (59.7 | ) | |||||||||||||||||||||||||||||
Pre-Tax Acquisition-Related Expenses | $ | 0.8 | $ | — | $ | 1.4 | $ | 0.8 | ||||||||||||||||||||||||
Tax on Acquisition-Related Expenses | (0.2 | ) | — | (0.3 | ) | (0.2 | ) | |||||||||||||||||||||||||
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Acquisition-Related Expenses | 0.6 | — | ||||||||||||||||||||||||||||||
Net Acquisition-Related Expenses(1) | 1.1 | 0.6 | ||||||||||||||||||||||||||||||
Pre-Tax Acquisition-Related Intangible Amortization Expenses | $ | 25.7 | $ | 8.5 | $ | 26.4 | $ | 25.7 | ||||||||||||||||||||||||
Tax on Acquisition-Related Intangible Amortization Expenses | (5.9 | ) | (2.3 | ) | (6.1 | ) | (5.9 | ) | ||||||||||||||||||||||||
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Net Acquisition-Related Intangible Amortization Expenses | 19.8 | 6.2 | 20.3 | 19.8 | ||||||||||||||||||||||||||||
Pre-Tax Restructuring | $ | 5.5 | $ | — | ||||||||||||||||||||||||||||
Tax on Restructuring | (1.4 | ) | — | |||||||||||||||||||||||||||||
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Net Restructuring | 4.1 | — | ||||||||||||||||||||||||||||||
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Adjusted Net Income | $ | 393.3 | $ | 292.1 | $ | 398.4 | $ | 393.3 | ||||||||||||||||||||||||
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| 2018 | 2017 | |||||||||||||||||||||||||||||||
Earnings per share attributable to Moody’s common shareholders | $ | 1.92 | $ | 1.78 | ||||||||||||||||||||||||||||
CCXI Gain | — | (0.31 | ) | |||||||||||||||||||||||||||||
Pre-Tax Acquisition-Related Expenses | $ | — | $ | — | ||||||||||||||||||||||||||||
Tax on Acquisition-Related Expenses | — | — | ||||||||||||||||||||||||||||||
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Pre-Tax Acquisition-Related Intangible Amortization Expenses | $ | 0.13 | $ | 0.04 | ||||||||||||||||||||||||||||
Tax on Acquisition-Related Intangible Amortization Expenses | (0.03 | ) | (0.01 | ) | ||||||||||||||||||||||||||||
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Net Acquisition-Related Intangible Amortization Expenses | 0.10 | 0.03 | ||||||||||||||||||||||||||||||
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Adjusted Diluted EPS | $ | 2.02 | $ | 1.50 | ||||||||||||||||||||||||||||
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| 2019 | 2018 | |||||||||||||||
Earnings per share attributable to Moody’s common shareholders | $ | 1.93 | $ | 1.92 | ||||||||||||
Pre-Tax Acquisition-Related Expenses | $ | 0.01 | $ | — | ||||||||||||
Tax on Acquisition-Related Expenses | — | — | ||||||||||||||
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Net Acquisition-Related Expenses(1) | 0.01 | — | ||||||||||||||
Pre-Tax Acquisition-Related Intangible Amortization Expenses | $ | 0.14 | $ | 0.13 | ||||||||||||
Tax on Acquisition-Related Intangible Amortization Expenses | (0.03 | ) | (0.03 | ) | ||||||||||||
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Net Acquisition-Related Intangible Amortization Expenses | 0.11 | 0.10 | ||||||||||||||
Pre-Tax Restructuring | $ | 0.03 | $ | — | ||||||||||||
Tax on Restructuring | (0.01 | ) | — | |||||||||||||
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Net Restructuring | 0.02 | — | ||||||||||||||
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Adjusted Diluted EPS | $ | 2.07 | $ | 2.02 | ||||||||||||
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| (1) | Certain of these Acquisition-Related Expenses are not deductible for tax |
The tax impacts in the table above were calculated using tax rates in effect in the jurisdiction for which the item relates.
Free Cash Flow:
The Company defines Free Cash Flow as net cash provided by operating activities minus payments for capital additions. Management believes that Free Cash Flow is a useful metric in assessing the Company’s cash flows to service debt, pay dividends and to fund acquisitions and share repurchases. Management deems capital expenditures essential to the Company’s product and service innovations and maintenance of Moody’s operational capabilities. Accordingly, capital expenditures are deemed to be a recurring use of Moody’s cash flow. Below is a reconciliation of the Company’s net cash flows from operating activities to Free Cash Flow:
| Three Months Ended March 31, | ||||||||
| 2018 | 2017 | |||||||
Net cash flows provided by (used in) operating activities | $ | 391.5 | $ | (512.4 | ) | |||
Capital additions | (15.0 | ) | (18.7 | ) | ||||
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Free Cash Flow | $ | 376.5 | $ | (531.1 | ) | |||
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Net cash (used in) provided by investing activities | $ | (18.5 | ) | $ | 18.6 | |||
Net cash (used in) provided by financing activities | $ | (182.3 | ) | $ | 553.7 | |||
| Three Months Ended March 31, | ||||||||
| 2019 | 2018 | |||||||
Net cash provided by operating activities | $ | 367.1 | $ | 391.5 | ||||
Capital additions | (20.0 | ) | (15.0 | ) | ||||
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Free Cash Flow | $ | 347.1 | $ | 376.5 | ||||
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Net cash used in investing activities | $ | (7.2 | ) | $ | (18.5 | ) | ||
Net cash used in financing activities | $ | (848.8 | ) | $ | (182.3 | ) | ||
Recently Issued Accounting Standards
Refer to Note 1821 to the condensed consolidated financial statements located in Part I on this Form10-Q for a discussion on the impact to the Company relating to recently issued accounting pronouncements.
Legal proceedings in which the companyCompany is involved also may impact Moody’s liquidity or operating results. No assurance can be provided as to the outcome of such proceedings. In addition, litigation inherently involves significant costs. For information regarding legal proceedings, see Item 1 - “Financial Statements”, Note 1619 “Contingencies.”
MIS and many of the securities that it rates are subject to extensive regulation in both the U.S. and in other countries (including by state and local authorities). Thus, existing and proposed laws and regulations can impact the Company’s operations and the markets for securities that it rates. Additional laws and regulations have been adopted but not yet implemented or have been proposed or are being considered. Each of the existing, adopted, proposed and potential laws and regulations can increase the costs and legal risk associated with the issuance of credit ratings and may negatively impact Moody’s operations or profitability, the Company’s ability to compete, or result in changes in the demand for credit ratings, in the manner in which ratings are utilized and in the manner in which Moody’s operates.
The regulatory landscape has changed rapidly in recent years, and continues to evolve. In the EU, the CRA industry is registered and supervised through apan-European regulatory framework. The European Securities and Markets Authority (ESMA) has direct supervisory responsibility for the registered CRA industry throughout the EU. MIS is a registered entity and is subject to formal regulation and periodic inspection. Applicable rules include procedural requirements with respect to credit ratings of sovereign issuers, liability for intentional or grossly negligent failure to abide by applicable regulations, mandatory rotation requirements of CRAs hired by issuers of securities for credit ratings of resecuritizations, restrictions on CRAs or their shareholders if certain ownership thresholds are crossed, reporting requirements to ESMA regarding fees, and additional procedural and substantive requirements on the pricing of services. In 2016, the European Commission published a report concluding that no new EuropeanEU legislation was needed for the industry at that time, but that it would continue to monitor the credit rating industry and analyze approaches that may strengthen existing regulation. In addition, from time to time, ESMA publishes interpretive guidance, or thematic reports regarding various aspects of the regulation. Recently, two such reports have been published. TheIn the first report provides further guidance fromquarter of 2019, ESMA regardingpublished final guidelines on the endorsement mechanism thatsubmission of periodic information to ESMA by CRAs will needas well as its work program for 2019. In its work program, ESMA identified its supervisory priorities for 2019 to employ for those ratings that are produced outsideinclude the quality of the EU but are used insiderating process, portfolio risk (defined by ESMA as the EUability of a CRA to rank-order rated issuers or instruments by EU-regulated entities. The second report discusses ESMA’s observationsrelative credit risk) and cybersecurity. This will be in addition to its ongoing work on CRAs fee practices. In March 2018,Brexit and fees charged by CRAs. Finally, ESMA published, for comment, proposed guidelines on disclosure requirements for CRAs, including a consultation report seeking feedback onchapter with the extent to which EU regulation should be applied to CRAs operating outsideobjective of the EU to make their ratings eligible for regulatory useimproving transparency in the EU. In the third quarterdisclosures where Environmental, Social and Governance (ESG) factors are key underlying elements of 2018, ESMA is expected to publish final guidance on the applicability of EU regulation to endorsed ratings, with an expected effective date of January 1, 2019.a credit rating.
Separately, on June 23, 2016, the U.K. voted through a referendum to exit the EU. The UKU.K. officially launched the exit process by submitting its Article 50 letter to the EU, informing it of the UK’sU.K.’s intention to exit. The submission of this letter started the clock on the negotiation of the terms of exit, which isoriginally was expected to take up to two years.
The longer-term impacts of the decision to leave the EU on the overall regulatory framework for the U.K. will depend, in part, on the relationship that the U.K. negotiates with the EU in the future.EU. In the interim, however, the U.K.’s markets regulator (the Financial Conduct Authority) has said that all EU financial regulationsCRA regulatory framework will stayremain in place and that firms must continue to abide by their existing obligations. As a consequence, at this pointobligations with ESMA as the regulator ofEU-registered CRAs. Legislation is currently in time, there is no change to the regulatory framework under which MIS operates and ESMA remains MIS’s regulator bothplace in the EU andU.K that would come into force in the event of the U. K’s withdrawal from the EU without an agreement, and which would substantially mirror the EU CRA legislation under the supervision of the Financial Conduct Authority, which has been designated to be the U.K. regulator for U.K. CRAs after exit.
In the U.S., CRAs are subject to extensive regulation primarily pursuant to the Reform Act and the Financial Reform Act. The SEC is required by these legislative acts to publish two annual reports to Congress on NRSROs. The Financial Reform Act requires the SEC to examine each NRSRO once a year and issue an annual report summarizing the examination findings, among other requirements. The annual report required by the Reform Act details the SEC’s views on the state of competition, transparency and conflicts of interests among NRSROs, among other requirements. The SEC voted in August 2014 to adopt its final rules for NRSROs as required by the Financial Reform Act. The Company has made and continues to make substantial IT and other investments, and has implemented the relevant compliance obligations.
In light of the regulations that have gone into effect in both the EU and the U.S. (as well as many other countries), periodically and as a matter of course pursuant to their enabling legislation, these regulatory authorities have and will continue to publish reports that describe their oversight activities over the industry. In addition, other legislation and/or interpretation of existing regulation relating to credit rating and research services is being considered by local, national and multinational bodies and this type of activity is likely to continue in the future. Finally, in certain countries, governments may provide financial or other support to locally-based credit rating agencies. For example, governments may from time to time establish official rating agenciesCRAs or credit ratings criteria or procedures for evaluating local issuers. If enacted, any such legislation and regulation could change the competitive landscape in which MIS operates. The legal status of rating agenciesCRAs has been addressed by courts in various decisions and is likely to be considered and addressed in legal proceedings from time to time in the future. Management of the Company cannot predict whether these or any other proposals will be enacted, the outcome of any pending or possible future legal proceedings, or regulatory or legislative actions, or the ultimate impact of any such matters on the competitive position, financial position or results of operations of Moody’s.
Certain statements contained in this quarterly report on Form10-Q are forward-looking statements and are based on future expectations, plans and prospects for the Company’s business and operations that involve a number of risks and uncertainties. Such statements involve estimates, projections, goals, forecasts, assumptions and uncertainties that could cause actual results or outcomes to differ materially from those contemplated, expressed, projected, anticipated or implied in the forward-looking statements. Those statements appear at various places throughout this quarterly report on FormForm 10-Q, including in the sections entitled “Contingencies” under Item 2 “MD&A”, commencing on page 4944 of this quarterly report on Form10-Q, under “Legal Proceedings” in Part II, Item 1 of this FormForm 10-Q, and elsewhere in the context of statements containing the words “believe”, “expect”, “anticipate”, “intend”, “plan”, “will”, “predict”, “potential”, “continue”, “strategy”, “aspire”, “target”, “forecast”, “project”, “estimate”, “should”, “could”, “may” and similar expressions or words and variations thereof relating to the Company’s views on future events, trends and contingencies. Stockholders and investors are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements and other information are made as of the date of this quarterly report on Form10-Q, and the Company undertakes no obligation (nor does it intend) to publicly supplement, update or revise such statements on a going-forward basis, whether as a result of subsequent developments, changed expectations or otherwise.otherwise, except as required by law. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company is identifying examples of factors, risks and uncertainties that could cause actual results to differ, perhaps materially, from those indicated by these forward-looking statements.
Those factors, risks and uncertainties include, but are not limited to, credit market disruptions or economic slowdowns, which could affect the volume of debt and other securities issued in domestic and/or global capital markets; other matters that could affect the volume of debt and other securities issued in domestic and/or global capital markets, including regulation, credit quality concerns,
changes in interest rates and other volatility in the financial markets such as that due to the U.K.’s referendum vote whereby the U.K. citizens voted to withdrawplanned withdrawal from the EU; the level of merger and acquisition activity in the U.S. and abroad; the uncertain effectiveness and possible collateral consequences of U.S. and foreign government actions affecting credit markets, international trade and economic policy; concerns in the marketplace affecting our credibility or otherwise affecting market perceptions of the integrity or utility of independent credit agency ratings; the introduction of competing products or technologies by other companies; pricing pressure from competitors and/or customers; the level of success of new product development and global expansion; the impact of regulation as an NRSRO, the potential for new U.S., state and local legislation and regulations, including provisions in the Financial Reform Act and regulations resulting from that Act; the potential for increased competition and regulation in the EU and other foreign jurisdictions; exposure to litigation related to our rating opinions, as well as any other litigation, government and regulatory proceedings, investigations and inquires to which the Company may be subject from time to time; provisions in the Financial Reform Act legislation modifying the pleading standards, and EU regulations modifying the liability standards, applicable to credit rating agencies in a manner adverse to credit rating agencies; provisions of EU regulations imposing additional procedural and substantive requirements on the pricing of services and the expansion of supervisory remit to includenon-EU ratings used for regulatory purposes; the possible loss of key employees; failures or malfunctions of our operations and infrastructure; any vulnerabilities to cyber threats or other cybersecurity concerns; the outcome of any review by controlling tax authorities of the Company’s global tax planning initiatives; exposure to potential criminal sanctions or civil remedies if the Company fails to comply with foreign and U.S. laws and regulations that are applicable in the jurisdictions in which the Company operates, including data protection and privacy laws, sanctions laws, anti-corruption laws, and local laws prohibiting corrupt payments to government officials; the impact of mergers, acquisitions or other business combinations and the ability of the Company to successfully integrate such acquired businesses; currency and foreign exchange volatility; the level of future cash flows; the levels of capital investments; and a decline in the demand for credit risk management tools by financial institutions. Other factors, risks and uncertainties relating to our acquisition of Bureau van Dijk could cause our actual results to differ, perhaps materially, from those indicated by these forward-looking statements, including risks relating to the integration of Bureau van Dijk’s operations, products and employees into Moody’s and the possibility that anticipated synergies and other benefits of the acquisition will not be realized in the amounts anticipated or will not be realized within the expected timeframe; risks that the acquisition could have an adverse effect on the business of Bureau van Dijk or its prospects, including, without limitation, on relationships with vendors, suppliers or customers; claims made, from time to time, by vendors, suppliers or customers; changes in the European or global marketplaces that have an adverse effect on the business of Bureau van Dijk. These factors, risks and uncertainties as well as other risks and uncertainties that could cause Moody’s actual results to differ materially from those contemplated, expressed, projected, anticipated or implied in the forward-looking statements are described in greater detail under “Risk Factors” in Part I, Item 1A of the Company’s annual report onForm 10-K for the year ended December 31, 2017,2018, and in other filings made by the Company from time to time with the SEC or in materials incorporated herein or therein. Stockholders and investors are cautioned that the occurrence of any of these factors, risks and uncertainties may cause the Company’s actual results to differ materially from those contemplated, expressed, projected, anticipated or implied in the forward-looking statements, which could have a material and adverse effect on the Company’s business, results of operations and financial condition. New factors may emerge from time to time, and it is not possible for the Company to predict new factors, nor can the Company assess the potential effect of any new factors on it.
| Item 3. |
The following discussion outlines changes in Moody’s derivative instrument portfolio subsequent to the filing of the Company’s Form10-K for the year ended December 31, 2018:
Cross-currency swaps designated as a net investment hedges:
In March 2019, the Company entered into cross-currency swaps to exchange an aggregate amount of €663.6 million with corresponding EUR fixed interest rates for an aggregate amount of $750.0 million with corresponding USD fixed interest rates. Additionally, the Company entered into cross-currency swaps to exchange an aggregate amount of €221.0 million with corresponding interest based on the floating3-month EURIBOR for an aggregate amount of $250.0 million with corresponding interest based on the floating3-month USD LIBOR. Both types of swaps were designated as net investment hedges under ASC Topic 815. The purpose of these cross-currency swaps 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. If the euro were to strengthen 10% relative to the U.S. dollar, there would be an approximate $101 million unfavorable impact to the fair value of the cross-currency swaps recognized in OCI, which would be offset by favorable currency translation gains on the Company’s euro net investment in foreign subsidiaries.
Interest rate swaps designated as fair value hedges:
Furthermore, in the first quarter of 2019, the Company entered into interest rate swaps with a notional amount of $250 million to convert the fixed rate of interest on the 2.625% 2017 Senior Notes due 2023 to a floating interest rate based on the3-month USD LIBOR. A hypothetical change of 100 BPS in the USD LIBOR-based swap rate would result in an approximate $10 million change to the fair value of the swap, which would be offset by the change in fair value of the hedged item.
Refer to Note 10 to the condensed consolidated financial statements in this Form10-Q and Item 7A. “Quantitative and Qualitative Disclosures about Market Risk”, contained in the Company’s annual report on Form10-K for the year ended December 31, 2018 for further discussion on the Company’s derivative financial instruments.
| Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures: The Company carried out an evaluation, as required by Rule13a-15(b) under the Exchange Act, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and principal financial officer,Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule13a-15(e) of the Exchange Act, as of the end of the period covered by this report (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the communication to the Company’s management, including the Company’s Chief Executive Officer and principal financial officer,Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Except as described below, the Company’s management, including the Company’s Chief Executive Officer and principal financial officer,Chief Financial Officer, has determined that there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, these internal controls over financial reporting during the three-month period covered by the report.
During the fiscal year ended December 31, 2017, the Company acquired Bureau van Dijk, and during the quarter ended March 31, 2018 we further integrated the acquired entity into the Company’s financial reporting processes and procedures and internal control over financial reporting. Additionally, during2019.
During the first quarter of 2018,2019, the Company implemented internal controls relating to the New RevenueLease Accounting Standard, which was adopted by Moody’s on January 1, 2018.2019.
| Item 1. | Legal Proceedings |
For information regarding legal proceedings, see Item 1 – “Financial Statements – Notes to Condensed Consolidated Financial Statements (Unaudited),” Note 1619 “Contingencies” in this Form10-Q.
| Item 1A. | Risk Factors |
There have been no material changes since December 31, 20172018 to the significant risk factors and uncertainties known to the Company that, if they were to occur, could materially adversely affect the Company’s business, financial condition, operating results and/or cash flow. For a discussion of the Company’s risk factors, refer to Item 1A. “Risk Factors”, contained in the Company’s annual report on Form10-K for the year ended December 31, 2017.2018.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
MOODY’S PURCHASES OF EQUITY SECURITIES
For the Three Months Ended March 31, 20182019
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Approximate Dollar Value of Shares That May Yet be Purchased Under the Program (2) | Total Number of Shares Purchased(1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Approximate Dollar Value of Shares That May Yet be Purchased Under the Program (2) (3) | ||||||||||||||||||||||||||||||||
January 1 - 31 | 97,165 | $ | 155.50 | 97,165 | $ | 511.9 million | 356,523 | $ | 149.12 | 356,523 | $ | 1,271.1 million | ||||||||||||||||||||||||||||
February 1 - 28 | 82,879 | $ | 162.02 | 81,789 | $ | 498.6 million | 2,338,101 | $ | 168.94 | 2,337,846 | $ | 751.1 million | ||||||||||||||||||||||||||||
March 1 - 31 | 455,019 | $ | 166.27 | 90,576 | $ | 483.5 million | 419,487 | $ | — | — | $ | 751.1 million | ||||||||||||||||||||||||||||
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Total | 635,063 | $ | 161.10 | 269,530 | 3,114,111 | $ | 166.32 | 2,694,369 | ||||||||||||||||||||||||||||||||
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| (1) | Includes surrender to the Company of |
| (2) | As of the last day of each of the months. On December 15, 2015, the Board authorized a $1 billion share repurchase program. Additionally, in October 2018, the Board authorized an additional $1.0 billion share repurchase program which commenced during the first quarter of 2019 following the completion of the 2015 repurchase program. There is no established expiration date for the remaining authorization. |
| (3) | Pursuant to an ASR executed in February 2019, the Company paid $500 million to a counterparty and received an initial delivery of 2.2 million shares of its common stock. |
During the first quarter of 2018,2019, Moody’s issued 1.61.4 million shares under employee stock-based compensation plans.
| Item 5. | Other Information |
Not applicable
| Item 6. |
Exhibit
| Description | |
| 3 | ARTICLES OF INCORPORATION ANDBY-LAWS | |
| .1 | ||
| .2 | ||
| | MATERIAL CONTRACTS | |
| .1* | ||
| 31 | CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 | |
| .1* | Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of | |
| .2* | ||
| 32 | CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 | |
| .1* | ||
| .2* | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. The Company has furnished this certification and does not intend for it to be considered filed under the Securities Exchange Act of 1934 or incorporated by reference into future filings under the Securities Act of 1933 or the Securities Exchange Act of 1934. | |
| 101 | XBRL | |
| 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 | |
| * | Filed herewith |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| MOODY’S CORPORATION | ||||||
| By: | / S / | |||||
Senior Vice President and Chief Financial Officer (principal financial officer) | ||||||
| By: | / S / CAROLINE SULLIVAN | |||||
| Caroline Sullivan | ||||||
Senior Vice President and Corporate Controller (principal | ||||||
Date: May 1, 2019 | ||||||
Date: May 1, 2018
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