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
SeptemberJune 30,
20172023
Or☐ | | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number
1-14037____________________
(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) |
7 World Trade Center at 250 Greenwich Street, New York, New York 10007
(Address of Principal Executive Offices)
(Zip Code)
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | | | | | | | |
| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
| Common Stock, par value $0.01 per share | | MCO | | New York Stock Exchange |
| 1.75% Senior Notes Due 2027 | | MCO 27 | | New York Stock Exchange |
| 0.950% Senior Notes Due 2030 | | MCO 30 | | New York Stock Exchange |
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 Regulation
S-T during the preceding 12 months
or(or for such shorter period that the registrant was required to submit
and post such
files.files). Yes
☒☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act. (Check one): | | | | | | | | | | | | | | |
Large accelerated filerAccelerated Filer | ☑ | ☒ | | Accelerated filer | | ☐ |
| | | |
| Non-accelerated filer | ☐ | ☐ (Do not check if a smaller reporting company) | | Smaller reporting company | ☐ |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ☐ No
☒☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
| | |
Title of Each Class
| | Shares Outstanding at SeptemberJune 30, 2017 2023 |
Common Stock, par value $0.01 per share | | 191.1183.5 million |
MOODY’S CORPORATION
| | | | | | | | |
| MOODY’S CORPORATION
INDEX TO FORM 10-Q | | | Page(s) | |
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| | Results of Operations | | | 51-64 | |
| | Liquidity and Capital Resources | | | 65-69 | |
| | Recently Issued Accounting Standards | | | 70 | |
| | Contingencies | | | 71 | |
| | Regulation | | | 71-72 | |
| | Forward-Looking Statements | | | 72-73 | |
Item 4. | | Controls and Procedures | | | 73 | |
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SIGNATURES | | | | |
Exhibits Filed Herewith | | | | |
12 | | Statement of Computation of Ratios of Earnings to Fixed Charges | | | | |
31.1 | | Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | |
31.2 | | Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | |
32.1 | | Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | | | |
32.2 | | Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | | | |
101.DEF | | XBRL Definitions Linkbase Document | | | | |
101.INS | | XBRL Instance Document | | | | |
101.SCH | | XBRL Taxonomy Extension Schema Document | | | | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | | | |
101.LAB | | XBRL Taxonomy Extension Labels Linkbase Document | | | | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | | | |
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 Intangible Amortization Expense | | Amortization of acquired 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 CCXI Gain, Acquisition-Related Expenses, Acquisition-Related Amortization and the Purchase Price Hedge Gain |
| section entitled “Non-GAAP Financial Measures” |
| Adjusted Net Income | | Net Income excluding the impact of certain items as detailed in the CCXI Gain, Acquisition-Related Expenses, Acquisition-Related Amortization and the Purchase Price Hedge Gain. |
| section entitled “Non-GAAP Financial Measures” |
| Adjusted Operating Income | | Operating income excluding depreciation and amortization, Acquisition-Related Expenses and restructuring charges |
| the impact of certain items as detailed in the section entitled “Non-GAAP Financial Measures” |
| Adjusted Operating Margin | | Adjusted Operating Income divided by revenue |
| |
| Americas | | Represents countries within North and South America, excluding the U.S. |
| |
AOCI | AOCI(L) | Accumulated other comprehensive income (loss);income/loss; a separate component of shareholders’ (deficit) equity |
| ARR | Annualized Recurring Revenue; a supplemental performance metric to provide additional insight on the estimated value of MA's recurring revenue contracts at a given point in time, excluding the impact of FX and contracts related to acquisitions |
| 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: Australia, China, India, Indonesia, Japan, Republic of South Korea, Malaysia, Singapore, Sri Lanka and Thailand |
| ASR | Accelerated Share Repurchase |
| ASU | | The FASB Accounting Standards Update to the ASC. It also providesProvides 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 |
| BitSight | A provider that helps global market participants understand cyber risk through ratings, analytics, and performance management tools |
| Board | | The board of directors of the Company |
| |
| BPS | | Basis points |
| |
Bureau van Dijk | | Bureau van Dijk Electronic Publishing, B.V., a global provider of business intelligence and company information; acquired by the Company on August 10, 2017 via the acquisition of Yellow Maple I B.V., an indirect parent of Bureau van Dijk. |
| |
| CCXI | | China Cheng Xin International Credit Rating Co. Ltd.; China’s first and largest domestic credit rating agency approved by the People’s Bank of China; the Company acquired a 49% interest in 2006; currently Moody’s owns 30% of CCXI.CCXI |
| CDP | Carbon Disclosure Project; an international nonprofit organization that helps companies, cities, states and regions manage their environmental impact through a global disclosure system |
| CFG | Corporate finance group; an LOB of MIS |
| |
CCXI GainCMBS | | In the first quarter of 2017 CCXI, as part of a strategic business realignment, issued additional capital to its majority shareholder in exchange for a ratings business wholly-owned by the majority shareholder and which has the right to rate a differentCommercial mortgage-backed securities; an asset class of debt instrument in the Chinese market. The capital issuance by CCXI in exchange for this ratings business diluted Moody’s ownership interest in CCXI to 30% of a larger business and resulted in a $59.7 millionnon-cash,non-taxable gain. |
| | within SFG |
| COLI | |
CLO | | Collateralized loan obligation |
| |
Commission | | European CommissionCorporate-Owned Life Insurance |
| |
| Common Stock | | The Company’s common stock |
| |
| Company | | Moody’s Corporation and its subsidiaries; MCO; Moody’s |
| |
Copal | | Copal Partners; an acquisition completed in November 2011; part of the MA segment; leading provider of research and analytical services to institutional investors |
| |
Copal AmbaCOVID-19 | | Operating segment (rebranded as MAKSAn outbreak of a novel strain of coronavirus resulting in 2016) created in January 2014 that consists of all operations from Copalan international public health crisis and Amba. Part of the PS LOB within the MA reportable segment. Also a reporting unit. |
| |
Council | | Council of the European Union |
| global pandemic |
| CP | | Commercial Paper |
| |
CP Notes | | Unsecured commercial paper issued under the CP Program |
| |
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 2021 Facility |
| |
CRAs | |
| Data and Information (D&I) | Credit rating agenciesLOB within MA which provides vast data sets on companies and securities via data feeds and data applications products |
| |
CSPPDecision Solutions (DS) | | Corporate Sector Purchase Programme; quantitative easing program implemented byLOB within MA that provides SaaS solutions supporting banking, insurance, and KYC workflows. This LOB utilizes components from the ECB. This program allows the central bankData & Information and Research & Insights LOBs to purchase bonds issued by European companies, as well as provides access to the secondary bond market in which existing corporate bonds trade |
| |
D&A | | Depreciation and amortization |
| |
DBPP | | Defined benefit pension plans |
| |
Debt/EBITDA | | Ratio of Total Debt to EBITDA |
| |
EBITDA | | Earnings before interest, taxes, depreciation and amortization |
| |
ECB | | European Central Bankprovide risk assessment solutions |
| |
| EMEA | | Represents countries within Europe, the Middle East and Africa |
| |
| EPS | | Earnings per share |
| |
ERSESG | | The enterprise risk solutions LOB within MA, which offers risk management software products as well as software implementation servicesEnvironmental, Social, and related risk management advisory engagementsGovernance |
| |
ESA | |
| Economics and Structured Analytics; part of the RD&A line of business within MA |
| | | |
ESMATERM | | European Securities and Markets AuthorityDEFINITION |
| ESTR | Euro Short-Term Rate |
| ETR | | Effective tax rate |
| |
| EU | | European Union |
| |
EUR
EURIBOR | | EurosThe 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 |
| |
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; part of the PS LOB and a reporting unit within the MA reportable segment; consists of online and classroom-based training services and CSI Global Education, Inc. |
| |
FX | | Foreign exchange |
| |
GAAP | | U.S. Generally Accepted Accounting Principles |
| |
GBP | | British pounds |
| GCR | Global Credit Rating Company Limited; a credit rating agency in Africa with operations spanning the continent, including in South Africa, Nigeria, Senegal, Kenya, and Mauritius |
GGY
GDP | | Gilliland Gold Young; a leading provider of advanced actuarial software for the global insurance industry. The Company acquired GGY on March 1, 2016; part of the ERS LOB and reporting unit within the MA reportable segmentGross domestic product |
| GRI | Global Reporting Initiative; an international independent standards organization that helps organizations understand and disclose their impact on climate change, human rights and corruption |
ICRA | | ICRA Limited; a leading provider of credit ratings and research in India. The Company previously held 28.5% equity ownership and in June 2014, increased that ownership stake to just over 50% through the acquisition of additional sharesIndia |
| |
ICTEAS
| | ICRA Techno Analytics; formerly a wholly-owned subsidiary of ICRA; divested by ICRA in the fourth quarter of 2016 |
| |
IRS
| | Internal Revenue Service |
| |
IT
| | Information technology |
| |
KIS
kompany | | Korea Investors Service, Inc;360kompany AG (kompany); a leading Korean rating agencyVienna, Austria-based platform for business verification and consolidated subsidiary ofKnow Your Customer (KYC) technology solutions, acquired by the Company in February 2022 |
| |
KIS Pricing
KYC | | Korea Investors Service Pricing, Inc; a leading Korean provider of fixed income securities pricing and consolidated subsidiary of the CompanyKnow-your-customer |
| |
LIBOR | | London Interbank Offered Rate |
| |
LOB | | Line of business |
| |
M&A
| | Mergers and acquisitions |
| |
MA | | Moody’s Analytics –- a reportable segment of MCO formed in January 2008 which provides a wide range of products and services that support financial analysis and risk management activities of institutional participants in global financial markets; consists of three LOBs – RD&A, ERS- Decision Solutions; Research and PSInsights; and Data and Information |
| |
Make Whole Amount
MAKS | | The prepayment penalty amount relating to the Series2007-1 Notes, 2010 Senior Notes, 2012 Senior Notes, 2013 Senior Notes, 2014 Senior Notes(5-year), 2014 Senior Notes(30-year), 2015 Senior Notes, 2017 Senior Notes, 2017 Private Placement Notes Due 2023 and 2017 Private Placement Notes Due 2028 which is a premium based on the excess, if any, of the discounted value of the remaining scheduled payments over the prepaid principal |
| |
MAKS
| | Moody’s Analytics Knowledge Services; formerly known as Copal Amba; providesprovided offshore research and analytic services to the global financial and corporate sectors; partbusiness was divested in the fourth quarter of the PS LOB2019 and was formerly a reporting unit within the MA reportable segment |
| | |
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MCO | | Moody’s Corporation and its subsidiaries; the Company; Moody’s |
| |
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- SFG; CFG; FIG; PPIF; and MIS Other |
| |
MIS Other | | Consists of financial instruments pricing services in the Asia-Pacific region, ICRA non-ratings revenue, and revenue from ICRA, KIS Pricing and KIS Research.professional services. These businesses are components of MIS; MIS Other is an LOB of MIS |
| |
Moody’s | | Moody’s Corporation and its subsidiaries; MCO; the Company |
| MSS | Moody's Shared Services; primarily consists of information technology and support staff such as finance, human resources and legal that support both MA and MIS |
| |
| |
| Net Income | | Net income attributable to Moody’s Corporation, which excludes net income from consolidated noncontrolling interests belonging to the minority interest holder |
| |
NM
| |
| NM | Percentage change is not meaningful |
| Non-GAAP | |
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
TERM | DEFINITION |
| 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, certain gains and losses relating to pension and other retirement benefit obligations and foreign currency translation adjustments |
| |
Other Retirement Plan
Operating segment | | The U.S. retirement healthcareTerm 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 U.S. retirement life insurance plansincur 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 |
| |
PPIF
| |
| 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 |
| |
PS
| | Professional Services, an LOB within MA consisting of MAKS and FSTC that provides research and analytical services as well as financial training and certification programs |
| |
Purchase Price Hedge
| | Foreign currency collar and forward contracts entered by the Company to economically hedge the Bureau van Dijk euro denominated purchase price |
| |
Purchase Price Hedge Gain
Recurring Revenue | | Gain on foreign currency collars to economically hedge the Bureau van Dijk euro denominated purchase price |
| |
RD&A
| | Research, DataFor MA, represents subscription-based revenue and Analytics; an LOB within MA that produces, sells and distributes research, data and related content. Includes products generated by MIS, such as analyses on major debt issuers, industry studies, and commentary on topical credit events. Also includes economic research, data, quantitative risk scores, other analytical tools that are produced within MA and business intelligence and company information products. |
| |
Reform Act
| | Credit Rating Agency Reform Act of 2006 |
| |
REIT
| | Real Estate Investment Trust |
| |
Relationship Revenue
| | software maintenance 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 license and maintenance revenue |
| | |
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Retirement Plans | | Moody’s funded and unfunded pension plans, the healthcare plans and life insurance plans |
| |
SCDM
Reporting unit | The level at which Moody’s evaluates its goodwill for impairment under U.S. GAAP; defined as an operating segment or one level below an operating segment |
| Research and Insights (R&I) | SCDM Financial, a leading provider of analytical tools for participants in securitization markets. Moody’s acquired SCDM’s
LOB within MA thatprovides models, scores, expert insights and commentary. This LOB includes credit research; credit models and analytics; economics data and models; and structured finance data and analytics business in February 2017solutions |
| |
SEC
| |
| RMBS | Residential mortgage-backed securities; an asset class within SFG |
| |
| RMS | A global provider of climate and natural disaster risk modeling and analytics; acquired by the Company in September 2021 |
| SaaS | Software-as-a-Service |
| |
| SASB | Sustainability Accounting Standards Board |
| SEC | U.S. Securities and Exchange Commission |
| |
Securities Act | | Securities Act of 1933, as amended |
| |
Series2007-1 Notes | | Principal amount of $300 million, 6.06% senior unsecured notes due in September 2017 pursuant to the 2007 Agreement; prepaid in March 2017 |
| |
Settlement Charge | | Charge of $863.8 million recorded in the fourth quarter of 2016 related to an agreement entered into on January 13, 2017 with the U.S. Department of Justice and the attorneys general of 21 U.S states and the District of Columbia to resolve pending and potential civil claims related to the credit ratings that MIS assigned to certain structured finance instruments in the financial crisis era |
| |
| SFG | | Structured finance group; an LOB of MIS |
| |
| SG&A | | Selling, general and administrative expenses |
| SOFR | Secured Overnight Financing Rate |
| 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. |
| TCFD | Task Force on Climate-Related Financial Disclosures |
| Total Debt | | All indebtedness of the Company as reflected on the consolidated balance sheets |
| |
| Transaction Revenue | | For MA, represents perpetual software license fees and revenue from software implementation services, risk management advisory projects, and training and certification services. For MIS (excluding MIS Other), 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 software license fees and revenue from risk management advisory projects, training and certification services, and research and analytical engagements |
| services. |
| U.K. | | United Kingdom |
| |
| U.S. | | United States |
| |
| USD | | U.S. dollar |
| |
UTBs | | Unrecognized tax benefits |
| |
| UTPs | | Uncertain tax positions |
| |
VSOEWEF | | Vendor specific objective evidence; as defined inWorld Economic Forum; an independent international organization for public-private cooperation that engages the ASC, evidenceforemost political, business, cultural and other leaders of selling price limitedsociety to either of the following: the price charged for a deliverable when it is sold separately, or for a deliverable not yet being sold separately, the price established by management having the relevant authorityshape global, regional and industry agendas |
| |
2007 Agreement | | Note purchase agreement dated September 7, 2007, relating to the Series2007-1 Notes |
| |
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 |
| |
2001 Plan | 2001 Moody's Corporation Key Employees' Stock Incentive Plan, as amended and restated December 20, 2022 |
| 2022 - 2023 Geolocation Restructuring Program | Restructuring program approved by the chief executive officer of Moody’s on June 30, 2022 relating to the Company's post-COVID-19 geolocation strategy |
| 2013 Senior Notes | due 2024 | 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 (5-year and 30-year) |
| |
2017 Indenture
| | Collectively the Supplemental indenture and related agreements dated March 2, 2017, relating to the 2017 Floating Rate Senior Notes and 2017 Senior Notes and the Supplemental indenture and related agreements dated June 12, 2017, relating to the 2017 Private Placement Notes Due 2023 and 2017 Private Placement Notes Due 2028 |
| |
2014 Senior Notes(5-Year)
| | Principal amount of $450 million, 2.75% senior unsecured notes due in July 2019 |
| |
2014 Senior Notes(30-Year)
| 2044 | Principal amount of $600 million, 5.25% senior unsecured notes due in July 2044 |
| |
2015 Facility
| | Five-year unsecured revolving credit facility, with capacity to borrow up to $1 billion; |
| |
2015 Indenture
| | Supplemental indenture and related agreements dated March 9, 2015, relating to the 2015 Senior Notes |
| |
2015 Senior Notes
| due 2027 | Principal amount of €500 million, 1.75% senior unsecured notes issued March 9, 2015 and due in March 2027 |
| |
2017 Bridge Credit Facility | | Bridge Credit Agreement entered into in May 2017 pursuant to the definitive agreement to acquire Bureau van Dijk; this facility was terminated in June 2017 upon issuance of the 2017 Private Placement Notes Due 2023 and the 2017 Private Placement Notes Due 2028 |
| |
2017 Floating Rate Senior Notes
| due 2028 | Principal amount of $300 million, floating rate senior unsecured notes due in September 2018 |
| |
2017 Private Placement Notes Due 2023 | | Principal amount $500 million, 2.625% senior unsecured notes due January 15, 2023 |
| |
2017 Private Placement Notes Due 2028 | | Principal amount $500 million, 3.250% senior unsecured notes due January 15, 2028 |
| |
20172018 Senior Notes
| due 2029 | Principal amount of $400 million, 4.25% senior unsecured notes due February 1, 2029 |
| 2018 Senior Notes due 2048 | Principal amount of $400 million, 4.875% senior unsecured notes due December 17, 2048 |
| | | | | |
| TERM | DEFINITION |
| 2019 Senior Notes due 2030 | Principal amount of €750 million, 0.950% senior unsecured notes due February 25, 2030 |
| 2020 Senior Notes due 2025 | Principal amount of $700 million, 3.75% senior unsecured notes due March 24, 2025 |
| 2020 Senior Notes due 2050 | Principal amount of $300 million, 3.25% senior unsecured notes due May 20, 2050 |
| 2020 Senior Notes due 2060 | Principal amount of $500 million, 2.55% senior unsecured notes due August 18, 2060 |
| 2021 Facility | Five-year unsecured revolving credit facility, with capacity to borrow up to $1.25 billion; backstops CP issued under the CP Program |
| 2021 Senior Notes due 2031 | Principal amount of $600 million, 2.00% senior unsecured notes due August 19, 2031 |
| 2021 Senior Notes due 2041 | Principal amount of $600 million, 2.75% senior unsecured notes due in December 2021August 19, 2041 |
| 2021 Senior Notes due 2061 | Principal amount of $500 million, 3.10% senior unsecured notes due November 15, 2061 |
2017 Term Loan
2022 Senior Notes due 2052 | | $500 million, three-year term loan facility entered into on June 6, 2017 for which the Company drew downPrincipal amount of $500 million, on August 8, 2017 to fund the acquisition3.75% senior unsecured notes due February 25, 2052 |
| 2022 Senior Notes due 2032 | Principal amount of Bureau van Dijk.$500 million, 4.25% senior unsecured notes due January 15, 2032 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in millions, except per share data)
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | | Nine months ended
September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Revenue | | $ | 1,062.9 | | | $ | 917.1 | | | $ | 3,038.6 | | | $ | 2,662.1 | |
| | | | | | | | | | | | | | | | |
| | | | |
Expenses | | | | | | | | | | | | | | | | |
Operating | | | 317.2 | | | | 253.2 | | | | 880.4 | | | | 761.3 | |
Selling, general and administrative | | | 247.2 | | | | 225.3 | | | | 686.8 | | | | 683.2 | |
Restructuring | | | — | | | | 8.4 | | | | — | | | | 12.0 | |
Depreciation and amortization | | | 43.0 | | | | 32.7 | | | | 108.4 | | | | 93.8 | |
Acquisition-Related Expenses | | | 10.1 | | | | — | | | | 16.7 | | | | — | |
| | | | | | | | | | | | | | | | |
| | | | |
Total expenses | | | 617.5 | | | | 519.6 | | | | 1,692.3 | | | | 1,550.3 | |
| | | | | | | | | | | | | | | | |
| | | | |
Operating income | | | 445.4 | | | | 397.5 | | | | 1,346.3 | | | | 1,111.8 | |
| | | | | | | | | | | | | | | | |
| | | | |
Non-operating (expense) income, net | | | | | | | | | | | | | | | | |
Interest expense, net | | | (48.1 | ) | | | (35.4 | ) | | | (135.5 | ) | | | (103.8 | ) |
Othernon-operating (expense) income, net | | | (1.4 | ) | | | 6.9 | | | | (2.5 | ) | | | 15.5 | |
Purchase Price Hedge Gain | | | 69.9 | | | | — | | | | 111.1 | | | | — | |
CCXI Gain | | | — | | | | — | | | | 59.7 | | | | — | |
| | | | | | | | | | | | | | | | |
| | | | |
Totalnon-operating income (expense), net | | | 20.4 | | | | (28.5 | ) | | | 32.8 | | | | (88.3 | ) |
| | | | | | | | | | | | | | | | |
| | | | |
Income before provisions for income taxes | | | 465.8 | | | | 369.0 | | | | 1,379.1 | | | | 1,023.5 | |
Provision for income taxes | | | 146.1 | | | | 112.4 | | | | 399.9 | | | | 322.2 | |
| | | | | | | | | | | | | | | | |
| | | | |
Net income | | | 319.7 | | | | 256.6 | | | | 979.2 | | | | 701.3 | |
Less: Net income attributable to noncontrolling interests | | | 2.4 | | | | 1.3 | | | | 4.1 | | | | 6.1 | |
| | | | | | | | | | | | | | | | |
Net income attributable to Moody’s | | $ | 317.3 | | | | 255.3 | | | | 975.1 | | | | 695.2 | |
| | | | | | | | | | | | | | | | |
| | | | |
Earnings per share attributable to Moody’s common shareholders | | | | | | | | | | | | | | | | |
Basic | | $ | 1.66 | | | | 1.33 | | | | 5.10 | | | | 3.60 | |
| | | | | | | | | | | | | | | | |
Diluted | | $ | 1.63 | | | | 1.31 | | | | 5.02 | | | | 3.55 | |
| | | | | | | | | | | | | | | | |
| | | | |
Weighted average number of shares outstanding | | | | | | | | | | | | | | | | |
Basic | | | 191.1 | | | | 191.7 | | | | 191.1 | | | | 193.3 | |
| | | | | | | | | | | | | | | | |
Diluted | | | 194.1 | | | | 194.3 | | | | 194.1 | | | | 196.0 | |
| | | | | | | | | | | | | | | | |
| | | | |
Dividends declared per share attributable to Moody’s common shareholders | | $ | 0.38 | | | $ | 0.37 | | | $ | 0.76 | | | $ | 0.74 | |
| | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements.
MOODY’S CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Amounts in millions)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, 2017 | | | Three Months Ended
September 30, 2016 | |
| | | Pre-tax
amounts | | | Tax
amounts | | | After-tax
amounts | | | Pre-tax
amounts | | | Tax
amounts | | | After-tax
amounts | |
Net Income | | | | | | | | | | $ | 319.7 | | | | | | | | | | | $ | 256.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Other Comprehensive Income (Loss): | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign Currency Adjustment: | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments, net | | $ | 45.4 | | | $ | 6.4 | | | | 51.8 | | | $ | (12.0 | ) | | $ | 2.6 | | | | (9.4 | ) |
Cash Flow Hedges: | | | | | | | | | | | | | | | | | | | | | | | | |
Net realized and unrealized gain on cash flow hedges | | | 5.2 | | | | (2.0 | ) | | | 3.2 | | | | 5.1 | | | | (1.9 | ) | | | 3.2 | |
Reclassification of (gains) included in net income | | | (4.2 | ) | | | 1.6 | | | | (2.6 | ) | | | (1.3 | ) | | | 0.4 | | | | (0.9 | ) |
Available for Sale Securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Net unrealized gains on available for sale securities | | | 0.5 | | | | — | | | | 0.5 | | | | 0.7 | | | | — | | | | 0.7 | |
Reclassification of gains included in net income | | | (2.2 | ) | | | — | | | | (2.2 | ) | | | — | | | | — | | | | — | |
Pension and Other Retirement Benefits: | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of actuarial losses and prior service costs included in net income | | | 2.1 | | | | (0.8 | ) | | | 1.3 | | | | 2.4 | | | | (0.9 | ) | | | 1.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Other Comprehensive Income (Loss) | | $ | 46.8 | | | $ | 5.2 | | | $ | 52.0 | | | $ | (5.1 | ) | | $ | 0.2 | | | $ | (4.9 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive Income | | | | | | | | | | | 371.7 | | | | | | | | | | | | 251.7 | |
Less: comprehensive income (loss) attributable to noncontrolling interests | | | | | | | | | | | 3.1 | | | | | | | | | | | | (14.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive Income Attributable to Moody’s | | | | | | | | | | $ | 368.6 | | | | | | | | | | | $ | 266.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | Nine Months Ended
September 30, 2017 | | | Nine Months Ended
September 30, 2016 | |
| | | Pre-tax
amounts | | | Tax
amounts | | | After-tax
amounts | | | Pre-tax
amounts | | | Tax
amounts | | | After-tax
amounts | |
Net Income | | | | | | | | | | $ | 979.2 | | | | | | | | | | | $ | 701.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Other Comprehensive Income (Loss): | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign Currency Adjustment: | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustments, net | | $ | 94.9 | | | $ | 19.5 | | | | 114.4 | | | $ | (9.4 | ) | | $ | 16.6 | | | | 7.2 | |
Cash flow hedges: | | | | | | | | | | | | | | | | | | | | | | | | |
Net realized and unrealized gain on cash flow hedges | | | 10.0 | | | | (3.8 | ) | | | 6.2 | | | | 2.5 | | | | (1.0 | ) | | | 1.5 | |
Reclassification of (gains) included in net income | | | (11.7 | ) | | | 4.9 | | | | (6.8 | ) | | | (0.9 | ) | | | 0.3 | | | | (0.6 | ) |
Available for sale securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Net unrealized gains on available for sale securities | | | 1.6 | | | | — | | | | 1.6 | | | | 1.9 | | | | — | | | | 1.9 | |
Reclassification of gains included in net income | | | (2.2 | ) | | | — | | | | (2.2 | ) | | | — | | | | — | | | | — | |
Pension and Other Retirement Benefits: | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of actuarial losses and prior service costs included in net income | | | 6.4 | | | | (2.5 | ) | | | 3.9 | | | | 7.3 | | | | (2.8 | ) | | | 4.5 | |
Net actuarial gains and prior service costs | | | 7.9 | | | | (3.0 | ) | | | 4.9 | | | | 5.3 | | | | (2.0 | ) | | | 3.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Other Comprehensive Income | | $ | 106.9 | | | $ | 15.1 | | | $ | 122.0 | | | $ | 6.7 | | | $ | 11.1 | | | $ | 17.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive Income | | | | | | | | | | | 1,101.2 | | | | | | | | | | | | 719.1 | |
Less: comprehensive income (loss) attributable to noncontrolling interests | | | | | | | | | | | 19.6 | | | | | | | | | | | | (10.0 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive Income Attributable to Moody’s | | | | | | | | | | $ | 1,081.6 | | | | | | | | | | | $ | 729.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended
June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Revenue | $ | 1,494 | | | $ | 1,381 | | | $ | 2,964 | | | $ | 2,903 | |
| Expenses | | | | | | | |
| Operating | 426 | | | 393 | | | 854 | | | 810 | |
| Selling, general, and administrative | 415 | | | 368 | | | 801 | | | 739 | |
| Depreciation and amortization | 93 | | | 81 | | | 181 | | | 159 | |
| Restructuring | 10 | | | 31 | | | 24 | | | 31 | |
| | | | | | | |
| | | | | | | |
| Total expenses | 944 | | | 873 | | | 1,860 | | | 1,739 | |
| Operating income | 550 | | | 508 | | | 1,104 | | | 1,164 | |
| Non-operating (expense) income, net | | | | | | | |
| Interest expense, net | (71) | | | (55) | | | (119) | | | (108) | |
| Other non-operating income (expense), net | 13 | | | (10) | | | 13 | | | (4) | |
| Total non-operating (expense) income, net | (58) | | | (65) | | | (106) | | | (112) | |
| Income before provision for income taxes | 492 | | | 443 | | | 998 | | | 1,052 | |
| Provision for income taxes | 115 | | | 116 | | | 120 | | | 227 | |
| | | | | | | |
| | | | | | | |
| Net income attributable to Moody's | $ | 377 | | | $ | 327 | | | $ | 878 | | | $ | 825 | |
| Earnings per share attributable to Moody's common shareholders | | | | | | | |
| Basic | $ | 2.05 | | | $ | 1.78 | | | $ | 4.79 | | | $ | 4.47 | |
| Diluted | $ | 2.05 | | | $ | 1.77 | | | $ | 4.77 | | | $ | 4.45 | |
| Weighted average number of shares outstanding | | | | | | | |
| Basic | 183.5 | | | 184.1 | |
| 183.4 | | | 184.6 | |
| Diluted | 184.1 | | | 184.9 | |
| 184.1 | | | 185.4 | |
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)
| | | | | | | | |
| | | September 30, | | | December 31, | |
| | | 2017 | | | 2016 | |
| ASSETS | | | | | | | | |
| | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 962.8 | | | $ | 2,051.5 | |
Short-term investments | | | 108.3 | | | | 173.4 | |
Accounts receivable, net of allowances of $32.2 in 2017 and $25.7 in 2016 | | | 1,007.3 | | | | 887.4 | |
Other current assets | | | 200.5 | | | | 140.8 | |
| | | | | | | | |
Total current assets | | | 2,278.9 | | | | 3,253.1 | |
Property and equipment, net of accumulated depreciation of $681.9 in 2017 and $595.5 in 2016 | | | 332.1 | | | | 325.9 | |
Goodwill | | | 3,722.1 | | | | 1,023.6 | |
Intangible assets, net | | | 1,633.1 | | | | 296.4 | |
Deferred tax assets, net | | | 170.2 | | | | 316.1 | |
Other assets | | | 168.5 | | | | 112.2 | |
| | | | | | | | |
Total assets | | $ | 8,304.9 | | | $ | 5,327.3 | |
| | | | | | | | |
| | |
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | | | | | | | | |
| | |
Current liabilities: | | | | | | | | |
Accounts payable and accrued liabilities | | $ | 577.5 | | | $ | 1,444.3 | |
Commercial paper | | | 314.8 | | | | — | |
Current portion of long-term debt | | | 299.3 | | | | 300.0 | |
Deferred revenue | | | 791.1 | | | | 683.9 | |
| | | | | | | | |
Total current liabilities | | | 1,982.7 | | | | 2,428.2 | |
Non-current portion of deferred revenue | | | 135.5 | | | | 134.1 | |
Long-term debt | | | 5,107.3 | | | | 3,063.0 | |
Deferred tax liabilities, net | | | 452.6 | | | | 104.3 | |
Unrecognized tax benefits | | | 336.3 | | | | 199.8 | |
Other liabilities | | | 447.3 | | | | 425.2 | |
| | | | | | | | |
Total liabilities | | | 8,461.7 | | | | 6,354.6 | |
Contingencies (Note 15) | | | — | | | | — | |
Shareholders’ deficit: | | | | | | | | |
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 September 30, 2017 and December 31, 2016, respectively. | | | 3.4 | | | | 3.4 | |
Capital surplus | | | 495.6 | | | | 477.2 | |
Retained earnings | | | 7,513.4 | | | | 6,688.9 | |
Treasury stock, at cost; 151,821,294 and 152,208,231 shares of common stock at September 30, 2017 and December 31, 2016, respectively | | | (8,123.7 | ) | | | (8,029.6 | ) |
Accumulated other comprehensive loss | | | (257.8 | ) | | | (364.9 | ) |
| | | | | | | | |
Total Moody’s shareholders’ deficit | | | (369.1 | ) | | | (1,225.0 | ) |
Noncontrolling interests | | | 212.3 | | | | 197.7 | |
| | | | | | | | |
Total shareholders’ deficit | | | (156.8 | ) | | | (1,027.3 | ) |
| | | | | | | | |
Total liabilities and shareholders’ deficit | | $ | 8,304.9 | | | $ | 5,327.3 | |
| | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements.
MOODY’S CORPORATION
CONSOLIDATED STATEMENTS OF
CASH FLOWSCOMPREHENSIVE INCOME (UNAUDITED)
(Amounts in millions)
| | | | | | | | |
| | | Nine months ended | |
| | | September 30, | |
| | | 2017 | | | 2016 | |
Cash flows from operating activities | | | | | | | | |
Net income | | $ | 979.2 | | | $ | 701.3 | |
Reconciliation of net income to net cash provided by operating activities: | | | | | | | | |
Depreciation and amortization | | | 108.4 | | | | 93.8 | |
Stock-based compensation expense | | | 88.9 | | | | 72.8 | |
CCXI Gain | | | (59.7 | ) | | | — | |
Purchase Price Hedge Gain | | | (111.1 | ) | | | — | |
Deferred income taxes | | | 161.4 | | | | 7.1 | |
Legacy Tax Matters | | | — | | | | (1.6 | ) |
Changes in assets and liabilities: | | | | | | | | |
Accounts receivable | | | (9.8 | ) | | | (35.6 | ) |
Other current assets | | | (16.2 | ) | | | 51.1 | |
Other assets | | | 11.4 | | | | 10.2 | |
Accounts payable and accrued liabilities | | | (834.3 | ) | | | (54.6 | ) |
Deferred revenue | | | (19.3 | ) | | | 31.2 | |
Unrecognized tax benefits and othernon-current tax liabilities | | | 18.4 | | | | (1.8 | ) |
Other liabilities | | | 25.4 | | | | 15.1 | |
| | | | | | | | |
| | |
Net cash provided by operating activities | | | 342.7 | | | | 889.0 | |
| | | | | | | | |
| | |
Cash flows from investing activities | | | | | | | | |
Capital additions | | | (69.4 | ) | | | (84.8 | ) |
Purchases of investments | | | (124.0 | ) | | | (279.7 | ) |
Sales and maturities of investments | | | 183.8 | | | | 438.7 | |
Cash paid for acquisitions, net of cash acquired and equity investments | | | (3,511.0 | ) | | | (79.1 | ) |
Receipts from Purchase Price Hedge | | | 111.1 | | | | — | |
Receipts from settlement of net investment hedges | | | 2.1 | | | | 2.5 | |
| | | | | | | | |
| | |
Net cash used in investing activities | | | (3,407.4 | ) | | | (2.4 | ) |
| | | | | | | | |
| | |
Cash flows from financing activities | | | | | | | | |
Issuance of notes | | | 2,291.9 | | | | — | |
Repayments of notes | | | (300.0 | ) | | | — | |
Issuance of commercial paper | | | 1,437.5 | | | | — | |
Repayment of commercial paper | | | (1,123.2 | ) | | | — | |
Proceeds from stock-based compensation plans | | | 49.3 | | | | 72.5 | |
Repurchase of shares for payroll tax withholdings related to stock-based compensation | | | (48.3 | ) | | | (44.0 | ) |
Cost of treasury shares repurchased | | | (163.6 | ) | | | (678.9 | ) |
Payment of dividends | | | (217.8 | ) | | | (214.5 | ) |
Payment of dividends to noncontrolling interests | | | (3.2 | ) | | | (4.6 | ) |
Payment for noncontrolling interest | | | (6.2 | ) | | | (45.4 | ) |
Debt issuance costs and related fees | | | (19.7 | ) | | | (0.1 | ) |
| | | | | | | | |
| | |
Net cash provided by (used in) financing activities | | | 1,896.7 | | | | (915.0 | ) |
Effect of exchange rate changes on cash and cash equivalents | | | 79.3 | | | | 17.1 | |
| | | | | | | | |
Net decrease in cash and cash equivalents | | | (1,088.7 | ) | | | (11.3 | ) |
Cash and cash equivalents, beginning of the period | | | 2,051.5 | | | | 1,757.4 | |
| | | | | | | | |
| | |
Cash and cash equivalents, end of the period | | $ | 962.8 | | | $ | 1,746.1 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Three Months Ended June 30, 2023 | | Three Months Ended June 30, 2022 |
| Pre-tax
amounts | | Tax
amounts | | After-tax
amounts | | Pre-tax
amounts | | Tax
amounts | | After-tax
amounts |
| Net Income | | | | | $ | 377 | | | | | | | $ | 327 | |
| Other Comprehensive Income (Loss): | | | | | | | | | | | |
| Foreign Currency Adjustments: | | | | | | | | | | | |
| Foreign currency translation adjustments, net | $ | 51 | | | $ | — | | | 51 | | | $ | (340) | | | $ | 3 | | | (337) | |
| Foreign currency translation adjustments - reclassification of losses included in net income | — | | | — | | | — | | | 20 | | | — | | | 20 | |
| Net (losses) gains on net investment hedges | (37) | | | 9 | | | (28) | | | 241 | | | (60) | | | 181 | |
| | | | | | | | | | | |
| Cash Flow Hedges: | | | | | | | | | | | |
| | | | | | | | | | | |
| Reclassification of losses included in net income | — | | | (1) | | | (1) | | | — | | | — | | | — | |
| Pension and Other Retirement Benefits: | | | | | | | | | | | |
| Amortization of actuarial losses and prior service costs included in net income | (2) | | | 1 | | | (1) | | | 1 | | | — | | | 1 | |
| Net actuarial gains and prior service costs | — | | | — | | | — | | | 6 | | | (2) | | | 4 | |
| Total other comprehensive income (loss) | $ | 12 | | | $ | 9 | | | $ | 21 | | | $ | (72) | | | $ | (59) | | | $ | (131) | |
| Comprehensive income | | | | | 398 | | | | | | | 196 | |
| Less: comprehensive income (loss) attributable to noncontrolling interests | | | | | 2 | | | | | | | (3) | |
| Comprehensive Income Attributable to Moody's | | | | | $ | 396 | | | | | | | $ | 199 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended
June 30, 2023 | | Six Months Ended
June 30, 2022 |
| |
| Pre-tax
amounts | | Tax
amounts | | After-tax
amounts | | Pre-tax
amounts | | Tax
amounts | | After-tax
amounts |
| Net Income | | | | | $ | 878 | | | | | | | $ | 825 | |
| Other Comprehensive Income (Loss): | | | | | | | | | | | |
| Foreign Currency Adjustments: | | | | | | | | | | | |
| Foreign currency translation adjustments, net | $ | 160 | | | $ | (2) | | | 158 | | | $ | (448) | | | $ | 4 | | | (444) | |
| Foreign currency translation adjustments - reclassification of losses included in net income | — | | | — | | | — | | | 20 | | | — | | | 20 | |
| Net (losses) gains on net investment hedges | (113) | | | 28 | | | (85) | | | 305 | | | (77) | | | 228 | |
| | | | | | | | | | | |
| Cash Flow Hedges: | | | | | | | | | | | |
| | | | | | | | | | | |
| Reclassification of losses included in net income | 1 | | | (1) | | | — | | | 1 | | | — | | | 1 | |
| Pension and Other Retirement Benefits: | | | | | | | | | | | |
| Amortization of actuarial losses and prior service costs included in net income | (2) | | | 1 | | | (1) | | | 1 | | | — | | | 1 | |
| Net actuarial gains and prior service costs | — | | | — | | | — | | | 3 | | | (1) | | | 2 | |
| Total other comprehensive income (loss) | $ | 46 | | | $ | 26 | | | $ | 72 | | | $ | (118) | | | $ | (74) | | | $ | (192) | |
| Comprehensive income | | | | | 950 | | | | | | | 633 | |
| Less: comprehensive loss attributable to noncontrolling interests | | | | | (1) | | | | | | | (3) | |
| Comprehensive Income Attributable to Moody's | | | | | $ | 951 | | | | | | | $ | 636 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in millions, except share and per share data) | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 2,278 | | | $ | 1,769 | |
| Short-term investments | 57 | | | 90 | |
| Accounts receivable, net of allowance for credit losses of $33 in 2023 and $40 in 2022 | 1,542 | | | 1,652 | |
| Other current assets | 513 | | | 583 | |
| | | |
| Total current assets | 4,390 | | | 4,094 | |
| Property and equipment, net of accumulated depreciation of $1,195 in 2023 and $1,123 in 2022 | 541 | | | 502 | |
| Operating lease right-of-use assets | 330 | | | 346 | |
| Goodwill | 5,926 | | | 5,839 | |
| Intangible assets, net | 2,138 | | | 2,210 | |
| Deferred tax assets, net | 265 | | | 266 | |
| Other assets | 1,101 | | | 1,092 | |
| Total assets | $ | 14,691 | | | $ | 14,349 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY |
| Current liabilities: | | | |
| Accounts payable and accrued liabilities | $ | 877 | | | $ | 1,011 | |
| Current portion of operating lease liabilities | 105 | | | 106 | |
| | | |
| Current portion of long-term debt | 300 | | | — | |
| Deferred revenue | 1,385 | | | 1,258 | |
| | | |
| Total current liabilities | 2,667 | | | 2,375 | |
| Non-current portion of deferred revenue | 67 | | | 75 | |
| Long-term debt | 6,923 | | | 7,389 | |
| Deferred tax liabilities, net | 485 | | | 457 | |
| Uncertain tax positions | 204 | | | 322 | |
| Operating lease liabilities | 344 | | | 368 | |
| Other liabilities | 689 | | | 674 | |
| Total liabilities | 11,379 | | | 11,660 | |
| Contingencies (Note 16) | | | |
| Shareholders' equity: | | | |
| Preferred stock, par value $0.01 per share; 10,000,000 shares authorized; no shares issued and outstanding | — | | | — | |
| Series common stock, par value $0.01 per share; 10,000,000 shares authorized; no shares issued and outstanding | — | | | — | |
| Common stock, par value $0.01 per share; 1,000,000,000 shares authorized; 342,902,272 shares issued at June 30, 2023 and December 31, 2022, respectively | 3 | | | 3 | |
| Capital surplus | 1,124 | | | 1,054 | |
| Retained earnings | 14,213 | | | 13,618 | |
| Treasury stock, at cost; 159,444,702 and 159,702,362 shares of common stock at June 30, 2023 and December 31, 2022, respectively | (11,626) | | | (11,513) | |
| Accumulated other comprehensive loss | (570) | | | (643) | |
| Total Moody's shareholders' equity | 3,144 | | | 2,519 | |
| Noncontrolling interests | 168 | | | 170 | |
| Total shareholders' equity | 3,312 | | | 2,689 | |
| Total liabilities, noncontrolling interests, and shareholders' equity | $ | 14,691 | | | $ | 14,349 | |
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) | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
| Cash flows from operating activities | |
| Net income | $ | 878 | | | $ | 825 | |
| Reconciliation of net income to net cash provided by operating activities: | | | |
| Depreciation and amortization | 181 | | | 159 | |
| Stock-based compensation | 97 | | | 84 | |
| Deferred income taxes | 21 | | | 65 | |
| | | |
| | | |
| | | |
| FX translation losses reclassified to net income | — | | | 20 | |
| Changes in assets and liabilities: | | | |
| Accounts receivable | 121 | | | 63 | |
| Other current assets | 78 | | | (172) | |
| | | |
| Other assets | (24) | | | (12) | |
| Lease obligations | (9) | | | (7) | |
| | | |
| Accounts payable and accrued liabilities | (86) | | | (276) | |
| Deferred revenue | 97 | | | 92 | |
| Uncertain tax positions | (120) | | | (44) | |
| Other liabilities | (22) | | | (36) | |
| Net cash provided by operating activities | 1,212 | | | 761 | |
| Cash flows from investing activities |
| Capital additions | (127) | | | (133) | |
| Purchases of investments | (55) | | | (182) | |
| Sales and maturities of investments | 82 | | | 99 | |
| Receipts from settlements of net investment hedges | — | | | 136 | |
| Cash paid for acquisitions, net of cash acquired | (3) | | | (92) | |
| | | |
| Net cash used in investing activities | (103) | | | (172) | |
| Cash flows from financing activities | | | |
| Repayment of notes | (200) | | | — | |
| | | |
| | | |
| Proceeds from stock-based compensation plans | 31 | | | 16 | |
| Treasury shares | (108) | | | (871) | |
| | | |
| Repurchase of shares related to stock-based compensation | (64) | | | (83) | |
| Dividends | (283) | | | (259) | |
| Dividends to noncontrolling interest | — | | | (1) | |
| Issuance of notes | — | | | 491 | |
| Debt issuance costs and related fees | — | | | (5) | |
| | | |
| Net cash used in financing activities | (624) | | | (712) | |
| | | |
| Effect of exchange rate changes on cash and cash equivalents | 24 | | | (71) | |
| Increase (decrease) in cash and cash equivalents | 509 | | | (194) | |
| Cash and cash equivalents, beginning of period | 1,769 | | | 1,811 | |
| Cash and cash equivalents, end of period | $ | 2,278 | | | $ | 1,617 | |
| | | |
| | | |
| | | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
MOODY’S CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
(Amounts in millions, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders of Moody's Corporation | | | |
| Common Stock | | Capital Surplus | | Retained Earnings | | Treasury Stock | | Accumulated
Other
Comprehensive
Loss | | Total Moody's
Shareholders'
Equity | | Non- Controlling
Interests | | Total
Shareholders'
Equity |
| Shares | | Amount | | | Shares | | Amount | |
| Balance at March 31, 2022 | 342.9 | | | $ | 3 | | | $ | 826 | | | $ | 13,132 | | | (158.4) | | | $ | (11,096) | | | $ | (471) | | | $ | 2,394 | | | $ | 188 | | | $ | 2,582 | |
| Net income | | | | | | | 327 | | | | | | | | | 327 | | | — | | | 327 | |
| Dividends ($0.70 per share) | | | | | | | (131) | | | | | | | | | (131) | | | — | | | (131) | |
| Stock-based compensation | | | | | 38 | | | | | | | | | | | 38 | | | | | 38 | |
| Shares issued for stock-based compensation plans at average cost, net | | | | | 6 | | | | | — | | | 1 | | | | | 7 | | | | | 7 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Treasury shares repurchased | | | | | 95 | | | | | (1.0) | | | (308) | | | | | (213) | | | | | (213) | |
| | | | | | | | | | | | | | | | | | | |
| Currency translation adjustment, net of net investment hedge activity (net of tax of $57 million) | | | | | | | | | | | | | (133) | | | (133) | | | (3) | | | (136) | |
| Net actuarial gains and prior service costs (net of tax of $2 million) | | | | | | | | | | | | | 4 | | | 4 | | | | | 4 | |
| Amortization of prior service costs and actuarial losses | | | | | | | | | | | | | 1 | | | 1 | | | | | 1 | |
| | | | | | | | | | | | | | | | | | | |
| Balance at June 30, 2022 | 342.9 | | | $ | 3 | | | $ | 965 | | | $ | 13,328 | | | (159.4) | | | $ | (11,403) | | | $ | (599) | | | $ | 2,294 | | | $ | 185 | | | $ | 2,479 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
MOODY'S CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
(Amounts in millions, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders of Moody's Corporation | | | | | | |
| Common Stock | | Capital
Surplus | | Retained
Earnings | | Treasury Stock | | Accumulated
Other
Comprehensive
Loss | | Total Moody's
Shareholders'
Equity | | Non- Controlling
Interests | | Total
Shareholders'
Equity | | | |
| Shares | | Amount | | | Shares | | Amount | | | | |
| Balance at December 31, 2021 | 342.9 | | | $ | 3 | | | $ | 885 | | | $ | 12,762 | | | (157.3) | | | $ | (10,513) | | | $ | (410) | | | $ | 2,727 | | | $ | 189 | | | $ | 2,916 | | | | |
| Net income | | | | | | | 825 | | | | | | | | | 825 | | | — | | | 825 | | | | |
| Dividends ($1.40 per share) | | | | | | | (259) | | | | | | | | | (259) | | | (1) | | | (260) | | | | |
| Stock-based compensation | | | | | 84 | | | | | | | | | | | 84 | | | | | 84 | | | | |
| Shares issued for stock-based compensation plans at average cost, net | | | | | (36) | | | | | 0.5 | | | (31) | | | | | (67) | | | | | (67) | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Shares issued as consideration to acquire kompany(1) | | | | | 35 | | | | | 0.1 | | | 9 | | | | | 44 | | | | | 44 | | | | |
| Treasury shares repurchased | | | | | (3) | | | | | (2.7) | | | (868) | | | | | (871) | | | | | (871) | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Currency translation adjustment, net of net investment hedge activity (net of tax of $73 million) | | | | | | | | | | | | | (193) | | | (193) | | | (3) | | | (196) | | | | |
| Net actuarial losses and prior service costs (net of tax of $1 million) | | | | | | | | | | | | | 2 | | | 2 | | | | | 2 | | | | |
| Amortization of prior service costs and actuarial losses | | | | | | | | | | | | | 1 | | | 1 | | | | | 1 | | | | |
| Net realized and unrealized gain on cash flow hedges | | | | | | | | | | | | | 1 | | | 1 | | | | | 1 | | | | |
| Balance at June 30, 2022 | 342.9 | | | $ | 3 | | | $ | 965 | | | $ | 13,328 | | | (159.4) | | | $ | (11,403) | | | $ | (599) | | | $ | 2,294 | | | $ | 185 | | | $ | 2,479 | | | | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
(1) Represents a non-cash investing activity relating to the issuance of common stock to fund a portion of the purchase price for kompany.
MOODY'S CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
(Amounts in millions, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders of Moody's Corporation | | | |
| Common Stock | | Capital
Surplus | | Retained
Earnings | | Treasury Stock | | Accumulated
Other
Comprehensive
Loss | | Total Moody's
Shareholders'
Equity | | Non- Controlling
Interests | | Total
Shareholders'
Equity |
| Shares | | Amount | | | Shares | | Amount | |
| Balance at March 31, 2023 | 342.9 | | | $ | 3 | | | $ | 1,068 | | | $ | 13,979 | | | (159.4) | | | $ | (11,570) | | | $ | (589) | | | $ | 2,891 | | | $ | 167 | | | $ | 3,058 | |
| Net income | | | | | | | 377 | | | | | | | | | 377 | | | — | | | 377 | |
| Dividends ($0.77 per share) | | | | | | | (143) | | | | | | | | | (143) | | | (1) | | | (144) | |
| Stock-based compensation | | | | | 50 | | | | | | | | | | | 50 | | | | | 50 | |
| Shares issued for stock-based compensation plans at average cost, net | | | | | 6 | | | | | 0.3 | | | 11 | | | | | 17 | | | | | 17 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Treasury shares repurchased | | | | | | | | | (0.3) | | | (67) | | | | | (67) | | | | | (67) | |
| Currency translation adjustment, net of net investment hedge activity (net of tax of $9 million) | | | | | | | | | | | | | 21 | | | 21 | | | 2 | | | 23 | |
| | | | | | | | | | | | | | | | | | | |
| Amortization of prior service costs and actuarial losses | | | | | | | | | | | | | (1) | | | (1) | | | | | (1) | |
| Net realized and unrealized gain on cash flow hedges (net of tax of $1 million) | | | | | | | | | | | | | (1) | | | (1) | | | | | (1) | |
| Balance at June 30, 2023 | 342.9 | | | $ | 3 | | | $ | 1,124 | | | $ | 14,213 | | | (159.4) | | | $ | (11,626) | | | $ | (570) | | | $ | 3,144 | | | $ | 168 | | | $ | 3,312 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
MOODY'S CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
(Amounts in millions, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders of Moody's Corporation | | | |
| Common Stock | | Capital
Surplus | | Retained
Earnings | | Treasury Stock | | Accumulated
Other
Comprehensive
Loss | | Total Moody's
Shareholders'
Equity | | Non- Controlling
Interests | | Total
Shareholders'
Equity |
| Shares | | Amount | | | Shares | | Amount | |
| Balance at December 31, 2022 | 342.9 | | | $ | 3 | | | $ | 1,054 | | | $ | 13,618 | | | (159.7) | | | $ | (11,513) | | | $ | (643) | | | $ | 2,519 | | | $ | 170 | | | $ | 2,689 | |
| Net income | | | | | | | 878 | | | | | | | | | 878 | | | — | | | 878 | |
| Dividends ($1.54 per share) | | | | | | | (283) | | | | | | | | | (283) | | | (1) | | | (284) | |
| | | | | | | | | | | | | | | | | | | |
| Stock-based compensation | | | | | 97 | | | | | | | | | | | 97 | | | | | 97 | |
| Shares issued for stock-based compensation plans at average cost, net | | | | | (27) | | | | | 0.7 | | | (4) | | | | | (31) | | | | | (31) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Treasury shares repurchased | | | | | — | | | | | (0.4) | | | (109) | | | | | (109) | | | | | (109) | |
| | | | | | | | | | | | | | | | | | | |
| Currency translation adjustment, net of net investment hedge activity (net of tax of $26 million) | | | | | | | | | | | | | 74 | | | 74 | | | (1) | | | 73 | |
| | | | | | | | | | | | | | | | | | | |
| Amortization of prior service costs and actuarial losses (net of tax of $1 million) | | | | | | | | | | | | | (1) | | | (1) | | | | | (1) | |
| | | | | | | | | | | | | | | | | | | |
| Balance at June 30, 2023 | 342.9 | | | $ | 3 | | | $ | 1,124 | | | $ | 14,213 | | | (159.4) | | | $ | (11,626) | | | $ | (570) | | | $ | 3,144 | | | $ | 168 | | | $ | 3,312 | |
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 marketsglobal risk assessment firm that empowers organizations and
economic research, data and analytical tools, (iii) software solutions and related risk management services, (iv) quantitative credit risk measures, financial services training and certification services (v) analytical and research services and (vi) business intelligence and company information products.investors to make better decisions. Moody’s
hasreports in two reportable segments:
MISMA and
MA.MIS,MIS.
MA is a global provider of: i) data and information; ii) research and insights; and iii) decision solutions, which help companies make better and faster decisions. MA leverages its industry expertise across multiple risks such as credit, market, financial crime, supply chain, catastrophe and climate to deliver risk assessment solutions that enable business leaders to identify, measure and manage the credit rating agency,implications of interrelated risks and opportunities.
MIS publishes credit ratings
and provides assessment services on a wide range of debt obligations,
programs and facilities, and the entities that issue such obligations in markets
worldwide. Revenue is primarily derived from the originatorsworldwide, including various corporate, financial institution 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 the distribution of researchgovernmental obligations, and
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 range of products and services that support 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 analytical and research services along with financial training and certification programs.
structured finance securities.
These interim financial statements have been prepared in accordance with the instructions to Form
10-Q and should be read in conjunction with the Company’s consolidated financial statements and related notes in the Company’s
20162022 annual report on Form
10-K filed with the SEC on February
25, 2017.15, 2023. The results of interim periods are not necessarily indicative of results for the full year or any subsequent period. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included. The
year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
Certain reclassifications have been made to prior period amounts to conform to the current presentation.
Adoption of New Accounting
StandardStandards in 2023
In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform - Scope,” which clarified the scope and application of the original guidance, ASU No. 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU No. 2020-04"), issued in March 2020 (codified into ASC Topic 848 "Reference Rate Reform"). ASU No. 2020-04 provides temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. In December 2022, the FASB issued ASU 2022-06, "Reference Rate Reform—Deferral of the Sunset Date of Topic 848," which deferred the sunset date of Topic 848 to December 31, 2024. These ASU's were effective upon issuance and the amendments may be applied prospectively through December 31, 2024 as the transition from LIBOR is completed.
During the first quarter of 2017,2023, the Company adopted ASUNo. 2016-09 “Improvements to Employee Share-Based Payment Accounting”. As required by ASU2016-09, Excess Tax Benefits or shortfalls recognized on stock-based compensation expense are reflectedmodified the contractual terms of certain of its interest rate swaps designated as fair value hedges and cross-currency swaps designated as net investment hedges. These modifications replaced the previous LIBOR/EURIBOR-based reference rates included in the consolidated statement of operations as a componentswap agreements to SOFR/ESTR-based rates. Pursuant to the modification of the provisioncontractual terms of these instruments, the Company utilized the optional expedients set forth in ASC Topic 848 relating to derivative instruments used in hedging relationships. The aggregate notional amounts of these swaps is disclosed in Note 8.
Reclassification of Previously Reported Revenue by LOB
In the second quarter of 2023, the Company expanded its disaggregation of revenue disclosures for income taxes on a prospective basis. PriorMA's Decision Solutions LOB to enhance insight and transparency into this business. In conjunction with this new presentation, the Company reclassified certain immaterial revenue relating to structured finance solutions from the Decision Solutions LOB to the adoptionResearch & Insights LOB.
Prior year revenue by LOB disclosures have been reclassified to conform to this new presentation, which is disclosed in Note 2.
NOTE 2. REVENUES
Revenue by Category
The following table presents the Company’s revenues disaggregated by LOB: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended
June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| MA: | | | | | | | |
| Decision Solutions (DS) | | | | | | | |
| Banking | $ | 123 | | | $ | 110 | | | $ | 254 | | | $ | 240 | |
| Insurance | 133 | | | 119 | | | 266 | | | 241 | |
| KYC | 78 | | | 65 | | | 148 | | | 127 | |
| Total DS | 334 | | | 294 | | | 668 | | | 608 | |
| Research and Insights (R&I) | 217 | | | 203 | | | 432 | | | 406 | |
| Data and Information (D&I) | 196 | | | 178 | | | 384 | | | 356 | |
| Total external revenue | 747 | | | 675 | | | 1,484 | | | 1,370 | |
| Intersegment revenue | 4 | | | 1 | | | 7 | | | 3 | |
| Total MA | 751 | | | 676 | | | 1,491 | | | 1,373 | |
| MIS: | | | | | | | |
| Corporate Finance (CFG) | | | | | | | |
| Investment-grade | 94 | | | 68 | | | 209 | | | 182 | |
| High-yield | 46 | | | 31 | | | 78 | | | 70 | |
| Bank loans | 68 | | | 72 | | | 127 | | | 185 | |
Other accounts (1) | 157 | | | 151 | | | 307 | | | 302 | |
| Total CFG | 365 | | | 322 | | | 721 | | | 739 | |
| Structured Finance (SFG) | | | | | | | |
| Asset-backed securities | 32 | | | 31 | | | 59 | | | 63 | |
| RMBS | 25 | | | 28 | | | 50 | | | 63 | |
| CMBS | 14 | | | 27 | | | 28 | | | 65 | |
| Structured credit | 31 | | | 36 | | | 63 | | | 75 | |
| Other accounts | — | | | 1 | | | 1 | | | 1 | |
| Total SFG | 102 | | | 123 | | | 201 | | | 267 | |
| Financial Institutions (FIG) | | | | | | | |
| Banking | 97 | | | 93 | | | 197 | | | 182 | |
| Insurance | 35 | | | 24 | | | 68 | | | 58 | |
| Managed investments | 10 | | | 8 | | | 16 | | | 13 | |
| Other accounts | 3 | | | 3 | | | 6 | | | 6 | |
| Total FIG | 145 | | | 128 | | | 287 | | | 259 | |
| Public, Project and Infrastructure Finance (PPIF) |
| Public finance / sovereign | 54 | | | 55 | | | 106 | | | 113 | |
| Project and infrastructure | 73 | | | 67 | | | 150 | | | 132 | |
| Total PPIF | 127 | | | 122 | | | 256 | | | 245 | |
| Total ratings revenue | 739 | | | 695 | | | 1,465 | | | 1,510 | |
| MIS Other | 8 | | | 11 | | | 15 | | | 23 | |
| Total external revenue | 747 | | | 706 | | | 1,480 | | | 1,533 | |
| Intersegment revenue | 46 | | | 43 | | | 91 | | | 86 | |
| Total MIS | 793 | | | 749 | | | 1,571 | | | 1,619 | |
| Eliminations | (50) | | | (44) | | | (98) | | | (89) | |
| Total MCO | $ | 1,494 | | | $ | 1,381 | | | $ | 2,964 | | | $ | 2,903 | |
(1) Other includes: recurring monitoring fees of a rated debt obligation and/or entities that issue such obligations as well as fees from programs such as commercial paper, medium term notes, and shortfalls were recorded to capital surplus within shareholders’ deficit. ICRA corporate finance revenue.
The impactfollowing table presents the Company’s revenues disaggregated by LOB and geographic area:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2023 | | Three Months Ended June 30, 2022 |
| U.S. | | Non-U.S | | Total | | U.S. | | Non-U.S | | Total |
| MA: |
| Decision Solutions | $ | 140 | | | $ | 194 | | | $ | 334 | | | $ | 120 | | | $ | 174 | | | $ | 294 | |
| Research and Insights | 119 | | | 98 | | | 217 | | | 115 | | | 88 | | | 203 | |
| Data and Information | 68 | | | 128 | | | 196 | | | 62 | | | 116 | | | 178 | |
| Total MA | 327 | | | 420 | | | 747 | | | 297 | | | 378 | | | 675 | |
| MIS: |
| Corporate Finance | 239 | | | 126 | | | 365 | | | 210 | | | 112 | | | 322 | |
| Structured Finance | 60 | | | 42 | | | 102 | | | 83 | | | 40 | | | 123 | |
| Financial Institutions | 73 | | | 72 | | | 145 | | | 53 | | | 75 | | | 128 | |
| Public, Project and Infrastructure Finance | 83 | | | 44 | | | 127 | | | 78 | | | 44 | | | 122 | |
| Total ratings revenue | 455 | | | 284 | | | 739 | | | 424 | | | 271 | | | 695 | |
| MIS Other | — | | | 8 | | | 8 | | | 2 | | | 9 | | | 11 | |
| Total MIS | 455 | | | 292 | | | 747 | | | 426 | | | 280 | | | 706 | |
| Total MCO | $ | 782 | | | $ | 712 | | | $ | 1,494 | | | $ | 723 | | | $ | 658 | | | $ | 1,381 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Six Months Ended June 30, 2023 | | Six Months Ended June 30, 2022 |
| U.S. | | Non-U.S | | Total | | U.S. | | Non-U.S | | Total |
| MA: |
| Decision Solutions | $ | 279 | | | $ | 389 | | | $ | 668 | | | $ | 253 | | | $ | 355 | | | $ | 608 | |
| Research and Insights | 237 | | | 195 | | | 432 | | | 232 | | | 174 | | | 406 | |
| Data and Information | 135 | | | 249 | | | 384 | | | 122 | | | 234 | | | 356 | |
| Total MA | 651 | | | 833 | | | 1,484 | | | 607 | | | 763 | | | 1,370 | |
| MIS: |
| Corporate Finance | 485 | | | 236 | | | 721 | | | 485 | | | 254 | | | 739 | |
| Structured Finance | 121 | | | 80 | | | 201 | | | 180 | | | 87 | | | 267 | |
| Financial Institutions | 136 | | | 151 | | | 287 | | | 118 | | | 141 | | | 259 | |
| Public, Project and Infrastructure Finance | 159 | | | 97 | | | 256 | | | 153 | | | 92 | | | 245 | |
| Total ratings revenue | 901 | | | 564 | | | 1,465 | | | 936 | | | 574 | | | 1,510 | |
| MIS Other | — | | | 15 | | | 15 | | | 3 | | | 20 | | | 23 | |
| Total MIS | 901 | | | 579 | | | 1,480 | | | 939 | | | 594 | | | 1,533 | |
| Total MCO | $ | 1,552 | | | $ | 1,412 | | | $ | 2,964 | | | $ | 1,546 | | | $ | 1,357 | | | $ | 2,903 | |
The following table presents the Company’s reportable segment revenues disaggregated by segment and $35.6 million benefitgeographic region:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended
June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| MA: | | | | | | | |
| U.S. | $ | 327 | | | $ | 297 | | | $ | 651 | | | $ | 607 | |
| Non-U.S.: | | | | | | | |
| EMEA | 289 | | | 257 | | | 567 | | | 520 | |
| Asia-Pacific | 71 | | | 71 | | | 151 | | | 139 | |
| Americas | 60 | | | 50 | | | 115 | | | 104 | |
| Total Non-U.S. | 420 | | | 378 | | | 833 | | | 763 | |
| Total MA | 747 | | | 675 | | | 1,484 | | | 1,370 | |
| MIS: | |
| U.S. | 455 | | | 426 | | | 901 | | | 939 | |
| Non-U.S.: | | | | | | | |
| EMEA | 181 | | | 165 | | | 354 | | | 358 | |
| Asia-Pacific | 75 | | | 80 | | | 146 | | | 154 | |
| Americas | 36 | | | 35 | | | 79 | | | 82 | |
| Total Non-U.S. | 292 | | | 280 | | | 579 | | | 594 | |
| Total MIS | 747 | | | 706 | | | 1,480 | | | 1,533 | |
| Total MCO | $ | 1,494 | | | $ | 1,381 | | | $ | 2,964 | | | $ | 2,903 | |
The following tables summarize the split between Transaction Revenue and Recurring Revenue.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2023 | | 2022 |
| Transaction | | Recurring | | Total | | Transaction | | Recurring | | Total |
| Decision Solutions | $ | 43 | | | $ | 291 | | | $ | 334 | | | $ | 38 | | | $ | 256 | | | $ | 294 | |
| 13 | % | | 87 | % | | 100 | % | | 13 | % | | 87 | % | | 100 | % |
| Research and Insights | $ | 3 | | | $ | 214 | | | $ | 217 | | | $ | 4 | | | $ | 199 | | | $ | 203 | |
| 1 | % | | 99 | % | | 100 | % | | 2 | % | | 98 | % | | 100 | % |
| Data and Information | $ | 1 | | | $ | 195 | | | $ | 196 | | | $ | — | | | $ | 178 | | | $ | 178 | |
| 1 | % | | 99 | % | | 100 | % | | — | % | | 100 | % | | 100 | % |
| Total MA | $ | 47 | | (1) | $ | 700 | | | $ | 747 | | | $ | 42 | | | $ | 633 | | | $ | 675 | |
| 6 | % | | 94 | % | | 100 | % | | 6 | % | | 94 | % | | 100 | % |
| Corporate Finance | $ | 236 | | | $ | 129 | | | $ | 365 | | | $ | 199 | | | $ | 123 | | | $ | 322 | |
| 65 | % | | 35 | % | | 100 | % | | 62 | % | | 38 | % | | 100 | % |
| Structured Finance | $ | 48 | | | $ | 54 | | | $ | 102 | | | $ | 73 | | | $ | 50 | | | $ | 123 | |
| 47 | % | | 53 | % | | 100 | % | | 59 | % | | 41 | % | | 100 | % |
| Financial Institutions | $ | 73 | | | $ | 72 | | | $ | 145 | | | $ | 57 | | | $ | 71 | | | $ | 128 | |
| 50 | % | | 50 | % | | 100 | % | | 45 | % | | 55 | % | | 100 | % |
| Public, Project and Infrastructure Finance | $ | 84 | | | $ | 43 | | | $ | 127 | | | $ | 82 | | | $ | 40 | | | $ | 122 | |
| 66 | % | | 34 | % | | 100 | % | | 67 | % | | 33 | % | | 100 | % |
| MIS Other | $ | 2 | | | $ | 6 | | | $ | 8 | | | $ | 1 | | | $ | 10 | | | $ | 11 | |
| 25 | % | | 75 | % | | 100 | % | | 9 | % | | 91 | % | | 100 | % |
| Total MIS | $ | 443 | | | $ | 304 | | | $ | 747 | | | $ | 412 | | | $ | 294 | | | $ | 706 | |
| 59 | % | | 41 | % | | 100 | % | | 58 | % | | 42 | % | | 100 | % |
| Total Moody's Corporation | $ | 490 | | | $ | 1,004 | | | $ | 1,494 | | | $ | 454 | | | $ | 927 | | | $ | 1,381 | |
| 33 | % | | 67 | % | | 100 | % | | 33 | % | | 67 | % | | 100 | % |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
| Transaction | | Recurring | | Total | | Transaction | | Recurring | | Total |
| Decision Solutions | $ | 83 | | | $ | 585 | | | $ | 668 | | | $ | 78 | | | $ | 530 | | | $ | 608 | |
| 12 | % | | 88 | % | | 100 | % | | 13 | % | | 87 | % | | 100 | % |
| Research and Insights | $ | 8 | | | $ | 424 | | | $ | 432 | | | $ | 8 | | | $ | 398 | | | $ | 406 | |
| 2 | % | | 98 | % | | 100 | % | | 2 | % | | 98 | % | | 100 | % |
| Data and Information | $ | 1 | | | $ | 383 | | | $ | 384 | | | $ | — | | | $ | 356 | | | $ | 356 | |
| — | % | | 100 | % | | 100 | % | | — | % | | 100 | % | | 100 | % |
| Total MA | $ | 92 | | (1) | $ | 1,392 | | | $ | 1,484 | | | $ | 86 | | | $ | 1,284 | | | $ | 1,370 | |
| 6 | % | | 94 | % | | 100 | % | | 6 | % | | 94 | % | | 100 | % |
| Corporate Finance | $ | 466 | | | $ | 255 | | | $ | 721 | | | $ | 492 | | | $ | 247 | | | $ | 739 | |
| 65 | % | | 35 | % | | 100 | % | | 67 | % | | 33 | % | | 100 | % |
| Structured Finance | $ | 94 | | | $ | 107 | | | $ | 201 | | | $ | 166 | | | $ | 101 | | | $ | 267 | |
| 47 | % | | 53 | % | | 100 | % | | 62 | % | | 38 | % | | 100 | % |
| Financial Institutions | $ | 143 | | | $ | 144 | | | $ | 287 | | | $ | 118 | | | $ | 141 | | | $ | 259 | |
| 50 | % | | 50 | % | | 100 | % | | 46 | % | | 54 | % | | 100 | % |
| Public, Project and Infrastructure Finance | $ | 169 | | | $ | 87 | | | $ | 256 | | | $ | 161 | | | $ | 84 | | | $ | 245 | |
| 66 | % | | 34 | % | | 100 | % | | 66 | % | | 34 | % | | 100 | % |
| MIS Other | $ | 3 | | | $ | 12 | | | $ | 15 | | | $ | 2 | | | $ | 21 | | | $ | 23 | |
| 20 | % | | 80 | % | | 100 | % | | 9 | % | | 91 | % | | 100 | % |
| Total MIS | $ | 875 | | | $ | 605 | | | $ | 1,480 | | | $ | 939 | | | $ | 594 | | | $ | 1,533 | |
| 59 | % | | 41 | % | | 100 | % | | 61 | % | | 39 | % | | 100 | % |
| Total Moody's Corporation | $ | 967 | | | $ | 1,997 | | | $ | 2,964 | | | $ | 1,025 | | | $ | 1,878 | | | $ | 2,903 | |
| 33 | % | | 67 | % | | 100 | % | | 35 | % | | 65 | % | | 100 | % |
(1) Revenue from software implementation services and risk management advisory projects, while classified by management as transactional revenue, is recognized over time under U.S. GAAP (please also refer to the provisionfollowing table).The following table presents the timing of revenue recognition:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2023 | | Six Months Ended June 30, 2023 | | |
| MA | | MIS | | Total | | MA | | MIS | | Total | | | | | | |
| Revenue recognized at a point in time | $ | 22 | | | $ | 443 | | | $ | 465 | | | $ | 49 | | | $ | 875 | | | $ | 924 | | | | | | | |
| Revenue recognized over time | 725 | | | 304 | | | 1,029 | | | 1,435 | | | 605 | | | 2,040 | | | | | | | |
| Total | $ | 747 | | | $ | 747 | | | $ | 1,494 | | | $ | 1,484 | | | $ | 1,480 | | | $ | 2,964 | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Three Months Ended June 30, 2022 | | Six Months Ended June 30, 2022 |
| MA | | MIS | | Total | | MA | | MIS | | Total |
| Revenue recognized at a point in time | $ | 16 | | | $ | 412 | | | $ | 428 | | | $ | 57 | | | $ | 939 | | | $ | 996 | |
| Revenue recognized over time | 659 | | | 294 | | | 953 | | | 1,313 | | | 594 | | | 1,907 | |
| Total | $ | 675 | | | $ | 706 | | | $ | 1,381 | | | $ | 1,370 | | | $ | 1,533 | | | $ | 2,903 | |
Unbilled receivables, deferred revenue and remaining performance obligations
Unbilled receivables
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. In addition, certain MIS arrangements contain contractual terms whereby the customers are billed in arrears for income taxesannual monitoring services, requiring revenue to be accrued as an unbilled receivable as such services are provided.
The following table presents the Company's unbilled receivables, which are included within accounts receivable, net, at June 30, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| As of June 30, 2023 | | As of December 31, 2022 |
| MA | | MIS | | MA | | MIS |
| Unbilled Receivables | $ | 119 | | | $ | 428 | | | $ | 148 | | | $ | 385 | |
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 and six months ended June 30, 2023 and 2022 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Three Months Ended June 30, 2023 | | Three Months Ended June 30, 2022 |
| MA | | MIS | | Total | | MA | | MIS | | Total |
| Balance at March 31, | $ | 1,288 | | | $ | 360 | | | $ | 1,648 | | | $ | 1,234 | | | $ | 377 | | | $ | 1,611 | |
| Changes in deferred revenue | | | | | | | | | | | |
| Revenue recognized that was included in the deferred revenue balance at the beginning of the period | (592) | | | (116) | | | (708) | | | (391) | | | (117) | | | (508) | |
| Increases due to amounts billable excluding amounts recognized as revenue during the period | 417 | | | 91 | | | 508 | | | 213 | | | 94 | | | 307 | |
| | | | | | | | | | | |
| Effect of exchange rate changes | 3 | | | 1 | | | 4 | | | (37) | | | (7) | | | (44) | |
| Total changes in deferred revenue | (172) | | | (24) | | | (196) | | | (215) | | | (30) | | | (245) | |
| Balance at June 30, | $ | 1,116 | | | $ | 336 | | | $ | 1,452 | | | $ | 1,019 | | | $ | 347 | | | $ | 1,366 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Six Months Ended June 30, 2023 | | Six Months Ended June 30, 2022 |
| MA | | MIS | | Total | | MA | | MIS | | Total |
| Balance at December 31, | $ | 1,055 | | | $ | 278 | | | $ | 1,333 | | | $ | 1,039 | | | $ | 296 | | | $ | 1,335 | |
| Changes in deferred revenue | | | | | | | | | | | |
| Revenue recognized that was included in the deferred revenue balance at the beginning of the period | (788) | | | (160) | | | (948) | | | (654) | | | (155) | | | (809) | |
| Increases due to amounts billable excluding amounts recognized as revenue during the period | 830 | | | 216 | | | 1,046 | | | 680 | | | 215 | | | 895 | |
| Increases due to acquisitions during the period | — | | | — | | | — | | | 1 | | | — | | | 1 | |
| Effect of exchange rate changes | 19 | | | 2 | | | 21 | | | (47) | | | (9) | | | (56) | |
| Total changes in deferred revenue | 61 | | | 58 | | | 119 | | | (20) | | | 51 | | | 31 | |
| Balance at June 30, | $ | 1,116 | | | $ | 336 | | | $ | 1,452 | | | $ | 1,019 | | | $ | 347 | | | $ | 1,366 | |
| Deferred revenue - current | $ | 1,115 | | | $ | 270 | | | $ | 1,385 | | | $ | 1,017 | | | $ | 268 | | | $ | 1,285 | |
| Deferred revenue - non-current | $ | 1 | | | $ | 66 | | | $ | 67 | | | $ | 2 | | | $ | 79 | | | $ | 81 | |
For the MA segment, the decrease in deferred revenue for the three
and nine months ended
SeptemberJune 30,
2017, respectively.Additionally,2023 was primarily due to the recognition of annual subscription and maintenance billings from December 2022 and January 2023. For the six months ended June 30, 2023, the increase in accordance with this ASU, Excess Tax Benefits or shortfalls recognized on stock-based compensation are classified as operating cash flowsdeferred revenue is primarily attributable to the high concentration of billings in the consolidated statementfirst quarter.
For the MIS segment, the changes in the deferred revenue balance during the three and six months ended June 30, 2023 were primarily related to the significant portion of cash flows,contract renewals that occurred during the first quarter of 2023 and are generally recognized over a one year period.
Remaining performance obligations
Remaining performance obligations in the MA segment include both amounts recorded as deferred revenue on the balance sheet as of June 30, 2023 as well as amounts not yet invoiced to customers as of June 30, 2023, largely reflecting future revenue related to signed multi-year arrangements for hosted and installed subscription-based products. As of June 30, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $3.2 billion. The Company expects to recognize into revenue approximately 65% of this balance within one year, approximately 25% of this balance between one to two years and the remaining amount thereafter.
Remaining performance obligations in the MIS segment 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. As of June 30, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $96 million. The Company expects to recognize into revenue approximately 25% of this balance within one year, approximately 50% of this balance between one to five years and the remaining amount thereafter. With respect to the remaining performance obligations for the MIS segment, the Company has applied this provision on a retrospective basis. Under previous accounting guidance, the Excess Tax Benefits or shortfalls were shown as a reduction to operating activity and an increase to financing activity. Furthermore, the Company has elected to continue to estimate the number of stock-based awards expected to vest, rather than accounting for award forfeitures as they occur, to determine the amount of stock-based compensation cost recognized in each period. The impact to the Company’s statement of cash flows for the nine months ended September 30, 2016 relating to the adoption of this provision of the ASU ispractical expedient set forth in the table below: | | | | | | | | | | | | |
| (amounts in millions) | | As reported
Nine Months Ended
September 30, 2016 | | | Adoption
Adjustment | | | Nine Months Ended
September 30, 2016
As adjusted | |
Net cash provided by operating activities | | $ | 856.6 | | | $ | 32.4 | | | $ | 889.0 | |
Net cash used in financing activities | | $ | (882.6) | | | $ | (32.4) | | | $ | (915.0) | |
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
In accordance with the Company’s early adoption of ASU2017-04, “Simplifying the Test for Goodwill Impairment (Topic 350)”, the Company has modified its accounting policy regarding long-lived assets, including goodwill and other acquired intangible assets. All other significant accounting policies described in the Form10-K for the year ended December 31, 2016 remain unchanged. The Company’s revised accounting policy regarding long-lived assets, including goodwill and other acquired intangible assets is disclosed below.
Long-Lived Assets, including Goodwill and Other Acquired Intangible Assets
Moody’s evaluates its goodwill for impairment at the reporting unit level, defined as an operating segment or one level below an operating segment, annually as of July 31 or more frequently if impairment indicators arise in accordance with ASC Topic 350.
The Company evaluates606 permitting the recoverability of goodwill using atwo-step impairment test approach at the reporting unit level. In the first step, the Company assesses various qualitative factors to determine whether the fair value of a reporting unit may be less than its carrying amount. If a determination is made that, based on the qualitative factors, an impairment does not exist, the Company is not required to perform further testing. If the aforementioned qualitative assessment results in the Company concluding that it is more likely than not that the fair value of a reporting unit may be less than its carrying amount, the fair value of the reporting unit will be determined and compared to its carrying value including goodwill. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and the Company is not required to perform further testing. If the fair value of the reporting unit is less than the carrying value, the Company will recognize the difference as an impairment charge.
The Company evaluates its reporting units for impairment on an annual basis, or more frequently if there are changes in the reporting structure of the Company due to acquisitions or realignments or if there are indicators of potential impairment. For the reporting units where the Company is consistently able to conclude that an impairment does not exist using only a qualitative approach, the Company’s accounting policy is to perform the second step of the aforementioned goodwill impairment assessment at least once every three years. Goodwill is assigned to a reporting unit at the date when an acquisition is integrated into one of the established reporting units, and is based on which reporting unit is expected to benefitomission from the synergiesamounts stated above relating to unsatisfied performance obligations for contracts with an original expected length of the acquisition.
For purposes of assessing the recoverability of goodwill, the Company has seven primary reporting units at September 30, 2017: two within the Company’s ratings business (one for the ICRA business and one that encompasses all of Moody’s other ratings operations) and five reporting units within MA: RD&A, ERS, FSTC, MAKS and Bureau van Dijk. The RD&A reporting unit encompasses the distribution of investor-oriented research and data developed by MIS as part of its ratings process,in-depth research on major debt issuers, industry studies, economic research and commentary on topical events and credit analytic tools. The ERS reporting unit consists of credit risk management and compliance software that is sold on a licenseyear or subscription basis as well as related advisory services for implementation and maintenance. The FSTC reporting unit consists of the portion of the MA business that offers both credit training as well as other professional development training and certification services. The MAKS reporting unit consists of research and analytical services. The Bureau van Dijk reporting unit consists of business intelligence and company information products.
Amortizable intangible assets are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
less. NOTE 3. 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
September 30, | | | Nine months ended
September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Stock-based compensation cost | | $ | 31.8 | | | $ | 23.9 | | | $ | 88.9 | | | $ | 72.8 | |
Tax benefit | | $ | 10.3 | | | $ | 7.8 | | | $ | 28.8 | | | $ | 23.7 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Stock-based compensation cost | $ | 50 | | | $ | 38 | | | $ | 97 | | | $ | 84 | |
| Tax benefit | $ | 12 | | | $ | 9 | | | $ | 22 | | | $ | 20 | |
In April 2023, stockholders approved an amendment to the 2001 Plan increasing the number of shares of common stock authorized for issuance by 4.0 million. This results in the 2001 Plan now permitting for the grant of up to 54.6 million shares, of which not more than 10.7 million shares are available for grants of awards other than stock options. During the first
nine monthshalf of
2017,2023, the Company granted
0.20.1 million employee stock options, which had a weighted average grant date fair value of
$30.00$94.67 per
share based on the Black-Scholes option-pricing model.share. The Company also granted
1.00.6 million shares of restricted stock in the first
ninesix months of
2017,2023, which had a weighted average grant date fair value of
$113.39$295.59 per share. Both the employee stock options and restricted stock generally vest ratably over
a four-year period.four years. Additionally, the Company granted
approximately 0.20.1 million shares of performance-based awards whereby the number of shares that ultimately vest are based on the achievement of certain
non-market based non-market-based performance metrics of the Company over
a three-year period.three years. The weighted average grant date fair value of these awards was
$109.36$286.04 per share.
The following weighted average assumptions were used in determining the fair value
using the Black-Scholes option-pricing model for options granted in
2017: | | | | |
Expected dividend yield | | | 1.34 | % |
Expected stock volatility | | | 26.8 | % |
Risk-free interest rate | | | 2.19 | % |
Expected holding period | | | 6.5 years | |
Grant date fair value | | $ | 30.00 | |
2023:
| | | | | |
| Expected dividend yield | 1.04 | % |
| Expected stock volatility | 29 | % |
| Risk-free interest rate | 4.18 | % |
| Expected holding period | 5.8 years |
Unrecognized
stock-based compensation expense at
SeptemberJune 30,
20172023 was
$8.0$17 million and
$150.1$309 million for stock options and unvested restricted stock, respectively, which is expected to be recognized over a weighted average period of
1.42.1 years and
1.62.7 years, respectively. Additionally, there was
$27.7$39 million of unrecognized
stock-based compensation expense relating to the aforementioned
non-market based non-market-based performance-based awards, which is expected to be recognized over a weighted average period of
1.12.2 years.
The following
tables summarizetable summarizes information relating to stock option exercises and restricted stock vesting:
| | | | | | | | |
| | | Nine months ended | |
| | | September 30, | |
| Exercise of stock options: | | 2017 | | | 2016 | |
Proceeds from stock option exercises | | $ | 44.0 | | | $ | 67.7 | |
Aggregate intrinsic value | | $ | 75.7 | | | $ | 67.8 | |
Tax benefit realized upon exercise | | $ | 26.9 | | | $ | 23.1 | |
Number of shares exercised | | | 1.0 | | | | 1.4 | |
| |
| | | Nine months ended | |
| | | September 30, | |
| Vesting of restricted stock: | | 2017 | | | 2016 | |
Fair value of shares vested | | $ | 109.1 | | | $ | 92.8 | |
Tax benefit realized upon vesting | | $ | 34.6 | | | $ | 29.5 | |
Number of shares vested | | | 1.0 | | | | 1.0 | |
| |
| | | Nine months ended | |
| | | September 30, | |
| Vesting of performance-based restricted stock: | | 2017 | | | 2016 | |
Fair value of shares vested | | $ | 19.5 | | | $ | 23.6 | |
Tax benefit realized upon vesting | | $ | 6.9 | | | $ | 8.4 | |
Number of shares vested | | | 0.2 | | | | 0.2 | |
| | | | | | | | | | | |
| Six Months Ended
June 30, |
| 2023 | | 2022 |
| Exercise of stock options: | | | |
| Proceeds from stock option exercises | $ | 21 | | | $ | 4 | |
| Aggregate intrinsic value | $ | 44 | | | $ | 5 | |
| Tax benefit realized upon exercise | $ | 10 | | | $ | 1 | |
Number of shares exercised (1) | 0.2 | | | — | |
| Vesting of restricted stock: | | | |
| Fair value of shares vested | $ | 147 | | | $ | 170 | |
| Tax benefit realized upon vesting | $ | 34 | | | $ | 40 | |
| Number of shares vested | 0.5 | | | 0.5 | |
| Vesting of performance-based restricted stock: | | | |
| Fair value of shares vested | $ | 24 | | | $ | 50 | |
| Tax benefit realized upon vesting | $ | 3 | | | $ | 7 | |
| Number of shares vested | 0.1 | | | 0.2 | |
(1) The number of options exercised in 2022 was approximately 27 thousand.
Moody’s effective tax rate
(ETR) was
31.4%23.4% and
30.5%26.2% for the three months ended
SeptemberJune 30,
20172023 and
2016, respectively and 29.0% and 31.5% for the nine month periods ended September 30, 2017 and 2016,2022, respectively. The
increase for the three months ended September 30, 2017 is2.8% decrease was primarily due to
thehigher excess tax
effects of a purchase price hedge gain and higher tax rates onnon-U.S. income, partially offset by Excess Tax Benefits of $7.7 million onbenefits realized from stock-based compensation,
as further discussedalong with a non-deductible foreign currency translation loss in
Note 1 above, which favorably benefited2022 resulting from the
Company no longer conducting commercial operations in Russia. Furthermore, Moody’s ETR
by approximately 160 BPS.for the six months ended June 30, 2023 and 2022 was 12.0% and 21.6%, respectively. The
9.6% decrease in the ETR for the
ninesix months ended
SeptemberJune 30,
20172023 compared to the same period in the prior year was primarily due to
Excess Tax Benefitstax benefits recognized in the first quarter of
$35.62023, which reflect the resolutions of uncertain tax positions in various U.S. and non-U.S. tax jurisdictions. The Company’s year-to-date provision for income taxes differs from the tax computed by applying its estimated annual effective tax rate to the pre-tax earnings primarily due to the following items recognized in 2023: i) net reductions in UTPs of $117 million
onrelated to the resolutions of UTPs; and ii) excess tax benefits from stock-based compensation
as further discussed in Note 1, which favorably benefited the ETR by approximately 260 BPS coupled with thenon-taxable CCXI Gain as discussed in Note 11 below.of $13 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 other
non-operating (expense) income
(expense), net.
The Company had a net increase in its UTBs of $122.7 million ($122.6 million net of federal tax) during the third quarter of 2017 and a net increase in its UTBs during the first nine months of 2017 of $136.6 million ($136.9 million net of federal tax). The increase in reserves is primarily due to the recording of UTBs in connection with the Bureau van Dijk acquisition.
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 20122019 through 2020 are
currently under examination and
its returns for 2013, 2014 and 2015 remain2021 remains open to examination. The Company’s New York
StateCity tax returns for
20112015 through
20142019 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, 2014 and 20152017 through 2021 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
thesesuch 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
mightwill 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
ASC Topic 740
of the ASC regarding
UTBs.On March 30, 2016, the FASB issued Accounting Standards Update (ASU)2016-09, Improvements to Employee Share Based Payment Accounting as more fully discussed in Note 1 to the condensed consolidated financial statements. The new guidance requires all tax effects related to share based payments to be recorded through the income statement. The Company has adopted the new guidance as of the first quarter of 2017 and expects the adoption to result in a reduction in its income tax provision of approximately $40 million, or an approximate 225BPS reduction in the Company’s ETR for the full year of 2017.
In the first quarter of 2017, the Company adopted Accounting Standards Update2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory. Under previous guidance, the tax effects of intra-entity asset transfers (intercompany sales) were deferred until the transferred asset was sold to a third party or otherwise recovered through use. The new guidance eliminates the exception for all intra-entity sales of assets other than inventory. Upon adoption, a cumulative-effect adjustment is recorded in retained earnings as of the beginning of the period of adoption. The net impact upon adoption is a reduction to retained earnings of $4.6 million. The Company does not expect any material impact on its future operations as a result of the adoption of this guidance.
UTPs.
The following table shows the amount the Company paid for income taxes: | | | | | | | | |
| | | Nine months ended | |
| | | September 30, | |
| | | 2017 | | | 2016 | |
Income taxes paid* | | $ | 194.7 | | | $ | 242.8 | |
* | The decrease in income taxes paid is primarily due to tax benefits relating to the Settlement Charge |
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
| Income taxes paid | $ | 122 | | | $ | 326 | |
In August 2022, the U.S. Congress passed the Inflation Reduction Act, which included a corporate minimum tax on book earnings of 15%, an excise tax on corporate share repurchases of 1%, and certain climate change and energy tax credit incentives. The adoption of a corporate minimum tax of 15% is not expected to impact Moody’s ETR. The excise tax of 1% on corporate share buybacks will not have an impact on the Company’s ETR for 2023.
NOTE 5.
RECONCILIATION OF WEIGHTED AVERAGE SHARES OUTSTANDING
Below is a reconciliation of basic to diluted shares outstanding: | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | Nine months ended | |
| | | September 30, | | | September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Basic | | | 191.1 | | | | 191.7 | | | | 191.1 | | | | 193.3 | |
Dilutive effect of shares issuable under stock-based compensation plans | | | 3.0 | | | | 2.6 | | | | 3.0 | | | | 2.7 | |
| | | | | | | | | | | | | | | | |
Diluted | | | 194.1 | | | | 194.3 | | | | 194.1 | | | | 196.0 | |
| | | | | | | | | | | | | | | | |
Anti-dilutive options to purchase common shares and restricted stock as well as contingently issuable restricted stock which are excluded from the table above | | | 0.5 | | | | 0.5 | | | | 0.6 | | | | 0.9 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| |
| 2023 | | 2022 | | 2023 | | 2022 |
| Basic | 183.5 | | | 184.1 | | | 183.4 | | | 184.6 | |
| Dilutive effect of shares issuable under stock-based compensation plans | 0.6 | | | 0.8 | | | 0.7 | | | 0.8 | |
| Diluted | 184.1 | | | 184.9 | | | 184.1 | | | 185.4 | |
| 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 | | | 0.8 | | | 0.5 | | | 0.4 | |
The calculation of basic shares outstanding is based on the weighted average number of shares of common stock outstanding during the reporting period. 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 SeptemberJune 30, 20172023 and 2016.2022.
NOTE 6. ACCELERATED SHARE REPURCHASE PROGRAM
On March 1, 2022, the Company entered into an ASR agreement with a financial institution counterparty to repurchase $500 million of its outstanding common stock. The
assumed proceeds in 2017 do not include Excess Tax Benefits pursuantCompany paid $500 million to the
prospective adoptioncounterparty and received an initial delivery of
ASU2016-091.2 million shares of its common stock. Final settlement of the ASR agreement was completed in
April 2022 and the
first quarterCompany received delivery of
2017. The assumed proceeds in 2016 include Excess Tax Benefits.The decrease in the dilutedan additional 0.3 million shares outstanding in the nine months ended September 30, 2017 primarily reflects treasury share repurchases underof the Company’s Board authorizedcommon stock.
In total, the Company repurchased 1.5 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 $324.20 per share over the duration of the program. The initial share repurchase program.and final share settlement were recorded as a reduction to shareholders’ equity.
NOTE
6.7. CASH EQUIVALENTS AND INVESTMENTS
The table below provides additional information on the Company’s cash equivalents and investments: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of September 30, 2017 | |
| | | | | | Gross
Unrealized
Gains | | | | | | Balance sheet location | |
| | | Cost | | | | Fair
Value | | | Cash and cash
equivalents | | | Short-term
investments | | | Other
assets | |
Money market mutual funds | | $ | 18.5 | | | $ | — | | | $ | 18.5 | | | $ | 18.5 | | | $ | — | | | $ | — | |
Certificates of deposit and money market deposit accounts(1) | | $ | 253.2 | | | $ | — | | | $ | 253.2 | | | $ | 142.6 | | | $ | 108.3 | | | $ | 2.3 | |
Fixed maturity and open ended mutual funds(2) | | $ | 21.8 | | | $ | 5.2 | | | $ | 27.0 | | | $ | — | | | $ | — | | | $ | 27.0 | |
| |
| | | As of December 31, 2016 | |
| | | | | | | | | | | | Balance sheet location | |
| | | Cost | | | Gross
Unrealized
Gains | | | Fair
Value | | | Cash and cash
equivalents | | | Short-term
investments | | | Other
assets | |
Money market mutual funds | | $ | 189.0 | | | $ | — | | | $ | 189.0 | | | $ | 189.0 | | | $ | — | | | $ | — | |
Certificates of deposit and money market deposit accounts(1) | | $ | 1,190.5 | | | $ | — | | | $ | 1,190.5 | | | $ | 1,017.0 | | | $ | 173.4 | | | $ | 0.1 | |
Fixed maturity and open ended mutual funds(2) | | $ | 27.0 | | | $ | 5.6 | | | $ | 32.6 | | | $ | — | | | $ | — | | | $ | 32.6 | |
(1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of June 30, 2023 | | | | | | | | Balance sheet location | | Cost | | Gains/(Losses) | | Fair Value | | Cash and cash equivalents | | Short-term
investments | | Other
assets | Certificates of deposit and money market deposit accounts/funds (1) | $ | 1,221 | | | $ | — | | | $ | 1,221 | | | $ | 1,159 | | | $ | 57 | | | $ | 5 | | | Mutual funds | $ | 87 | | | $ | 4 | | | $ | 91 | | | $ | — | | | $ | — | | | $ | 91 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of December 31, 2022 | | | | | | | | Balance sheet location | |
Cost | | Gains/(Losses) | |
Fair Value | | Cash and cash
equivalents | | Short-term
investments | | Other
assets | | | | | | | | | | | | | Certificates of deposit and money market deposit accounts (1) | $ | 914 | | | $ | — | | | $ | 914 | | | $ | 808 | | | $ | 90 | | | $ | 16 | | | Mutual funds | $ | 71 | | | $ | — | | | $ | 71 | | | $ | — | | | $ | — | | | $ | 71 | |
(1) Consists of time deposits, and money market deposit accounts. The remaining contractual maturities for the certificates of deposits classified as short-term investments were one to 12 months at both September 30, 2017 and December 31, 2016. The remaining contractual maturities for the certificates of deposits classified in other assets are 13 to 51 months at September 30, 2017 and 13 months to 15 months at December 31, 2016. Time deposits with a maturity of less than 90 days at time of purchase are classified as cash and cash equivalents. |
(2) | Consists of investments in fixed maturity mutual funds and open-ended mutual funds. The remaining contractual maturities for the fixed maturity instruments range from nine months to ten months and six months to 19 months at September 30, 2017 and December 31, 2016 respectively.
|
The money market mutual fundsdeposit accounts and money market funds. The remaining contractual maturities for the certificates of deposits classified as wellshort-term investments are one month to 12 months at both June 30, 2023 and December 31, 2022. The remaining contractual maturities for the certificates of deposits classified in other assets are 13 months to 18 months at June 30, 2023 and 13 months to 24 months at December 31, 2022. Time deposits with a maturity of less than 90 days at time of purchase are classified as cash and cash equivalents.
In addition, the
fixed maturityCompany invested in Corporate-Owned Life Insurance (COLI). As of June 30, 2023 and
open ended mutual funds inDecember 31, 2022, the
table above are deemed to be “available for sale” under ASC Topic 320 and the fair value of these instruments is determined using Level 1 inputs as defined in the ASC.NOTE 7. 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 faircontract value of the assets acquired and liabilities assumedCOLI was recorded to goodwill.
Bureau van Dijk
On August 10, 2017, a subsidiary of the Company acquired 100% of Yellow Maple I B.V., an indirect parent company of Bureau van Dijk Electronic Publishing B.V., a global provider of business intelligence and company information products. The cash payment of $3,542.0 million was funded with a combination of cash on hand, primarily offshore, and new debt financing. The acquisition extends Moody’s position as a leader in risk data and analytical insight.
Shown below is the preliminary purchase price allocation, which summarizes the fair value of the assets and liabilities assumed, at the date of acquisition:
| | | | | | | | |
(Amounts in millions) | | | | | | | | |
Current assets | | | | | | $ | 160.5 | |
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) | | | 82.2 | | | | | |
Database (10 year weighted average life) | | | 13.0 | | | | | |
| | | | | | | | |
Total intangible assets (21 year weighted average life) | | | | | | | 1,352.4 | |
Goodwill | | | | | | | 2,636.1 | |
Other assets | | | | | | | 4.3 | |
Liabilities | | | | | | | | |
Deferred revenue | | $ | (101.1 | ) | | | | |
Accounts payable and accrued liabilities | | | (48.3 | ) | | | | |
Deferred tax liabilities, net | | | (348.1 | ) | | | | |
Other liabilities | | | (118.0 | ) | | | | |
| | | | | | | | |
Total liabilities | | | | | | | (615.5 | ) |
| | | | | | | | |
Net assets acquired | | | | | | $ | 3,542.0 | |
| | | | | | | | |
The Company has performed a preliminary valuation analysis of the fair 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.
Current assets in the table above include acquired cash of $36 million. Additionally, current assets include accounts receivable of approximately $90 million (net of an allowance for uncollectible accounts of $1.4 million).
The amount of Bureau van Dijk’s revenue and Net Income from August 10, 2017 through September 30, 2017 included in the Company’s statement of operations was $30.3$47 million and ($2.0)$40 million, respectively. The acquired deferred revenue balance was reduced by $53 million as part
Table of acquisition accounting to establish the fair value of deferred revenue. This will reduce reported revenue by $53 million over the remaining contractual period of in progress customer arrangements assumed as of the acquisition date. This resulted in an approximate $14 million reduction in reported revenue for the period from August 10, 2017 to September 30, 2017. Amortization of acquired intangible assets was approximately $10 million for the period from August 10, 2017 through September 30, 2017.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 will be 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.
Transaction andNon-Recurring Integration Costs
In connection with the acquisition, the Company incurred transaction andnon-recurring integration costs (Acquisition-Related Expenses) through the first nine months of 2017. Acquisition-Related Expenses of $16.7 million were comprised of transaction costs (consisting primarily of legal and advisory costs) of $8.5 million andnon-recurring integration costs of $8.2 million for the nine months ended September 30, 2017.
Supplementary Unaudited Pro Forma Information
Supplemental information on an unaudited pro forma basis is presented below for the nine months ended September 30, 2017 and 2016 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 the nine months ended
September 30 2017 | | | For the nine months ended
September 30 2016 | |
Pro forma Revenue | | $ | 3,226.9 | | | $ | 2,821.8 | |
Pro forma Net Income attributable to Moody’s | | $ | 965.9 | | | $ | 695.1 | |
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 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. The Bureau van Dijk amounts in the pro forma results include a reduction in revenue of approximately $50 million and $1 million relating to a fair value adjustment to deferred revenue required as part of acquisition accounting for the nine months ended September 30, 2016 and 2017, respectively.
The following acquisitions occurred prior to the third quarter 2017. The Company has not presented pro forma combined results for these acquisitions because the impact on previously reported statements of operations would not have been material. Additionally, the near term impact to the Company’s operations and cash flows is not material.
SCDM Financial
On February 13, 2017, a subsidiary of the Company acquired the structured finance data and analytics business of SCDM Financial. The aggregate purchase price was not material and the near term impact to the Company’s operations and cash flow is not expected to be material. This business unit operates in the MA reportable segment and goodwill related to this acquisition has been allocated to the RD&A reporting unit.
Korea Investor Service (KIS)
In July 2016, a subsidiary of the Company acquired thenon-controlling interest of KIS and additional shares of KIS Pricing. The aggregate purchase price was not material and the near term impact to the Company’s operations and cash flow is not expected to be material. KIS and KIS Pricing are a part of the MIS segment.
Gilliland Gold Young (GGY)
On March 1, 2016, subsidiaries of the Company acquired 100% of GGY, a leading provider of advanced actuarial software for the life insurance industry. The cash payments noted in the table below were funded with cash on hand. The acquisition of GGY will allow MA to provide an industry-leading enterprise risk offering for global life insurers and reinsurers.
The table below details the total consideration relating to the acquisition:
| | | | |
| (amounts in millions) | | | |
Cash paid at closing | | $ | 83.4 | |
Additional consideration paid to sellers in the third quarter 2016(1) | | | 3.1 | |
| | | | |
Total consideration | | $ | 86.5 | |
| | | | |
(1) | Represents additional consideration paid to the sellers for amounts withheld at closing pending the completion of certain administrative matters
|
Shown below is the purchase price allocation, which summarizes the fair value of the assets and liabilities assumed, at the date of acquisition:
| | | | | | | | |
Current assets | | | | | | $ | 11.7 | |
Property and equipment, net | | | | | | | 2.0 | |
Indemnification assets | | | | | | | 1.5 | |
Intangible assets: | | | | | | | | |
Trade name (19 year weighted average life) | | $ | 3.7 | | | | | |
Client relationships (21 year weighted average life) | | | 13.8 | | | | | |
Software (7 year weighted average life) | | | 16.6 | | | | | |
| | | | | | | | |
Total intangible assets (14 year weighted average life) | | | | | | | 34.1 | |
Goodwill | | | | | | | 59.4 | |
Liabilities | | | | | | | (22.2 | ) |
| | | | | | | | |
Net assets acquired | | | | | | $ | 86.5 | |
| | | | | | | | |
Current assets in the table above include acquired cash of $7.5 million. Additionally, current assets include accounts receivable of $2.9 million. Goodwill, which has been assigned to the MA segment, is not deductible for tax.
In connection with the acquisition, the Company assumed liabilities relating to UTPs and certain other tax exposures which are included in the liabilities assumed in the table above. The sellers have contractually indemnified the Company against any potential payments that may have to be made regarding these amounts. Accordingly, the Company carries an indemnification asset on its consolidated balance sheet at September 30, 2017 and December 31, 2016.
The Company incurred $0.9 million of costs directly related to the GGY acquisition of which $0.6 million was incurred in 2015 and $0.3 million was incurred in the first quarter of 2016. These costs are recorded within selling, general and administrative expenses in the Company’s consolidated statements of operations.
GGY is part of the ERS reporting unit for purposes of the Company’s annual goodwill impairment assessment.
Contents NOTE 8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company is exposed to global market risks, including risks from changes in FX rates and changes in interest rates. Accordingly, the Company uses derivatives in certain instances to manage
the aforementioned financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for speculative purposes.
Derivatives and
non-derivative instruments designated as accounting hedges:
Fair Value Hedges
The Company has entered into interest rate swaps to convert the fixed interest rate on certain of its long-term debt to a floating interest rate based on the
3-month LIBOR. SOFR. 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) income,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 | |
| | | As of
September 30,
2017 | | | As of
December 31,
2016 | | |
2010 Senior Notes due 2020 | | Pay Floating/Receive Fixed | | $ | 500.0 | | | $ | 500.0 | | | | 3-month 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | As of June 30, 2023 | | As of December 31, 2022 |
| Hedged Item | | Nature of Swap | | Notional Amount | | Floating Interest Rate (1) | | Notional Amount | | Floating Interest Rate |
| 2017 Senior Notes due 2028 | | Pay Floating/Receive Fixed | | $ | 500 | | | SOFR | | $ | 500 | | | 3-month LIBOR |
| 2020 Senior Notes due 2025 | | Pay Floating/Receive Fixed | | 300 | | | SOFR | | 300 | | | 6-month LIBOR |
| 2014 Senior Notes due 2044 | | Pay Floating/Receive Fixed | | 300 | | | SOFR | | 300 | | | 3-month LIBOR |
| 2018 Senior Notes due 2048 | | Pay Floating/Receive Fixed | | 300 | | | SOFR | | 300 | | | 3-month LIBOR |
| 2018 Senior Notes due 2029 | | Pay Floating/Receive Fixed | | 400 | | | SOFR | | 400 | | | SOFR |
| 2022 Senior Notes due 2052 | | Pay Floating/Receive Fixed | | 500 | | | SOFR | | 500 | | | SOFR |
| 2022 Senior Notes due 2032 | | Pay Floating/Receive Fixed | | 250 | | | SOFR | | 250 | | | SOFR |
| Total | | | | $ | 2,550 | | | | | $ | 2,550 | | | |
(1) Contractual terms of instruments using the 3-month or 6-month LIBOR at December 31, 2022 were modified to the SOFR reference rate in the first quarter of 2023.
Refer to Note 14 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
statementstatements 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 | | | Nine months ended | |
| | | | | September 30, | | | September 30, | |
Derivatives designated as fair value accounting hedges | | Location on Statement of Operations | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Interest rate swaps | | Interest expense, net | | $ | 1.6 | | | $ | 2.7 | | | $ | 5.8 | | | $ | 8.8 | |
Cross-currency swaps
In conjunction with the issuance
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total amounts of financial statement line item presented in the statements of operations in which the effects of fair value hedges are recorded | | Amount of income/(loss) recognized in the consolidated statements of operations | |
| Three Months Ended June 30, | | Six Months Ended June 30, | |
| 2023 | | 2022 | | 2023 | | 2022 | |
| Interest expense, net | | $ | (71) | | | $ | (55) | | | $ | (119) | | | $ | (108) | | |
| | | | | | | | | | | |
Descriptions | | Location on Consolidated Statements of Operations | | | | | | | | | |
| Net interest settlements and accruals on interest rate swaps | | Interest expense, net | | $ | (21) | | | $ | 3 | | | $ | (39) | | | $ | 9 | | |
| Fair value changes on interest rate swaps | | Interest expense, net | | $ | (46) | | | $ | (47) | | | $ | — | | | $ | (132) | | |
| Fair value changes on hedged debt | | Interest expense, net | | $ | 46 | | | $ | 47 | | | $ | — | | | $ | 132 | | |
Table 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 is to mitigate FX risk on the remaining principal balance on the 2015 Senior Notes that was not designated as a net investment hedge as more fully discussed below. Under the terms of the swap, the Company will pay the counterparty interest on the $110.5 million received at 3.945% per annum and the counterparty will pay the Company interest on the €100 million paid at 1.75% per annum. These interest payments will be 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 will 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 will initially be recognized in OCI. Gains and losses on the swaps initially recognized in OCI will be reclassified to the statement of operations in the period in which changes in the underlying hedged item affects net income. Ineffectiveness, if any, will be recognized in othernon-operating (expense) income, net in the Company’s consolidated statement of operations.Forward start interest rate swaps
In the second quarter of 2017, in conjunction with the then-forecasted issuance of the Company’s 2017 Private Placement Notes Due 2023 and 2017 Private Placement Notes Due 2028, the Company entered into forward starting interest rate swaps to mitigate the risk of changes in the semi-annual interest payments attributable to changes in market interest rates during the period leading up to the forecasted debt issuance. The swaps were terminated on June 5, 2017 following the issuance of the aforementioned notes and the losses recorded to OCI upon settlement were not material.
Contents
Net investment hedges
The Company entered into foreign currency forward contracts that are
Debt designated as net investment hedges and additionally
The Company has designated
€400€500 million of the 2015 Senior Notes Due 2027
and €750 million of the 2019 Senior Notes due 2030 as
a net investment
hedge. These hedges
are intended to mitigate FX exposure related to
non-U.S. dollar a portion of the Company’s euro net
investmentsinvestment in certain foreign subsidiaries against changes in
foreigneuro/USD exchange rates. These
net investment hedges are designated as accounting hedges under the applicable sections of
ASC Topic 815
of the ASC. This net investment hedgeand will end upon the repayment of the notes in 2027
and 2030, 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
Cross currency
translation account. Any change in the fair value of these hedges that is the result of ineffectiveness is recognized immediately in othernon-operating (expense) income, net in the Company’s consolidated statement of operations.The following table summarizes the notional amounts of the Company’s outstanding forward contracts that wereswaps designated as net investment hedges:
| | | | | | | | | | | | | | | | |
| | | September 30, | | | December 31, | |
| | | 2017 | | | 2016 | |
| | | Sell | | | Buy | | | Sell | | | Buy | |
Notional amount of net investment hedges: | | | | | | | | | | | | | | | | |
Contracts to sell GBP for euros | | £ | — | | | € | — | | | £ | 22.1 | | | € | 26.4 | |
hedges
The Company enters 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 under ASC Topic 815:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2023 |
| | Pay | | Receive |
| Nature of Swap | | Notional Amount | | Weighted Average Interest Rate | | Notional Amount | | Weighted Average Interest Rate |
| Pay Fixed/Receive Fixed | | € | 765 | | | 3.67% | | $ | 800 | | | 5.25% |
| Pay Floating/Receive Floating | | 2,138 | | | Based on ESTR | | 2,250 | | | Based on SOFR |
| Total | | € | 2,903 | | | | | $ | 3,050 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| | Pay | | Receive |
| Nature of Swap | | Notional Amount | | Weighted Average Interest Rate | | Notional Amount | | Weighted Average Interest Rate |
| Pay Fixed/Receive Fixed | | € | 765 | | | 3.67% | | $ | 800 | | | 5.25% |
| Pay Floating/Receive Floating | | 450 | | | Based on 3-month EURIBOR | | 500 | | | Based on 3-month USD LIBOR |
| Pay Floating/Receive Floating | | 1,688 | | | Based on ESTR | | 1,750 | | | Based on SOFR |
| Total | | € | 2,903 | | | | | $ | 3,050 | | | |
As of June 30, 2023 these hedges will expire and the notional amounts will be settled as follows unless terminated early at the discretion of the Company: | | | | | | | | |
| Years Ending December 31, | | |
| | |
| 2026 | | € | 450 | |
| 2027 | | € | 531 | |
| 2028 | | € | 588 | |
| 2029 | | € | 373 | |
| 2031 | | € | 481 | |
| 2032 | | € | 480 | |
| Total | | € | 2,903 | |
The following tables provide information on the gains/(losses) on the Company’s net investment and cash flow hedges:
| | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives andnon-derivative instruments in Net Investment Hedging Relationships | | Amount of
Gain/(Loss) Recognized
in AOCI on Derivative
(Effective Portion) | | | Amount of Gain/(Loss)
Reclassified from AOCI into
Income (Effective Portion) | | | Amount of
Gain/(Loss)
Recognized Directly
into Income
(Ineffective Portion),
net of Tax | |
| | | Three Months Ended | | | Three Months Ended | | | Three Months Ended | |
| | | September 30, | | | September 30, | | | September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
FX forwards | | $ | 0.4 | | | $ | (0.2 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Long-term debt | | | (10.3 | ) | | | (3.2 | ) | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total net investment hedges | | $ | (9.9 | ) | | $ | (3.4 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Derivatives in cash flow hedging relationships | | | | | | | | | | | | | | | | | | |
Cross currency swap | | $ | 3.2 | | | $ | 3.2 | | | $ | 2.6 | * | | $ | 0.9 | * | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total cash flow hedges | | $ | 3.2 | | | $ | 3.2 | | | $ | 2.6 | | | $ | 0.9 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | (6.7 | ) | | $ | (0.2 | ) | | $ | 2.6 | | | $ | 0.9 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
Derivatives andnon-derivative instruments in Net Investment Hedging Relationships | | Amount of
Gain/(Loss) Recognized
in AOCI on Derivative
(Effective Portion) | | | Amount of Gain/(Loss)
Reclassified from AOCI into
Income (Effective Portion) | | | Amount of
Gain/(Loss)
Recognized Directly
into Income
(Ineffective Portion),
net of Tax | |
| | | Nine months ended | | | Nine months ended | | | Nine months ended | |
| | | September 30, | | | September 30, | | | September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
FX forwards | | $ | 1.2 | | | $ | (13.4 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Long-term debt | | | (31.4 | ) | | | (9.2 | ) | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total net investment hedges | | $ | (30.2 | ) | | $ | (22.6 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Derivatives in cash flow hedging relationships | | | | | | | | | | | | | | | | | | |
Cross currency swap | | $ | 6.6 | | | $ | 1.5 | | | $ | 7.9 | * | | $ | 0.6 | * | | $ | 0.4 | ** | | $ | — | |
Interest rate contracts | | | (0.4 | ) | | | — | | | | (1.1 | ) | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total cash flow hedges | | $ | 6.2 | | | $ | 1.5 | | | $ | 6.8 | | | $ | 0.6 | | | $ | 0.4 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | (24.0 | ) | | $ | (21.1 | ) | | $ | 6.8 | | | $ | 0.6 | | | $ | 0.4 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
* | For the three and nine months ended September 30, 2017, reflects $4.2 million and $12.8 million in gains, respectively, recorded in othernon-operating income (expense), net and $1.6 million and $4.9 million relating to the tax effect of the aforementioned item. For the three and nine months ended September 30, 2016, reflects $1.3 million and $0.9 million in losses, respectively, recorded in othernon-operating income (expense), net and $0.4 million and $0.3 million relating to the tax effect of the aforementioned item. |
** | For the nine months ended September 30, 2017, reflects $0.7 million in gains recorded in othernon-operating income (expense), net and $0.3 million relating to the tax effect of the aforementioned item. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative and Non-Derivative Instruments in Net Investment Hedging Relationships | | Amount of Gain/(Loss) Recognized in AOCL on Derivative, net of Tax | | Amount of Loss Reclassified from AOCL into Income, net of Tax | | Gain Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) |
| Three Months Ended June 30, | | Three Months Ended June 30, | | Three Months Ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | | | | | | |
| Cross currency swaps | | $ | (24) | | | $ | 118 | | | $ | — | | | $ | — | | | $ | 14 | | | $ | 11 | |
| Long-term debt | | (4) | | | 63 | | | — | | | — | | | — | | | — | |
| Total net investment hedges | | $ | (28) | | | $ | 181 | | | $ | — | | | $ | — | | | $ | 14 | | | $ | 11 | |
| Derivatives in Cash Flow Hedging Relationships | | | | | | | | | | | | |
| Cross currency swap | | $ | — | | | $ | — | | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | |
| Interest rate contracts | | — | | | — | | | — | | | (1) | | | — | | | — | |
| Total cash flow hedges | | $ | — | | | $ | — | | | $ | 1 | | | $ | (1) | | | $ | — | | | $ | — | |
| Total | | $ | (28) | | | $ | 181 | | | $ | 1 | | | $ | (1) | | | $ | 14 | | | $ | 11 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative and Non-Derivative Instruments in Net Investment Hedging Relationships | | Amount of Gain/(Loss) Recognized in AOCL on Derivative, net of Tax | | Amount of Loss Reclassified from AOCL into Income, net of Tax | | Gain Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) |
| Six Months Ended June 30, | | Six Months Ended June 30, | | Six Months Ended June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | | | | | | |
| Cross currency swaps | | $ | (63) | | | $ | 142 | | | $ | — | | | $ | — | | | $ | 30 | | | $ | 21 | |
| Long-term debt | | (22) | | | 86 | | | — | | | — | | | — | | | — | |
| Total net investment hedges | | $ | (85) | | | $ | 228 | | | $ | — | | | $ | — | | | $ | 30 | | | $ | 21 | |
| Derivatives in Cash Flow Hedging Relationships | | | | | | | | | | | | |
| Cross currency swap | | $ | — | | | $ | — | | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | |
| Interest rate contracts | | — | | | — | | | (1) | | | (1) | | | — | | | — | |
| Total cash flow hedges | | $ | — | | | $ | — | | | $ | — | | | $ | (1) | | | $ | — | | | $ | — | |
| Total | | $ | (85) | | | $ | 228 | | | $ | — | | | $ | (1) | | | $ | 30 | | | $ | 21 | |
| | | | | | | | | | | | |
The cumulative amount of realized and unrecognized net investment hedge and cash flow hedge gains (losses) recordedremaining in AOCIAOCL is as follows: | | | | | | | | |
| | | Cumulative Gains/(Losses), net of tax | |
| | | September 30,
2017 | | | December 31,
2016 | |
Net investment hedges | | | | | | | | |
FX forwards | | $ | 23.5 | | | $ | 22.3 | |
Long-term debt | | | (18.9 | ) | | | 12.5 | |
| | | | | | | | |
Total net gains on net investment hedges | | $ | 4.6 | | | $ | 34.8 | |
| | | | | | | | |
Cash flow hedges | | | | | | | | |
Interest rate contracts | | $ | (0.4 | ) | | $ | (1.1 | ) |
Cross currency swap | | | 1.5 | | | | 2.8 | |
| | | | | | | | |
Total net gains on cash flow hedges | | | 1.1 | | | | 1.7 | |
| | | | | | | | |
Total net gains in AOCI | | $ | 5.7 | | | $ | 36.5 | |
| | | | | | | | |
| | | | | | | | | | | |
| Cumulative Gains/(Losses), net of tax |
| June 30, 2023 | | December 31, 2022 |
| Net investment hedges | | | |
| Cross currency swaps | $ | 55 | | | $ | 118 | |
| FX forwards | 29 | | | 29 | |
| Long-term debt | 16 | | | 38 | |
| Total net investment hedges | $ | 100 | | | $ | 185 | |
| Cash flow hedges | | | |
| Interest rate contracts | $ | (46) | | | $ | (47) | |
| Cross currency swaps | 1 | | | 2 | |
| Total cash flow hedges | (45) | | | (45) | |
| Total net gain in AOCL | $ | 55 | | | $ | 140 | |
Derivatives not designated as accounting hedges:
Foreign exchange forwards
The Company also enters into foreign exchange
forwardsforward contracts 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
ASC Topic
815 of the ASC.815. Accordingly, changes in the fair value of these contracts are recognized immediately in other
non-operating income (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
February 2018.October 2023.
The following table summarizes the notional amounts of the Company’s outstanding foreign exchange forwards: | | | | | | | | | | | | | | | | |
| | | September 30, | | | December 31, | |
| | | 2017 | | | 2016 | |
| | | Sell | | | Buy | | | Sell | | | Buy | |
Notional amount of currency pair: | | | | | | | | | | | | | | | | |
Contracts to sell USD for GBP | | $ | 471.0 | | | £ | 356.1 | | | $ | — | | | £ | — | |
Contracts to sell USD for JPY | | $ | 24.3 | | | ¥ | 2,700.0 | | | $ | — | | | $ | — | |
Contracts to sell USD for CAD | | $ | 51.9 | | | C$ | 64.0 | | | $ | — | | | C$ | — | |
Contracts to purchase euros with Singapore dollars | | S$ | — | | | € | — | | | S$ | 55.5 | | | € | 36.0 | |
Contracts to sell euros for GBP | | € | — | | | £ | — | | | € | 31.0 | | | £ | 25.9 | |
Contracts to sell USD for Singapore dollars | | $ | 38.9 | | | S$ | 53.0 | | | $ | — | | | S$ | — | |
Contracts to sell euros for USD | | € | 6.0 | | | $ | 7.2 | | | € | — | | | $ | — | |
Contracts to sell USD for EUR | | $ | 54.3 | | | € | 45.0 | | | $ | — | | | € | — | |
Foreign exchange options and forward contracts relating to
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
| Notional amount of currency pair: | Sell | | Buy | | Sell | | Buy |
| Contracts to sell USD for GBP | $ | 683 | | | £ | 548 | | | $ | 170 | | | £ | 146 | |
| Contracts to sell USD for Japanese yen | $ | 15 | | | ¥ | 2,000 | | | $ | 24 | | | ¥ | 3,500 | |
| Contracts to sell USD for Canadian dollars | $ | 116 | | | C$ | 155 | | | $ | 87 | | | C$ | 120 | |
| Contracts to sell USD for Singapore dollars | $ | 81 | | | S$ | 109 | | | $ | 50 | | | S$ | 70 | |
| Contracts to sell USD for euros | $ | 272 | | | € | 250 | | | $ | 116 | | | € | 115 | |
| | | | | | | | | |
| Contracts to sell USD for Indian rupee | $ | 23 | | | ₹ | 1,900 | | | $ | 19 | | | ₹ | 1,600 | |
| Contracts to sell GBP for USD | £ | 90 | | | $ | 115 | | £ | — | | | $ | — | |
| Contracts to sell euros for USD | € | 125 | | | $ | 135 | | | € | 85 | | | $ | 89 | |
NOTE: € = euro, £ = British pound, $ = U.S. dollar, ¥ = Japanese yen, C$ = Canadian dollar, S$= Singapore dollars, ₹= Indian rupee
Total Return Swaps
Beginning in the
acquisitionsecond quarter of
Bureau van DijkThe2023, the Company entered into a foreign currency collar consisting of option contractstotal return swaps to economically hedge the Bureau van Dijk euro denominated purchase price (as discussed further in Note 7). These option contracts are not designated as accounting hedges under the applicable sections of Topic 815 of the ASC. The foreign currency option contracts consisted of separate put and call options eachmitigate market-driven changes in the aggregatevalue of certain liabilities associated with the Company's deferred compensation plans. The fair value of these swaps at June 30, 2023 and related gains in the three and six months ended June 30, 2023 were not material. The notional amount of €2.7 billion. This collarthe total return swaps as of June 30, 2023 was settled at the end of July 2017, in advance of the August 10, 2017 closing of the Bureau van Dijk acquisition in connection with the Company’s funding mechanics to fund the euro denominated purchase price.
The Company entered into foreign exchange forwards to hedge the Bureau van Dijk purchase price for the period from the settlement of the aforementioned foreign currency collar until the closing date on August 10, 2017. These forward contracts were not designated as accounting hedges under the applicable sections of Topic 815 of the ASC. The foreign exchange forwards consisted of contracts to sell $2.8 billion and buy €2.4 billion as well as contracts to sell $41 million and buy £31$59 million.
The following table summarizes the impact to the consolidated statements of operations relating to the net
gain (loss)losses on the Company’s derivatives which are not designated as hedging instruments:
| | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended
September 30, | | | Nine months ended
September 30, | |
Derivatives not designated as accounting hedges | | Location on Statement of Operations | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Foreign exchange forwards | | Other non-operating income
(expense), net | | $ | 9.2 | | | $ | (0.7 | ) | | $ | 14.0 | | | $ | (5.9 | ) |
Foreign exchange forwards relating to Bureau van Dijk acquisition | | Purchase Price Hedge Gain | | | 10.3 | | | | — | | | | 10.3 | | | | — | |
FX collar relating to Bureau van Dijk acquisition | | Purchase Price Hedge Gain | | | 59.6 | | | | — | | | | 100.8 | | | | — | |
| | | | | | | | | | | | | | | | | | |
| | | | $ | 79.1 | | | $ | (0.7 | ) | | $ | 125.1 | | | $ | (5.9 | ) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivatives not designated as accounting hedges | | Location on Consolidated Statements of Operations | | | Three Months Ended June 30, | | Six Months Ended June 30, | |
| | | 2023 | | 2022 | | 2023 | | 2022 | |
| FX forwards | | Other non-operating income, net | | | $ | 10 | | | $ | (38) | | | $ | 15 | | | $ | (57) | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
The table below shows the classification between assets and liabilities on the Company’s consolidated balance sheets for the fair value of the derivative instrument as well as the carrying value of its
non-derivative debt instruments designated and qualifying as net investment hedges:
| | | | | | | | | | | | |
| | | Derivative andNon-derivative Instruments | |
| | | Balance Sheet
Location | | | September 30,
2017 | | | December 31,
2016 | |
Assets: | | | | | | | | | | | | |
Derivatives designated as accounting hedges: | | | | | | | | | | | | |
FX forwards on net investment in certain foreign subsidiaries | | | Other current assets | | | $ | — | | | $ | 0.6 | |
Cross-currency swap | | | Other assets | | | | 7.3 | | | | — | |
Interest rate swaps | | | Other assets | | | | 5.0 | | | | 7.0 | |
| | | | | | | | | | | | |
Total derivatives designated as accounting hedges | | | | | | $ | 12.3 | | | $ | 7.6 | |
| | | | | | | | | | | | |
Derivatives not designated as accounting hedges: | | | | | | | | | | | | |
FX forwards on certain assets and liabilities | | | Other current assets | | | | 10.6 | | | | — | |
| | | | | | | | | | | | |
Total assets | | | | | | $ | 22.9 | | | $ | 7.6 | |
| | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | |
Derivatives designated as accounting hedges: | | | | | | | | | | | | |
Cross-currency swap | | | Other liabilities | | | $ | — | | | $ | 3.8 | |
Interest rate swaps | | | Other liabilities | | | | 1.0 | | | | 0.8 | |
| | | | | | | | | | | | |
Total derivatives designated as accounting hedges | | | | | | | 1.0 | | | | 4.6 | |
| | | | | | | | | | | | |
Non-derivative instrument designated as accounting hedge: | | | | | | | | | | | | |
Long-term debt designated as net investment hedge | | | Long-term debt | | | | 472.9 | | | | 421.9 | |
Derivatives not designated as accounting hedges: | | | | | | | | | | | | |
FX forwards on certain assets and liabilities | |
| Accounts payable
and accrued
liabilities |
| | | 4.1 | | | | 0.8 | |
| | | | | | | | | | | | |
Total liabilities | | | | | | $ | 478.0 | | | $ | 427.3 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Derivative and Non-Derivative Instruments |
| | Balance Sheet Location | | June 30, 2023 | | December 31, 2022 |
| Assets: | | | | | | |
| Derivatives designated as accounting hedges: | | | | | | |
| | | | | | |
| Cross-currency swaps designated as net investment hedges | | Other assets | | $ | 7 | | | $ | 27 | |
| | | | | | |
| | | | | | |
| | | | | | |
| Derivatives not designated as accounting hedges: | | | | | | |
| FX forwards on certain assets and liabilities | | Other current assets | | 10 | | | 19 | |
| | | | | | |
| Total assets | | | | $ | 17 | | | $ | 46 | |
| Liabilities: | | | | | | |
| Derivatives designated as accounting hedges: | | | | | | |
| | | | | | |
| | | | | | |
| Cross-currency swaps designated as net investment hedges | | Other liabilities | | $ | 142 | | | $ | 78 | |
| Interest rate swaps designated as fair value hedges | | Other liabilities | | 239 | | | 239 | |
| Total derivatives designated as accounting hedges | | | | 381 | | | 317 | |
| Non-derivatives designated as accounting hedges: | | | | | | |
| Long-term debt designated as net investment hedge | | Long-term debt | | 1,364 | | | 1,334 | |
| Derivatives not designated as accounting hedges: | | | | | | |
| FX forwards on certain assets and liabilities | | Accounts payable and accrued liabilities | | 3 | | | 2 | |
| Total liabilities | | | | $ | 1,748 | | | $ | 1,653 | |
NOTE 9. GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS
The following table summarizes the activity in goodwill for the periods indicated: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Nine months ended September 30, 2017 | |
| | | MIS | | | MA | | | Consolidated | |
| | | Gross
goodwill | | | Accumulated
impairment
charge | | | Net
goodwill | | | Gross
goodwill | | | Accumulated
impairment
charge | | | Net
goodwill | | | Gross
goodwill | | | Accumulated
impairment
charge | | | Net
goodwill | |
Balance at beginning of year | | $ | 277.0 | | | $ | — | | | $ | 277.0 | | | $ | 758.8 | | | $ | (12.2 | ) | | $ | 746.6 | | | $ | 1,035.8 | | | $ | (12.2 | ) | | $ | 1,023.6 | |
Additions/adjustments | | | — | | | | — | | | | — | | | | 2,639.7 | | | | — | | | | 2,639.7 | | | | 2,639.7 | | | | — | | | | 2,639.7 | |
Foreign currency translation adjustments | | | 10.5 | | | | — | | | | 10.5 | | | | 48.3 | | | | — | | | | 48.3 | | | | 58.8 | | | | — | | | | 58.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending balance | | $ | 287.5 | | | $ | — | | | $ | 287.5 | | | $ | 3,446.8 | | | $ | (12.2 | ) | | $ | 3,434.6 | | | $ | 3,734.3 | | | $ | (12.2 | ) | | $ | 3,722.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | Year ended December 31, 2016 | |
| | | MIS | | | MA | | | Consolidated | |
| | | Gross
goodwill | | | Accumulated
impairment
charge | | | Net
goodwill | | | Gross
goodwill | | | Accumulated
impairment
charge | | | Net
goodwill | | | Gross
goodwill | | | Accumulated
impairment
charge | | | Net
goodwill | |
Balance at beginning of year | | $ | 284.4 | | | $ | — | | | $ | 284.4 | | | $ | 704.1 | | | $ | (12.2 | ) | | $ | 691.9 | | | $ | 988.5 | | | $ | (12.2 | ) | | $ | 976.3 | |
Additions/adjustments | | | — | | | | — | | | | — | | | | 61.0 | | | | — | | | | 61.0 | | | | 61.0 | | | | — | | | | 61.0 | |
Goodwill derecognized upon sale of subsidiary | | | (3.2 | ) | | | — | | | | (3.2 | ) | | | — | | | | — | | | | — | | | | (3.2 | ) | | | — | | | | (3.2 | ) |
Foreign currency translation adjustments | | | (4.2 | ) | | | — | | | | (4.2 | ) | | | (6.3 | ) | | | — | | | | (6.3 | ) | | | (10.5 | ) | | | — | | | | (10.5 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending balance | | $ | 277.0 | | | $ | — | | | $ | 277.0 | | | $ | 758.8 | | | $ | (12.2 | ) | | $ | 746.6 | | | $ | 1,035.8 | | | $ | (12.2 | ) | | $ | 1,023.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2023 |
| MA | | MIS | | Consolidated |
| Gross goodwill | | Accumulated
impairment
charge | | Net
goodwill | | Gross goodwill | | Accumulated impairment
charge | | Net
goodwill | | Gross goodwill | | Accumulated
impairment
charge | | Net
goodwill |
Balance at beginning
of year | $ | 5,474 | | | $ | (12) | | | $ | 5,462 | | | $ | 377 | | | $ | — | | | $ | 377 | | | $ | 5,851 | | | $ | (12) | | | $ | 5,839 | |
Additions/ adjustments (1) | 90 | | | — | | | 90 | | | (87) | | | — | | | (87) | | | 3 | | | — | | | 3 | |
| Foreign currency translation adjustments | 85 | | | — | | | 85 | | | (1) | | | — | | | (1) | | | 84 | | | — | | | 84 | |
| | | | | | | | | | | | | | | | | |
| Ending balance | $ | 5,649 | | | $ | (12) | | | $ | 5,637 | | | $ | 289 | | | $ | — | | | $ | 289 | | | $ | 5,938 | | | $ | (12) | | | $ | 5,926 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| MA | | MIS | | Consolidated |
| Gross goodwill | | Accumulated impairment charge | | Net goodwill | | Gross goodwill | | Accumulated impairment charge | | Net goodwill | | Gross goodwill | | Accumulated impairment charge | | Net goodwill |
Balance at beginning
of year | $ | 5,615 | | | $ | (12) | | | $ | 5,603 | | | $ | 396 | | | $ | — | | | $ | 396 | | | $ | 6,011 | | | $ | (12) | | | $ | 5,999 | |
Additions/ adjustments (2) | 88 | | | — | | | 88 | | | 4 | | | — | | | 4 | | | 92 | | | — | | | 92 | |
Foreign currency translation
adjustments | (229) | | | — | | | (229) | | | (23) | | | — | | | (23) | | | (252) | | | — | | | (252) | |
| | | | | | | | | | | | | | | | | |
| Ending balance | $ | 5,474 | | | $ | (12) | | | $ | 5,462 | | | $ | 377 | | | $ | — | | | $ | 377 | | | $ | 5,851 | | | $ | (12) | | | $ | 5,839 | |
(1) The 20172023 additions/adjustments primarily relate to a reallocation of goodwill pursuant to a realignment of certain components of the Company's ESG business in the first quarter of 2023.
(2) The 2022 additions/adjustments for the MA segment in the table above primarily relate to the acquisition of Bureau van Dijk and the structured finance data and analytics business of SCDM. The 2016 additions/adjustments for the MA segmentkompany in the table above relate to the acquisition of GGY. The 2016 goodwill derecognized for the MIS segment in the table above relates to the divestiture of ICTEAS in the fourthfirst quarter of 2016.2022.
Acquired intangible assets and related amortization consisted of: | | | | | | | | |
| | | September 30, | | | December 31, | |
| | | 2017 | | | 2016 | |
Customer relationships | | $ | 1,325.4 | | | $ | 310.1 | |
Accumulated amortization | | | (144.4 | ) | | | (124.4 | ) |
| | | | | | | | |
Net customer relationships | | | 1,181.0 | | | | 185.7 | |
| | | | | | | | |
| | |
Trade secrets | | | 30.2 | | | | 29.9 | |
Accumulated amortization | | | (27.6 | ) | | | (25.6 | ) |
| | | | | | | | |
Net trade secrets | | | 2.6 | | | | 4.3 | |
| | | | | | | | |
| | |
Software/Product Technology | | | 354.1 | | | | 87.7 | |
Accumulated amortization | | | (70.6 | ) | | | (54.9 | ) |
| | | | | | | | |
Net software | | | 283.5 | | | | 32.8 | |
| | | | | | | | |
| | |
Trade names | | | 160.7 | | | | 75.3 | |
Accumulated amortization | | | (24.4 | ) | | | (19.9 | ) |
| | | | | | | | |
Net trade names | | | 136.3 | | | | 55.4 | |
| | | | | | | | |
| | |
Other(1) | | | 57.6 | | | | 43.5 | |
Accumulated amortization | | | (27.9 | ) | | | (25.3 | ) |
| | | | | | | | |
Net other | | | 29.7 | | | | 18.2 | |
| | | | | | | | |
| | |
Total acquired intangible assets, net | | $ | 1,633.1 | | | $ | 296.4 | |
| | | | | | | | |
(1) | Other intangible assets primarily consist of databases, covenants not to compete, and acquired ratings methodologies and models.
|
| | | | | | | | | | | |
| June 30,
2023 | | December 31,
2022 |
| Customer relationships | $ | 2,055 | | | $ | 2,024 | |
| Accumulated amortization | (507) | | | (453) | |
| Net customer relationships | 1,548 | | | 1,571 | |
| Software/product technology | 670 | | | 661 | |
| Accumulated amortization | (326) | | | (283) | |
| Net software/product technology | 344 | | | 378 | |
| Database | 178 | | | 178 | |
| Accumulated amortization | (73) | | | (64) | |
| Net database | 105 | | | 114 | |
| Trade names | 199 | | | 197 | |
| Accumulated amortization | (65) | | | (58) | |
| Net trade names | 134 | | | 139 | |
Other (1) | 52 | | | 52 | |
| Accumulated amortization | (45) | | | (44) | |
| Net other | 7 | | | 8 | |
| Total acquired intangible assets, net | $ | 2,138 | | | $ | 2,210 | |
(1) Other intangible assets primarily consist of trade secrets, covenants not to compete, and acquired ratings methodologies and models.
Amortization expense relating to acquired intangible assets is as follows:
| | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | Nine months ended | |
| | | September 30, | | | September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Amortization expense | | $ | 18.8 | | | $ | 8.9 | | | $ | 35.9 | | | $ | 25.5 | |
Estimated future amortization expense for acquired intangible assets subject to amortization is as follows:
| | | | |
Year Ending December 31, | | | |
2017 (after September 30) | | $ | 25.4 | |
2018 | | | 99.8 | |
2019 | | | 95.8 | |
2020 | | | 93.5 | |
2021 | | | 93.3 | |
Thereafter | | | 1,225.3 | |
| | | | |
Total estimated future amortization | | $ | 1,633.1 | |
| | | | |
Amortizable intangible assets are reviewed for recoverability whenever events or changes in circumstances indicate
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended
June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Amortization expense | $ | 50 | | | $ | 51 | | | $ | 101 | | | $ | 102 | |
NOTE 10. RESTRUCTURING
On June 30, 2022, the chief executive officer of Moody’s approved a restructuring program (the “2022 - 2023 Geolocation Restructuring Program”). The Company estimates that the carryingprogram will result in annualized savings of $120 million to $140 million per year. This program relates to the Company's post-COVID-19 geolocation strategy and includes the rationalization and exit of certain leased office spaces and a reduction in staff, including the relocation of certain job functions. The exit from certain leased office spaces began in the fourth quarter of 2022 and is expected to result in $50 million to $70 million of pre-tax charges from vacating the affected office spaces, a large portion of which Moody's intends to sublease. The program is also expected to include $110 million to $120 million of pre-tax personnel-related restructuring charges, an amount may not be recoverable. Ifthat includes severance costs, expense related to the estimated undiscounted future cash flowsmodification of equity awards, and related costs primarily determined under the Company’s existing severance plans. The savings generated from the 2022 - 2023 Geolocation Restructuring Program are lower thanexpected to strengthen the carrying amountCompany's operating margin, with a portion being deployed to support strategic investments, including the Company's workplace of the related asset, a lossfuture program and employee retention initiatives. The 2022 - 2023 Geolocation Restructuring Program is expected to be substantially complete by the end of 2023. Cash outlays associated with this program, which primarily relate to personnel-related costs, are expected to be $110 million to $120 million, which are expected to be paid through 2024.
Total expense included in the accompanying consolidated statements of operations relating to the aforementioned restructuring program is below:
Substantially all of the restructuring charges recognized during the three and six months ended June 30, 2023 and June 30, 2022 relate to employee termination costs.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, | | |
| 2023 | | 2022 | | 2023 | | 2022 | | |
| | | | | | | | | |
| | | | | | | | | |
| 2020 MA Strategic Reorganization Restructuring Program | $ | — | | | $ | (1) | | | $ | — | | | $ | (1) | | | |
| 2022 - 2023 Geolocation Restructuring Program | 10 | | | 32 | | | 24 | | | 32 | | | |
| Total Restructuring | $ | 10 | | | $ | 31 | | | $ | 24 | | | $ | 31 | | | |
Changes to the restructuring liability for the
difference between the carrying amount and the estimated fair value of the asset. There were no impairments to intangible assetsaforementioned restructuring programs during the
nine months ended September 30, 2017 and 2016.first half of 2023 were as follows:
| | | | | | | | |
| | | | |
| Balance as of December 31, 2022 | | | | $ | 65 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| 2022 - 2023 Geolocation Restructuring Program: | | | | |
| Cost incurred and adjustments | | | | 22 | |
| Cash payments and adjustments | | | | (57) | |
| Balance as of June 30, 2023 | | | | $ | 30 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Cumulative expense incurred through June 30, 2023 | Employee
Termination
Costs | | Real Estate Related
Costs | | Other Costs | | Total |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| 2022 - 2023 Geolocation Restructuring Program | $ | 107 | | | $ | 29 | | | $ | 1 | | | $ | 137 | |
The table below presents information about items that are carried at fair value at
SeptemberJune 30,
20172023 and December 31,
2016: | | | | | | | | | | | | | | |
| | | | | Fair Value Measurement as of September 30, 2017 | |
| | | Description | | Balance | | | Level 1 | | | Level 2 | |
Assets: | | | | | | | | | | | | | | |
| | Derivatives(a) | | $ | 22.9 | | | $ | — | | | $ | 22.9 | |
| | Money market mutual funds | | | 18.5 | | | | 18.5 | | | | — | |
| | Fixed maturity and open ended mutual funds(b) | | | 27.0 | | | | 27.0 | | | | — | |
| | | | | | | | | | | | | | |
| | Total | | $ | 68.4 | | | $ | 45.5 | | | $ | 22.9 | |
| | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | |
| | Derivatives(a) | | $ | 5.1 | | | $ | — | | | $ | 5.1 | |
| | | | | | | | | | | | | | |
| | Total | | $ | 5.1 | | | $ | — | | | $ | 5.1 | |
| | | | | | | | | | | | | | |
| | |
| | | | | Fair Value Measurement as of December 31, 2016 | |
| | | Description | | Balance | | | Level 1 | | | Level 2 | |
Assets: | | | | | | | | | | | | | | |
| | Derivatives(a) | | $ | 7.6 | | | $ | — | | | $ | 7.6 | |
| | Money market mutual funds | | | 189.0 | | | | 189.0 | | | | — | |
| | Fixed maturity and open ended mutual funds(b) | | | 32.6 | | | | 32.6 | | | | — | |
| | | | | | | | | | | | | | |
| | Total | | $ | 229.2 | | | $ | 221.6 | | | $ | 7.6 | |
| | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | |
| | Derivatives(a) | | $ | 5.4 | | | $ | — | | | $ | 5.4 | |
| | | | | | | | | | | | | | |
| | Total | | $ | 5.4 | | | $ | — | | | $ | 5.4 | |
| | | | | | | | | | | | | | |
(a) | Represents FX forwards on certain assets and liabilities and on net investments in certain foreign subsidiaries as well as FX options, interest rate swaps and cross-currency swaps as more fully described in Note 8 to the condensed consolidated financial statements.
|
(b) | Consists of investments in fixed maturity2022: | | | | | | | | | | | | | | | | | | | Fair Value Measurement as of June 30, 2023 | | Description | Balance | | Level 1 | | Level 2 | | Assets: | | | | | | Derivatives (1) | $ | 17 | | | $ | — | | | $ | 17 | | | Money market funds/mutual funds | 231 | | | 231 | | | — | | | Total | $ | 248 | | | $ | 231 | | | $ | 17 | | | Liabilities: | | | | | | Derivatives (1) | $ | 384 | | | $ | — | | | $ | 384 | | | Total | $ | 384 | | | $ | — | | | $ | 384 | |
| | | | | | | | | | | | | | | | | | | Fair Value Measurement as of December 31, 2022 | | Description | Balance | | Level 1 | | Level 2 | | Assets: | | | | | | Derivatives (1) | $ | 46 | | | $ | — | | | $ | 46 | | | | | | | | | Mutual funds | 71 | | | 71 | | | — | | | Total | $ | 117 | | | $ | 71 | | | $ | 46 | | | Liabilities: | | | | | | Derivatives (1) | $ | 319 | | | $ | — | | | $ | 319 | | | Total | $ | 319 | | | $ | — | | | $ | 319 | |
(1) Represents fair value of certain derivative contracts as more fully described in Note 8 to the condensed consolidated financial statements.
The following are descriptions of the methodologies utilized by the Company to estimate the fair value of its derivative contracts, mutual funds and open-ended mutual funds.
|
The money market mutual fundsfunds:
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 fixed maturityrisk of non-performance of the Company and open endedthe 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.
Money market funds and mutual funds:
The money market funds and mutual funds in the table above are deemed to be ‘available for sale’equity securities with readily determinable fair values with changes in the fair value recognized through net income under ASC Topic 320 and the321. The fair value of these instruments is determined using Level 1 inputs as defined in the ASC.ASC Topic 820.
NOTE
11.12. OTHER BALANCE SHEET AND
STATEMENTSTATEMENTS OF OPERATIONS INFORMATION
The following tables contain additional detail related to certain balance sheet captions:
| | | | | | | | |
| | | September 30, | | | December 31, | |
| | | 2017 | | | 2016 | |
Other current assets: | | | | | | | | |
Prepaid taxes | | $ | 74.9 | | | $ | 47.0 | |
Prepaid expenses | | | 89.9 | | | | 65.7 | |
Other | | | 35.7 | | | | 28.1 | |
| | | | | | | | |
| | |
Total other current assets | | $ | 200.5 | | | $ | 140.8 | |
| | | | | | | | |
| | |
| | | September 30, | | | December 31, | |
| | | 2017 | | | 2016 | |
Other assets: | | | | | | | | |
Investments in joint ventures | | $ | 83.4 | | | $ | 26.3 | |
Deposits for real-estate leases | | | 12.3 | | | | 10.8 | |
Indemnification assets related to acquisitions | | | 16.8 | | | | 16.5 | |
Mutual funds and fixed deposits | | | 27.0 | | | | 32.7 | |
Other | | | 29.0 | | | | 25.9 | |
| | | | | | | | |
| | |
Total other assets | | $ | 168.5 | | | $ | 112.2 | |
| | | | | | | | |
| | |
| | | September 30, | | | December 31, | |
| | | 2017 | | | 2016 | |
Accounts payable and accrued liabilities: | | | | | | | | |
Salaries and benefits | | $ | 93.2 | | | $ | 89.3 | |
Incentive compensation | | | 180.0 | | | | 151.1 | |
Accrued settlement charge | | | — | | | | 863.8 | |
Customer credits, advanced payments and advanced billings | | | 23.6 | | | | 28.4 | |
Self-insurance reserves | | | 9.8 | | | | 11.1 | |
Dividends | | | 5.3 | | | | 78.5 | |
Professional service fees | | | 45.6 | | | | 40.4 | |
Interest accrued on debt | | | 37.5 | | | | 59.2 | |
Accounts payable | | | 29.2 | | | | 28.4 | |
Income taxes | | | 49.8 | | | | 16.8 | |
Restructuring | | | 0.6 | | | | 6.3 | |
Pension and other retirement employee benefits | | | 7.7 | | | | 6.1 | |
Accrued royalties(1) | | | 17.3 | | | | 1.8 | |
Other | | | 77.9 | | | | 63.1 | |
| | | | | | | | |
| | |
Total accounts payable and accrued liabilities | | $ | 577.5 | | | $ | 1,444.3 | |
| | | | | | | | |
| | |
| | | September 30, | | | December 31, | |
| | | 2017 | | | 2016 | |
Other liabilities: | | | | | | | | |
Pension and other retirement employee benefits | | $ | 268.3 | | | $ | 264.1 | |
Deferredrent-non-current portion | | | 104.6 | | | | 98.3 | |
Interest accrued on UTPs | | | 48.9 | | | | 34.1 | |
Legacy and other tax matters | | | 1.2 | | | | 1.2 | |
Other | | | 24.3 | | | | 27.5 | |
| | | | | | | | |
| | |
Total other liabilities | | $ | 447.3 | | | $ | 425.2 | |
| | | | | | | | |
(1) | Primarily relates to fees due to Bureau van Dijk’s data providers
|
Changes
| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
| Other current assets: | | | |
| Prepaid taxes | $ | 169 | | | $ | 235 | |
| Prepaid expenses | 112 | | | 119 | |
| Capitalized costs to obtain and fulfill sales contracts | 112 | | | 106 | |
| Foreign exchange forwards on certain assets and liabilities | 10 | | | 19 | |
| | | |
| Interest receivable on interest rate and cross currency swaps | 78 | | | 74 | |
| Other | 32 | | | 30 | |
| Total other current assets | $ | 513 | | | $ | 583 | |
| | | |
| Other assets: | | | |
| Investments in non-consolidated affiliates | $ | 526 | | | $ | 517 | |
| Deposits for real-estate leases | 15 | | | 15 | |
| Indemnification assets related to acquisitions | 107 | | | 110 | |
| Mutual funds and fixed deposits | 96 | | | 87 | |
| Company owned life insurance (at contract value) | 47 | | | 40 | |
| Costs to obtain sales contracts | 176 | | | 171 | |
| Derivative instruments designated as accounting hedges | 7 | | | 27 | |
| Pension and other retirement employee benefits | 39 | | | 40 | |
| Other | 88 | | | 85 | |
| Total other assets | $ | 1,101 | | | $ | 1,092 | |
| | | |
| Accounts payable and accrued liabilities: | | | |
| Salaries and benefits | $ | 113 | | | $ | 104 | |
| Incentive compensation | 166 | | | 276 | |
| Customer credits, advanced payments and advanced billings | 99 | | | 102 | |
| | | |
| Dividends | 5 | | | 6 | |
| Professional service fees | 47 | | | 49 | |
| Accrued interest | 79 | | | 93 | |
| Accounts payable | 37 | | | 52 | |
| Income taxes | 112 | | | 86 | |
| Pension and other retirement employee benefits | 7 | | | 7 | |
| Accrued royalties | 26 | | | 23 | |
| Foreign exchange forwards on certain assets and liabilities | 3 | | | 2 | |
| Restructuring liability | 28 | | | 65 | |
| | | |
| | | |
| Interest payable on interest rate and cross currency swaps | 62 | | | 51 | |
| Other | 93 | | | 95 | |
| Total accounts payable and accrued liabilities | $ | 877 | | | $ | 1,011 | |
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| | | |
| | | |
| June 30, 2023 | | December 31, 2022 |
| Other liabilities: | | | |
| Pension and other retirement employee benefits | $ | 195 | | | $ | 189 | |
| | | |
| Interest accrued on UTPs | 30 | | | 47 | |
| MAKS indemnification provisions | 19 | | | 23 | |
| Income tax liability - non-current portion | 15 | | | 48 | |
| Derivative instruments designated as accounting hedges | 381 | | | 317 | |
| Restructuring liability - non-current portion | 2 | | | — | |
| Other | 47 | | | 50 | |
| Total other liabilities | $ | 689 | | | $ | 674 | |
Investments in non-consolidated affiliates:
The following table provides additional detail regarding Moody's investments in non-consolidated affiliates, as included in other assets in the Company’s self-insurance reservesconsolidated balance sheets:
| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
Equity method investments (1) | $ | 194 | | | $ | 187 | |
Investments measured using the measurement alternative (2) | 325 | | | 325 | |
| Other | 7 | | | 5 | |
| Total investments in non-consolidated affiliates | $ | 526 | | | $ | 517 | |
(1) Equity securities in which the Company has significant influence over the investee but does not have a controlling financial interest in accordance with ASC Topic 323. |
(2) Equity securities without readily determinable fair value for which the Company has elected to apply the measurement alternative in accordance with ASC Topic 321. |
Moody's holds various investments accounted for claims insured byunder the Company’s wholly-owned insurance subsidiary,equity method, the most significant of which primarily relate to legal defense costs for claimsis the Company's minority investment in CCXI. Moody's also holds various investments measured using the measurement alternative, the most significant of which is the Company's minority interest in BitSight.
Earnings from
prior years,non-consolidated affiliates, which are
as follows: | | | | | | | | |
| | | Nine months ended
September 30, 2017 | | | Year Ended
December 31, 2016 | |
Balance January 1, | | $ | 11.1 | | | $ | 19.7 | |
Accruals (reversals), net | | | 4.2 | | | | 12.1 | |
Payments | | | (5.5 | ) | | | (20.7 | ) |
| | | | | | | | |
Balance | | $ | 9.8 | | | $ | 11.1 | |
| | | | | | | | |
included within other non-operating income (expense), net, are disclosed within the table below.
Other
Non-Operating Income (Expense): non-operating income (expense), net:
The following table summarizes the components of other
non-operating income (expense)
income: | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | Nine months ended | |
| | | September 30, | | | September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
FX gain/(loss) | | $ | (6.7 | ) | | $ | 4.3 | | | $ | (12.5 | ) | | $ | 9.1 | |
Legacy Tax benefit | | | — | | | | 1.6 | | | | — | | | | 1.6 | |
Joint venture income | | | 2.7 | | | | 2.3 | | | | 7.7 | | | | 7.2 | |
Other | | | 2.6 | | | | (1.3 | ) | | | 2.3 | | | | (2.4 | ) |
| | | | | | | | | | | | | | | | |
Total | | $ | (1.4 | ) | | $ | 6.9 | | | $ | (2.5 | ) | | $ | 15.5 | |
| | | | | | | | | | | | | | | | |
Purchase Price Hedge Gain:
There was, net:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
FX loss (1) | $ | (5) | | | $ | (22) | | | $ | (31) | | | $ | (22) | |
| Net periodic pension costs - other components | 9 | | | 6 | | | 18 | | | 12 | |
| Income from investments in non-consolidated affiliates | 1 | | | 2 | | | 3 | | | 4 | |
| Gains / losses on investments | 5 | | | (9) | | | 11 | | | (14) | |
Other (2) | 3 | | | 13 | | | 12 | | | 16 | |
| Total | $ | 13 | | | $ | (10) | | | $ | 13 | | | $ | (4) | |
(1) The amount for the six months ended June 30, 2023 includes a $111.1$23 million realized gain reflecting gains onloss recorded pursuant to an FX collar and foreign exchange forwards to economically hedge the euro denominated purchase price for Bureau van Dijk as more fully discussed in Note 8immaterial out-of-period adjustment relating to the condensed consolidated financial statements.CCXI Gain:
CCXI is2022 fiscal year. The amounts for the three and six months ended June 30, 2022 include FX translation losses of $20 million reclassified to earnings resulting from the Company no longer conducting commercial operations in Russia.
(2) The amount for the six months ended June 30, 2023 reflects a Chinese credit rating agency in which Moody’s acquiredbenefit of $9 million related to the favorable resolutions of various tax matters. The amounts for the three and six months ended June 30, 2022 reflect an $11 million benefit from a 49% stake in 2006. Moody’s accounts for this investment understatute of limitations lapse relating to reserves established pursuant to the equity methoddivestiture of accounting. On March 21, 2017, CCXI, as partMAKS.
NOTE
12.13. COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE
INCOMELOSS
The following table provides details about the reclassifications out of AOCI: | | | | | | | | | | | | |
| | | Three Months
Ended September 30,
2017 | | | Nine months
ended September 30,
2017 | | | Affected line in the consolidated
statement of operations | |
| | | |
Gains on cash flow hedges | | | | | | | | | | | | |
Cross-currency swap | | | 3.5 | | | | 12.1 | | |
| Other non-operating
income (expense), net |
|
Interest rate contract | | | 0.7 | | | | (0.4 | ) | |
| Interest expense,
net |
|
| | | | | | | | | | | | |
Total before income taxes | | | 4.2 | | | | 11.7 | | | | | |
Income tax effect of items above | | | (1.6 | ) | | | (4.9 | ) | |
| Provision for
income taxes |
|
| | | | | | | | | | | | |
Total net gains on cash flow hedges | | | 2.6 | | | | 6.8 | | | | | |
| | | | | | | | | | | | |
Gains on available for sale securities: | | | | | | | | | | | | |
Gains on available for sale securities | | | 1.1 | | | | 1.1 | | |
| Other non-operating
income (expense), net |
|
| | | | | | | | | | | | |
Total gains on available for sale securities | | | 1.1 | | | | 1.1 | | | | | |
| | | | | | | | | | | | |
Pension and other retirement benefits | | | | | | | | | | | | |
Amortization of actuarial losses and prior service costs included in net income | | | (1.3 | ) | | | (4.0 | ) | | | Operating expense | |
Amortization of actuarial losses and prior service costs included in net income | | | (0.8 | ) | | | (2.4 | ) | | | SG&A expense | |
| | | | | | | | | | | | |
Total before income taxes | | | (2.1 | ) | | | (6.4 | ) | | | | |
| | | | | | | | | | | | |
Income tax effect of item above | | | 0.8 | | | | 2.5 | | |
| Provision for
income taxes |
|
| | | | | | | | | | | | |
Total pension and other retirement benefits | | | (1.3 | ) | | | (3.9 | ) | | | | |
| | | | | | | | | | | | |
Total net gains included in Net Income attributable to reclassifications out of AOCI | | $ | 2.4 | | | $ | 4.0 | | | | | |
| | | | | | | | | | | | |
| | | |
| | | Three Months
Ended September 30,
2016 | | | Nine months
ended September 30,
2016 | | | Affected line in the consolidated
statement of operations | |
Gains on cash flow hedges | | | | | | | | | | | | |
Cross-currency swap | | | 1.3 | | | | 0.9 | | |
| Othernon-operating
income (expense),
net |
|
Income tax effect of item above | | | (0.4 | ) | | | (0.3 | ) | |
| Provision for
income taxes |
|
| | | | | | | | | | | | |
Total net losses on cash flow hedges | | | 0.9 | | | | 0.6 | | | | | |
| | | | | | | | | | | | |
Pension and other retirement benefits | | | | | | | | | | | | |
Amortization of actuarial losses and prior service costs included in net income | | | (1.5 | ) | | | (4.6 | ) | | | Operating expense | |
Amortization of actuarial losses and prior service costs included in net income | | | (0.9 | ) | | | (2.7 | ) | | | SG&A expense | |
| | | | | | | | | | | | |
Total before income taxes | | | (2.4 | ) | | | (7.3 | ) | | | | |
| | | | | | | | | | | | |
Income tax effect of item above | | | 0.9 | | | | 2.8 | | |
| Provision for
income taxes |
|
| | | | | | | | | | | | |
Total pension and other retirement benefits | | | (1.5 | ) | | | (4.5 | ) | | | | |
| | | | | | | | | | | | |
Total losses included in Net Income attributable to reclassifications out of AOCI | | $ | (0.6 | ) | | $ | (3.9 | ) | | | | |
| | | | | | | | | | | | |
AOCL:
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Location in the consolidated statements of operations |
| Losses on currency translation adjustments | 2023 | | 2022 | |
| Foreign currency translation adjustments - reclassification of losses included in net income | $ | — | | | $ | (20) | | | Other non-operating income, net |
| Total losses on currency translation adjustments | — | | | (20) | | | |
| Gains (losses) on cash flow hedges | | | | | |
| | | | | |
| Interest rate contract | — | | | — | | | Other non-operating income, net |
| Income tax effect of item above | 1 | | | — | | | Provision for income taxes |
| Total net gains (losses) on cash flow hedges | 1 | | | — | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Pension and other retirement benefits | | | | | |
| Amortization of actuarial losses and prior service costs included in net income | 2 | | | (1) | | | Other non-operating income, net |
| | | | | |
| | | | | |
| Income tax effect of item above | (1) | | | — | | | Provision for income taxes |
| Total pension and other retirement benefits | 1 | | | (1) | | | |
| Total net gains (losses) included in Net Income attributable to reclassifications out of AOCL | $ | 2 | | | $ | (21) | | | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| Six Months Ended June 30, | | Location in the consolidated statements of operations |
| Losses on currency translation adjustments | 2023 | | 2022 | |
| Foreign currency translation adjustments - reclassification of losses included in net income | $ | — | | | $ | (20) | | | Other non-operating income, net |
| Total losses on currency translation adjustments | — | | | (20) | | | |
| Losses on cash flow hedges | | | | | |
| | | | | |
| Interest rate contract | (1) | | | (1) | | | Other non-operating income, net |
| Income tax effect of item above | 1 | | | — | | | Provision for income taxes |
| Total net losses on cash flow hedges | — | | | (1) | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Pension and other retirement benefits | | | | | |
| Amortization of actuarial losses and prior service costs included in net income | 2 | | | (1) | | | Other non-operating income, net |
| | | | | |
| Income tax effect of item above | (1) | | | — | | | Provision for income taxes |
| Total pension and other retirement benefits | 1 | | | (1) | | | |
| Total net gains (losses) included in Net Income attributable to reclassifications out of AOCL | $ | 1 | | | $ | (22) | | | |
The following table showstables show changes in AOCIAOCL by component (net of tax): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended | |
| | | September 30, 2017 | | | September 30, 2016 | |
| Gains/(Losses) | | Pension
and Other
Retirement
Benefits | | | Gains/
(Losses) on
Cash Flow
Hedges | | | Foreign
Currency
Translation
Adjustments | | | Gains on
Available
for Sale
Securities | | | Total | | | Pension
and Other
Retirement
Benefits | | | Gains/
(Losses) on
Cash Flow
Hedges | | | Foreign
Currency
Translation
Adjustments | | | Gains on
Available
for Sale
Securities | | | Total | |
Balance June 30, | | $ | (72.0 | ) | | $ | 0.5 | | | $ | (241.8 | ) | | $ | 3.6 | | | $ | (309.7 | ) | | $ | (79.4 | ) | | $ | (2.5 | ) | | $ | (239.4 | ) | | $ | 4.5 | | | $ | (316.8 | ) |
Other comprehensive income/(loss) before reclassifications | | | — | | | | 3.2 | | | | 50.8 | | | | 0.3 | | | | 54.3 | | | | — | | | | 3.2 | | | | 9.2 | | | | (1.9 | ) | | | 10.5 | |
Amounts reclassified from AOCI | | | 1.3 | | | | (2.6 | ) | | | — | | | | (1.1 | ) | | | (2.4 | ) | | | 1.5 | | | | (0.9 | ) | | | — | | | | — | | | | 0.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income/(loss) | | | 1.3 | | | | 0.6 | | | | 50.8 | | | | (0.8 | ) | | | 51.9 | | | | 1.5 | | | | 2.3 | | | | 9.2 | | | | (1.9 | ) | | | 11.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance September 30, | | $ | (70.7 | ) | | $ | 1.1 | | | $ | (191.0 | ) | | $ | 2.8 | | | $ | (257.8 | ) | | $ | (77.9 | ) | | $ | (0.2 | ) | | $ | (230.2 | ) | | $ | 2.6 | | | $ | (305.7 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | Nine months ended | |
| | | September 30, 2017 | | | September 30, 2016 | |
| Gains/(Losses) | | Pension
and Other
Retirement
Benefits | | | Gains/
(Losses) on
Cash Flow
Hedges | | | Foreign
Currency
Translation
Adjustments | | | Gains on
Available
for Sale
Securities | | | Total | | | 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, | | $ | (79.5 | ) | | $ | 1.7 | | | $ | (290.2 | ) | | $ | 3.1 | | | $ | (364.9 | ) | | $ | (85.7 | ) | | $ | (1.1 | ) | | $ | (256.0 | ) | | $ | 3.3 | | | $ | (339.5 | ) |
Other comprehensive income/(loss) before reclassifications | | | 4.9 | | | | 6.2 | | | | 99.2 | | | | 0.8 | | | | 111.1 | | | | 3.3 | | | | 1.5 | | | | 25.8 | | | | (0.7 | ) | | | 29.9 | |
Amounts reclassified from AOCI | | | 3.9 | | | | (6.8 | ) | | | — | | | | (1.1 | ) | | | (4.0 | ) | | | 4.5 | | | | (0.6 | ) | | | — | | | | — | | | | 3.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income/(loss) | | | 8.8 | | | | (0.6 | ) | | | 99.2 | | | | (0.3 | ) | | | 107.1 | | | | 7.8 | | | | 0.9 | | | | 25.8 | | | | (0.7 | ) | | | 33.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance September 30, | | $ | (70.7 | ) | | $ | 1.1 | | | $ | (191.0 | ) | | $ | 2.8 | | | $ | (257.8 | ) | | $ | (77.9 | ) | | $ | (0.2 | ) | | $ | (230.2 | ) | | $ | 2.6 | | | $ | (305.7 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Three Months Ended June 30, |
| 2023 | | 2022 |
| Gains/(Losses) | Pension and Other Retirement Benefits | Cash Flow Hedges | Foreign Currency Translation Adjustments | Net Investment Hedges | Total | | Pension and Other Retirement Benefits | Cash Flow Hedges | Foreign Currency Translation Adjustments | Net Investment Hedges | Total |
| Balance at March 31, | $ | (47) | | $ | (44) | | $ | (626) | | $ | 128 | | $ | (589) | | | $ | (51) | | $ | (46) | | $ | (442) | | $ | 68 | | $ | (471) | |
| Other comprehensive income/(loss) before reclassifications | — | | — | | 49 | | (28) | | 21 | | | 4 | | — | | (334) | | 181 | | (149) | |
| Amounts reclassified from AOCL | (1) | | (1) | | — | | — | | (2) | | | 1 | | — | | 20 | | — | | 21 | |
| Other comprehensive income/(loss) | (1) | | (1) | | 49 | | (28) | | 19 | | | 5 | | — | | (314) | | 181 | | (128) | |
| Balance at June 30, | $ | (48) | | $ | (45) | | $ | (577) | | $ | 100 | | $ | (570) | | | $ | (46) | | $ | (46) | | $ | (756) | | $ | 249 | | $ | (599) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
| Gains/(Losses) | Pension and Other Retirement Benefits | Cash Flow Hedges | Foreign Currency Translation Adjustments | Net Investment Hedges | Total | | Pension and Other Retirement Benefits | Cash Flow Hedges | Foreign Currency Translation Adjustments | Net Investment Hedges | Total |
| Balance at December 31, | $ | (47) | | $ | (45) | | $ | (736) | | $ | 185 | | $ | (643) | | | $ | (49) | | $ | (47) | | $ | (335) | | $ | 21 | | $ | (410) | |
| Other comprehensive income/(loss) before reclassifications | — | | — | | 159 | | (85) | | 74 | | | 2 | | — | | (441) | | 228 | | (211) | |
| Amounts reclassified from AOCL | (1) | | — | | — | | — | | (1) | | | 1 | | 1 | | 20 | | — | | 22 | |
| | | | | | | | | | | |
| Other comprehensive income/(loss) | (1) | | — | | 159 | | (85) | | 73 | | | 3 | | 1 | | (421) | | 228 | | (189) | |
| Balance at June 30, | $ | (48) | | $ | (45) | | $ | (577) | | $ | 100 | | $ | (570) | | | $ | (46) | | $ | (46) | | $ | (756) | | $ | 249 | | $ | (599) | |
|
NOTE
13. PENSION AND OTHER RETIREMENT BENEFITSMoody’s maintains funded and unfunded noncontributory Defined Benefit Pension Plans. 14. INDEBTEDNESS
The
U.S. plans provide defined benefits using a cash balance formula based on yearsCompany’s debt is recorded at its carrying amount, which represents the issuance amount plus or minus any issuance premium or discount, except for certain debt as depicted in the table below, which is recorded at the carrying amount adjusted for the fair value 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;an interest rate swap used to hedge 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”.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 benefitfair 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 September 30, | |
| | | Pension Plans | | | Other Retirement Plans | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Components of net periodic expense | | | | | | | | | | | | | | | | |
Service cost | | $ | 4.6 | | | $ | 5.0 | | | $ | 0.7 | | | $ | 0.6 | |
Interest cost | | | 4.7 | | | | 4.5 | | | | 0.2 | | | | 0.3 | |
Expected return on plan assets | | | (4.1 | ) | | | (4.3 | ) | | | — | | | | — | |
Amortization of net actuarial loss from earlier periods | | | 2.1 | | | | 2.5 | | | | 0.1 | | | | 0.1 | |
Amortization of net prior service costs from earlier periods | | | — | | | | 0.1 | | | | (0.1 | ) | | | (0.1 | ) |
| | | | | | | | | | | | | | | | |
Net periodic expense | | $ | 7.3 | | | $ | 7.8 | | | $ | 0.9 | | | $ | 0.9 | |
| | | | | | | | | | | | | | | | |
| |
| | | Nine months ended September 30, | |
| | | Pension Plans | | | Other Retirement Plans | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Components of net periodic expense | | | | | | | | | | | | | | | | |
Service cost | | $ | 13.8 | | | $ | 15.1 | | | $ | 1.9 | | | $ | 1.7 | |
Interest cost | | | 13.9 | | | | 13.6 | | | | 0.8 | | | | 0.8 | |
Expected return on plan assets | | | (12.4 | ) | | | (12.8 | ) | | | — | | | | — | |
Amortization of net actuarial loss from earlier periods | | | 6.6 | | | | 7.4 | | | | 0.1 | | | | 0.1 | |
Amortization of net prior service costs from earlier periods | | | — | | | | 0.1 | | | | (0.2 | ) | | | (0.2 | ) |
| | | | | | | | | | | | | | | | |
Net periodic expense | | $ | 21.9 | | | $ | 23.4 | | | $ | 2.6 | | | $ | 2.4 | |
| | | | | | | | | | | | | | | | |
The Company made a contribution of $10.4 million to its funded pension plan as well as payments of $3.5 million related to its unfunded U.S. DBPPs and $0.7 million to its U.S. other retirement plans during the nine months ended September 30, 2017. The Company anticipates making payments of $2.3 million and $0.3 million to its unfunded U.S. DBPPs and U.S. other retirement plans, respectively, during the remainder of 2017.
NOTE 14. INDEBTEDNESS
note.
The following table summarizes total indebtedness:
| | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2017 | |
| | | Principal
Amount | | | Fair Value of
Interest Rate
Swap (1) | | | Unamortized
(Discount)
Premium | | | Unamortized
Debt Issuance
Costs | | | Carrying
Value | |
Notes Payable: | | | | | | | | | | | | | | | | | | | | |
5.50% 2010 Senior Notes, due 2020 | | $ | 500.0 | | | $ | 4.1 | | | $ | (1.1 | ) | | $ | (1.3 | ) | | $ | 501.7 | |
4.50% 2012 Senior Notes, due 2022 | | | 500.0 | | | | — | | | | (2.1 | ) | | | (1.8 | ) | | | 496.1 | |
4.875% 2013 Senior Notes, due 2024 | | | 500.0 | | | | — | | | | (1.9 | ) | | | (2.5 | ) | | | 495.6 | |
2.75% 2014 Senior Notes(5-Year), due 2019 | | | 450.0 | | | | (0.1 | ) | | | (0.3 | ) | | | (1.2 | ) | | | 448.4 | |
5.25% 2014 Senior Notes(30-Year), due 2044 | | | 600.0 | | | | — | | | | 3.3 | | | | (5.7 | ) | | | 597.6 | |
1.75% 2015 Senior Notes, due 2027 | | | 591.1 | | | | — | | | | — | | | | (3.5 | ) | | | 587.6 | |
2.75% 2017 Senior Notes, due 2021 | | | 500.0 | | | | — | | | | (1.4 | ) | | | (3.4 | ) | | | 495.2 | |
2017 Floating Rate Senior Notes, due 2018 | | | 300.0 | | | | — | | | | — | | | | (0.7 | ) | | | 299.3 | |
2.625% 2017 Private Placement Notes, due 2023 | | | 500.0 | | | | — | | | | (1.1 | ) | | | (3.7 | ) | | | 495.2 | |
3.25% 2017 Private Placement Notes, due 2028 | | | 500.0 | | | | — | | | | (5.3 | ) | | | (4.0 | ) | | | 490.7 | |
2017 Term Loan Facility, due 2020 | | | 500.0 | | | | — | | | | — | | | | (0.8 | ) | | | 499.2 | |
Commercial Paper | | | 315.0 | | | | — | | | | (0.2 | ) | | | — | | | | 314.8 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total debt | | $ | 5,756.1 | | | $ | 4.0 | | | $ | (10.1 | ) | | $ | (28.6 | ) | | $ | 5,721.4 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
Current portion | | | | | | | | | | | | | | | | | | | (614.1 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total long-term debt | | | | | | | | | | | | | | | | | | | 5,107.3 | |
| | | | | | | | | | | | | | | | | �� | | | |
| |
| | | December 31, 2016 | |
| | | Principal
Amount | | | Fair Value of
Interest Rate
Swap (1) | | | Unamortized
(Discount)
Premium | | | Unamortized
Debt Issuance
Costs | | | Carrying
Value | |
Notes Payable: | | | | | | | | | | | | | | | | | | | | |
6.06% Series2007-1 Notes due 2017 | | $ | 300.0 | | | $ | — | | | $ | — | | | $ | — | | | $ | 300.0 | |
5.50% 2010 Senior Notes, due 2020 | | | 500.0 | | | | 5.5 | | | | (1.3 | ) | | | (1.6 | ) | | | 502.6 | |
4.50% 2012 Senior Notes, due 2022 | | | 500.0 | | | | (0.2 | ) | | | (2.4 | ) | | | (2.1 | ) | | | 495.3 | |
4.875% 2013 Senior Notes, due 2024 | | | 500.0 | | | | — | | | | (2.1 | ) | | | (2.7 | ) | | | 495.2 | |
2.75% 2014 Senior Notes(5-Year), due 2019 | | | 450.0 | | | | 0.9 | | | | (0.4 | ) | | | (1.7 | ) | | | 448.8 | |
5.25% 2014 Senior Notes(30-Year), due 2044 | | | 600.0 | | | | — | | | | 3.3 | | | | (5.9 | ) | | | 597.4 | |
1.75% 2015 Senior Notes, due 2027 | | | 527.4 | | | | — | | | | — | | | | (3.7 | ) | | | 523.7 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total debt | | $ | 3,377.4 | | | $ | 6.2 | | | $ | (2.9 | ) | | $ | (17.7 | ) | | $ | 3,363.0 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
Current portion | | | | | | | | | | | | | | | | | | | (300.0 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
Total long-term debt | | | | | | | | | | | | | | | | | | $ | 3,063.0 | |
| | | | | | | | | | | | | | | | | | | | |
(1) | The Company has entered into | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | June 30, 2023 | | Notes Payable: | Principal Amount | | Fair Value of Interest Rate Swaps (1) | | Unamortized (Discount) Premium | | Unamortized Debt Issuance Costs | | Carrying Value | | 4.875% 2013 Senior Notes, due 2024 | $ | 300 | | | $ | — | | | $ | — | | | $ | — | | | $ | 300 | | | 5.25% 2014 Senior Notes, due 2044 | 600 | | | (42) | | | 3 | | | (4) | | | 557 | | | 1.75% 2015 Senior Notes, due 2027 | 546 | | | — | | | — | | | (2) | | | 544 | | | | | | | | | | | | | 3.25% 2017 Senior Notes, due 2028 | 500 | | | (37) | | | (3) | | | (2) | | | 458 | | | 4.25% 2018 Senior Notes, due 2029 | 400 | | | (42) | | | (2) | | | (2) | | | 354 | | | 4.875% 2018 Senior Notes, due 2048 | 400 | | | (44) | | | (6) | | | (4) | | | 346 | | | 0.950% 2019 Senior Notes, due 2030 | 818 | | | — | | | (2) | | | (4) | | | 812 | | | 3.75% 2020 Senior Notes, due 2025 | 700 | | | (24) | | | — | | | (2) | | | 674 | | | 3.25% 2020 Senior Notes, due 2050 | 300 | | | — | | | (4) | | | (3) | | | 293 | | | 2.55% 2020 Senior Notes, due 2060 | 300 | | | — | | | (2) | | | (3) | | | 295 | | | 2.00% 2021 Senior Notes, due 2031 | 600 | | | — | | | (7) | | | (4) | | | 589 | | | 2.75% 2021 Senior Notes, due 2041 | 600 | | | — | | | (13) | | | (5) | | | 582 | | | 3.10% 2021 Senior Notes, due 2061 | 500 | | | — | | | (7) | | | (5) | | | 488 | | | 3.75% 2022 Senior Notes, due 2052 | 500 | | | (36) | | | (8) | | | (5) | | | 451 | | | 4.25% 2022 Senior Notes, due 2032 | 500 | | | (14) | | | (2) | | | (4) | | | 480 | | | Total debt | $ | 7,564 | | | $ | (239) | | | $ | (53) | | | $ | (49) | | | $ | 7,223 | | | Current portion | | | | | | | | | (300) | | | Total long-term debt | | | | | | | | | $ | 6,923 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2022 | | Notes Payable: | Principal Amount | | Fair Value of Interest Rate Swaps (1) | | Unamortized (Discount) Premium | | Unamortized Debt Issuance Costs | | Carrying Value | | 4.875% 2013 Senior Notes, due 2024 | $ | 500 | | | $ | — | | | $ | (1) | | | $ | (1) | | | $ | 498 | | | 5.25% 2014 Senior Notes, due 2044 | 600 | | | (42) | | | 3 | | | (4) | | | 557 | | | 1.75% 2015 Senior Notes, due 2027 | 534 | | | — | | | — | | | (2) | | | 532 | | | | | | | | | | | | | 3.25% 2017 Senior Notes, due 2028 | 500 | | | (37) | | | (3) | | | (2) | | | 458 | | | 4.25% 2018 Senior Notes, due 2029 | 400 | | | (42) | | | (2) | | | (2) | | | 354 | | | 4.875% 2018 Senior Notes, due 2048 | 400 | | | (44) | | | (6) | | | (4) | | | 346 | | | 0.950% 2019 Senior Notes, due 2030 | 800 | | | — | | | (2) | | | (4) | | | 794 | | | 3.75% 2020 Senior Notes, due 2025 | 700 | | | (27) | | | (1) | | | (3) | | | 669 | | | 3.25% 2020 Senior Notes, due 2050 | 300 | | | — | | | (4) | | | (3) | | | 293 | | | 2.55% 2020 Senior Notes, due 2060 | 300 | | | — | | | (2) | | | (3) | | | 295 | | | 2.00% 2021 Senior Notes, due 2031 | 600 | | | — | | | (7) | | | (4) | | | 589 | | | 2.75% 2021 Senior Notes, due 2041 | 600 | | | — | | | (13) | | | (5) | | | 582 | | | 3.10% 2021 Senior Notes, due 2061 | 500 | | | — | | | (7) | | | (5) | | | 488 | | | 3.75% 2022 Senior Notes, due 2052 | 500 | | | (35) | | | (8) | | | (5) | | | 452 | | | 4.25% 2022 Senior Notes, due 2032 | 500 | | | (12) | | | (2) | | | (4) | | | 482 | | | Total long-term debt | $ | 7,734 | | | $ | (239) | | | $ | (55) | | | $ | (51) | | | $ | 7,389 | |
(1) The fair value of interest rate swaps on the 2010 Senior Notes, 2012 Senior Notes and the 2014 Senior Notes(5-Year) which are more fully discussed in Note 8 above.
|
Term Loan Facility
On June 6, 2017, the Company entered into a three-year term loan facility with the capacity to borrow up to $500.0 million. On August 8, 2017, the Company borrowed $500 million under the 2017 Term Loan for which the proceeds were used to fund the acquisition of Bureau van Dijk and to pay acquisition-related fees and expenses. At the Company’s election, interest on borrowings under the 2017 Term Loan is payable at rates that are based on either (a) Alternate Base Rate (as defined in the 2017 Term Loan Facility agreement) plus an applicable rate (ranging from 0 BPS to 50 BPS per annum) or (b)table above represents the Adjusted LIBO Rate (as definedcumulative amount of fair value hedging adjustments included in the 2017 Term Loan Facility agreement) plus an applicable rate (ranging from 87.5 BPS to 150 BPS per annum), in each case, depending on the Company’s index debt rating, as set forth in the 2017 Term Loan agreement.
The 2017 Term Loan contains covenants that, among other things, restrict the abilitycarrying amount of the Company to engage in mergers, consolidations, asset sales, transactions with affiliates, sale and leaseback transactions or to incur liens, with exceptions as set forth in the 2017 Term Loan Facility agreement. The 2017 Term Loan also contains a financial covenant that requires the Company to maintain a debt to EBITDA ratiohedged debt.
Table of not more than: (i) 4.5 to 1.0 as of the end of each fiscal quarter ending on September 30, 2017, December 31, 2017 and March 31, 2018 and (ii) 4.0 to 1.0 as of the end of the fiscal quarter ended on June 30, 2018. The 2017 Term Loan also contains customary events of default.Credit Facility
On June 6, 2017, the Company entered into an amendment to the 2015 Facility. Pursuant to the amendment, the applicable rate for borrowings under the 2015 Facility will range from 0 BPS to 32.5 BPS per annum for Alternate Base Rate loans (as defined in the 2015 Facility agreement) and 79.5 BPS to 132.5 BPS per annum for Eurocurrency loans (as defined in the 2015 Facility agreement). In addition, the facility fee paid by the Company now ranges from 8 BPS to 17.5 BPS on the daily amount of commitments (whether used or unused), in each case, depending on the Company’s index debt rating. The amendment also modifies, among other things, the existing financial covenant, so that, the Company’s debt to EBITDA ratio shall not exceed 4.5 to 1.0 as of the end of each fiscal quarter ending on September 30, 2017, December 31, 2017 and March 31, 2018 and shall not exceed 4.0 to 1.0 as of the end of the fiscal quarter ended on June 30, 2018.
Commercial Paper
On August 3, 2016, the Company entered into a private placement commercial paper program under which the Company may issue CP notes up to a maximum amount of $1.0 billion. Borrowings under the CP Program are backstopped by the 2015 Facility. Amounts under the CP Program may bere-borrowed. The maturity of the CP Notes will vary, but may not exceed 397 days from the date of issue. The CP Notes are sold at a discount from par, or alternatively, sold at par and bear interest at rates that will vary based upon market conditions. The rates of interest will depend on whether the CP Notes will be a fixed or floating rate. The interest on a floating rate may be based on the following: (a) certificate of deposit rate; (b) commercial paper rate; (c) the federal funds rate; (d) the LIBOR; (e) prime rate; (f) Treasury rate; or (g) such other base rate as may be specified in a supplement to the private placement agreement. The CP Program contains certain events of default including, among other things:non-payment of principal, interest or fees; entrance into any form of moratorium; and bankruptcy and insolvency events, subject in certain instances to cure periods. As of September 30, 2017, the Company has CP borrowings outstanding of $315.0 million with a weighted average maturity date at the time of issuance of 56 days. At September 30, 2017, the weighted average remaining maturity and interest rate on CP outstanding was 17 days and 1.51% respectively.
Contents
Notes Payable
On March 2, 2017, the Company issued $300 million aggregate principal amount of senior unsecured floating rate notes in a public offering. The 2017 Floating Rate Senior Notes bear interest at a floating rate which is to be calculated by Wells Fargo Bank, National Association, equal to three-month LIBOR as determined on the interest determination date plus 0.35%. The interest determination date for an interest period will be
In the second London business day preceding the first day of such interest period. The 2017 Floating Rate Senior Notes will mature on September 4, 2018. Interest on the 2017 Floating Rate Senior Notes will accrue from March 2, 2017, and will be paid quarterly in arrears on June 4, 2017, September 4, 2017, December 4, 2017, March 4, 2018, June 4, 2018 and on the maturity date, to the record holders at the close of business on the business date preceding the interest payment date. The 2017 Floating Rate Senior Notes are not redeemable prior to their maturity.On March 2, 2017, the Company issued $500 million aggregate principal amount of senior unsecured notes in a public offering. The 2017 Senior Notes bear interest at a fixed rate of 2.750% and mature on December 15, 2021. Interest on the 2017 Senior Notes is due semiannually on June 15 and December 15 of each year, commencing June 15, 2017. The Company may redeem the 2017 Senior Notes, in whole or in part, at any time at a price equity to 100% of the principal amount being redeemed, plus accrued and unpaid interest and a Make-Whole Amount.
On June 12, 2017, the Company issued and sold through a private placement transaction, $500 million aggregate principal amount of its 2017 Private Placement Notes Due 2023 and $500 million aggregate principal amount of its 2017 Private Placement Notes Due 2028. The 2017 Private Placement Notes Due 2023 bear interest at the fixed rate of 2.625% per year and mature on January 15, 2023. The 2017 Private Placement Notes Due 2028 bear interest at the fixed rate of 3.250% per year and mature on January 15, 2028. Interest on each tranche of notes will be due semiannually on January 15 and July 15 of each year, commencing January 15, 2018. The Company entered into a registration rights agreement, dated as of June 12, 2017, with the representatives of the initial purchasers of the notes, which sets forth, among other things, the Company’s obligations to register the notes under the Securities Act, within 365 days of issuance. The net proceeds of the note offering were used to finance, in part, the acquisition of Bureau van Dijk. In addition, the Company may redeem each of the notes in whole or in part, at any time at a price equity to 100% of the principal amount being redeemed, plus accrued interest and a Make-Whole Amount.
For all of the aforementioned notes, at the option of the holders of the notes, the Company may be required to purchase all or a portion of the notes upon occurrence of a “Change of Control Triggering Event,” as defined in the 2017 Indenture, at a price equal to 101% of the principal amount, thereof, plus accrued and unpaid interest to the date of purchase. The 2017 Indenture contains covenants that limit the ability of the Company and certain of its subsidiaries to, among other things, incur or create liens and enter into sale and leaseback transactions. In addition, the 2017 Indenture contains a covenant that limits the ability of the Company to consolidate or merge with another entity or to sell all or substantially all of its assets to another entity. The 2017 Indenture also contains customary default provisions. In addition, an event of default will occur if the Company or certain of its subsidiaries fail to pay the principal of any indebtedness (as defined in the 2017 Indenture) when due at maturity in an aggregate amount of $50 million or more, or a default occurs that results in the acceleration of the maturity of the Company’s or certain of its subsidiaries’ indebtedness in an aggregate amount of $50 million or more. Upon the occurrence and during the continuation of an event of default under the 2017 Indenture, all the aforementioned notes may become immediately due and payable either automatically or by the vote of the holders of more than 25% of the aggregate principal amount of all of the notes of the applicable series then outstanding.
In the first quarter of 2017,2023, the Company repaid the Series2007-1$200 million of its $500 million 2013 Senior Notes along with a Make-Whole Amount of approximately $7 million.
2017 Bridge Credit Facility
On May 15, 2017, the Company entered into a364-Day Bridge Credit Agreement providing for a $1.5 billion bridge facility. Ondue 202
4. At June
12, 2017, the commitments under this facility were terminated upon the issuance of the 2017 Private Placement Notes Due30, 2023,
the 2017 Private Placement Notes Due 2028 and the 2017 Term Loan Facility.At September 30, 2017, 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 SeptemberJune 30, 2017,2023, there were no such cross defaults.
The repayment schedule for the Company’s borrowings is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year Ended 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
(1) due
2027 | | | 2017
Floating
Rate
Senior
Notes
due
2018 | | | Term
Loan
Facility
due
2020 | | | 2017
Senior
Notes
due
2021 | | | 2017
Private
Placement
Notes
due
2023 | | | 2017
Private
Placement
Notes
due
2028 | | | Commercial
Paper | | | Total | |
2017 (after September 30,) | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 315.0 | | | $ | 315.0 | |
2018 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 300.0 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 300.0 | |
2019 | | | — | | | | — | | | | — | | | | 450.0 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 450.0 | |
2020 | | | 500.0 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 500.0 | | | | — | | | | — | | | | — | | | | — | | | | 1,000.0 | |
2021 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 500.0 | | | | — | | | | — | | | | — | | | | 500.0 | |
Thereafter | | | — | | | | 500.0 | | | | 500.0 | | | | — | | | | 600.0 | | | | 591.1 | | | | — | | | | — | | | | — | | | | 500.0 | | | | 500.0 | | | | — | | | | 3,191.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 500.0 | | | $ | 500.0 | | | $ | 500.0 | | | $ | 450.0 | | | $ | 600.0 | | | $ | 591.1 | | | $ | 300.0 | | | $ | 500.0 | | | $ | 500.0 | | | $ | 500.0 | | | $ | 500.0 | | | $ | 315.0 | | | $ | 5,756.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Based on end of quarter FX rates
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ending December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ending Total |
| 2023 (After June 30,) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | — | |
| 2024 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 300 | |
| 2025 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 700 | |
| 2026 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | |
| 2027 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 546 | |
| Thereafter | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 6,018 | |
| Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 7,564 | |
The following table summarizes the components of interest as presented in the consolidated statements of
operations: | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | | Nine months ended
September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Income | | $ | 4.3 | | | $ | 2.5 | | | $ | 13.0 | | | $ | 8.2 | |
Expense on borrowings | | | (48.8 | ) | | | (35.6 | ) | | | (139.9 | ) | | | (105.6 | ) |
Expense on UTPs and other tax related liabilities | | | (3.9 | ) | | | (2.5 | ) | | | (9.4 | ) | | | (7.0 | ) |
Legacy Tax | | | — | | | | 0.2 | | | | — | | | | 0.2 | |
Capitalized | | | 0.3 | | | | — | | | | 0.8 | | | | 0.4 | |
| | | | | | | | | | | | | | | | |
Total | | $ | (48.1 | ) | | $ | (35.4 | ) | | $ | (135.5 | ) | | $ | (103.8 | ) |
| | | | | | | | | | | | | | | | |
The following table showsoperations and the cash paid for interest:
| | | | | | | | |
| | | Nine months ended | |
| | | September 30, | |
| | | 2017 | | | 2016 | |
Interest paid | | $ | 136.2 | | | $ | 129.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | |
| 2023 | | 2022 | | 2023 | | 2022 | |
| Income | $ | 15 | | | $ | 2 | | | $ | 25 | | | $ | 4 | | |
| Expense on borrowings | (75) | | | (50) | | | (145) | | | (98) | | |
Income (expense) on UTPs and other tax related liabilities(1) | (4) | | | (3) | | | 14 | | | (6) | | |
| Net periodic pension costs - interest component | (7) | | | (4) | | | (13) | | | (8) | | |
| Interest expense, net | $ | (71) | | | $ | (55) | | | $ | (119) | | | $ | (108) | | |
Interest paid(2) | $ | 47 | | | $ | 12 | | | $ | 143 | | | $ | 90 | | |
(1) The amount for the six months ended June 30, 2023 reflects a $22 million reduction of tax-related interest expense primarily related to the resolutions of outstanding tax matters.
(2) Interest paid includes net settlements on interest rate swaps more fully discussed in Note 8.
The fair value and carrying value of the Company’s debt
(excluding Commercial Paper) as of
SeptemberJune 30,
20172023 and December 31,
20162022 are as follows:
| | | | | | | | | | | | | | | | |
| | | September 30, 2017 | | | December 31, 2016 | |
| | | Carrying
Amount | | | Estimated
Fair Value | | | Carrying
Amount | | | Estimated
Fair Value | |
Series2007-1 Notes | | $ | — | | | $ | — | | | $ | 300.0 | | | $ | 308.9 | |
2010 Senior Notes | | | 501.7 | | | | 544.8 | | | | 502.6 | | | | 548.3 | |
2012 Senior Notes | | | 496.1 | | | | 538.7 | | | | 495.3 | | | | 535.3 | |
2013 Senior Notes | | | 495.6 | | | | 551.1 | | | | 495.2 | | | | 539.9 | |
2014 Senior Notes(5-Year) | | | 448.4 | | | | 455.8 | | | | 448.8 | | | | 456.2 | |
2014 Senior Notes(30-Year) | | | 597.6 | | | | 701.8 | | | | 597.4 | | | | 661.5 | |
2015 Senior Notes | | | 587.6 | | | | 607.9 | | | | 523.7 | | | | 534.8 | |
2017 Senior Notes(5-Year) | | | 495.2 | | | | 503.2 | | | | — | | | | — | |
2017 Floating Rate Senior Notes | | | 299.3 | | | | 300.5 | | | | — | | | | — | |
2.65% 2017 Private Placement Notes, due 2023 | | | 495.2 | | | | 496.8 | | | | — | | | | — | |
3.25% 2017 Private Placement Notes, due 2028 | | | 490.7 | | | | 496.0 | | | | — | | | | — | |
2017 Term Loan Facility, due 2020 | | | 499.2 | | | | 499.2 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Total | | $ | 5,406.6 | | | $ | 5,695.8 | | | $ | 3,363.0 | | | $ | 3,584.9 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
| Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Total debt | $ | 7,223 | | | $ | 6,369 | | | $ | 7,389 | | | $ | 6,564 | |
The fair value of the Company’s debt is estimated based on quoted
market prices
for similar instruments. Accordingly, the inputs used to estimate the fair valuein active markets as of the
Company’s long-term debtreporting date, which are
classified asconsidered Level
21 inputs within the fair value hierarchy.
NOTE 15. 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 consolidated financial statements. Certain of the Company’s leases include options to renew, with renewal terms that can extend the lease term from one year to 20 years at the Company’s discretion.
The following table presents the components of the Company’s lease cost:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Operating lease cost | $ | 23 | | | $ | 25 | | | $ | 47 | | | $ | 52 | |
| Sublease income | (2) | | | (2) | | | (4) | | | (4) | |
| Variable lease cost | 5 | | | 5 | | | 10 | | | 10 | |
| Total lease cost | $ | 26 | | | $ | 28 | | | $ | 53 | | | $ | 58 | |
The following tables present other information related to the Company’s operating leases:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | 30 | | | $ | 29 | | | $ | 60 | | | $ | 60 | |
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 19 | | | $ | 15 | | | $ | 24 | | | $ | 30 | |
| | | | | | | | | | | | |
| June 30, 2023 | | June 30, 2022 | |
| Weighted-average remaining lease term | 4.8 years | | 5.3 years | |
| Weighted-average discount rate applied to operating leases | 3.2 | % | | 3.1 | % | |
The following table presents a maturity analysis of the future minimum lease payments included within the Company’s operating lease liabilities at June 30, 2023:
| | | | | | | | |
| Year Ending December 31, | | Operating Leases |
| 2023 (After June 30,) | | $ | 60 | |
| 2024 | | 115 | |
| 2025 | | 103 | |
| 2026 | | 84 | |
| 2027 | | 68 | |
| After 2027 | | 54 | |
| Total lease payments (undiscounted) | | 484 | |
| Less: Interest | | 35 | |
| Present value of lease liabilities: | | $ | 449 | |
| Lease liabilities - current | | $ | 105 | |
| Lease liabilities - noncurrent | | $ | 344 | |
Given the nature of
theirthe Company's 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.
The Company periodically receivesMoody’s and
respondsMIS also are subject to
subpoenasperiodic reviews, inspections, examinations and investigations by regulators in the U.S. and other
inquiriesjurisdictions, any of which
may relate to Moody’s activities or to activities of others that may result in claims,
and litigation,legal proceedings,
assessments, fines, penalties or
investigations by private litigants or governmental, regulatory or legislative authorities.restrictions on business activities. Moody’s also is subject to ongoing tax audits as addressed in Note 4 to the
condensed consolidated financial statements.
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
16.17. SEGMENT INFORMATION
The Company is organized into two operating segments:
MISMA and
MAMIS and accordingly, the Company reports in two reportable segments:
MISMA and
MA.MIS.
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 - Decision Solutions, Research and Insights, and Data and Information.
The MIS segment consists of five LOBs. The CFG,
SFG, FIG,
PPIF and
PPIFSFG 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
the distribution of research and financial instruments pricing services in the Asia-Pacific region,
as well as ICRA
non-ratings revenue.The MA segment develops a wide range of products revenue 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.
On August 10, 2017, a subsidiary of the Company acquired Yellow Maple I B.V., an indirect parent of Bureau van Dijk, a global provider of business intelligence and company information products. Bureau van Dijk is part of the MA reportable segment and its revenue is included in the RD&A LOB. Refer to Note 7 for further discussion on the acquisition.
from providing professional services.
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. TheseAdditionally, revenue for MIS and expenses for MA include intersegment fees charged to MA for the rights to use and distribute content, data and products developed by MAMIS. These intersegment fees are generally equal tobased on the costs incurred by MA to produce thesemarket value of the products and services. Additionally, overhead costs and corporate expenses ofservices being transferred between 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. segments.
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 costs and corporate expenses that benefit both segments, costs are allocated to each segment based on the segment’s share of full-year 2018 actual revenue which comprises a “Baseline Pool” established in 2019, which 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.
“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
and 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | |
| | | 2017 | | | 2016 | |
| | | MIS | | | MA | | | Eliminations | | | Consolidated | | | MIS | | | MA | | | Eliminations | | | Consolidated | |
Revenue | | $ | 723.2 | | | $ | 372.8 | | | $ | (33.1 | ) | | $ | 1,062.9 | | | $ | 637.6 | | | $ | 309.0 | | | $ | (29.5 | ) | | $ | 917.1 | |
Operating, SG&A | | | 319.2 | | | | 278.3 | | | | (33.1 | ) | | | 564.4 | | | | 272.8 | | | | 235.2 | | | | (29.5 | ) | | | 478.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted Operating Income | | | 404.0 | | | | 94.5 | | | | — | | | | 498.5 | | | | 364.8 | | | | 73.8 | | | | — | | | | 438.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Less: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Restructuring | | | — | | | | — | | | | — | | | | — | | | | 7.6 | | | | 0.8 | | | | — | | | | 8.4 | |
Depreciation and amortization | | | 18.6 | | | | 24.4 | | | | — | | | | 43.0 | | | | 19.1 | | | | 13.6 | | | | — | | | | 32.7 | |
Acquisition-Related Expenses | | | — | | | | 10.1 | | | | — | | | | 10.1 | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating income | | $ | 385.4 | | | $ | 60.0 | | | $ | — | | | $ | 445.4 | | | $ | 338.1 | | | $ | 59.4 | | | $ | — | | | $ | 397.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | Nine Months Ended September 30, | |
| | | 2017 | | | 2016 | |
| | | MIS | | | MA | | | Eliminations | | | Consolidated | | | MIS | | | MA | | | Eliminations | | | Consolidated | |
Revenue | | $ | 2,131.1 | | | $ | 1,001.1 | | | $ | (93.6 | ) | | $ | 3,038.6 | | | $ | 1,836.9 | | | $ | 908.9 | | | $ | (83.7 | ) | | $ | 2,662.1 | |
Operating, SG&A | | | 898.9 | | | | 761.9 | | | | (93.6 | ) | | | 1,567.2 | | | | 830.1 | | | | 698.1 | | | | (83.7 | ) | | | 1,444.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted Operating Income | | | 1,232.2 | | | | 239.2 | | | | — | | | | 1,471.4 | | | | 1,006.8 | | | | 210.8 | | | | — | | | | 1,217.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Less: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Restructuring | | | — | | | | — | | | | — | | | | — | | | | 10.2 | | | | 1.8 | | | | — | | | | 12.0 | |
Depreciation and amortization | | | 56.4 | | | | 52.0 | | | | — | | | | 108.4 | | | | 54.8 | | | | 39.0 | | | | — | | | | 93.8 | |
Acquisition-Related Expenses | | | — | | | | 16.7 | | | | — | | | | 16.7 | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating income | | $ | 1,175.8 | | | $ | 170.5 | | | $ | — | | | $ | 1,346.3 | | | $ | 941.8 | | | $ | 170.0 | | | $ | — | | | $ | 1,111.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
MIS and MA Revenue by Line Refer to Note 2 for further details on the components of Business
the Company’s revenue.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2023 | | 2022 |
| MA | | MIS | | Eliminations | | Consolidated | | MA | | MIS | | Eliminations | | Consolidated |
| Total external revenue | $ | 747 | | | $ | 747 | | | $ | — | | | $ | 1,494 | | | $ | 675 | | | $ | 706 | | | $ | — | | | $ | 1,381 | |
| Intersegment revenue | 4 | | | 46 | | | (50) | | | — | | | 1 | | | 43 | | | (44) | | | — | |
| Revenue | 751 | | | 793 | | | (50) | | | 1,494 | | | 676 | | | 749 | | | (44) | | | 1,381 | |
| Operating, SG&A | 541 | | | 350 | | | (50) | | | 841 | | | 471 | | | 334 | | | (44) | | | 761 | |
| Adjusted Operating Income | $ | 210 | | | $ | 443 | | | $ | — | | | $ | 653 | | | $ | 205 | | | $ | 415 | | | $ | — | | | $ | 620 | |
| Add: | | | | | | |
| | | | | | | | |
Depreciation and
amortization | 74 | | | 19 | | | — | | | 93 | | | 60 | | | 21 | | | — | | | 81 | |
| | | | | | | | | | | | | | | |
| Restructuring | 8 | | | 2 | | | — | | | 10 | | | 16 | | | 15 | | | — | | | 31 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Operating Income | | | | | | | $ | 550 | | | | | | | | | $ | 508 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
| MA | | MIS | | Eliminations | | Consolidated | | MA | | MIS | | Eliminations | | Consolidated |
| Total external revenue | $ | 1,484 | | | $ | 1,480 | | | $ | — | | | $ | 2,964 | | | $ | 1,370 | | | $ | 1,533 | | | $ | — | | | $ | 2,903 | |
| Intersegment revenue | 7 | | | 91 | | | (98) | | | — | | | 3 | | | 86 | | | (89) | | | — | |
| Revenue | 1,491 | | | 1,571 | | | (98) | | | 2,964 | | | 1,373 | | | 1,619 | | | (89) | | | 2,903 | |
| Operating, SG&A | 1,067 | | | 686 | | | (98) | | | 1,655 | | | 944 | | | 694 | | | (89) | | | 1,549 | |
| Adjusted Operating Income | $ | 424 | | | $ | 885 | | | $ | — | | | $ | 1,309 | | | $ | 429 | | | $ | 925 | | | $ | — | | | $ | 1,354 | |
| Add: | | | | | | | | | | | | | | | |
| Depreciation and amortization | 144 | | | 37 | | | — | | | 181 | | | 120 | | | 39 | | | — | | | 159 | |
| Restructuring | 16 | | | 8 | | | — | | | 24 | | | 16 | | | 15 | | | — | | | 31 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Operating Income | | | | | | | $ | 1,104 | | | | | | | | | $ | 1,164 | |
The table below
presents revenueshows cumulative restructuring expense incurred through June 30, 2023 by
LOB within each reportable
segment: | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
MIS: | | | | | | | | | | | | | | | | |
Corporate finance (CFG) | | $ | 350.2 | | | $ | 299.6 | | | $ | 1,058.8 | | | $ | 844.7 | |
Structured finance (SFG) | | | 128.3 | | | | 104.2 | | | | 347.7 | | | | 306.3 | |
Financial institutions (FIG) | | | 102.1 | | | | 95.8 | | | | 316.8 | | | | 280.4 | |
Public, project and infrastructure finance (PPIF) | | | 109.2 | | | | 105.2 | | | | 312.0 | | | | 309.0 | |
| | | | | | | | | | | | | | | | |
Total ratings revenue | | | 689.8 | | | | 604.8 | | | | 2,035.3 | | | | 1,740.4 | |
MIS Other | | | 4.4 | | | | 7.5 | | | | 13.8 | | | | 22.6 | |
| | | | | | | | | | | | | | | | |
Total external revenue | | | 694.2 | | | | 612.3 | | | | 2,049.1 | | | | 1,763.0 | |
| | | | | | | | | | | | | | | | |
Intersegment royalty | | | 29.0 | | | | 25.3 | | | | 82.0 | | | | 73.9 | |
| | | | | | | | | | | | | | | | |
Total | | | 723.2 | | | | 637.6 | | | | 2,131.1 | | | | 1,836.9 | |
| | | | | | | | | | | | | | | | |
MA: | | | | | | | | | | | | | | | | |
Research, data and analytics (RD&A) | | | 218.4 | | | | 167.7 | | | | 574.7 | | | | 500.9 | |
Enterprise risk solutions (ERS) | | | 112.6 | | | | 101.5 | | | | 305.8 | | | | 288.5 | |
Professional services (PS) | | | 37.7 | | | | 35.6 | | | | 109.0 | | | | 109.7 | |
| | | | | | | | | | | | | | | | |
Total external revenue | | | 368.7 | | | | 304.8 | | | | 989.5 | | | | 899.1 | |
| | | | | | | | | | | | | | | | |
Intersegment revenue | | | 4.1 | | | | 4.2 | | | | 11.6 | | | | 9.8 | |
| | | | | | | | | | | | | | | | |
Total | | | 372.8 | | | | 309.0 | | | | 1,001.1 | | | | 908.9 | |
| | | | | | | | | | | | | | | | |
Eliminations | | | (33.1 | ) | | | (29.5 | ) | | | (93.6 | ) | | | (83.7 | ) |
| | | | | | | | | | | | | | | | |
Total MCO | | $ | 1,062.9 | | | $ | 917.1 | | | $ | 3,038.6 | | | $ | 2,662.1 | |
| | | | | | | | | | | | | | | | |
segment.
| | | | | | | | | | | | | | | | | |
| MA | | MIS | | Total |
| | | | | |
| | | | | |
| | | | | |
| 2022 - 2023 Geolocation Restructuring Program | $ | 65 | | | $ | 72 | | | $ | 137 | |
The costs expected to be incurred related to the 2022 - 2023 Geolocation Restructuring Program are $80 million - $100 million for the MA segment and $80 million - $90 million for the MIS segment.
The restructuring program is more fully discussed in Note 10.
Consolidated Revenue Information by Geographic
Area: | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | | Nine months ended September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
United States | | $ | 588.4 | | | $ | 545.7 | | | $ | 1,734.0 | | | $ | 1,571.6 | |
International: | | | | | | | | | | | | | | | | |
EMEA | | | 291.0 | | | | 225.9 | | | | 779.3 | | | | 665.4 | |
Asia-Pacific | | | 118.6 | | | | 92.5 | | | | 336.0 | | | | 272.0 | |
Americas | | | 64.9 | | | | 53.0 | | | | 189.3 | | | | 153.1 | |
| | | | | | | | | | | | | | | | |
Total International | | | 474.5 | | | | 371.4 | | | | 1,304.6 | | | | 1,090.5 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 1,062.9 | | | $ | 917.1 | | | $ | 3,038.6 | | | $ | 2,662.1 | |
| | | | | | | | | | | | | | | | |
NOTE 17. RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2014, the FASB issued ASUNo. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This ASU outlines a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. In August 2015, the FASB issued ASUNo. 2015-14 “Revenue from Contracts with Customers (Topic 606), Deferral of the Effective Date” which defers the effective date of the ASU for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted up to the original effective date of December 15, 2016. In addition, during 2016, the FASB issued additional updates clarifying the implementation guidance for the new revenue recognition standard.
The Company intends to adopt the new revenue guidance as of January 1, 2018 using the modified retrospective transition method. Under this adoption method, the Company will record a cumulative adjustment to retained earnings at January 1, 2018 and apply the provisions of the ASU prospectively. Currently, the Company believes this ASU will have an impact on, which is not limited to: i) the accounting for certain software subscription revenue in MA whereby the license rights within the arrangement would be recognized at the inception of the contract based on estimated stand-alone selling price with the remainder recognized over the subscription period (compared to ASC 605 whereby all software subscription revenue is currently recognized over the subscription period); ii) the accounting for certain ERS and ESA revenue arrangements where VSOE is not currently available under ASC 605 would result in the acceleration of revenue recognition (compared to ASC 605 whereby revenue is currently deferred due to lack of VSOE); iii) the capitalization and related period of expense recognition for sales commissions, which are incurred in the MA segment; iv) the capitalization of software implementation project costs to fulfill a contract for its ERS and ESA businesses which will be expensed as incurred under the new standard; and v) the capitalization of work in process costs forin-progress MIS ratings at the end of each reporting period. This ASU will also require new comprehensive disclosures about contracts with customers including the significant reasonable judgments the Company has made when applying the ASU.
At September 30, 2017, the Company continues to assess and document key changes to its accounting policies relating to the adoption of the new revenue accounting standard. Additionally, the Company is assessing the impact that the standard will have on its processes and controls. Furthermore, the Company is in the process of implementing software in order to support the accounting under the new standard as well as assessing the impact that the new standard for MA multi-element arrangements, which primarily occur within the ERS and ESA revenue streams.
In January 2016, the FASB issued ASUNo. 2016-01 “Financial Instruments – Overall (Subtopic825-10), Recognition and Measurement of Financial Assets and Financial Liabilities”. The amendments in this ASU update various aspects of recognition, measurement, presentation and disclosures relating to financial instruments. This ASU is effective for fiscal years beginning after December 15, 2017. The Company is currently evaluating the impact of this ASU on the Company’s financial statements. The Company believes that the most pertinent impact to its financial statements upon the adoption of this ASU will relate to the discontinuance of theavailable-for-sale classification for investments in equity securities (unrealized gains and losses were recorded through OCI). Accordingly, subsequent to adoption of this ASU, changes in the fair value of equity securities held by the Company will be recorded through earnings.
In February 2016, the FASB issued ASUNo. 2016-02, “Leases (Topic 842)” requiring lessees to recognize aright-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 a materialright-of-use asset and lease liability for its real estate leases.
In June 2016, the FASB issued ASUNo. 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. Foravailable-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. This ASU 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 August 2016, the FASB issued ASUNo. 2016-15, “Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments”. This ASU adds or clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows with the intent to alleviate diversity in practice for classifying various types of cash flows. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. The Company will apply this clarification guidance in its statements of cash flows upon adoption.
In January 2017, the FASB issued ASUNo. 2017-01, “Business Combinations (Topic 805), Clarifying the Definition of a Business”. This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017 and should be applied prospectively. Upon adoption, the Company will apply the guidance in this ASU when evaluating whether acquired assets and activities constitute a business.
In March 2017, the FASB issued ASUNo. 2017-07, “Compensation – Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”. This ASU impacts the presentation of net periodic pension costs in the statement of operations. Entities will be required to report the service cost component in the same line item or items as other compensation costs (either Operating or SG&A in Moody’s statement of operations). The other components of net benefit cost are required to be presented in the statement of operations separately from the service cost component and outside of operating income. The ASU permits only the service cost component of net periodic pension cost to be eligible for capitalization, when applicable. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017. Upon adoption, the Company will bifurcate its net periodic pension costs reported in its statements of operations in accordance with this ASU.
In May 2017, the FASB issued ASUNo. 2017-09, “Compensation—Stock Compensation (Topic 718), Scope of Modification Accounting”. This ASU clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Under this ASU, an entity will not apply modification accounting to a share-based payment award if the award’s fair value, vesting conditions and classification as an equity or liability instrument are the same immediately before and after the change. The new guidance will reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017 and should be applied prospectively to awards modified on or after the adoption date. The Company does not expect the adoption of this ASU to have a material impact on its financial statements.
In July 2017, the FASB issued ASUNo. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”. This ASU enables entities to enhance transparency relating to risk management activities and simplifies the application of hedge accounting 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. The Company is currently in the process of assessing the impact that this ASU will have on its financial statements.
Area | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| United States | $ | 782 | | | $ | 723 | | | $ | 1,552 | | | $ | 1,546 | |
| Non-U.S.: | | | | | | | |
| EMEA | 470 | | | 422 | | | 921 | | | 878 | |
| Asia-Pacific | 146 | | | 151 | | | 297 | | | 293 | |
| Americas | 96 | | | 85 | | | 194 | | | 186 | |
| Total Non-U.S. | 712 | | | 658 | | | 1,412 | | | 1,357 | |
| Total | $ | 1,494 | | | $ | 1,381 | | | $ | 2,964 | | | $ | 2,903 | |
NOTE 18. SUBSEQUENT EVENT
On
October 23, 2017,July 24, 2023, the Board approved the declaration of a quarterly dividend of
$0.38$0.77 per share of Moody’s common stock, payable on
December 12, 2017September 8, 2023 to shareholders of record at the close of business on
November 21, 2017.August 18, 2023.
Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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. 10
–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 6677 for a discussion of uncertainties, risks and other factors associated with these statements.The Company
THE COMPANY
Moody’s is a global risk assessment firm that empowers organizations and investors to make better decisions. Moody’s reports activities in two segments: MA and MIS.
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| Provider of financial intelligence and analytical tools supporting customers’ growth, efficiency and risk management objectives | | Global leader in risk assessment providing credit rating opinions, analytical solutions and insights that empower organizations to make better, faster decisions | | Independent provider of credit rating opinions and related information for over 100 years |
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MA is a global provider of: i) data and information; ii) research and insights; and iii) decision solutions, which help companies make better and faster decisions. MA leverages its industry expertise across multiple risks such as credit, market, financial crime, supply chain, catastrophe and climate to deliver risk assessment solutions that enable business leaders to identify, measure and manage the implications of (i)interrelated risks and opportunities.
MIS publishes credit ratings
(ii) credit and
economic related research, data and analytical tools, (iii) software solutions and related risk managementprovides assessment services
(iv) quantitative credit risk measures, financial services training and certification services (v) analytical and research services and (vi) business intelligence and company information products. Moody’s has two reportable segments: MIS and MA.MIS, the credit rating agency, publishes credit ratings on a wide range of debt obligations, programs and facilities, and the entities that issue such obligations in markets worldwide. Revenue is primarily derivedworldwide, including various corporate, financial institution and governmental obligations, and structured finance securities.
Sustainability
Moody’s manages its business with the goal of delivering value to all of its stakeholders, including but not limited to, its customers, employees, business partners, local communities and stockholders. As part of this effort, Moody’s advances sustainability by considering environmental, social, and governance (“ESG”) factors in its operations, products and services. The Company uses its expertise and assets to make a positive difference through technology tools, research and analytical services that help other organizations and the investor community better understand the links between sustainability considerations and the global markets. Moody’s adheres to the policies of recognized sustainability organizations that develop standards or frameworks and/or evaluate and assess performance, including: the Global Reporting Initiative (GRI); Sustainability Accounting Standards Board (SASB); and the World Economic Forum (WEF)’s Stakeholder Capitalism metrics. On April 20, 2023, Moody's issued its 2022 annual reports on Stakeholder Sustainability and Task Force on Climate-related Financial Disclosures (“TCFD”). Moody’s sustainability-related achievements during the first half of 2023 included the following:
–Named 2022 CDP Supplier Engagement Leader on Climate Action for third consecutive year;
–Recognized among America’s 100 Most JUST Companies by JUST Capital and CNBC for its commitment to serving its workforce, customers, communities, the environment, and stockholders;
–Named to Bloomberg Gender-Equality Index for fourth consecutive year; and
–Ranked #1 on Forbes' Net Zero Leaders list.
The Board oversees sustainability matters, with assistance from the
originatorsAudit, Governance & Nominating 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 the distribution of research and fixed income pricing services in the Asia-Pacific region, and from ICRAnon-ratings services. 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 range of products and services that primarily support 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 MISCompensation & Human Resources Committees, as part of its ratings process,oversight of management and the Company’s overall strategy. The Audit Committee oversees financial, risk and other disclosures made in the Company’s annual and quarterly reports related to sustainability and has overseen the expanded voluntary disclosures the Company has made in its periodic filings. The Governance & Nominating Committee oversees sustainability matters, includingin-depth research on major debt issuers, industry studies significant issues of corporate social and commentary on topical credit-related events.environmental responsibility, as they pertain to the Company’s business and to long-term value creation for the Company and its stockholders, and makes recommendations to the Board regarding these issues. This has helped to develop the Company’s robust ESG strategy. Finally, the Compensation & Human Resources Committee oversees inclusion of sustainability-related performance goals for determining compensation of all senior executives. This oversight has resulted in the Company more fully integrating sustainability-related performance metrics into the strategic & operational compensation metric of all senior executives. The RD&A businessBoard also produces economic researchoversees Moody’s policies for assessing and data and analytical toolsmanaging the Company's exposure to risk, including climate-related risks such as quantitativebusiness continuity disruption and
reputational or credibility concerns stemming from incorporation of climate-related risks into the credit risk scores as well as business intelligencemethodologies and company information products. Within its ERS business, MA provides software solutions as well as related risk management services. credit ratings of MIS.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Pillars of Moody's Sustainability Strategy |
| | | | |
| Better Business | | Better Lives | | Better Solutions |
| For Moody's operations and value chain | | For Moody's people and communities | | For market transformation |
| Strive to embed responsible, sustainable decision-making into our operations and value chain. | | Aim to foster a nurturing and inclusive culture across Moody's people and communities. | | Deliver trusted perspectives that inform a clear and holistic understanding of risk, including ESG and climate considerations. |
Current Matters Impacting Moody's Business
Current Macroeconomic Uncertainties/Market Volatility
The
PS business provides analyticalCompany continues to monitor current macroeconomic and
research servicesgeopolitical uncertainties that have contributed to volatility in rated issuance volumes, which began in 2022 and
financial traininghas continued into the first half of 2023. These uncertainties include, but are not limited to: i) inflation levels; ii) rising interest rates; and
certification programs.Critical Accounting Estimates
Moody’s discussion and analysis of its financial condition and results of operations are based on the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally acceptediii) volatility in the United States. The preparationglobal capital markets partly resulting from the ongoing Russia/Ukraine military conflict (further discussed below) and the failures of certain banking institutions in the first half of 2023. A substantial portion of MIS’s revenue is impacted by the level of issuance activity in the fixed income capital markets, both in the U.S. and internationally. While market volatility has resulted in declines in rated issuance volumes in certain sectors, the Company believes that these financial statements requires Moody’sdeclines are predominantly transitory in nature. However, due to make estimatesvarious uncertainties, Moody's is unable to predict the severity and judgments that affect reported amountsduration of assetscurrent macroeconomic and liabilitiesgeopolitical uncertainties 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 basedtheir potential impact on historical experience and on other assumptions that are believedfuture rated issuance volumes. Refer 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,1A. “Risk Factors” contained in the Company’s annual report on Form10-K for the year ended December 31, 2016, includes descriptions of some2022 for further disclosure relating to these risks.
Russia/Ukraine Military Conflict
The Company is closely monitoring the impact of the
judgments that Moody’s makes in applyingongoing Russia/Ukraine military conflict on all aspects of its
accounting estimates in these areas. Since the date of the annual report on Form10-K, there have been no material changesbusiness. In response to the
Company’s critical accounting estimates other than the update below relating to the Company’s annual goodwill impairment assessment, which is performed as of July 31 of each year.Goodwill and Other Acquired Intangible Assets
On July 31 of each year, Moody’s evaluates its goodwill for impairment at the reporting unit level, defined as an operating segment or one level below an operating segment.
The Company has seven primary reporting units: two within the Company’s ratings business (one for the ICRA business and one that encompasses all of Moody’s other ratings operations) and five reporting units within MA: RD&A, ERS, FSTC, MAKS and Bureau van Dijk. The RD&A reporting unit encompasses the distribution of investor-oriented research and data developed by MIS as part of its ratings process,in-depth research on major debt issuers, industry studies, economic research and commentary on topical events and credit analytic tools. The ERS reporting unit provides products and services that support the credit risk management and regulatory compliance activities of financial institutions and also provides advanced actuarial software for the life insurance industry. These products and services are primarily delivered via software that is licensed on a perpetual basis or sold on a subscription basis. The FSTC reporting unit consists of the portion of the MA business that offers both credit training as well as other professional development training and implementation services. The MAKS reporting unit provides research and analytical services. The Bureau van Dijk reporting unit consists of the newly acquired Bureau van Dijk business, which was acquired on August 10, 2017, and primarily provides business intelligence and company information products.
The Company evaluates the recoverability of goodwill using atwo-step impairment test approach at the reporting unit level. In the first step, the Company assesses various qualitative factors to determine whether the fair value of a reporting unit may be less than its carrying amount. If a determination is made based on the qualitative factors that an impairment does not exist,military conflict, the Company is not required to perform further testing. Ifno longer conducting commercial operations in Russia for both MA and MIS and is complying with all applicable regulatory restrictions set forth by the aforementioned qualitative assessment resultsjurisdictions in the Company concluding that it is more likely than not that the fair value of a reporting unit may be less than its carrying amount, the fair value of the reporting unit will be determined and compared to its carrying value including goodwill. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and the Company is not required to perform further testing. If the fair value of the reporting unit is less than the carrying value, the Company will record a goodwill impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value. The Company evaluates its reporting units on an annual basis, or more frequently if there are changes in the reporting structure of the Company due to acquisitions or realignments. For the reporting units where the Company is consistently able to conclude that no impairment exists using only a qualitative approach, the Company’s accounting policy is to perform the second step of the aforementioned goodwill impairment assessment at least once every three years. At July 31, 2017, the Company performed a qualitative assessment on all reporting units except for MAKS, which resulted in no indicators of impairment of goodwill.
In January 2017 there was a management change in the MAKS business. A quantitative impairment assessment for the MAKS reporting unit was performed as of July 31, 2017 to reflect the completion of a new strategic plan for this reporting unit under new management (the Company’s annual strategic plan is completed in the third quarter of each year). This quantitative assessment resulted in no impairment of goodwill for the MAKS reporting unit at July 31, 2017.
Determining the fair value of a reporting unit or an indefinite-lived acquired intangible asset involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and appropriate comparable market metrics. However, as these estimates and assumptions are unpredictable and inherently uncertain, actual future results may differ from these estimates. In addition,Moody's operates. Furthermore, the Company also makes certain judgmentshas withdrawn MIS credit ratings on Russian entities.
While Moody's Russian operations and
assumptions in allocating shared assets and liabilities to determine the carrying values for each of its reporting units.Other assets and liabilities, including applicable corporatenet assets are allocatednot material, broader global market volatility, which partially relates to uncertainties surrounding the extent they are relatedmilitary conflict, has contributed to an adverse impact on rated issuance volumes. This impact to rated issuance volumes is more fully discussed in the operation"Results of respective reporting units.
Sensitivity Analyses and Key Assumptions for DerivingOperations" section of this MD&A. The Company is unable to predict either the Fair Value of a Reporting Unit
The following table identifiesnear-term or longer-term impact that the amount of goodwill allocated to each reporting unit as of September 30, 2017 and the amount by which the net assets of each reporting unit would exceed the fair value under Step 2 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 all reporting units excluding Bureau van Dijk (July 31, 2017 for MAKS; July 31, 2016 for the remaining reporting units excluding Bureau van Dijk). Due to the close proximity of the acquisition date of Bureau van Dijk to September 30, 2017, the carrying value of the Bureau van Dijk reporting unit is deemed to be equivalent to fair value and accordingly the Bureau van Dijk reporting unit was not subject to the sensitivity analysis below.
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Sensitivity Analysis | |
| | | | | | Deficit Caused by a Hypothetical Reduction to Fair Value | |
| | | Goodwill | | | 10% | | | 20% | | | 30% | | | 40% | |
MIS | | $ | 50.1 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
RD&A | | | 186.1 | | | | — | | | | — | | | | — | | | | — | |
ERS | | | 339.0 | | | | — | | | | — | | | | — | | | | — | |
FSTC | | | 90.9 | | | | — | | | | — | | | | (14.4 | ) | | | (34.6 | ) |
MAKS | | | 160.5 | | | | — | | | | — | | | | (2.9 | ) | | | (35.6 | ) |
ICRA | | | 240.8 | | | | — | | | | — | | | | — | | | | — | |
Bureau van Dijk | | | 2,654.7 | | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
| | | | | | | | | | | | | | | | | | | | |
Totals | | $ | 3,722.1 | | | $ | — | | | $ | — | | | $ | (17.3 | ) | | $ | (70.2 | ) |
| | | | | | | | | | | | | | | | | | | | |
Methodologies and significant estimates utilized in determining the fair value of reporting units:
The following is a discussion regarding the Company’s methodology for determining the fair value of its reporting units, excluding ICRA, as of the date of each reporting unit’s last quantitative assessment (July 31, 2017 for MAKS and July 31, 2016 for the remaining reporting units excluding Bureau van Dijk). As ICRA is a publicly traded company in India, the Company was able to observe its fair value basedmilitary conflict may have on its market capitalization.
The fair value of each reporting unit, excluding ICRA, was estimated using a discounted cash flow methodology and comparable public company and precedent transaction multiples. The DCF analysis requires significant estimates, including projections of future operating results and cash flows of each reporting unit that is based on internal budgets and strategic plans, expected long-term growth rates, terminal values, weighted average cost of capital and the effects of external factors and market conditions. Changes in these estimates and assumptions could materially affect the estimated fair value of each reporting unit which could result in an impairment charge to reduce the carrying value of goodwill, which could be material to the Company’s financial position and operating results due to numerous uncertainties regarding the severity and duration of operations. Moody’s allocates newly acquired goodwill to reporting units based on the reporting unit expected to benefit from the acquisition.
The sensitivity analyses on the future cash flowsmilitary conflict and WACC assumptions described below are as of each reporting unit’s last quantitative goodwill impairment assessment. The following discusses the key assumptions utilized in the discounted cash flow valuation methodology that requires significant management judgment:
| • | | Future cash flow assumptions —The projections for future cash flows utilized in the models are derived from historical experience and assumptions regarding future growth and profitability of each reporting unit. These projections are consistent with the Company’s operating and strategic plan. Cash flows for the five years subsequent to the date of the quantitative goodwill impairment analysis were utilized in the determination of the fair value of each reporting unit. The growth rates assumed a gradual increase in revenue based on a continued improvement in the global economy and capital markets, new customer acquisition and new products. Beyond five years, a terminal value was determined using a perpetuity growth rate based on inflation and real GDP growth rates. A sensitivity analysis of the revenue growth rates was performed on all reporting units. For all reporting units, a 10% decrease in the revenue growth rates used would not have resulted in the carrying value of the reporting unit exceeding its respective estimated fair value.
|
| • | | WACC—The WACC is the rate used to discount each reporting unit’s estimated future cash flows. The WACC is calculated based on the proportionate weighting of the cost of debt and equity. The cost of equity is based on a risk-free interest rate and an equity risk factor which is derived from public companies similar to the reporting unit and which captures the perceived risks and uncertainties associated with the reporting unit’s cash flows. The cost of debt component is calculated as the weighted average cost associated with all of the Company’s outstanding borrowings as of the date of the impairment test and was immaterial to the computation of the WACC. The cost of debt and equity is weighted based on the debt to market capitalization ratio of publicly traded companies with similarities to the reporting unit being tested. The WACC for all reporting units ranged from 8.5% to 11.0% as of the date of the reporting unit’s last quantitative assessment. Differences in the WACC used between reporting units is primarily due to distinct risks and uncertainties regarding the cash flows of the different reporting units. A sensitivity analysis of the WACC was performed on all reporting units as of the date of the reporting unit’s last quantitative goodwill impairment assessment. For all reporting units, an increase in the WACC of one percentage point would not result in the carrying value of the reporting unit exceeding its fair value.
|
its broader potential macroeconomic impact.
The Company is organized into two reportable segments
at Septemberas of June 30,
2017: MIS and MA.The MIS segment is comprised primarily of all of the Company’s ratings operations consisting of five LOBs – CFG, SFG, FIG, PPIF2023: MA 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 MIS which consists ofnon-rating revenue from ICRA as well as certain research and fixed income pricing service operationsare more fully described in the Asia-Pacific region.
The MA segment develops a wide rangesection entitled “The Company” above and in Note 17 to the condensed consolidated financial statements.
RESULTS OF OPERATIONS
The following is afootnotes are applicable throughout the discussion of the Company's results of operationsoperations:
(1) Refer to the section entitled "Non-GAAP Financial Measures" of this MD&A for the definition and methodology that the Company and its reportable segments. Total MIS revenue and total MA expenses includeutilizes to calculate this metric.
(2) Refer to the intersegment royalty revenue for MIS and expense charged to MAsection entitled "Key Performance Metrics" of this MD&A for the rights to usedefinition 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 expensesmethodology 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 allocatedutilizes 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.Beginning in the third quarter of 2017 in conjunction with the acquisition of Bureau van Dijk, the Company modified its definition of calculate this metric.
(3) Adjusted NetOperating Income, Adjusted Operating Margin and Adjusted Diluted EPS to exclude the impact of amortization of all acquisition-related intangible assets.are non-GAAP financial measures. Refer to the section entitled“Non-GAAP "Non-GAAP Financial Measures”Measures" of this Management Discussion and AnalysisMD&A for further information regarding this measure.RESULTS OF OPERATIONS
these measures.
Three months ended
SeptemberJune 30,
20172023 compared with three months ended
SeptemberJune 30,
20162022
Moody’s completed the acquisitionThe following table provides an executive summary of Bureau van Dijk on August 10, 2017. Moody’s results of operations include Bureau van Dijk’skey operating results beginning as of August 10, 2017.
Moody’s revenue infor the three monthsquarter ended SeptemberJune 30, 2017totaled $1,062.9 million, an increase of $145.8 million, or 16%, compared to 2016 and reflected growth in both reportable segments.
MIS revenue increased 13% compared to the prior year with the most notable growth reflecting strength in U.S. investment-grade corporate debt issuance, an increase in the number of rated deals within the CLO asset class and benefits from changes in the mix of fee type, new fee initiatives and pricing increases. These increases were partially offset by declines in refunding activity in U.S. PFG.
MA revenue was 21% higher than the prior year reflecting an increase in RD&A across all regions driven by approximately $30 million in revenue from the acquisition of Bureau van Dijk (net of an approximate $14 million deferred revenue adjustment required as part of acquisition accounting as further described in Note 7 to the financial statements), contributing 10 percentage points2023. Following this executive summary is a more detailed discussion of the total growth, coupled with growth in credit research subscriptions and licensing of ratings data. The growth also reflects highernon-U.S. ERS revenue.
TotalCompany’s operating expenses excluding D&A increased $87.6 million, or 18%, compared to the third quarter of 2016 mainly due to an increase in incentive compensation costs reflecting higher projected achievement against full-year projected results compared to the prior year. Additionally, there were approximately $10 million in Acquisition-Related Expenses related to Bureau van Dijk and approximately $20 million in operating expenses from Bureau van Dijk. These increases were partially offset by an $8.4 million restructuring charge in the third quarter of 2016 which did not recur in 2017.
D&A increased $10.3 million primarily due to amortization of intangible assets acquired as part of the Bureau van Dijk acquisition.
Operating income of $445.4 million in the third quarter of 2017 was up $47.9 million compared to 2016. Operating margin was 41.9% compared to 43.3% in the prior year. Adjusted Operating Income of $498.5 million in the third quarter of 2017 increased $59.9 million compared to 2016. Adjusted Operating Margin was 46.9% compared to 47.8% in the prior year period.
The increase innon-operating income (expense), net, compared to the prior year is primarily due to:
the $69.9 million Purchase Price Hedge Gain;
Partially offset by:
higher net interest expense of $12.7 million reflecting additional financing (including commercial paper) in 2017 to fund the payment of the 2016 Settlement Charge and repayment of the Series2007-1 Notes as well as to fund the acquisition of Bureau van Dijk.
The ETR of 31.4% in the third quarter of 2017 was 90BPS higher than the third quarter of 2016 reflecting an increase innon-U.S. taxes and higher rate on the Purchase Price Hedge Gain, a majority of which was incurred in a high tax jurisdiction. These items were partially offset by an approximate $8 million benefit reflecting the adoption on a prospective basis of a new accounting standard relating to Excess Tax Benefits on stock-based compensation (refer to Note 1 to the condensed consolidated financial statements for further discussion on the impacts of this new accounting standard), which favorably benefited the ETR by approximately 160 BPS.
Diluted EPS of $1.63 in the third quarter of 2017, which included: i) $0.23 from the Purchase Price Hedge Gain and; ii) $0.04 relating to Excess Tax Benefits on stock-based compensation; partially offset by: iii) $0.04 in Acquisition-Related Expenses; and $0.08 in Acquisition-Related Amortization, increased $0.32 from 2016. Excluding the Purchase Price Hedge Gain and Acquisition-Related Expenses in 2017 and Acquisition-Related Amortization in both years as well as a restructuring charge in 2016, Adjusted EPSdiscussion of $1.52 in 2017 increased $0.14.
the operating results of the Company’s reportable segments.
Moody’s
| | | | | | | | | | | | | | |
| Three Months Ended June 30, | |
| Financial measure: | 2023 | 2022 | % Change Favorable
(Unfavorable) | Insight and Key Drivers of Change Compared to Prior Year |
| Moody's total revenue | $ | 1,494 | | $ | 1,381 | | 8 | % | — reflects growth in both segments |
| MA external revenue | $ | 747 | | $ | 675 | | 11 | % | — sustained demand for KYC and insurance solutions; — continued growth from SaaS-based banking offerings; and — ongoing strong retention and new sales for ratings data feeds |
| MIS external revenue | $ | 747 | | $ | 706 | | 6 | % | — increased investment-grade and speculative-grade corporate debt issuance relative to suppressed activity in the prior year; partially offset by: — declines across most asset classes in SFG reflecting a decrease in securitization activity amidst capital market volatility |
| Total operating and SG&A expenses | $ | 841 | | $ | 761 | | (11 | %) | — higher incentive compensation accruals and performance-based equity compensation aligned with actual/expected financial and operating performance; and — costs to support continued investment in product and technology innovation initiatives |
| Depreciation and amortization | $ | 93 | | $ | 81 | | (15 | %) | — higher amortization of internally developed software, primarily related to the development of MA SaaS solutions |
| Restructuring | $ | 10 | | $ | 31 | | 68 | % | — relates to the Company's 2022 - 2023 Geolocation Restructuring Program, more fully discussed in Note 10 to the condensed consolidated financial statements |
| Total non-operating (expense) income, net | $ | (58) | | $ | (65) | | 11 % | Expense decline primarily due to: — FX translation losses of $20 million reclassified to earnings in the prior year resulting from the Company no longer conducting commercial operations in Russia; — higher gains on certain of the Company's investments of $14 million; and — higher interest income of $13 million resulting from higher cash balances and interest yields; partially offset by: — higher realized losses of $24 million on fixed-to-floating interest rate swaps resulting from higher interest rates (more fully discussed in Note 8 to the condensed consolidated financial statements) |
| Operating margin | 36.8 | % | 36.8 | % | — | BPS | — operating margin was flat, with revenue growth offset by an increase in operating and SG&A expenses — adjusted operating margin decrease reflects growth in operating and SG&A expenses outpacing revenue growth |
| Adjusted Operating Margin | 43.7 | % | 44.9 | % | (120 | BPS) |
| ETR | 23.4 | % | 26.2 | % | (280 | BPS) | — lower ETR is primarily due to higher excess tax benefits realized from stock-based compensation, along with a non-deductible FX translation loss in 2022 resulting from the Company no longer conducting commercial operations in Russia |
| Diluted EPS | $ | 2.05 | | $ | 1.77 | | 16 | % | — reflects higher operating income and Adjusted Operating Income |
| Adjusted Diluted EPS | $ | 2.30 | | $ | 2.22 | | 4 | % |
Moody's Corporation | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | | % Change
Favorable
(Unfavorable) | |
| | | 2017 | | | 2016 | | |
Revenue: | | | | | | | | | | | | |
United States | | $ | 588.4 | | | $ | 545.7 | | | | 8 | % |
International: | | | | | | | | | | | | |
EMEA | | | 291.0 | | | | 225.9 | | | | 29 | % |
Asia-Pacific | | | 118.6 | | | | 92.5 | | | | 28 | % |
Americas | | | 64.9 | | | | 53.0 | | | | 22 | % |
| | | | | | | | | | | | |
Total International | | | 474.5 | | | | 371.4 | | | | 28 | % |
| | | | | | | | | | | | |
Total | | | 1,062.9 | | | | 917.1 | | | | 16 | % |
| | | | | | | | | | | | |
Expenses: | | | | | | | | | | | | |
Operating | | | 317.2 | | | | 253.2 | | | | (25 | %) |
SG&A | | | 247.2 | | | | 225.3 | | | | (10 | %) |
Restructuring | | | — | | | | 8.4 | | | | NM | |
Depreciation and amortization | | | 43.0 | | | | 32.7 | | | | (31 | %) |
Acquisition-Related Expenses | | | 10.1 | | | | — | | | | NM | |
| | | | | | | | | | | | |
Total | | | 617.5 | | | | 519.6 | | | | (19 | %) |
| | | | | | | | | | | | |
Operating income | | $ | 445.4 | | | $ | 397.5 | | | | 12 | % |
| | | | | | | | | | | | |
Adjusted Operating Income(1) | | $ | 498.5 | | | $ | 438.6 | | | | 14 | % |
| | | | | | | | | | | | |
Interest income (expense), net | | $ | (48.1 | ) | | $ | (35.4 | ) | | | (36 | %) |
Othernon-operating (expense) income, net | | | (1.4 | ) | | | 6.9 | | | | (120 | %) |
Purchase Price Hedge Gain | | | 69.9 | | | | — | | | | NM | |
| | | | | | | | | | | | |
Non-operating income (expense), net | | | 20.4 | | | | (28.5 | ) | | | 172 | % |
| | | | | | | | | | | | |
Net income attributable to Moody’s | | $ | 317.3 | | | $ | 255.3 | | | | 24 | % |
Diluted weighted average shares outstanding | | | 194.1 | | | | 194.3 | | | | — | |
Diluted EPS attributable to Moody’s common shareholders | | $ | 1.63 | | | $ | 1.31 | | | | 24 | % |
Adjusted Diluted EPS(1) | | $ | 1.52 | | | $ | 1.38 | | | | 10 | % |
Operating margin | | | 41.9 | % | | | 43.3 | % | | | | |
Adjusted Operating Margin(1) | | | 46.9 | % | | | 47.8 | % | | | | |
(1) | Adjusted Operating Income, Adjusted Operating Margin and Adjusted Diluted EPS 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.
|
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | % Change Favorable (Unfavorable) |
| 2023 | | 2022 | |
| Revenue: | | | | | |
| United States | $ | 782 | | | $ | 723 | | | 8 | % |
| Non-U.S.: | | | | | |
| EMEA | 470 | | | 422 | | | 11 | % |
| Asia-Pacific | 146 | | | 151 | | | (3 | %) |
| Americas | 96 | | | 85 | | | 13 | % |
| Total Non-U.S. | 712 | | | 658 | | | 8 | % |
| Total | 1,494 | | | 1,381 | | | 8 | % |
| Expenses: | | | | | |
| Operating | 426 | | | 393 | | | (8 | %) |
| SG&A | 415 | | | 368 | | | (13 | %) |
| Depreciation and amortization | 93 | | | 81 | | | (15 | %) |
| Restructuring | 10 | | | 31 | | | 68 | % |
| | | | | |
| | | | | |
| | | | | |
| Total | 944 | | | 873 | | | (8 | %) |
| Operating income | $ | 550 | | | $ | 508 | | | 8 | % |
Adjusted Operating Income (3) | $ | 653 | | | $ | 620 | | | 5 | % |
| Interest expense, net | $ | (71) | | | $ | (55) | | | (29 | %) |
| Other non-operating income, net | 13 | | | (10) | | | (230 | %) |
| Non-operating (expense) income, net | $ | (58) | | | $ | (65) | | | 11 | % |
| | | | | |
| Net income attributable to Moody's | $ | 377 | | | $ | 327 | | | 15 | % |
| Diluted weighted average shares outstanding | 184.1 | | | 184.9 | | | — | % |
| Diluted EPS attributable to Moody's common shareholders | $ | 2.05 | | | $ | 1.77 | | | 16 | % |
Adjusted Diluted EPS (3) | $ | 2.30 | | | $ | 2.22 | | | 4 | % |
| Operating margin | 36.8 | % | | 36.8 | % | | |
Adjusted Operating Margin(3) | 43.7 | % | | 44.9 | % | | |
| Effective tax rate | 23.4 | % | | 26.2 | % | | |
The table below shows Moody’s global staffing by geographic area:
| | | | | | | | | | | | |
| | | September 30, | | | % Change | |
| | | 2017 | | | 2016 | | | | |
United States | | | 3,566 | | | | 3,417 | | | | 4 | % |
International | | | 8,182 | | | | 7,440 | | | | 10 | % |
| | | | | | | | | | | | |
Total | | | 11,748 | * | | | 10,857 | | | | 8 | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, | | | | Change |
| | | 2023 | | 2022 | | | | % |
| | | | | | | | |
| MA | U.S. | | 3,036 | | | 2,740 | | | | | 11 | % |
| Non-U.S. | | 4,750 | | | 4,179 | | | | | 14 | % |
| Total | | 7,786 | | | 6,919 | | | | | 13 | % |
| MIS | U.S. | | 1,427 | | | 1,527 | | | | | (7 | %) |
| Non-U.S. | | 3,742 | | | 3,991 | | | | | (6 | %) |
| Total | | 5,169 | | | 5,518 | | | | | (6 | %) |
| | | | | | | | |
|
| MSS | U.S. | | 658 | | | 765 | | | | | (14 | %) |
| Non-U.S. | | 1,022 | | | 1,004 | | | | | 2 | % |
| Total | | 1,680 | | | 1,769 | | | | | (5 | %) |
| | | | | | | | |
| Total MCO | U.S. | | 5,121 | | | 5,032 | | | | | 2 | % |
| Non-U.S. | | 9,514 | | | 9,174 | | | | | 4 | % |
| Total | | 14,635 | | | 14,206 | | | | | 3 | % |
GLOBAL REVENUE
* | Includes 874 employees from the acquisition of Bureau van Dijk | | | | | | | | | | | | | |
| Three months ended June 30, |
2023-----------------------------------------------------------------------------------2022
_______________________________________________________________________________________________________
| | | | | | | | | | | | | | | | | |
| Global revenue ⇑ $113 million | U.S. Revenue ⇑ $59 million | Non-U.S. Revenue ⇑ $54 million |
The increase in global revenue
of $1,062.9 million in the third quarter of 2017 increased $145.8 million, or 16%, compared to 2016 reflectingreflected growth in both
reportable segments.MA and MIS, both in the U.S. and internationally. Refer to the section entitled “Segment Results” of this MD&A for a more fulsome discussion of the Company’s segment revenue.
| | | | | | | | | | | | | |
| | Second Quarter Operating Expense ⇑ $33 million | | | | Second Quarter SG&A Expense ⇑ $47 million | |
--------- ---------
| | | | | | | | | | | |
| Compensation expenses increased $27 million reflecting: | | | | Compensation expenses increased $36 million reflecting: |
| — approximately 90% of the increase reflects higher incentive compensation accruals and performance-based equity compensation, which aligns with actual/projected financial and operating performance. | | | | — approximately 60% of the increase reflects higher incentive compensation accruals and performance-based equity compensation, which aligns with actual/projected financial and operating performance; and |
| | | | | — approximately 20% of the increase reflects higher salaries and benefits primarily reflecting hiring and salary increases in MA to support continued growth in the business. |
| | | | | Non-compensation expenses increased $11 million reflecting: |
| | | | | — approximately 50% of the increase reflects higher travel and entertainment costs; and |
| | | | — approximately 30% of the increase reflects higher costs to support continued investments related to technology innovation initiatives. |
| | |
| Depreciation and amortization |
The 13%increase is driven by amortization of internally developed software, which is primarily related to the development of MA SaaS solutions.
The restructuring charge in both periods relates to the Company's 2022 - 2023 Geolocation Restructuring Program as more fully discussed in Note 10 to the condensed consolidated financial statements.
| | | | | | | | | |
| | Operating margin 36.8%, in line with prior year | | | Adjusted Operating Margin 43.7%, down 120 BPS |
Overall, operating margin was flat, with revenue growth offset by an increase in MISoperating and SG&A expenses. Adjusted Operating Margin decline reflects growth in operating and SG&A expenses outpacing revenue growth.
| | | | | | | | | | |
| | | Interest Expense, net ⇑ $16 million | | | Other non-operating income ⇑ $23 million |
| | | | | | | | | | | | | | |
| Increase in expense is primarily due to: | | Increase in income is primarily due to: |
— higher realized losses of $24 million on fixed-to-floating interest rate swaps resulting from higher interest rates (more fully discussed in Note 8 to the condensed consolidated financial statements); partially offset by | | — FX translation losses of $20 million reclassified to earnings in the prior year resulting from the Company no longer conducting commercial operations in Russia; and
|
| — higher interest income of $13 million reflecting higher cash balances and interest yields. | | — higher gains of $15 million on certain of the Company's investments; partially offset by |
| | | — an $11 million benefit in the prior year from statute of limitations lapses on certain indemnification obligations relating to the MAKS divestiture. |
The decrease in the ETR is primarily due to
strengthhigher excess tax benefits realized from stock-based compensation, along with a non-deductible foreign currency translation loss in
U.S. investment-grade corporate debt issuance, an increase in the number of rated deals within the CLO asset class and benefits from changes in the mix of fee type, new fee initiatives and pricing increases. These increases were partially offset by declines in refunding activity in U.S. PFG.The 21% increase in MA reflects growth in RD&A across all regions driven by approximately $30 million in revenue from the acquisition of Bureau van Dijk (net of an approximate $14 million reduction relating to a deferred revenue adjustment required as part of acquisition accounting as further described in Note 7 to the financial statements), contributing 10 percentage points of the total growth, coupled with growth in credit research subscriptions and licensing of ratings data. The growth also reflects highernon-U.S. ERS revenue.
Transaction revenue accounted for 50% of global MCO revenue in both the third quarter of 2017 and 2016.
U.S. revenue of $588.4 million in the third quarter of 2017 increased $42.7 million compared to the prior year, reflecting growth in both MIS and MA.
Non-U.S. revenue of $474.5 million increased $103.1 million compared to the third quarter of 2016 reflecting growth across all regions in both reportable segments.
Operating expenses were $317.2 million in the third quarter of 2017, or 25% higher compared to 2016 primarily reflecting higher incentive compensation due to greater achievement relative to full-year targeted results compared to the prior year. The increase also reflects Bureau van Dijk expenses as well as higher salaries and employee benefit expenses primarily2022 resulting from the impact of annual compensation increases.
SG&A expenses of $247.2 millionCompany no longer conducting commercial operations in the third quarter of 2017Russia.
| | | | | | | | | | |
| | Diluted EPS ⇑ $0.28 | | | | Adjusted Diluted EPS ⇑ $0.08 |
Diluted EPS and Adjusted Diluted EPS increased
$21.9 million from the prior year period reflecting higher incentive compensation reflecting greater projected achievement against full-year targeted results compared to the prior year and Bureau van Dijk expenses. These increases were partially offset by the impact of cost management initiatives implemented in 2016 that have benefited 2017.Acquisition-Related Expenses represent expenses incurred to complete and integrate the acquisition of Bureau van Dijk.
D&A increased $10.3 million primarilymainly due to amortization of intangible assets acquired as part of the Bureau van Dijk acquisition.
Operatinghigher operating income of $445.4 million in the third quarter of 2017 increased $47.9 million compared to 2016, resulting in an operating margin of 41.9%, compared to 43.3% in the prior year.and Adjusted Operating Income, of $498.5 million inrespectively, the third quarter of 2017 increased $59.9 million compared to 2016, resulting in an Adjusted Operating Margin of 46.9% compared to 47.8% in the prior year period.
Interest income (expense), net in the third quarter of 2017 was ($48.1) million, a $12.7 million increase in expense compared to 2016 reflecting $800 million in notes issued in early March 2017 to fund the payment of the 2016 Settlement Charge and repayment of the Series2007-1 Notes. The increase in expense also reflects the following relating to the financing of the Bureau van Dijk purchase price: i) $1 billion in notes issued inmid-June 2017; ii) $500 million draw down on August 8, 2017 under the 2017 Term Loan; iii) fees on an undrawn bridge loan facility; and iv) borrowings under the Company’s Commercial Paper Program, allcomponents of which are more fully discussed in Note 14 to the condensed consolidated financial statements.
Othernon-operating (expense), income net was ($1.4) million in the third quarter of 2017, an $8.3 million increase in expense compared to 2016 reflecting FX losses of approximately $7 million in 2017 compared to FX gains of approximately $4 million in the prior year.
The Purchase Price Hedge Gain reflects gains on FX collars and forward contracts executed by the Company to economically hedge the euro denominated purchase price of the Bureau van Dijk acquisition.
The ETR of 31.4% in the third quarter of 2017 was 90BPS higher than the third quarter of 2016 reflecting an increase innon-U.S. taxes and a higher rate on the Purchase Price Hedge Gain, a majority of which is incurred in a higher tax jurisdiction. These items were partially offset by an approximate $8 million benefit due to the adoption on a prospective basis of a new accounting standard relating to Excess Tax Benefits on stock-based compensation (refer to Note 1 to the condensed consolidated financial statements for further discussion on the impacts of this new accounting standard), which favorably benefited the ETR by approximately 160 BPS.
Diluted EPS of $1.63 in the third quarter of 2017, which included: i) $0.23 from the Purchase Price Hedge Gain and; ii) $0.04 relating to Excess Tax Benefits on stock-based compensation; partially offset by: iii) $0.04 in Acquisition-Related Expenses; and $0.08 in Acquisition-Related Amortization, increased $0.32 from 2016. Excluding the Purchase Price Hedge Gain and Acquisition-Related Expenses in 2017 and Acquisition-Related Amortization in both years as well as a restructuring charge in 2016, Adjusted EPS of $1.52 in 2017 increased $0.14.described above. Refer to the section entitled“Non-GAAP “Non-GAAP Financial Measures” of this Management’s Discussion and AnalysisMD&A for items excluded in the impact to Net Income relating to the aforementionedper-share amounts.
derivation of Adjusted Diluted EPS.
Moody’s
Investors ServiceAnalytics
The table below provides a summary of revenue and operating results, followed by further insight and commentary:
| | | | | | | | | | | | |
| | | Three Months Ended September 30, | | | % Change
Favorable
(Unfavorable) | |
| | | 2017 | | | 2016 | | |
Revenue: | | | | | | | | | | | | |
Corporate finance (CFG) | | $ | 350.2 | | | $ | 299.6 | | | | 17 | % |
Structured finance (SFG) | | | 128.3 | | | | 104.2 | | | | 23 | % |
Financial institutions (FIG) | | | 102.1 | | | | 95.8 | | | | 7 | % |
Public, project and infrastructure finance (PPIF) | | | 109.2 | | | | 105.2 | | | | 4 | % |
| | | | | | | | | | | | |
Total ratings revenue | | | 689.8 | | | | 604.8 | | | | 14 | % |
| | | | | | | | | | | | |
MIS Other | | | 4.4 | | | | 7.5 | | | | (41 | %) |
| | | | | | | | | | | | |
Total external revenue | | | 694.2 | | | | 612.3 | | | | 13 | % |
| | | | | | | | | | | | |
Intersegment royalty | | | 29.0 | | | | 25.3 | | | | 15 | % |
| | | | | | | | | | | | |
Total | | | 723.2 | | | | 637.6 | | | | 13 | % |
| | | | | | | | | | | | |
Expenses: | | | | | | | | | | | | |
Operating and SG&A (external) | | | 315.1 | | | | 268.6 | | | | (17 | %) |
Operating and SG&A (intersegment) | | | 4.1 | | | | 4.2 | | | | 2 | % |
| | | | | | | | | | | | |
Adjusted Operating Income | | | 404.0 | | | | 364.8 | | | | 11 | % |
| | | | | | | | | | | | |
Restructuring | | | — | | | | 7.6 | | | | NM | |
Depreciation and amortization | | | 18.6 | | | | 19.1 | | | | 3 | % |
| | | | | | | | | | | | |
Operating income | | $ | 385.4 | | | $ | 338.1 | | | | 14 | % |
| | | | | | | | | | | | |
Adjusted Operating Margin | | | 55.9 | % | | | 57.2 | % | | | | |
Operating margin | | | 53.3 | % | | | 53.0 | % | | | | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | % Change Favorable (Unfavorable) |
| 2023 | | 2022 | |
| Revenue: | | | | | |
| Decision Solutions (DS) | $ | 334 | | | $ | 294 | | | 14 | % |
| Research and Insights (R&I) | 217 | | | 203 | | | 7 | % |
| Data and Information (D&I) | 196 | | | 178 | | | 10 | % |
| Total external revenue | 747 | | | 675 | | | 11 | % |
| Intersegment revenue | 4 | | | 1 | | | 300 | % |
| Total MA revenue | 751 | | | 676 | | | 11 | % |
| Expenses: | | | | | |
| Operating and SG&A (external) | 495 | | | 428 | | | (16 | %) |
| Operating and SG&A (intersegment) | 46 | | | 43 | | | (7 | %) |
| Total operating and SG&A | 541 | | | 471 | | | (15 | %) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Adjusted Operating Income | $ | 210 | | | $ | 205 | | | 2 | % |
| | | | | |
| | | | | |
| Adjusted Operating Margin | 28.0 | % | | 30.3 | % | | |
| | | | | |
| Depreciation and amortization | 74 | | | 60 | | | (23 | %) |
| Restructuring | 8 | | | 16 | | | 50 | % |
MOODY'S ANALYTICS REVENUE
| | |
| Three months ended June 30, |
2023-----------------------------------------------------------------------------------2022
_______________________________________________________________________________________________________
| | | | | | | | |
| MA: Global revenue ⇑ $72 million | U.S. Revenue ⇑ $30 million | Non-U.S. Revenue ⇑ $42 million |
The
following is a discussion of external MIS11% increase in global MA revenue
and operating expenses:Global MIS revenue of $694.2 millionreflects growth both in the thirdU.S. (10%) and internationally (11%).
–ARR(2) increased 10% reflecting strong growth across all LOBs.
DECISION SOLUTIONS REVENUE
| | | | | | | | | | | | | | |
| Three months ended June 30, |
2023-----------------------------------------------------------------------------------2022
_______________________________________________________________________________________________________
| | | | | | | | |
| DS: Global revenue ⇑ $40 million | U.S. Revenue ⇑ $20 million | Non-U.S. Revenue ⇑ $20 million |
Global DS revenue grew 14% compared to the second quarter of 2017 increased 13% compared to 2016. 2022 and reflects increases in both the U.S. (17%) and internationally (11%). ARR(2) grew 10% for DS, reflecting continued demand for KYC, banking and insurance products.
The most notable growth was in the U.S. bank loan and investment-grade corporate debt sectors coupled with continued strength in U.S. CLO issuance. Additionally,drivers of the growth reflected benefits from changesreflect:
–continued demand for KYC and compliance solutions reflecting increased customer and supplier risk data usage which drove ARR(2) growth of 18% for these solutions;
–growth in the mix of fee type, new fee initiatives and pricing increases coupled with increases in high-yield corporate debt revenue in Asia-Pacific and bank loan revenue in EMEA. These increases were partially offset by lower public finance refunding rated issuance volumes in the U.S.Transactionsubscription-based revenue for MIS was 65%actuarial modeling tools and solutions to support of certain international accounting standards relating to insurance contracts which resulted in the third quarter of 2017 compared to 63% in the third quarter of 2016.
In the U.S., revenue was $427.7 million in the third quarter of 2017, an increase of $36.4 million compared to 2016 reflecting growth in CFGARR
(2) increasing by 6%; and SFG partially offset by declines in PPIF.Non-U.S. revenue was $266.5 million in the third quarter of 2017, an increase of $45.5 million, or 21%, compared to 2016 reflecting growth in all ratings LOBs.
Global CFG revenue of $350.2 million in the third quarter of 2017 increased 17% compared to 2016 with the most notable growth in the U.S. investment-grade corporate debt and bank loan sectors. The growth in investment-grade corporate debt revenue reflects strong rated issuance volumes to fund M&A activity coupled with continued refinancing activity reflecting favorable market conditions. The growth in bank loan revenue in the U.S. primarily reflects benefits from changes in the mix of fee type, new fee initiatives and pricing increases. Additionally, the growth over the third quarter of 2016 reflected higher rated issuance volumes for bank loans in EMEA and high-yield corporate debt in Asia-Pacific resulting from M&A activity and increased investor demand for floating rate instruments. Transaction revenue represented 73% and 70% of total CFG revenue in the third quarter of 2017 and 2016, respectively. In the U.S., revenue was $234.0 million, $33.6 million higher than the prior year. Internationally, revenue of $116.2 million increased $17.0 million compared to the prior year.
Global SFG revenue of $128.3 million in the third quarter of 2017 increased $24.1 million, or 23%, compared to 2016, primarily due to strong growth in U.S. CLO activity resulting from an increased supply of collateral and favorable market conditions which led to asset managers refinancing obligations. The growth over the prior year also reflects higher U.S. CMBS activity compared to a weak prior year period where issuance was suppressed due to uncertainties around the impact of new risk-retention regulations on this asset class. Revenue in the U.S. of $89.3 million increased $17.9 million.Non-U.S. revenue in the third quarter of 2017 of $39.0 million increased $6.2 million primarily reflecting
–broad growth across most asset classesbanking offerings following Moody's investments in EMEA. TransactionSaaS-based solutions for lending, risk management and finance workflows, which resulted in ARR(2) growth of 10%.
RESEARCH AND INSIGHTS REVENUE
| | |
| Three months ended June 30, |
2023-----------------------------------------------------------------------------------2022
___________________________________________________ ________________________________________________
| | | | | | | | |
| R&I: Global revenue ⇑ $14 million | U.S. Revenue ⇑ $4 million | Non-U.S. Revenue ⇑ $10 million |
Global R&I revenue
was 66% of total SFG revenue in the third quarter of 2017 compared to 60% in the prior year.Global FIG revenue of $102.1 million in the third quarter of 2017 increased 7% compared to 2016, with a majoritythe second quarter of the2022 and reflects growth reflecting higher banking revenue in EMEA due to a favorable mix of fee type. Inboth the U.S. (3%) and internationally (11%), mainly driven by continued strong retention and demand for credit research, analytics and models.
ARR(2) grew 9% primarily reflecting the aforementioned strong retention and demand for credit research, analytics and models.
DATA AND INFORMATION REVENUE
| | |
| Three months ended June 30, |
2023-----------------------------------------------------------------------------------2022
________________________________________________________________________________________________________
| | | | | | | | |
| D&I: Global revenue ⇑ $18 million | U.S. Revenue ⇑ $6 million | Non-U.S. Revenue ⇑ $12 million |
Global D&I revenue
was $40.5 million, $1.0 million lowerincreased 10% compared to
2016. Internationally, revenue was $61.6 million, or $7.3 million higher compared to 2016. Transaction revenue was 40% of total FIG revenue in the
thirdsecond quarter of
2017 compared to 41%2022 and reflects growth in
the same period in 2016.Global PPIF revenue was $109.2 million in the third quarter of 2017, an increase of $4.0 million, or 4%, compared to 2016 with strong growth internationally being partially offset by declines inboth the U.S. Internationally, revenue grew 53% reflecting benefits from changes in the mix of fee type,(10%) and internationally (10%), mainly driven by:
–strong retention and new fee initiatives and pricing increasessales for ratings feeds coupled with strengthhigher pricing realization; and
–continued demand for company data.
ARR(2) grew 9% reflecting increasing demand for company data and ratings data feed products.
| | | | |
| | MA: Second Quarter Operating and SG&A Expense ⇑ $67 million |
The increase in
infrastructure finance issuance across all regions. PPIF revenue in the U.S. of $63.8 million was down $11.8 million compared to 2016 reflecting declines in public finance revenue due to lower refunding activity. Transaction revenue was 65% and 63% of total PPIF revenue in third quarter of 2017 and 2016, respectively.Operatingoperating and SG&A expenses incompared to the thirdsecond quarter of 2017 increased $46.52022 reflects growth in both compensation and non-compensation costs of $34 million compared to 2016and $33 million, respectively. The most notable drivers of these changes were:
| | | | | | | | |
| Compensation costs | | Non-compensation costs |
| Notable drivers of expense growth: | | Notable drivers of expense growth: |
| — approximately half of the growth relates to higher salaries and benefits resulting from headcount growth and annual salary increases; and | | — approximately half of the increase reflects higher costs to support strategic investments in technology, innovation and product development; |
| — approximately 40% of the growth reflects higher incentive and performance-based equity compensation accruals which are aligned with actual/expected financial and operational performance as well as headcount growth. | | — approximately 20% of the increase reflects higher bad debt expense; and |
| — approximately 20% of the increase reflects higher travel and entertainment costs correlated with business growth. |
| | |
| | | | | | |
| | | | MA: Adjusted Operating Margin 28.0% ⇓ 230 BPS |
The Adjusted Operating Margin decrease for MA is primarily due to operating and SG&A expense growth of 16% outpacing the 11% increase in global MA revenue.
| | |
| Depreciation and amortization |
The increase in depreciation and amortization expense primarily reflects higher
incentive compensation reflecting higher projected achievement against full-year targeted results comparedamortization of internally developed software relating to the
prior year and higher salaries and employee benefits costs reflecting annual compensation increases.Adjusted Operating Income and operating incomedevelopment of SaaS-based solutions.
The restructuring charges in
the third quarter of 2017, which includes intersegment royalty revenue and intersegment expenses, were $404.0 million and $385.4 million, respectively, up 11% and 14%, respectively, compared to 2016. Adjusted Operating Margin was 55.9%, or 130BPS lower than 2016 primarily due to higher incentive compensation accruals in the third quarter of 2017 reflecting MIS’s stronger than expected financial performance. Operating margin was 53.3%, or 30BPS higher comparedboth periods relate to the
third quarter of 2016 when MIS’s operating margin was suppressed by a restructuring charge.Company's 2022 - 2023 Geolocation Restructuring Program as more fully discussed in Note 10 to the condensed consolidated financial statements.
Moody’s
AnalyticsInvestors Service
The table below provides a summary of revenue and operating results, followed by further insight and commentary: | | | | | | | | | | | | |
| | | Three months ended September 30, | | | % Change
Favorable
(Unfavorable) | |
| | | 2017 | | | 2016 | | |
Revenue: | | | | | | | | | | | | |
Research, data and analytics (RD&A) | | $ | 218.4 | | | | 167.7 | | | | 30 | % |
Enterprise risk solutions (ERS) | | | 112.6 | | | | 101.5 | | | | 11 | % |
Professional services (PS) | | | 37.7 | | | | 35.6 | | | | 6 | % |
| | | | | | | | | | | | |
Total external revenue | | | 368.7 | | | | 304.8 | | | | 21 | % |
| | | | | | | | | | | | |
Intersegment revenue | | | 4.1 | | | | 4.2 | | | | (2 | %) |
| | | | | | | | | | | | |
Total MA Revenue | | | 372.8 | | | | 309.0 | | | | 21 | % |
| | | | | | | | | | | | |
Expenses: | | | | | | | | | | | | |
Operating and SG&A (external) | | | 249.3 | | | | 209.9 | | | | (19 | %) |
Operating and SG&A (intersegment) | | | 29.0 | | | | 25.3 | | | | (15 | %) |
| | | | | | | | | | | | |
Adjusted Operating Income | | | 94.5 | | | | 73.8 | | | | 28 | % |
| | | | | | | | | | | | |
Restructuring | | | — | | | | 0.8 | | | | NM | |
Acquisition-Related Expenses | | | 10.1 | | | | — | | | | NM | |
Depreciation and amortization | | | 24.4 | | | | 13.6 | | | | (79 | %) |
| | | | | | | | | | | | |
Operating income | | $ | 60.0 | | | $ | 59.4 | | | | 1 | % |
| | | | | | | | | | | | |
Adjusted Operating Margin | | | 25.3 | % | | | 23.9 | % | | | | |
Operating margin | | | 16.1 | % | | | 19.2 | % | | | | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | % Change Favorable (Unfavorable) |
| 2023 | | 2022 | |
| Revenue: | | | | | |
| Corporate finance (CFG) | $ | 365 | | | $ | 322 | | | 13 | % |
| Structured finance (SFG) | 102 | | | 123 | | | (17 | %) |
| Financial institutions (FIG) | 145 | | | 128 | | | 13 | % |
| Public, project and infrastructure finance (PPIF) | 127 | | | 122 | | | 4 | % |
| Total ratings revenue | 739 | | | 695 | | | 6 | % |
| MIS Other | 8 | | | 11 | | | (27 | %) |
| Total external revenue | 747 | | | 706 | | | 6 | % |
| Intersegment revenue | 46 | | | 43 | | | 7 | % |
| Total MIS revenue | 793 | | | 749 | | | 6 | % |
| Expenses: | | | | | |
| Operating and SG&A (external) | 346 | | | 333 | | | (4 | %) |
| Operating and SG&A (intersegment) | 4 | | | 1 | | | (300 | %) |
| Total operating and SG&A | 350 | | | 334 | | | (5 | %) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Adjusted Operating Income | $ | 443 | | | $ | 415 | | | 7 | % |
| | | | | |
| | | | | |
| Adjusted Operating Margin | 55.9 | % | | 55.4 | % | | |
| | | | | |
| Depreciation and amortization | 19 | | | 21 | | | 10 | % |
| Restructuring | 2 | | | 15 | | | 87 | % |
The following
is a discussion of external MA revenue and operating expenses:Global MA revenue increased $63.9 million, or 21%,chart presents changes in rated issuance volumes compared to the thirdsecond quarter of 2016 reflecting growth across all LOBs and which includes approximately $30 million2022. To the extent that changes in revenue, or 10 percentage points of the overall increase, from the Bureau van Dijk acquisition. Recurring revenue comprised 79% and 76% of total MA revenue in the third quarter of 2017 and 2016, respectively.
In the U.S., revenue of $160.7 million in the third quarter of 2017 increased $6.3 million, and primarily reflected growth in RD&A.
Non-U.S. revenue of $208.0 million in the third quarter of 2017 was $57.6 million higher than in 2016 reflecting growth in RD&A (which includes approximately $27 million innon-U.S. revenue from Bureau van Dijk) and ERS.
Global RD&A revenue of $218.4 million, which comprised 59% of total external MA revenue in the third quarter of 2017 and 55% of total external MA revenue in the third quarter of 2016, increased $50.7 million, or 30%, over the prior year period. This growth included approximately $30 million from the Bureau van Dijk acquisition (net of an approximate $14 million reduction relatingrated issuance volumes had a material impact to a deferredMIS's revenue adjustment required as part of acquisition accounting as further described in Note 7 to the financial statements), which contributed 18 percentage points to the growth, as well as strong sales of credit research and licensing of ratings data and benefits from pricing increases. In the U.S., revenue of $107.5 million increased 7% over the prior year.Non-U.S. revenue of $110.9 million increased 65%.
Global ERS revenue in the third quarter of 2017 of $112.6 million increased $11.1 compared to 2016. In the U.S., revenue of $39.5 million decreased 4% compared to 2016 reflecting strong project completion in the prior year.Non-U.S. revenue of $73.1 million increased 21% compared to the prior year, reflectingthose impacts are discussed below.
MOODY'S INVESTORS SERVICE REVENUE
| | | | | | | | | | | | | | |
| Three months ended June 30, |
2023-----------------------------------------------------------------------------------2022
_______________________________________________________________________________________________________
| | | | | | | | |
| MIS: Global revenue ⇑ $41 million | U.S. Revenue ⇑ $29 million | Non-U.S. Revenue ⇑ $12 million |
–The increase in global MIS revenue primarily reflects growth in CFG and FIG revenue partially offset by a decline across most asset classes in SFG.
CFG REVENUE
| | | | | | | | | | | | | | |
| Three months ended June 30, |
2023-----------------------------------------------------------------------------------2022
_______________________________________________________________________________________________________
| | | | | | | | |
| CFG: Global revenue ⇑ $43 million | U.S. Revenue ⇑ $29 million | Non-U.S. Revenue ⇑ $14 million |
Global CFG revenue for the three months ended June 30, 2023 and 2022 was comprised as follows:
(1) Other includes: recurring monitoring fees of a rated debt obligation and/or entities that issue such obligations as well as fees from regulatory solutionsprograms such as commercial paper, medium term notes, and risk andICRA corporate finance analytics products due to timing of project completion compared to the prior year. ERS revenue is subject to quarterly volatility due to the variable nature of project timing and concentration of software implementation and license revenuerevenue.
The increase in
relatively small number of engagements.Global PSCFG revenue of $37.7 million in the third quarter of 2017 increased $2.1 million compared to 2016 primarily reflecting13% reflects increases in both the analyticalU.S. (14%) and research services business and the FSTC business. In the U.S.,internationally (13%).
Transaction revenue
of $13.7 million increased
5%, over the prior year.Non-U.S. revenue of $24.0 million increased 6% compared to the prior year.Operating and SG&A expenses in the third quarter of 2017 increased $39.4 million compared to 2016 primarily reflecting higher compensation costs of approximately $25 million due to Bureau van Dijk expenses and annual salary increases. Additionally, there were higher incentive compensation costs reflecting higher projected achievement against full-year projected results compared to the prior year. Furthermore, there was an approximate $14 million increase innon-compensation costs primarily due to Bureau van Dijk expenses.
Depreciation and amortization increased $10.8 million primarily due to amortization of Bureau van Dijk’s intangible assets.
Additionally, there were $10.1 million in Acquisition-Related Expenses relating to the Bureau van Dijk acquisition.
Adjusted Operating Income was $94.5 million in the third quarter of 2017 and increased $20.7$37 million compared to the same period in 2016. Operating income of $60.0 million in the third quarter of 2017 was flat compared to the prior year. Adjusted Operating Margin for the third quarter of 2017 was 25.3%, compared to 23.9% in 2016. Operating margin was 16.1% compared to 19.2% in the prior year, with the decreasemost notable drivers of the growth reflecting:
•higher investment-grade rated issuance volumes reflecting both refinancing activity and issuance to fund M&A amidst improving market sentiment; and
•higher speculative-grade rated issuance volumes compared to significantly suppressed issuance in the aforementioned Acquisition-Related Expensesprior year resulting from market volatility in 2022 relating to macroeconomic uncertainties, rising borrowing costs and amortizationthe Russia/Ukraine military conflict.
SFG REVENUE
| | | | | | | | | | | | | | |
| Three months ended June 30, |
2023---------------------------------------------------------------------------2022
_______________________________________________________________________________________________________
| | | | | | | | |
| SFG: Global revenue ⇓ $21 million | U.S. Revenue ⇓ $23 million | Non-U.S. Revenue ⇑ $2 million |
Global SFG revenue
and expense.RESULTS OF OPERATIONS
Ninefor the three months ended SeptemberJune 30, 20172023 and 2022 was comprised as follows:
The 17% decrease in SFG revenue reflected declines in the U.S. (28%) slightly offset by an increase internationally (5%).
Transaction revenue decreased $25 million compared with nineto the second quarter of 2022.
The decline in SFG revenue reflected lower securitization activity across most asset classes, most notably in CMBS, resulting from higher credit spreads and market volatility given ongoing geopolitical and macroeconomic uncertainties.
.
FIG REVENUE
| | | | | | | | | | | | | | |
| Three months ended June 30, |
2023-----------------------------------------------------------------------------------2022
_______________________________________________________________________________________________________
| | | | | | | | |
| FIG: Global revenue ⇑ $17 million | U.S. Revenue ⇑ $20 million | Non-U.S. Revenue ⇓ $3 million |
Global FIG revenue for the three months ended
SeptemberJune 30,
2016Executive Summary
2023 and 2022 was comprised as follows: Moody’s completed the acquisition
The increase in FIG revenue of operations include Bureau van Dijk’s operating results beginning as of August 10, 2017.
Moody’s13% reflected revenue growth in the first nine monthsU.S. (38%) partially offset by declines internationally (4%).
Transaction revenue increased $16 million compared to the second quarter of 2017 totaled $3,038.6 million, 2022.
The growth primarily reflects:
•higher rated issuance volumes in the insurance sector due to certain large deals in the sector for refinancing purposes; and
•an increase of $376.5in banking revenue primarily due to a favorable product mix.
PPIF REVENUE
| | | | | | | | | | | | | | |
| Three months ended June 30, |
2023-----------------------------------------------------------------------------------2022
_______________________________________________________________________________________________________
| | | | | | | | |
| PPIF: Global revenue ⇑ $5 million | U.S. Revenue ⇑ $5 million | Non-U.S. Revenue was in line with prior year |
Global PPIF revenue for the three months ended June 30, 2023 and 2022 was comprised as follows:
Transaction revenue increased $2 million or 14%, compared to 2016 reflecting strongthe second quarter of 2022.
The modest increase in PPIF revenue of 4% primarily reflected growth in both MIS and MA.the U.S. (6%).
MIS revenue increased 16% reflecting robustThe main drivers of the growth were:
–increases in investment-grade infrastructure finance activity in the leveraged finance sector in CFG as issuers took advantage of favorable market conditions to refinance obligations and fund M&A activity. The increase also reflects growth in the banking sector within FIG and growth in CLO issuance in SFG coupled with benefits from changes in the mix of fee type, new fee initiatives and pricing increases. These increases were U.S.;
partially offset by by:
–lower U.S. public finance refunding volumes.
MA revenue was 10% higher thanissuance given the prior year primarily reflecting an increase in RD&A across all regions, which was driven by growth in credit research subscriptionsimpact of Federal Reserve monetary policy tightening and licensingongoing interest rate volatility.
Total operating expenses excluding D&A increased $127.4 million, or 9% compared to 2016.
| | | | |
| | MIS: Second Quarter Operating and SG&A Expense ⇑ $13 million |
The increase is primarily due to growth in incentivehigher compensation costs reflecting higher projected achievement against full-year projected results compared to the prior year. Additionally, the expense growth reflects $16.7of $27 million, in Acquisition-Related Expenses and approximately $20 million in Bureau van Dijk operating expenses. These increases were partially offset by lower legal costs and a restructuring charge$14 million decrease in 2016 that did not recur in 2017.
D&A increased $14.6 million primarily due to amortizationnon-compensation expenses. The most notable drivers of intangible assets acquiredthese changes are as part of the acquisition of Bureau van Dijk.
follows:Operating income of $1,346.3 million in the first nine months of 2017 increased $234.5 million compared to 2016 and resulted in an operating margin of 44.3% compared to 41.8% in the prior year. Adjusted Operating Income of $1,471.4 million in the first nine months of 2017 increased $253.8 million compared to 2016, resulting in an
| | | | | | | | |
| Compensation costs | | Non-compensation costs |
| Notable drivers of expense growth: | | Notable drivers of decline in expense: |
| — higher incentive compensation accruals and performance-based equity compensation, which aligns with actual and projected financial and operating performance. | | — approximately 50% of the decrease relates to lower consulting expenses; and |
| — approximately 35% of the decline relates to higher bad debt expense in the prior year primarily resulting from the impact of the Russia/Ukraine military conflict. |
| | | | | | |
| | | | MIS: Adjusted Operating Margin 55.9% ⇑ 50 BPS |
The MIS Adjusted Operating Margin of 48.4% compared to 45.7%expansion primarily reflected the aforementioned 6% increase in the prior year.revenue.
The increaserestructuring charges innon-operating income (expense) net, compared both periods relate to the prior year is primarily due to:
the $59.7 million CCXI Gain;
the $111.1 million Purchase Price Hedge Gain;
Partially offset by:
higher interest expense of $31.7 million primarily reflecting interest and fees on additional financing (including commercial paper)Company's 2022 - 2023 Geolocation Restructuring Program, as more fully discussed in 2017. The additional financing in 2017 was utilized to fund the payment of the 2016 Settlement Charge and repayment of the Series2007-1 Notes as well as to fund the Bureau van Dijk acquisition. This additional interest expense includes approximately $11 million of financing costs incurred between the execution of the agreement to acquire Bureau van Dijk and the closing of the acquisition.
FX losses of approximately $13 million in the first nine months of 2017 compared to FX gains of approximately $9 million in the prior year.
The ETR of 29.0% in the first nine months of 2017 was 250 BPS lower than the prior year primarily due to thenon-taxable CCXI Gain as well as an approximate $36 million benefit reflecting the adoption on a prospective basis of a new accounting standard relating to Excess Tax Benefits on stock-based compensation (refer to Note 110 to the condensed consolidated financial statementsstatements.
Six months ended June 30, 2023 compared with six months ended June 30, 2022
Executive Summary
–The following table provides an executive summary of key operating results for furtherthe six months ended June 30, 2023. Following this executive summary is a more detailed discussion of the impactsCompany’s operating results as well as a discussion of this new accounting standard), which reduced the ETR by approximately 260 BPS. These items wereoperating results of the Company’s reportable segments.
| | | | | | | | | | | | | | |
| Six Months Ended June 30, | |
| Financial measure: | 2023 | 2022 | % Change | Insight and Key Drivers of Change Compared to Prior Year |
| Moody's total revenue | $ | 2,964 | | $ | 2,903 | | 2 | % | — reflects growth in MA, partially offset by lower MIS revenue |
| MA external revenue | $ | 1,484 | | $ | 1,370 | | 8 | % | — sustained demand for KYC and insurance solutions; — ongoing strong retention for ratings data feeds; and — elevated usage and demand for economic research and default models |
| MIS external revenue | $ | 1,480 | | $ | 1,533 | | (3 | %) | — decline primarily reflects lower bank loan and SFG issuance activity resulting from market volatility relating to macroeconomic uncertainties, higher borrowing costs and the Russia/Ukraine military conflict; partially offset by — increases in investment grade corporate debt issuance compared to suppressed activity in the prior year |
| Total operating and SG&A expenses | $ | 1,655 | | $ | 1,549 | | (7 | %) | — higher incentive compensation accruals and performance-based equity compensation aligned with actual/expected financial and operating performance; and — costs to support continued investment in product and technology innovation initiatives |
| Depreciation and amortization | $ | 181 | | $ | 159 | | (14 | %) | — higher amortization relating to internally developed software, primarily related to the development of MA SaaS solutions |
| Restructuring | $ | 24 | | $ | 31 | | 23 | % | — relates to the Company's 2022 - 2023 Geolocation Restructuring Program, more fully discussed in Note 10 to the condensed consolidated financial statements |
| Total non-operating (expense) income, net | $ | (106) | | $ | (112) | | 5 | % | — higher gains on certain of the Company's investments of $25 million; — a $22 million benefit related to the resolutions of tax matters in the first quarter of 2023; and — increase in interest income of $21 million related to higher cash balances and interest yields; partially offset by: — higher realized losses of $48 million on fixed-to-floating interest rate swaps resulting from higher interest rates (more fully discussed in Note 8 to the condensed consolidated financial statements) |
| Operating margin | 37.2 | % | 40.1 | % | (290 BPS) | — margin declines are primarily due to the aforementioned increase in expenses outpacing revenue growth |
| Adjusted Operating Margin | 44.2 | % | 46.6 | % | (240 BPS) |
| ETR | 12.0 | % | 21.6 | % | 960BPS | — lower ETR primarily reflects tax benefits recognized in the first quarter of 2023, which resulted from the resolutions of uncertain tax positions in various U.S. and non-U.S. tax jurisdictions |
| Diluted EPS | $ | 4.77 | | $ | 4.45 | | 7 | % | — increase reflects a $0.75/share benefit related to the resolutions of tax matters in the first quarter of 2023, partially offset by lower operating income/Adjusted Operating Income |
| Adjusted Diluted EPS | $ | 5.29 | | $ | 5.11 | | 4 | % |
Moody’s Corporation | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | % Change Favorable
(Unfavorable) |
| 2023 | | 2022 | |
| Revenue: | | | | | |
| United States | $ | 1,552 | | | $ | 1,546 | | | — | % |
| Non-U.S.: | | | | | |
| EMEA | 921 | | | 878 | | | 5 | % |
| Asia-Pacific | 297 | | | 293 | | | 1 | % |
| Americas | 194 | | | 186 | | | 4 | % |
| Total Non-U.S. | 1,412 | | | 1,357 | | | 4 | % |
| Total | 2,964 | | | 2,903 | | | 2 | % |
| Expenses: | | | | | |
| Operating | 854 | | | 810 | | | (5 | %) |
| SG&A | 801 | | | 739 | | | (8 | %) |
| Depreciation and amortization | 181 | | | 159 | | | (14 | %) |
| Restructuring | 24 | | | 31 | | | 23 | % |
| | | | | |
| | | | | |
| Total | 1,860 | | | 1,739 | | | (7 | %) |
| Operating income | 1,104 | | | 1,164 | | | (5 | %) |
Adjusted Operating Income (1) | 1,309 | | | 1,354 | | | (3 | %) |
| Interest expense, net | (119) | | | (108) | | | (10 | %) |
| Other non-operating income, net | 13 | | | (4) | | | NM |
| Non-operating (expense) income, net | (106) | | | (112) | | | 5 | % |
| | | | | |
| Net income attributable to Moody’s | $ | 878 | | | $ | 825 | | | 6 | % |
| Diluted weighted average shares outstanding | 184.1 | | | 185.4 | | | 1 | % |
| Diluted EPS attributable to Moody’s common shareholders | $ | 4.77 | | | $ | 4.45 | | | 7 | % |
Adjusted Diluted EPS (1) | $ | 5.29 | | | $ | 5.11 | | | 4 | % |
| Operating margin | 37.2 | % | | 40.1 | % | | |
Adjusted Operating Margin (1) | 44.2 | % | | 46.6 | % | | |
| Effective tax rate | 12.0 | % | | 21.6 | % | | |
GLOBAL REVENUE
| | |
| Six months ended June 30, |
2023-----------------------------------------------------------------------------------2022
_______________________________________________________________________________________________________
| | | | | | | | | | | | | | | | | |
| Global revenue ⇑ $61 million | U.S. Revenue ⇑ $6 million | Non-U.S. Revenue ⇑ $55 million |
Modest growth in global revenue reflected increases in MA in all regions, partially offset by tax ondeclines in MIS in all regions. Refer to the Purchase Price Hedge Gain,section entitled “Segment Results” of this MD&A for a more fulsome discussion of the majorityCompany’s segment revenue.
| | | | | | | | | | | | |
| | YTD Operating Expense ⇑ $44 million | | | | YTD SG&A Expense ⇑ $62 million |
------------------------------------
| | | | | | | | | | | | |
| | Compensation expenses increased $29 million reflecting: | | | | Compensation expenses increased $59 million reflecting: |
| | — approximately 80% of the increase reflects higher incentive compensation accruals and performance-based equity compensation, which aligns with actual/projected financial and operating performance. | | | | — approximately 60% of the increase reflects higher incentive compensation accruals and performance-based equity compensation, which aligns with actual/projected financial and operating performance; and |
| | | | | — approximately 20% of the increase reflects higher salaries primarily relating to hiring and salary increases in MA to support continued growth in the business. |
| | Non-compensation expenses increased $15 million reflecting: | | | | |
| | — approximately 80% of the increase reflects higher costs to support strategic investments in technology, innovation and product development. | | | | |
| | | | | |
| | |
| Depreciation and amortization |
The increase in depreciation and amortization expense is driven by amortization of internally developed software, which is incurred in a higher tax jurisdiction.
Diluted EPS of $5.02 in the first nine months of 2017, which includes: i) a $0.31 benefitprimarily related to the CCXI Gain; ii) $0.36 relatingdevelopment of MA SaaS solutions.
The restructuring charge in both periods relates to the Purchase Price Hedge Gain; and iii) an $0.18 benefit relatingCompany's 2022 - 2023 Geolocation Restructuring Program, as more fully discussed in Note 10 to the new accounting standard for Excess Tax Benefits; partially offset by iv) $0.08 in Acquisition-Related Expenses; v) $0.14 in Acquisition-Related Amortization; and vi) $0.03 in financing costs incurred between the execution of the agreement to acquire Bureau van Dijk and the closing of the acquisition, increased $1.47 compared to 2016. Excluding the CCXI Gain, Purchase Price Hedge Gain, and Acquisition-Related Expenses in 2017, Acquisition-Related Amortization in both 2017 and 2016 and restructuring in 2016, Adjusted Diluted EPS of $4.57 increased $0.89 compared to 2016 reflecting higher Net Income and a 1% reduction in diluted weighted average shares outstanding.condensed consolidated financial statements.
Moody’s Corporation
| | | | | | | | | | | | |
| | | Nine months ended September 30, | | | % Change
Favorable
(Unfavorable) | |
| | | 2017 | | | 2016 | | |
Revenue: | | | | | | | | | | | | |
United States | | $ | 1,734.0 | | | $ | 1,571.6 | | | | 10 | % |
| | | | | | | | | | | | |
International: | | | | | | | | | | | | |
EMEA | | | 779.3 | | | | 665.4 | | | | 17 | % |
Asia-Pacific | | | 336.0 | | | | 272.0 | | | | 24 | % |
Americas | | | 189.3 | | | | 153.1 | | | | 24 | % |
| | | | | | | | | | | | |
Total International | | | 1,304.6 | | | | 1,090.5 | | | | 20 | % |
| | | | | | | | | | | | |
Total | | | 3,038.6 | | | | 2,662.1 | | | | 14 | % |
| | | | | | | | | | | | |
Expenses: | | | | | | | | | | | | |
Operating | | | 880.4 | | | | 761.3 | | | | (16 | %) |
SG&A | | | 686.8 | | | | 683.2 | | | | (1 | %) |
Restructuring | | | — | | | | 12.0 | | | | NM | |
Depreciation and amortization | | | 108.4 | | | | 93.8 | | | | (16 | %) |
Acquisition-Related Expenses | | | 16.7 | | | | — | | | | NM | |
| | | | | | | | | | | | |
Total | | | 1,692.3 | | | | 1,550.3 | | | | (9 | %) |
| | | | | | | | | | | | |
Operating income | | $ | 1,346.3 | | | $ | 1,111.8 | | | | 21 | % |
| | | | | | | | | | | | |
Adjusted Operating Income(1) | | $ | 1,471.4 | | | $ | 1,217.6 | | | | 21 | % |
| | | | | | | | | | | | |
Interest expense, net | | $ | (135.5 | ) | | $ | (103.8 | ) | | | (31 | %) |
Othernon-operating income (expense), net | | | (2.5 | ) | | | 15.5 | | | | NM | |
Purchase Price Hedge Gain | | | 111.1 | | | | — | | | | NM | |
CCXI Gain | | | 59.7 | | | | — | | | | NM | |
| | | | | | | | | | | | |
Non-operating income (expense), net | | $ | 32.8 | | | $ | (88.3 | ) | | | NM | |
| | | | | | | | | | | | |
Net income attributable to Moody’s | | $ | 975.1 | | | $ | 695.2 | | | | 40 | % |
Diluted weighted average shares outstanding | | | 194.1 | | | | 196.0 | | | | 1 | % |
Diluted EPS attributable to Moody’s common shareholders | | $ | 5.02 | | | $ | 3.55 | | | | 41 | % |
Adjusted Diluted EPS (1) | | $ | 4.57 | | | $ | 3.68 | | | | 24 | % |
Operating margin | | | 44.3 | % | | | 41.8 | % | | | | |
Adjusted Operating Margin (1) | | | 48.4 | % | | | 45.7 | % | | | | |
(1) | Adjusted
| | | | | | | | |
| | | | | |
| | Operating Income, margin 37.2%, down 290 BPS | | | 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.44.2%, down 240 BPS |
Global revenue of $3,038.6 million in
Overall, margin declines primarily resulted from the
first nine months of 2017 increased $376.5 million, or 14%, compared to 2016 and reflected strong growth in both MIS and MA.The $286.1 million increaseaforementioned decrease in MIS revenue primarily reflects strong leveraged finance rated issuance volumes in CFG as issuers took advantage of favorable market conditions to refinance obligations in the first nine months of 2017. The increase also reflects growth in the banking sector within FIG and growth in CLO issuance in SFG. Additionally, the increase over prior year reflects benefits from changes in the mix of fee type, new fee initiatives and pricing increases. These increases were partially offset by lower U.S. public finance refunding volumes.
The $90.4 million growth in MA primarily reflectscoupled with increases in RD&A across all regions driven by growth in credit research subscriptionsoperating and licensing of ratings data as well as the contribution from the Bureau van Dijk acquisition of approximately $30 million (net of an approximate $14 million reduction relating to a deferred revenue adjustment required as part of acquisition accounting as further discussed in Note 7 to the financial statements).
Transaction revenue accounted for 51% of global MCO revenue in the first nine months of 2017 compared to 48% in the prior year.
U.S. revenue of $1,734.0 million in the first nine months of 2017 increased $162.4 million from the prior year, reflecting growth in both reportable segments.
Non-U.S. revenue of $1,304.6 million in the first nine months of 2017 increased $214.1 million compared to the prior year reflecting growth in both reportable segments.
Operating expenses were $880.4 million in the first nine months of 2017, up $119.1 million compared to 2016 primarily due to an increase in compensation costs reflecting higher incentive compensation due to greater projected achievement relative to full-year targeted results compared to the prior year. This increase also reflects higher salaries and employee benefit expenses resulting from the impact of annual compensation increases as well as Bureau van Dijk expenses.
SG&A expenses of $686.8 million in the first nine monthsMA segment.
| | | | | | | | | |
| | Interest Expense, net ⇑ $11 million | | | Other non-operating income ⇑ $17 million |
| | | | | | | | |
| Increase in expense is primarily due to: | | Increase in income is primarily due to: |
— higher realized losses of $48 million on fixed-to-floating interest rate swaps resulting from higher interest rates (more fully discussed in Note 8 to the condensed consolidated financial statements); partially offset by | | — higher gains of $25 million on certain of the Company's investments; and — prior year FX translation losses of $20 million reclassified to earnings resulting from the Company no longer conducting commercial operations in Russia; partially offset by |
| — higher interest income of $21 million reflecting higher cash balances and interest yields; and | | — FX losses of $23M recorded in the first quarter of 2023 mostly due to an immaterial out-of-period adjustment relating to the 2022 fiscal year. |
| — a $22 million benefit related to the resolutions of tax matters in the first quarter of 2023. | |
The decrease in ETR primarily reflects the
prior year period primarily due to higher incentive compensation reflecting greater projected achievement relative to full-year targeted results compared to the prior year coupled with Bureau van Dijk expenses. These increases were partially offset by the impactresolutions of
cost management initiatives implementeduncertain tax positions in
2016 that have benefited 2017 as well as lower legal costs.Acquisition-Related Expenses represent expenses incurred to completevarious U.S. and integrate the acquisition of Bureau van Dijk.
Operating income of $1,346.3 million increased $234.5 million from the first nine months of 2016. Adjusted Operating Income was $1,471.4 million in the first nine months of 2017, an increase of $253.8 million compared to 2016. Operating margin of 44.3% increased 250 BPS compared to the first nine months of 2016. Adjusted Operating Margin of 48.4% increased 270 BPS compared to the prior year.
D&A increased $14.6 million primarily due to amortization of intangible assets acquired as part of the acquisition of Bureau van Dijk.
Interest expense, net in the first nine months of 2017 was ($135.5) million, a $31.7 million increase in expense compared to 2016, primarily due to: i) interest on the 2017 Senior Notes and 2017 Floating Rate Senior Notes which were issuednon-U.S. tax jurisdictions in the first quarter of 2017 to fund the payment of the 2016 Settlement Charge and repayment of the Series2007-1 Notes; ii) interest on the 2017 Private Placement Notes Due 2023, and 2017 Private Placement Notes Due 2028 which were issuedresulted in June 2017 coupled with interest on the 2017 Term Loan drawn down in August 2017 to fund the acquisition of Bureau van Dijk; and iii) fees on the undrawn 2017 Bridge Credit Facility also related to the acquisition of Bureau van Dijk.
Othernon-operating (expense) income, net was ($2.5) million in the first nine months of 2017, an $18.0 milliona decrease in income compared to 2016 primarily reflecting approximately $13 million in FX losses in the first nine months of 2017 compared to approximately $9 million in FX gains in the prior year.
Additionally, Moody’s recognized the $59.7 million CCXI Gain and the $111.1 million Purchase Price Hedge Gain in the first nine months of 2017.
The ETR of 29.0% in the first nine months of 2017 was 250 BPS lower than the prior year. This decrease was primarily due to thenon-taxable CCXI Gain as well as an approximate $36 million benefit reflecting the adoption on a prospective basis of a new accounting standard relating to Excess Tax Benefits on stock-based compensation, which favorably impacted the ETR by approximately 260 BPS. In accordance with the new accounting standard, these Excess Tax Benefits are now recorded to the provision for income taxes whereas in the prior year were recorded to capital surplus (refer to Note 1 to the condensed consolidated financial statements for further discussion on this new accounting standard). These items were partially offset by tax on the Purchase Price Hedge Gain, the majority of which is incurred in a higher tax jurisdiction.
$113 million.
| | | | | | | | | |
| | Diluted EPS ⇑ $0.32 | | | Adjusted Diluted EPS ⇑ $0.18 |
Diluted EPS
of $5.02 in the first nine months of 2017, which includes: i)and Adjusted Diluted EPS growth reflects a
$0.31$0.75/share benefit related to the
CCXI Gain; ii) $0.36 relating toresolutions of tax matters in the
Purchase Price Hedge Gain; and iii) an $0.18 benefit relating to the new accounting standard for Excess Tax Benefits;first quarter of 2023, partially offset by
iv) $0.08 in Acquisition-Related Expenses; v) $0.14 in Acquisition-Related Amortization;lower operating income and
vi) $0.03 in financing costs incurred betweenAdjusted Operating Income, respectively, the
executioncomponents of
the agreement to acquire Bureau van Dijk and the closing of the acquisition, increased $1.47 compared to 2016. Excluding the CCXI Gain, Purchase Price Hedge Gain and Acquisition-Related Expenses in 2017, Acquisition-Related Amortization in both 2017 and 2016 and restructuring in 2016, Adjusted Diluted EPS of $4.57 increased $0.89 compared to 2016 reflecting higher Net Income and a 1% reduction in diluted weighted average shares outstanding.which are more fully described above. Refer to the section entitled
“Non-GAAP “Non-GAAP Financial Measures” of this
Management’s Discussion and AnalysisMD&A for
items excluded in the
impact to Net Income relating to the aforementionedper-share amounts.Segment Results
derivation of Adjusted Diluted EPS.
Moody’s
Investors ServiceAnalytics
The table below provides a summary of revenue and operating results, followed by further insight and commentary:
| | | | | | | | | | | | |
| | | Nine Months Ended September 30, | | | % Change
Favorable
(Unfavorable) | |
| | | 2017 | | | 2016 | | |
Revenue: | | | | | | | | | | | | |
Corporate finance (CFG) | | $ | 1,058.8 | | | $ | 844.7 | | | | 25 | % |
Structured finance (SFG) | | | 347.7 | | | | 306.3 | | | | 14 | % |
Financial institutions (FIG) | | | 316.8 | | | | 280.4 | | | | 13 | % |
Public, project and infrastructure finance (PPIF) | | | 312.0 | | | | 309.0 | | | | — | |
| | | | | | | | | | | | |
Total ratings revenue | | | 2,035.3 | | | | 1,740.4 | | | | 17 | % |
| | | | | | | | | | | | |
MIS Other | | | 13.8 | | | | 22.6 | | | | (39 | %) |
| | | | | | | | | | | | |
Total external revenue | | | 2,049.1 | | | | 1,763.0 | | | | 16 | % |
| | | | | | | | | | | | |
Intersegment royalty | | | 82.0 | | | | 73.9 | | | | 11 | % |
| | | | | | | | | | | | |
Total | | | 2,131.1 | | | | 1,836.9 | | | | 16 | % |
| | | | | | | | | | | | |
Expenses: | | | | | | | | | | | | |
Operating and SG&A (external) | | | 887.3 | | | | 820.3 | | | | (8 | %) |
Operating and SG&A (intersegment) | | | 11.6 | | | | 9.8 | | | | (18 | %) |
| | | | | | | | | | | | |
Adjusted Operating Income | | | 1,232.2 | | | | 1,006.8 | | | | 22 | % |
| | | | | | | | | | | | |
Restructuring | | | — | | | | 10.2 | | | | NM | |
Depreciation and amortization | | | 56.4 | | | | 54.8 | | | | (3 | %) |
| | | | | | | | | | | | |
Operating income | | $ | 1,175.8 | | | $ | 941.8 | | | | 25 | % |
| | | | | | | | | | | | |
Adjusted Operating Margin | | | 57.8 | % | | | 54.8 | % | | | | |
Operating margin | | | 55.2 | % | | | 51.3 | % | | | | |
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | % Change Favorable
(Unfavorable) |
| 2023 | | 2022 | |
| Revenue: | | | | | |
| Decision Solutions (DS) | $ | 668 | | | $ | 608 | | | 10 | % |
| Research and Insights (R&I) | 432 | | | 406 | | | 6 | % |
| Data and Information (D&I) | 384 | | | 356 | | | 8 | % |
| Total external revenue | 1,484 | | | 1,370 | | | 8 | % |
| Intersegment revenue | 7 | | | 3 | | | 133 | % |
| Total MA Revenue | 1,491 | | | 1,373 | | | 9 | % |
| Expenses: | | | | | |
| Operating and SG&A (external) | 976 | | | 858 | | | (14 | %) |
| Operating and SG&A (intersegment) | 91 | | | 86 | | | (6 | %) |
| | | | | |
| | | | | |
| Total operating and SG&A expense | 1,067 | | | 944 | | | (13 | %) |
| | | | | |
| | | | | |
| Adjusted Operating Income | $ | 424 | | | $ | 429 | | | (1 | %) |
| | | | | |
| Adjusted Operating Margin | 28.4 | % | | 31.2 | % | | |
| | | | | |
| Depreciation and amortization | 144 | | | 120 | | | (20 | %) |
| Restructuring | 16 | | | 16 | | | — | % |
MOODY'S ANALYTICS REVENUE
| | |
| Six months ended June 30, |
2023-----------------------------------------------------------------------------------2022
_______________________________________________________________________________________________________
| | | | | | | | |
| MA: Global revenue ⇑ $114 million | U.S. Revenue ⇑ $44 million | Non-U.S. Revenue ⇑ $70 million |
The
following is a discussion of external MIS8% increase in global MA revenue
and operating expenses:Global MIS revenue of $2,049.1 millionreflects growth both in the first nine months of 2017 increased 16% compared to 2016 reflecting robust rated issuance volumes for bank loansU.S. (7%) and high-yield corporate debt within CFG coupled with strong growth in banking-related revenue in FIG and growthinternationally (9%) across most asset classes in SFG. Also contributing to the growth was the favorable impact of changes in the mix of fee type, new fee initiatives and pricing increases.
Transaction revenue for MIS was 65% in the first nine months of 2017 compared to 60% in the first nine months of 2016.
In the U.S., revenue was $1,262.6 million in the first nine months of 2017, an increase of $136.3 million, or 12%, compared to 2016 primarilyall LOBs.
–ARR(2) grew 10% reflecting strong growth in CFG, SFG and FIG revenue being partially offset by declines in PPIF and MIS Other revenue.Non-U.S. revenue was $786.5 million in the first nine months of 2017, an increase of $149.8 million, or 24%, compared to 2016 reflecting growth across all LOBs excluding MIS Other.
LOBs.
.
DECISION SOLUTIONS REVENUE
| | |
| Six months ended June 30, |
2023-----------------------------------------------------------------------------------2022
_______________________________________________________________________________________________________
| | | | | | | | |
| DS: Global revenue ⇑ $60 million | U.S. Revenue ⇑ $26 million | Non-U.S. Revenue ⇑ $34 million |
Global CFGDS revenue of $1,058.8 million in the first nine months of 2017 increased $214.1 million, or 25%, compared to 2016 primarily due to strength in leveraged finance issuance in the U.S., EMEA and Asia-Pacific as issuers took advantage of favorable market conditions to refinance obligations and fund M&A activity. The growth in leveraged finance revenue also reflects benefits from a favorable issuance mix in 2017 compared to the prior year where issuance volumes included a greater number of lower-yielding jumbo deals. The increase over the prior year also reflects higher investment-grade corporate debt revenue in the U.S. reflecting continued favorable market conditions coupled with growth in EMEA which primarily resulted from elevated liquidity resulting from the ECB sponsored CSPP. Additionally, the growth compared to 2016 reflects benefits from changes in the mix of fee type, new fee initiatives and pricing increases coupled with growth in monitoring fees across all regions. Transaction revenue represented 73% and 68% of total CFG revenue in the first nine months of 2017 and 2016, respectively. In the U.S., revenue was $698.6 million, or 20% higher compared to the prior year. Internationally, revenue of $360.2 million increased 37% compared to the prior year.Global SFG revenue of $347.7 million in the first nine months of 2017 increased $41.4 million, or 14%, compared to 2016. In the U.S., revenue of $235.9 million increased $31.6 million over 2016 primarily due to strong growth in CLO issuance reflecting an increase in bank loan supply and favorable market conditions compared to a challenging prior year period when global market volatility suppressed issuance.Non-U.S. revenue in the first nine months of 2017 of $111.8 million increased $9.8 million compared to the prior year primarily reflecting growth across most asset classes in the EMEA region. Transaction revenue was 62% of total SFG revenue in the first nine months of 2017 compared to 59% in the prior year.
Global FIG revenue of $316.8 million in the first nine months of 2017 increased $36.4 million, or 13%, compared to 2016. In the U.S., revenue was $135.0 million, upARR
(2) both grew 10% compared to the first nine monthshalf of 20162022 with the most notable drivers of the increase reflecting: –continued demand for KYC and compliance solutions reflecting increased customer and supplier risk data usage, which drove ARR(2) growth of 18%;
–growth in subscription-based revenue for actuarial modeling tools and products supporting the adoption of certain international accounting standards relating to insurance contracts which resulted in ARR(2) growth of 6%;
–broad growth across banking offerings following Moody's investments in SaaS-based solutions, which resulted in ARR(2) growth of 10%; and
–higher issuance in the banking sector and benefitsrevenue from changes in the mix of fee type, new fee initiatives and price increases. Internationally, revenue was $181.8 million in the first nine months of 2017, up 15% compared to 2016RMS primarily due to higher bankinga reduction of revenue in EMEA from opportunistic issuance amidst current favorable market conditions2022 pursuant to a fair value adjustment to deferred revenue previously required as well as benefits from changes in the mixpart of fee type, new fee initiatives and pricing increases. Thenon-U.S. growth also reflects strength in bankingacquisition accounting.
RESEARCH AND INSIGHTS REVENUE
| | |
| Six months ended June 30, |
2023-----------------------------------------------------------------------------------2022
_______________________________________________________________________________________________________
| | | | | | | | |
| R&I: Global revenue ⇑ $26 million | U.S. Revenue ⇑ $5 million | Non-U.S. Revenue ⇑ $21 million |
Global R&I revenue
in the Asia-Pacific region reflecting higher cross-border issuance from Chinese banks and thenon-bank financial sector. Transaction revenue was 44% of total FIG revenue inincreased 6% compared to the first
nine monthshalf of
2017 compared to 38% in the same period in 2016.Global PPIF revenue was $312.0 million in the first nine months of 2017 and was flat compared to 2016 with declines in the U.S. being offset by growth internationally. In the U.S., revenue of $192.8 million in the first nine months of 2017 decreased $18.9 million compared to 2016 due to strong refunding volumes in 2016. These decreases were partially offset2022 mainly driven by growth in infrastructure financerecurring revenue of 7%, primarily due to continued strong retention and demand for credit research, analytics and models.
ARR(2) grew 9% reflecting the aforementioned strong retention and demand for credit research, analytics and models.
DATA AND INFORMATION REVENUE
| | |
| Six months ended June 30, |
2023-----------------------------------------------------------------------------------2022
_______________________________________________________________________________________________________
| | | | | | | | |
| D&I: Global revenue ⇑ $28 million | U.S. Revenue ⇑ $13 million | Non-U.S. Revenue ⇑ $15 million |
Global D&I revenue increased 8% compared to the first half of 2022 and reflects growth in both U.S. (11%) and internationally (6%), mainly driven by:
–continued strong retention and new sales for ratings feeds coupled with benefits from changeshigher price realization; and
–increased demand for company data.
ARR(2) grew 9% reflecting increasing demand for company data and ratings data feed products.
| | | | |
| | MA: YTD Operating and SG&A Expense ⇑ $118 million |
The increase in
the mix of fee type, new fee initiatives and pricing increases. Outside the U.S., PPIF revenue increased $21.9 million compared to 2016 reflecting strong growth in infrastructure finance revenue in the Asia-Pacific region and growth in public finance revenue in EMEA. Transaction revenue was 63% of total PPIF revenue in both first nine months of 2017 and 2016.Operatingoperating and SG&A expenses incompared to the first ninesix months of 2017 increased $67.0 million compared to 2016. Compensation expenses increased approximately $80 million2022 is primarily due to higher incentivegrowth in both compensation reflecting higher projected achievement against full-year targeted results compared to the prior year partially offset by continued cost control initiatives.Non-compensation expenses declined approximately $13 million reflecting lower legal fees and continued cost control initiatives.
Adjusted Operating Income and operating income in the first nine monthsnon-compensation costs of 2017, which includes intersegment royalty revenue and intersegment expenses, were $1,232.2$62 million and $1,175.8$56 million, respectively, and increased $225.4 million and $234.0 million, respectively, compared to 2016.reflecting:
| | | | | | | | |
| Compensation costs | | Non-compensation costs |
| Notable drivers of expense growth: | | Notable drivers of expense growth: |
| — approximately half of the growth is related to an increase in salaries reflecting higher headcount and annual salary increases; and | | — approximately 60% of the increase reflects higher costs to support strategic investments in technology, innovation and product development; and |
| — approximately 40% of the increase reflects higher incentive and performance-based equity compensation aligned with actual/expected financial and operational performance as well as headcount growth. | |
| — approximately 25% of the increase reflects higher travel and entertainment expenses correlated with business growth. |
| | | | | | | |
| | | | | MA: Adjusted Operating Margin 28.4% ⇓ 280BPS |
The Adjusted Operating Margin decrease for MA is primarily due to operating and operating margin were 57.8%SG&A expense growth of 14% outpacing the 9% increase in global MA revenue.
| | |
| Depreciation and amortization |
The increase in depreciation and 55.2%, respectively, comparedamortization expense primarily reflects higher amortization of internally developed software relating to 54.8% and 51.3%,the development of SaaS-based solutions.The restructuring charges in
both periods relate to the
prior year, respectively.Company's 2022 - 2023 Geolocation Restructuring Program as more fully discussed in Note 10 to the condensed consolidated financial statements.
Moody’s
AnalyticsInvestors Service
The table below provides a summary of revenue and operating results, followed by further insight and commentary: | | | | | | | | | | | | |
| | | Nine Months Ended September 30, | | | % Change
Favorable
(Unfavorable) | |
| | | 2017 | | | 2016 | | |
Revenue: | | | | | | | | | | | | |
Research, data and analytics (RD&A) | | $ | 574.7 | | | $ | 500.9 | | | | 15 | % |
Enterprise risk solutions (ERS) | | | 305.8 | | | | 288.5 | | | | 6 | % |
Professional services (PS) | | | 109.0 | | | | 109.7 | | | | (1 | %) |
| | | | | | | | | | | | |
Total external revenue | | | 989.5 | | | | 899.1 | | | | 10 | % |
| | | | | | | | | | | | |
Intersegment revenue | | | 11.6 | | | | 9.8 | | | | 18 | % |
| | | | | | | | | | | | |
Total MA Revenue | | | 1,001.1 | | | | 908.9 | | | | 10 | % |
| | | | | | | | | | | | |
Expenses: | | | | | | | | | | | | |
Operating and SG&A (external) | | | 679.9 | | | | 624.2 | | | | (9 | %) |
Operating and SG&A (intersegment) | | | 82.0 | | | | 73.9 | | | | (11 | %) |
| | | | | | | | | | | | |
Adjusted Operating Income | | | 239.2 | | | | 210.8 | | | | 13 | % |
| | | | | | | | | | | | |
Restructuring | | | — | | | | 1.8 | | | | NM | |
Acquisition-Related Expenses | | | 16.7 | | | | — | | | | NM | |
Depreciation and amortization | | | 52.0 | | | | 39.0 | | | | (33 | %) |
| | | | | | | | | | | | |
Operating income | | $ | 170.5 | | | $ | 170.0 | | | | — | |
| | | | | | | | | | | | |
Adjusted Operating Margin | | | 23.9 | % | | | 23.2 | % | | | | |
Operating margin | | | 17.0 | % | | | 18.7 | % | | | | |
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | % Change Favorable
(Unfavorable) |
| 2023 | | 2022 | |
| Revenue: | | | | | |
| Corporate finance (CFG) | $ | 721 | | | $ | 739 | | | (2 | %) |
| Structured finance (SFG) | 201 | | | 267 | | | (25 | %) |
| Financial institutions (FIG) | 287 | | | 259 | | | 11 | % |
| Public, project and infrastructure finance (PPIF) | 256 | | | 245 | | | 4 | % |
| Total ratings revenue | 1,465 | | | 1,510 | | | (3 | %) |
| MIS Other | 15 | | | 23 | | | (35 | %) |
| Total external revenue | 1,480 | | | 1,533 | | | (3 | %) |
| Intersegment royalty | 91 | | | 86 | | | 6 | % |
| Total | 1,571 | | | 1,619 | | | (3 | %) |
| Expenses: | | | | | |
| Operating and SG&A (external) | 679 | | | 691 | | | 2 | % |
| Operating and SG&A (intersegment) | 7 | | | 3 | | | (133 | %) |
| Total operating and SG&A expense | 686 | | | 694 | | | 1 | % |
| | | | | |
| Adjusted Operating Income | $ | 885 | | | $ | 925 | | | (4 | %) |
| | | | | |
| Adjusted Operating Margin | 56.3 | % | | 57.1 | % | | |
| | | | | |
| Depreciation and amortization | 37 | | | 39 | | | 5 | % |
| Restructuring | 8 | | | 15 | | | NM |
The following is a discussion of external MA revenue and operating expenses:Global MA revenue increased $90.4 million, or 10%, compared to first nine months of 2016 and reflected growthchart presents changes in RD&A (which included approximately $30 million in revenue, or 3 percentage points of the growth, from the Bureau van Dijk acquisition) coupled with growth in ERS, which included revenue from the first quarter 2016 acquisition of GGY. Additionally, the growth over the prior year reflects benefits from pricing increases within MA’s recurring revenue base. Recurring revenue comprised 79% and 76% of total MA revenue in the first nine months 2017 and 2016, respectively.
In the U.S., revenue of $471.4 million in first nine months 2017 increased $26.1 million and reflected growth across all LOBs.
Non-U.S. revenue of $518.1 million in the first nine months of 2017 was $64.3 million higher than in the first nine months of 2016 reflecting growth in RD&A, which included approximately $27 million innon-U.S. Bureau van Dijk revenue, and higher ERS revenue.
Global RD&A revenue of $574.7 million, which comprised 58% of total external MA revenue in the first nine months of 2017 and 56% of total external MA revenue in the first nine months of 2016, increased $73.8 million, or 15%, over the prior year period and included approximately $30 million in revenue, or 6 percentage points of the growth, from the Bureau van Dijk acquisition (net of an approximate $14 million reduction relating to a deferred revenue adjustment required as part of acquisition accounting as further described in Note 7 to the financial statements). The growth also reflects upgrades in credit research subscriptions and pricing increases in licensing of ratings data, most notably in the U.S. and EMEA. In the U.S., revenue of $310.6 million increased 6% millionrated issuance volumes compared to the first nine monthshalf of 2016.Non-U.S.
2022. To the extent that changes in rated issuance volumes had a material impact to MIS's revenue of $264.1 million increased 27%.Global ERS revenue of $305.8 million in the first nine months of 2017 increased $17.3 million, or 6%, over the first nine months of 2016. The growth is primarily due to higher revenues from risk and finance analytics and regulatory solutions products coupled with incremental revenue from GGY, which was acquired in March 2016. Additionally, the revenue growth reflects benefits from pricing increases within ERS’s recurring revenue base. Revenue in ERS is subject to quarterly volatility resulting from the variable nature of project timing and the concentration of software implementation and license revenue in a relatively small number of engagements. In the U.S., revenue of $120.1 million increased 5% compared to the prior year.Non-U.S.year, those impacts are discussed below.
MOODY'S INVESTORS SERVICE REVENUE
| | |
| Six months ended June 30, |
2023-----------------------------------------------------------------------------------2022
_______________________________________________________________________________________________________
| | | | | | | | |
| MIS: Global revenue ⇓ $53 million | U.S. Revenue ⇓ $38 million | Non-U.S. Revenue ⇓ $15 million |
–The decrease in global MIS revenue of $185.7 million increased 6%.Global PS revenue of $109.0 million in first nine months of 2017 decreased $0.7 million, or 1%, from 2016 reflecting lowernon-U.S. revenue from analytical and research services partially offset by higher revenue from these services in the U.S. In the U.S., revenue in the first nine months of 2017 was $40.7 million, up 6% compared to 2016. International revenue was $68.3 million, down 4% compared to the first nine months of 2016.
Operating and SG&A expenses in 2017 increased $55.7 million compared to 2016. The expense growth primarily reflects an increasea 5% decrease in compensation costs of approximately $42 million primarily due to headcount from the acquisition of GGY coupled with annual salary increases and higher incentive compensation partially offset by the impact of cost control initiatives. Additionally, there were approximately $10 milliontotal rated issuance volumes, which resulted in Bureau van Dijk compensation costs.Non-compensation costs increased approximately $14 million primarily due to Bureau van Dijk expenses.
There were $16.7 million in Acquisition-Related Expenses incurred to complete and integrate the acquisition of Bureau van Dijk.
Depreciation and amortization increased $13.0 million primarily due to amortization of Bureau van Dijk’s intangible assets.
Adjusted Operating Income was $239.2 million in the first nine months of 2017 and increased $28.4transaction revenue declining $64 million compared to the same period in 2016. Operating incomethe prior year. The decline in rated issuance volumes across many of $170.5 millionthe asset classes reflected ongoing credit market volatility relating to uncertainty around inflation, interest rates, recessionary concerns and stress in the banking sector following the failure of certain banks in the first ninequarter of 2023.
CFG REVENUE
| | |
| Six months ended June 30, |
2023-----------------------------------------------------------------------------------2022
_______________________________________________________________________________________________________
| | | | | | | | |
| CFG: Global revenue ⇓ $18 million | U.S. Revenue was in line with prior year | Non-U.S. Revenue ⇓ $18 million |
Global CFG revenue for the six months ended June 30, 2023 and 2022 was comprised as follows:
(1) Other includes: recurring monitoring fees of 2017 was flata 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.
The modest decline in CFG revenue reflected declines internationally of 7%.
Transaction revenue decreased $26 million compared to the same period in 2016.the prior year, with the most notable drivers reflecting:
–lower bank loan revenue across all regions as geopolitical and macroeconomic uncertainties have continued to impact issuance levels and M&A activity;
partially offset by:
–higher investment-grade rated issuance volumes reflecting both refinancing activity and issuance to fund certain large M&A transactions amidst improving market sentiment in the second quarter of 2023.
SFG REVENUE
| | |
| Six months ended June 30, |
2023-----------------------------------------------------------------------------------2022
_______________________________________________________________________________________________________
| | | | | | | | |
| SFG: Global revenue ⇓ $66 million | U.S. Revenue ⇓ $59 million | Non-U.S. Revenue ⇓ $7 million |
Global SFG revenue for the six months ended June 30, 2023 and 2022 was comprised as follows:
The decrease in SFG revenue of 25% reflected declines in both the U.S. (33%) and internationally (8%). Transaction revenue decreased $72 million compared to the first half of 2022.
The decline in SFG revenue reflected lower securitization activity across all asset classes, most notably in CMBS, resulting from higher credit spreads and market volatility given ongoing geopolitical and macroeconomic uncertainties.
FIG REVENUE
| | |
| Six months ended June 30, |
2023-----------------------------------------------------------------------------------2022
_______________________________________________________________________________________________________
| | | | | | | | |
| FIG: Global revenue ⇑ $28 million | U.S. Revenue ⇑ $18 million | Non-U.S. Revenue ⇑ $10 million |
Global FIG revenue for the six months ended June 30, 2023 and 2022 was comprised as follows:
The increase in FIG revenue of 11% reflected growth in both the U.S. (15%) and internationally (7%) which resulted in a $25 million increase in transaction revenue compared to the same period in the prior year.
The most notable drivers of the increase reflected:
–a favorable product mix from infrequent bank and insurance issuers; and
–higher rated issuance volumes in the insurance sector due to certain large deals in the sector for refinancing purposes.
PPIF REVENUE
| | |
| Six months ended June 30, |
2023-----------------------------------------------------------------------------------2022
_______________________________________________________________________________________________________
| | | | | | | | |
| PPIF: Global revenue ⇑ $11 million | U.S. Revenue ⇑ $6 million | Non-U.S. Revenue ⇑ $5 million |
Global PPIF revenue for the six months ended June 30, 2023 and 2022 was comprised as follows:
Transaction revenue increased $8 million compared to the same period in the prior year.
The 4% increase in PPIF revenue reflected increases in both the U.S. (4%) and internationally (5%).
The main drivers of the growth were:
–increases in investment-grade infrastructure finance activity in the U.S. and internationally;
partially offset by:
–lower U.S. public finance activity as a result of the impact of Federal Reserve monetary policy tightening and ongoing interest rate volatility.
| | | | |
| | MIS: YTD Operating and SG&A Expense ⇓ $12 million |
The decrease in operating and SG&A expense reflects a $37 million decrease in non-compensation expenses, partially offset by a $25 million increase in compensation costs. The most notable drivers of these changes are as follows: | | | | | | | | |
| Compensation costs | | Non-compensation costs |
| Notable drivers of expense growth: | | Notable drivers of decline in expense: |
| — higher incentive compensation accruals and performance-based equity compensation, which aligns with actual/projected financial and operating performance. | | — approximately 35% of the decrease relates to ongoing cost control initiatives; and |
| — higher bad debt expense in the prior year resulting from the impact of the Russia/Ukraine military conflict contributed approximately 45% of the decrease. |
The restructuring charges in both periods relates to the Company's 2022 - 2023 Geolocation Restructuring Program as more fully discussed in Note 10 to the condensed consolidated financial statements.
| | | | | | | |
| | | | | Adjusted Operating Margin of 56.3% ⇓ 80 BPS |
The MIS Adjusted Operating Margin decline primarily reflected the aforementioned 3% decrease in revenue.
LIQUIDITY AND CAPITAL RESOURCES
Moody's remains committed to using its cash flow to create value for shareholders by both investing in the
first nine monthsCompany's employees and growing the business through targeted organic initiatives and inorganic acquisitions aligned with strategic priorities. Additional excess capital is returned to the Company’s shareholders via a combination of
2017 was 23.9%, up 70 BPS from 2016. Operating margin was 17.0% in the first nine months of 2017, down 170 BPS from the prior year reflecting the aforementioned $16.7 million in Bureau van Dijk Acquisition-Related Expenses coupled with $10.3 million of higher D&A primarily relating to Bureau van Dijk’s intangible assets. Adjusted Operating Incomedividends and
operating income both include intersegment revenue and expense.Liquidity and Capital Resources
share repurchases.
The Company is currently financing its operations, capital expenditures and share repurchases from cash flow from operating and financing activities. cash flows.
The following is a summary of the changes in the Company’s cash flows followed by a brief discussion of these changes:
| | | | | | | | | | | | |
| | | Nine Months Ended
September 30, | | | $ Change
Favorable
(Unfavorable) | |
| | | 2017 | | | 2016 | | | | |
Net cash provided by operating activities | | $ | 342.7 | | | $ | 889.0 | | | $ | (546.3 | ) |
Net cash used in investing activities | | $ | (3,407.4 | ) | | $ | (2.4 | ) | | $ | (3,405.0 | ) |
Net cash provided by (used in) financing activities | | $ | 1,896.7 | | | $ | (915.0 | ) | | $ | 2,811.7 | |
Free Cash Flow* | | $ | 273.3 | | | $ | 804.2 | | | $ | (530.9 | ) |
* | Free Cash Flow is an adjusted financial measure. Refer to the section“Non-GAAP Financial Measures” of this MD&A for further information on this financial measure. |
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | $ Change
Favorable (Unfavorable) |
| 2023 | | 2022 | |
| Net cash provided by operating activities | $ | 1,212 | | | $ | 761 | | | $ | 451 | |
| Net cash used in investing activities | $ | (103) | | | $ | (172) | | | $ | 69 | |
| Net cash used in financing activities | $ | (624) | | | $ | (712) | | | $ | 88 | |
Free Cash Flow (1) | $ | 1,085 | | | $ | 628 | | | $ | 457 | |
(1) Free Cash Flow is a non-GAAP measure and is defined by the Company as net cash provided by operating activities minus cash paid for capital expenditures. Refer to “Non-GAAP Financial Measures” of this MD&A for further information on this financial measure.
Net cash provided by operating activities
Net cash flows from operating activities decreased $ $546.3in the six months ended June 30, 2023 increased by $451 million compared to the same period in 2022, with the most notable drivers reflecting:
–approximately $200 million in higher income tax payments in the prior year primarily due to Settlement Chargeyear; and
–approximately $140 million in higher incentive compensation payments of $863.8 million in the first quarterhalf of 2017 partially offset by higher deferred tax expense of approximately $154 million. Changes2022 (based on full-year 2021 financial and operating results) compared to payments made in working capital accounts, excluding the Settlement Charge, positively impacted cash flow from operations by approximately $55 million. These are partially offset by an increase in net income of $277.9 million of which $59.7 million is thenon-cash CCXI gaincurrent year (based on full-year 2022 financial and $111.1 million relates to the reclassification of the cash received (which resulted in a realized gain) for the Purchase Price Hedge to investing activities, which are presented as a cash reduction, relative to net income, in cash flow from operations.operating results).
Net cash used in investing activities
The
$3,405.0$69 million
increasedecrease in cash used in investing activities
isin the six months ended June 30, 2023 compared to the same period in 2022 was primarily
dueattributed to:
a $3.4 billion increase–higher net purchases of investments in the prior year of $110 million, reflecting the purchase of Moody's equity interest in GCR in the prior year coupled with lower net purchases of investments; and
–higher cash paid of $89 million in the prior year for acquisitions, primarily reflecting the acquisition of kompany in 2022;
partially offset by:
–higher net cash receipts of $136 million in 2022 relating to the settlement of net investment hedges.
Net cash used in financing activities
The $88 million decrease in cash used in financing activities in the six months ended June 30, 2023 compared to the same period in the prior year was primarily attributed to:
–higher cash paid for acquisitions compared to the prior year primarily reflecting the approximate $3.5 billion acquisitiontreasury share repurchases in 2022 of Bureau van Dijk in the third quarter of 2017;
lower net maturities of short-term investments of $99.2 million;
Partially offset by:
cash received of $111.1$763 million, relating to the Purchase Price Hedge.
Net cash provided by (used in) financing activities
The $2,811.7 million increase in cash provided by financing activities was attributed to:
proceeds of $1.5 billion from notes issued and $0.3 billion in net proceeds from commercial paper issued to fund the acquisition of Bureau van Dijk. Additionally, reflects $0.8 billion issuedwhich includes payment for shares made under an ASR agreement executed in the first quarter of 20172022;
partially offset by:
–long-term debt issuance of $491 million in 2022 that did not recur in 2023 (refer to fund the payment ofsection "Material Cash Requirements" below for further discussion on the 2016 Settlement ChargeCompany's financing arrangements); and the early
–a $200 million repayment of the Series2007-1 Notes;
treasury shares repurchased of $163.6 millionnotes payable in the first nine monthssecond quarter of 2017 compared to $678.9 million in the first nine months of 2016;
2023.partially offset by:
repayment of the $300 million Series2007-1 Notes.
Cash and cash equivalents and short-term investments held innon-U.S. jurisdictions
The Company’s aggregate cash and cash equivalents and short-term investments of
$ $1.1$2.3 billion at
SeptemberJune 30,
2017 consisted of2023 included approximately
$792 million$1.6 billion located outside of the U.S. Approximately
20%35% of the Company’s aggregate cash and cash equivalents and short-term investments is denominated in euros and British pounds.
Approximately 89% of the cash and cash equivalents and short-term investments in the Company’snon-U.S. operations are held by entities whose undistributed earnings are indefinitely reinvested in the Company’s foreign operations. Accordingly, the Company has not provided for deferred income taxes on these indefinitely reinvested earnings. A future distribution or change in assertion regarding reinvestment by the foreign subsidiaries relating to these earnings could result in additional tax liability to the Company. It is not practicable to determine the amount of the potential additional tax liability due to complexities in the tax laws and in the hypothetical calculations that would have to be made. The Company manages both its U.S. and
internationalnon-U.S. 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 continues to repatriate a portion of its non-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.
Material Cash Requirements
The Company's material cash requirements consist of the following contractual and other obligations:
Financing Arrangements
At
SeptemberJune 30,
2017,2023, Moody’s had
$5.7$7.2 billion of outstanding debt and approximately
$685 million$1 billion of additional capacity available under the Company’s CP Program,
(whichwhich is backstopped by the
2015 Facility). At September 30, 2017, 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. As of September 30, 2017, there were no such cross defaults.$1.25 billion 2021 Facility.
The repayment schedule for the Company’s borrowings
outstanding at June 30, 2023 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year Ended 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 (1)
due
2027 | | | 2017
Floating
Rate
Senior
Notes
due
2018 | | | Term
Loan
Facility
due
2020 | | | 2017
Senior
Notes
due
2021 | | | 2017
Private
Placement
Notes
due
2023 | | | 2017
Private
Placement
Notes
due
2028 | | | Commercial
Paper | | | Total | |
2017 (after September 30,) | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 315.0 | | | $ | 315.0 | |
2018 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 300.0 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 300.0 | |
2019 | | | — | | | | — | | | | — | | | | 450.0 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 450.0 | |
2020 | | | 500.0 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 500.0 | | | | — | | | | — | | | | — | | | | — | | | | 1,000.0 | |
2021 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 500.0 | | | | — | | | | — | | | | — | | | | 500.0 | |
Thereafter | | | — | | | | 500.0 | | | | 500.0 | | | | — | | | | 600.0 | | | | 591.1 | | | | — | | | | — | | | | — | | | | 500.0 | | | | 500.0 | | | | — | | | | 3,191.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 500.0 | | | $ | 500.0 | | | $ | 500.0 | | | $ | 450.0 | | | $ | 600.0 | | | $ | 591.1 | | | $ | 300.0 | | | $ | 500.0 | | | $ | 500.0 | | | $ | 500.0 | | | $ | 500.0 | | | $ | 315.0 | | | $ | 5,756.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For additional information on the Company's outstanding debt, refer to Note 14 to the condensed consolidated financial statements.
Future interest payments and fees associated with the Company's debt and credit facility are expected to be approximately $5 billion, of which approximately $300 million is expected to be paid in each of the next five years, and the remaining amount expected to be paid thereafter.
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
wouldcould result in higher financing costs.
Purchase Obligations
Purchase obligations generally include multi-year agreements with vendors to purchase goods or services and mainly include data center/cloud hosting fees and fees for information technology licensing and maintenance. As of June 30, 2023, these purchase obligations totaled $706 million, of which approximately 40% is expected to be paid in the next twelve months and another approximate 40% expected to be paid over the next two subsequent years.
Leases
The Company has remaining payments relating to its operating leases of $484 million at June 30, 2023, primarily related to real estate leases, of which $117 million in payments are expected over the next twelve months. For more information on the expected cash flows relating to the Company's operating leases, refer to Note 15 to the condensed consolidated financial statements.
Pension and Other Retirement Plan Obligations
The Company does not anticipate making significant contributions to its funded pension plan in the next twelve months. This plan is overfunded at June 30, 2023, and accordingly holds sufficient investments to fund future benefit obligations. Payments for the Company's unfunded plans are not expected to be material in either the short or long-term.
Dividends and share repurchases
On July 24, 2023, the Board approved the declaration of a quarterly dividend of $0.77 per share for Moody’s common stock, payable September 8, 2023 to shareholders of record at the close of business on August 18, 2023. The continued payment of dividends at this rate, or at all, is subject to the discretion of the Board.
On February 9, 2021, the Board approved $1 billion in share repurchase authority, and on February 7, 2022, the Board approved an additional $750 million of share repurchase authority. At June 30, 2023, the Company had approximately $740 million of remaining authority. There is no established expiration date for the remaining authorizations.
Restructuring
As more fully discussed in Note 10 to the condensed consolidated financial statements, the Company is currently in the process of executing the 2022 - 2023 Geolocation Restructuring Program. This program relates to the Company's post-COVID-19 geolocation strategy and includes the rationalization and exit of certain real estate leases and a reduction in staff, including the relocation of certain job functions. Future cash outlays associated with this program, which will primarily consist of personnel-related costs, are expected to be approximately $30 million to $40 million, which are expected to be paid through 2024.
Sources of Funding to Satisfy 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
forover 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, all in manner consistent with maintaining sufficient liquidity after giving effect to any additional indebtedness that may be incurred.
In October 2017, the Board of Directors of the Company declared a quarterly dividend of $0.38 per share of Moody’s common stock, payable on December 12, 2017 to shareholders of record at the close of business on November 21, 2017. 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 $563 million at September 30, 2017. Full-year 2017 share repurchases are expected to be approximately $200 million, subject to available cash, market conditions and other ongoing capital allocation decisions.
The Company has future cash requirements, including operating leases,sources as noted in the contractual obligations table below.
Off-Balance Sheet Arrangements
At September 30, 2017, 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 September 30, 2017:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Payments Due by Period | |
(in millions) | | Total | | | Less Than 1 Year | | | 1 - 3 Years | | | 3 - 5 Years | | | Over 5 Years | |
Indebtedness(1) | | $ | 7,323.3 | | | $ | 786.6 | | | $ | 1,785.1 | | | $ | 1,252.2 | | | $ | 3,499.4 | |
Operating lease obligations | | | 712.3 | | | | 99.3 | | | | 163.1 | | | | 143.6 | | | | 306.3 | |
Capital lease obligations | | | 0.3 | | | | 0.3 | | | | — | | | | — | | | | — | |
Purchase obligations | | | 156.9 | | | | 76.9 | | | | 67.5 | | | | 10.4 | | | | 2.1 | |
Pension obligations(2) | | | 153.2 | | | | 16.1 | | | | 43.5 | | | | 24.4 | | | | 69.2 | |
| | | | | | | | | | | | | | | | | | | | |
Total(3) | | $ | 8,346.0 | | | $ | 979.2 | | | $ | 2,059.2 | | | $ | 1,430.6 | | | | $3,877.0 | |
| | | | | | | | | | | | | | | | | | | | |
(1) | Reflects principal payments, related interest and applicable fees due on all indebtedness outstanding as described in Note 14 to the condensed consolidated financial statements.
|
(2) | Reflects projected benefit contributions to the Company’s funded U.S. DBPP and payments relating to the Company’s U.S. unfunded DBPPs and Retirement and Other Plans described in Note 13 to the condensed consolidated financial statements
|
(3) | The table above does not include the Company’s net long-term tax liabilities of $336.3 million relating to UTP and tax related reserves, since the expected cash outflow of such amounts by period cannot be reasonably estimated.
|
Dividends
On October 23, 2017, the Board approved the declaration of a quarterly dividend of $0.38 per share of Moody’s common stock, payable on December 12, 2017 to shareholders of record at the close of business on November 21, 2017.
Non-GAAP Financial Measures:
described above.
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 “Non-GAAP financial measures.” Management believes that such adjusted financial measures, when read in conjunction with the Company’s reported results, can provide useful supplemental information for investors analyzing
period to periodperiod-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 adjusted measures, as defined by the Company, are not necessarily comparable to similarly defined measures of other companies. Furthermore, these adjusted 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 adjusted financial measures accompanied by a reconciliation of the adjusted measure to its most directly comparable GAAP measure:
Adjusted Operating Income and Adjusted Operating Margin:Margin
: The Company presents Adjusted Operating Income and Adjusted Operating Margin because management deems this metricthese metrics to be a useful measure of assessing themeasures to provide additional perspective on Moody's operating performance of Moody’s.performance. Adjusted Operating Income excludes the impact of: i) depreciation and amortization,amortization; and ii) restructuring and Acquisition-Related Expenses. Acquisition-Related Expenses consist of expenses incurred to complete and integrate the acquisition of Bureau van Dijk. Acquisition-Related Expenses are excluded due to the material nature of these expenses which are not expected to recur at this dollar magnitude subsequent to the completion of the multi-year integration effort. Acquisition related expenses from previous acquisitions were not material.charges/adjustments. Depreciation and amortization are excluded because companies utilize productive assets of different agesestimated useful lives and use different methods of acquiring and depreciating productive assets. Adjusted Operating Income also excludes restructuring chargesRestructuring charges/adjustments are excluded as the frequency and magnitude of these charges may vary widely across periods and companies.
Management believes that the exclusion of
depreciation and amortization and Acquisition-Related Expenses,the aforementioned items, 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
September 30, | | | Nine Months Ended
September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Operating income | | $ | 445.4 | | | $ | 397.5 | | | $ | 1,346.3 | | | $ | 1,111.8 | |
Adjustments: | | | | | | | | | | | | | | | | |
Restructuring | | | — | | | | 8.4 | | | | — | | | | 12.0 | |
Depreciation and amortization | | | 43.0 | | | | 32.7 | | | | 108.4 | | | | 93.8 | |
Acquisition-Related Expenses | | | 10.1 | | | | — | | | | 16.7 | | | | — | |
| | | | | | | | | | | | | | | | |
Adjusted Operating Income | | $ | 498.5 | | | $ | 438.6 | | | $ | 1,471.4 | | | $ | 1,217.6 | |
| | | | | | | | | | | | | | | | |
Operating margin | | | 41.9 | % | | | 43.3 | % | | | 44.3 | % | | | 41.8 | % |
Adjusted Operating Margin | | | 46.9 | % | | | 47.8 | % | | | 48.4 | % | | | 45.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Operating income | $ | 550 | | | $ | 508 | | | $ | 1,104 | | | $ | 1,164 | |
| Adjustments: | | | | | | | |
| Depreciation and amortization | 93 | | | 81 | | | 181 | | | 159 | |
| Restructuring | 10 | | | 31 | | | 24 | | | 31 | |
| Adjusted Operating Income | $ | 653 | | | $ | 620 | | | $ | 1,309 | | | $ | 1,354 | |
| Operating margin | 36.8 | % | | 36.8 | % | | 37.2 | % | | 40.1 | % |
| Adjusted Operating Margin | 43.7 | % | | 44.9 | % | | 44.2 | % | | 46.6 | % |
Adjusted Net Income and Adjusted Diluted EPS attributable to
Moody’sMoody's common shareholders:
Beginning in
The Company presents Adjusted Net Income and Adjusted Diluted EPS because management deems these metrics to be useful measures to provide additional perspective on Moody’s operating performance. Adjusted Net Income and Adjusted Diluted EPS exclude the third quarterimpact of: i) amortization of 2017,acquired intangible assets; ii) restructuring charges/adjustments; and iii) FX translation losses reclassified to earnings resulting from the Company modified this adjusted measure to excludeno longer conducting commercial operations in Russia.
The Company excludes the impact of amortization of acquired intangible assets as companies utilize intangible assets with different
agesestimated useful lives and have different methods of acquiring and amortizing intangible assets.
These intangible assets were recorded as part of acquisition accounting and contribute to revenue generation. The amortization of intangible assets related to acquisitions will recur in future periods until such intangible assets have been fully amortized. 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 resultsRestructuring charges/adjustments and FX translation losses resulting from
period to period,the Company no longer conducting commercial operations in Russia are excluded as the frequency and
with both acquisitivemagnitude of these items may vary widely across periods and
non-acquisitive peer companies.
In addition to excluding Acquisition-Related Amortization Expense, current and prior-year adjusted net income and adjusted diluted earnings per share results exclude the CCXI Gain, the Purchase Price Hedge Gain, Acquisition-Related Expenses and restructuring charges.
The Company excludes thesethe aforementioned items to provide additional perspective on the Company’s operating resultswhen comparing net income and diluted EPS from period to period and across companies as the frequency and magnitude of similar transactions may vary widely across periods. Additionally,
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| Amounts in millions | 2023 | | 2022 | | 2023 | | 2022 |
| Net income attributable to Moody's common shareholders | | $ | 377 | | | | $ | 327 | | | | $ | 878 | | | | $ | 825 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Pre-Tax Acquisition-Related Intangible Amortization Expenses | $ | 50 | | | | $ | 51 | | | | $ | 101 | | | | $ | 102 | | |
| Tax on Acquisition-Related Intangible Amortization Expenses | (12) | | | | (12) | | | | (24) | | | | (24) | | |
| Net Acquisition-Related Intangible Amortization Expenses |
| 38 | | |
| 39 | | |
| 77 | | |
| 78 | |
| | | | | | | | | | | |
| Pre-Tax Restructuring | $ | 10 | | | | $ | 31 | | | | $ | 24 | | | | $ | 31 | | |
| Tax on Restructuring | (2) | | | | (7) | | | | (6) | | | | (7) | | |
| Net Restructuring | | 8 | | | | 24 | | | | 18 | | | | 24 | |
| FX losses resulting from the Company no longer conducting commercial operations in Russia | | — | | | | 20 | | | | — | | | | 20 | |
| Adjusted Net Income |
| $ | 423 | | |
| $ | 410 | | |
| $ | 973 | | |
| $ | 947 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Diluted earnings per share attributable to Moody's common shareholders | | $ | 2.05 | | | | $ | 1.77 | | | | $ | 4.77 | | | | $ | 4.45 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Pre-Tax Acquisition-Related Intangible Amortization Expenses | $ | 0.27 | | | | $ | 0.28 | | | | $ | 0.55 | | | | $ | 0.55 | | |
| Tax on Acquisition-Related Intangible Amortization Expenses | (0.06) | | | | (0.07) | | | | (0.13) | | | | (0.13) | | |
| Net Acquisition-Related Intangible Amortization Expenses | | 0.21 | | | | 0.21 | | | | 0.42 | | | | 0.42 | |
| | | | | | | | | | | |
| Pre-Tax Restructuring | $ | 0.05 | | | | $ | 0.17 | | | | $ | 0.13 | | | | $ | 0.17 | | |
| Tax on Restructuring | (0.01) | | | | (0.04) | | | | (0.03) | | | | (0.04) | | |
| Net Restructuring | | 0.04 | | | | 0.13 | | | | 0.10 | | | | 0.13 | |
| FX losses resulting from the Company no longer conducting commercial operations in Russia | | — | | | | 0.11 | | | | — | | | | 0.11 | |
| Adjusted Diluted EPS | | $ | 2.30 | | | | $ | 2.22 | | | | $ | 5.29 | | | | $ | 5.11 | |
Note: the
Acquisition-Related Expenses are excluded due totax impacts in the
material nature of these expensestable above were calculated using tax rates in effect in the jurisdiction for 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 Expenses from previous acquisitions were not material.Below is a reconciliation of this measure to its most directly comparable U.S. GAAP amount.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended September 30, | | | Nine months ended September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Net income attributable to Moody’s common shareholders | | | | | | $ | 317.3 | | | | | | | $ | 255.3 | | | | | | | $ | 975.1 | | | | | | | $ | 695.2 | |
Pre-Tax Restructuring | | | — | | | | | | | | 8.4 | | | | | | | | — | | | | | | | | 12.0 | | | | | |
Tax on Restructuring | | | — | | | | | | | | (2.7 | ) | | | | | | | — | | | | | | | | (3.9 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net Restructuring | | | | | | | — | | | | | | | | 5.7 | | | | | | | | — | | | | | | | | 8.1 | |
CCXI Gain | | | | | | | — | | | | | | | | — | | | | | | | | (59.7 | ) | | | | | | | — | |
Pre-Tax Acquisition-Related Expenses | | $ | 10.1 | | | | | | | $ | — | | | | | | | $ | 16.7 | | | | | | | $ | — | | | | | |
Tax on Acquisition-Related Expenses | | | (1.6 | ) | | | | | | | — | | | | | | | | (1.6 | ) | | | | | | | — | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Acquisition-Related Expenses(1) | | | | | | | 8.5 | | | | | | | | — | | | | | | | | 15.1 | | | | | | | | — | |
Pre-Tax Purchase Price Hedge Gain | | $ | (69.9 | ) | | | | | | $ | — | | | | | | | $ | (111.1 | ) | | | | | | $ | — | | | | | |
Tax on Purchase Price Hedge Gain | | | 25.5 | | | | | | | | — | | | | | | | | 41.4 | | | | | | | | — | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net Purchase Price Hedge Gain | | | | | | | (44.4 | ) | | | | | | | | | | | | | | | (69.7 | ) | | | | | | | — | |
Pre-Tax Acquisition-Related Intangible Amortization Expenses | | $ | 18.8 | | | | | | | $ | 8.9 | | | | | | | $ | 35.9 | | | | | | | $ | 25.5 | | | | | |
Tax on Acquisition-Related Intangible Amortization Expenses | | | (5.0 | ) | | | | | | | (2.6 | ) | | | | | | | (9.9 | ) | | | | | | | (7.3 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net Acquisition-Related Intangible Amortization Expenses | | | | | | | 13.8 | | | | | | | | 6.3 | | | | | | | | 26.0 | | | | | | | | 18.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted Net Income | | | | | | $ | 295.2 | | | | | | | $ | 267.3 | | | | | | | $ | 886.8 | | | | | | | $ | 721.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | Three months ended September 30, | | | Nine months ended September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Earnings per share attributable to Moody’s common shareholders | | | | | | $ | 1.63 | | | | | | | $ | 1.31 | | | | | | | $ | 5.02 | | | | | | | $ | 3.55 | |
Pre-Tax Restructuring | | | — | | | | | | | $ | 0.04 | | | | | | | | — | | | | | | | $ | 0.06 | | | | | |
Tax on Restructuring | | | — | | | | | | | | (0.01 | ) | | | | | | | — | | | | | | | | (0.02 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net Restructuring | | | | | | | — | | | | | | | | 0.03 | | | | | | | | — | | | | | | | | 0.04 | |
CCXI Gain | | | | | | | — | | | | | | | | — | | | | | | | | (0.31 | ) | | | | | | | — | |
Pre-Tax Acquisition-Related Expenses | | $ | 0.05 | | | | | | | $ | — | | | | | | | $ | 0.09 | | | | | | | $ | — | | | | | |
Tax on Acquisition-Related Expenses | | | (0.01 | ) | | | | | | | — | | | | | | | | (0.01 | ) | | | | | | | — | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Acquisition-Related Expenses(1) | | | | | | | 0.04 | | | | | | | | — | | | | | | | | 0.08 | | | | | | | | — | |
Pre-Tax Purchase Price Hedge Gain | | $ | (0.36 | ) | | | | | | $ | — | | | | | | | $ | (0.57 | ) | | | | | | $ | — | | | | | |
Tax on Purchase Price Hedge Gain | | | 0.13 | | | | | | | | — | | | | | | | | 0.21 | | | | | | | | — | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net Purchase Price Hedge Gain | | | | | | | (0.23 | ) | | | | | | | — | | | | | | | | (0.36 | ) | | | | | | | — | |
Pre-Tax Acquisition-Related Intangible Amortization Expenses | | $ | 0.10 | | | | | | | $ | 0.05 | | | | | | | $ | 0.18 | | | | | | | $ | 0.13 | | | | | |
Tax on Acquisition-Related Intangible Amortization Expenses | | | (0.02 | ) | | | | | | | (0.01 | ) | | | | | | | (0.04 | ) | | | | | | | (0.04 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net Acquisition-Related Intangible Amortization Expenses | | | | | | | 0.08 | | | | | | | | 0.04 | | | | | | | | 0.14 | | | | | | | | 0.09 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted Diluted EPS | | | | | | $ | 1.52 | | | | | | | $ | 1.38 | | | | | | | $ | 4.57 | | | | | | | $ | 3.68 | |
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(1) | Certain of these Acquisition-Related Expenses are not deductible for tax
|
item relates.
The Company defines free cash flowFree Cash Flow as net cash provided by operating activities minus payments for capital additions. Management believes that free cash flowFree 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: | | | | | | | | |
| | | Nine Months Ended
September 30, | |
| | | 2017 | | | 2016 | |
Net cash provided by operating activities | | $ | 342.7 | | | $ | 889.0 | |
Capital additions | | | (69.4 | ) | | | (84.8 | ) |
| | | | | | | | |
Free cash flow | | $ | 273.3 | | | $ | 804.2 | |
| | | | | | | | |
Net cash used in investing activities | | $ | (3,407.4 | ) | | $ | (2.4 | ) |
Net cash provided by (used in) financing activities | | $ | 1,896.7 | | | $ | (915.0 | ) |
Free Cash Flow:
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
| Net cash provided by operating activities | $ | 1,212 | | | $ | 761 | |
| Capital additions | (127) | | | (133) | |
| Free Cash Flow | $ | 1,085 | | | $ | 628 | |
| Net cash used in investing activities | $ | (103) | | | $ | (172) | |
| Net cash used in financing activities | $ | (624) | | | $ | (712) | |
Key Performance Metrics:
The Company presents Annualized Recurring Revenue (“ARR”) on a constant currency organic basis for its MA business as a supplemental performance metric to provide additional insight on the estimated value of MA's recurring revenue contracts at a given point in time. The Company uses ARR to manage and monitor performance of its MA operating segment and believes that this metric is a key indicator of the trajectory of MA's recurring revenue base.
The Company calculates ARR by taking the total recurring contract value for each active renewable contract as of the reporting date, divided by the number of days in the contract and multiplied by 365 days to create an annualized value. The Company defines renewable contracts as subscriptions, term licenses, maintenance and renewable services. ARR excludes transaction sales including training, one-time services and perpetual licenses. In order to compare period-over-period ARR excluding the effects of foreign currency translation, the Company bases the calculation on currency rates utilized in its current year operating budget and holds these FX rates constant for the duration of all current and prior periods being reported. Additionally, ARR excludes contracts related to acquisitions to provide additional perspective in assessing growth excluding the impacts from certain acquisition activity.
The Company’s definition of ARR may differ from definitions utilized by other companies reporting similarly named measures, and this metric should be viewed in addition to, and not as a substitute for, financial measures presented in accordance with U.S. GAAP.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amounts in millions | | June 30, 2023 | | June 30, 2022 | | Change | | Growth | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| MA ARR | | | | | | | | | | | | | | | | |
| Decision Solutions (DS) | | | | | | | | | | | | | | | | |
| Banking | | $ | 390 | | | $ | 355 | | | $ | 35 | | | 10% | | | | | | | | |
| Insurance | | 497 | | | 467 | | | 30 | | | 6% | | | | | | | | |
| KYC | | 292 | | | 248 | | | 44 | | | 18% | | | | | | | | |
| Total DS | | $ | 1,179 | | | $ | 1,070 | | | $ | 109 | | | 10% | | | | | | | | |
| Research and Insights | | 843 | | | 774 | | | 69 | | | 9% | | | | | | | | |
| Data and Information | | 759 | | | 695 | | | 64 | | | 9% | | | | | | | | |
| Total MA ARR | | $ | 2,781 | | | $ | 2,539 | | | $ | 242 | | | 10% | | | | | | | | |
| | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | |
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RECENTLY ISSUED ACCOUNTING STANDARDS
Refer to Note
171 to the condensed consolidated financial statements located in Part I
onof this Form
10-Q for
informationa discussion on the impact to the Company relating to recently issued accounting pronouncements.
As noted in further detail in Note 17 of the condensed consolidated financial statements, the Company intends to adopt the new revenue standard as of January 1, 2018 using the modified retrospective transition method. Under this adoption method, the Company will record a cumulativenon-cash adjustment to retained earnings at January 1, 2018 and apply the provisions of the ASU prospectively. The table below reflects the range of anticipated impacts to January 1, 2018 retained earnings for each type of adjustment required under the new revenue standard based on the Company’s assessment and best estimates to date.
| | |
Adjustment | | Range of expected benefit to /
(reduction of) January 1, 2018
Retained Earnings
|
Recognition of MA deferred revenue(1)
| | $50-75 million
|
Increase to capitalized MA sales commissions(2)
| | $60-80 million
|
Net impact of all other adjustments
| | Approximately $2 million
|
Net increase in tax liability on the above
| | ($38-53 million)
|
Total anticipatedpost-tax adjustment
| | $74-$104 million
|
(1) | Represents anticipated deferred revenue as of December 31, 2017 that would have been recognized as revenue in 2017 or earlier if the new standard was then in effect. The actual amount of the deferred revenue adjustment will be heavily dependent upon the status of contractsin-process primarily within the ERS and ESA LOBs as of the date of adoption, including the volume and impact of new sales contracts realized during the fourth quarter of 2017.
|
(2) | The actual impact to capitalized MA sales commissions will be dependent on the volume of sales during the fourth quarter of 2017.
|
Note that the above range of expected impacts from adopting the new revenue standard pertains solely to the impact to retained earnings as of January 1, 2018 on the Company’s consolidated balance sheet, and is not indicative of the impact the new ASU is expected to have on the Company’s consolidated statement of operations post-adoption. The impact that the provisions of the new ASU will have on the consolidated statement of operations subsequent to adoption will depend heavily on the volume and impact of new sales contracts realized in future periods, particularly in the ERS and ESA space. The Company does not have any material software implementation arrangements with terms longer than two years, and therefore the impact to the consolidated statement of operations under the provisions of the new standard will be dependent on each future period’s sales activity. Generally, however, the Company does not anticipate that applying the provisions of the new standard will have a material impact to its 2018 consolidated Net Income. However, there could be quarterly fluctuations in financial results or there could be increases or decreases in revenues and expenses which would largely offset and not be material at a total Company level for the full year. Furthermore, as part of the disclosure requirements in the first year of adoption there will be disclosures of the Company’s consolidated statement of operations for 2018 as if the new revenue standard was not adopted and the Company continued to account for revenue and related transactions under the existing standards. Importantly, the application of this new guidance has no effect on the cash the Company expects to receive nor on the economics of the business, but rather affects the timing of revenue and expense recognition with the expectation that revenue recognition will more closely align with cash received.
Contingencies
CONTINGENCIES
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”,"Financial Statements," Note
15 “Contingencies.”16 "Contingencies” in this Form 10-Q.
RegulationMIS and manyTable 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 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 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 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 Commission published a report concluding that no new European 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.
Separately, on June 23, 2016 the U.K. voted through a referendum to exit the EU. The UK officially launched the exit process by submitting its Article 50 letter to the EU, informing it of the UK’s intention to exit. The submission of this letter starts the clock on the negotiation of the terms of exit which will take up to two years. The specifics regarding the “new relationship” or any transitional arrangements (bridging the UK’s exit from itsre-engagement with the EU) will only begin once the broad terms of exit have been agreed upon by all parties.
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. In the interim, however, the U.K.’s markets regulator (the Financial Conduct Authority) has said that all EU financial regulations will stay in place and that firms must continue to abide by their existing obligations. As a consequence, at this point in time, there is no change to the regulatory framework under which MIS operates and ESMA remains MIS’s regulator both in the EU and in the U.K.
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), from time to time 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 rating agencies. For example, governments may from time to time establish official rating agencies 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 agencies 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.
ContentsForward-Looking Statements
FORWARD-LOOKING STATEMENTS
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’sCompany'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 Form10-Q, including in the sectionsections entitled “Contingencies” under Item 2.2, “MD&A”,&A,” commencing on page 4742 of this quarterly report on Form10-Q, under “Legal Proceedings” in Part II, Item 1, of this Form10-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”“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.contingencies or otherwise convey the prospective nature of events or outcomes generally indicative of forward-looking statements. Stockholders and investors are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements and other information in this document 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 applicable law or regulation. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company is identifying examples ofcertain 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, world-wide creditto:
•the impact of current economic conditions, including capital market disruptions, or aninflation and related monetary policy actions by governments in response to inflation, on worldwide credit markets and on economic slowdown, which could affectactivity, including on the volume of mergers and acquisitions, and their effects on the volume of debt and other securities issued in domestic and/or global capital markets;
•the uncertain effectiveness and possible collateral consequences of U.S. and foreign government initiatives and monetary policy to respond to the current economic climate, including instability of financial institutions, credit quality concerns, and other potential impacts of volatility in financial and credit markets;
•the global impact of the Russia/Ukraine military conflict on volatility in world financial markets, on general economic conditions and GDP in the U.S. and worldwide, on global relations and on the Company's own operations and personnel;
•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 ratesincreased utilization of technologies that have the potential to intensify competition and other volatilityaccelerate disruption and disintermediation in the financial markets suchservices industry, as that due towell as the U.K.’s referendum vote whereby the U.K. citizens voted to withdraw from the EU; number of issuances of securities without ratings or securities which are rated or evaluated by non-traditional parties;
•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 world-wide credit markets, international trade and economic policy; policy, including those related to tariffs, tax agreements and trade barriers;
•the impact of MIS’s withdrawal of its credit ratings on countries or entities within countries and of Moody’s no longer conducting commercial operations in countries where political instability warrants such actions;
•concerns in the marketplace affecting our credibility or otherwise affecting market perceptions of the integrity or utility of independent credit agency ratings;
•the introduction or development of competing products or technologies by other companies; technologies;
•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; regulations;
•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 inquiresinquiries to which the CompanyMoody’s may be subject from time to time;
•provisions in the Financial Reform ActU.S. 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; services and the expansion of supervisory remit to include non-EU ratings used for regulatory purposes;
•uncertainty regarding the future relationship between the U.S. and China;
•the possible loss of key employees; employees and the impact of the global labor environment;
•failures or malfunctions of our operations and infrastructure;
•any vulnerabilities to cyber threats or other cybersecurity concerns;
•the timing and effectiveness of our restructuring programs, such as the 2022 - 2023 Geolocation Restructuring Program;
•currency and foreign exchange volatility;
•the outcome of any review by controlling tax authorities of the Company’sMoody’s global tax planning initiatives;
•exposure to potential criminal sanctions or civil remedies if the CompanyMoody’s fails to comply with foreign and U.S. laws and regulations that are applicable in the jurisdictions in which the CompanyMoody’s 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, such as our acquisition of RMS, or other business combinations and the ability of the CompanyMoody’s to successfully integrate 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 berealized 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; and other factors, risks and uncertainties relating to the transaction as set forth under the caption “‘Safe Harbor’ Statement under the Private Securities Litigation Reform Act of 1995 ” in Moody’s report on Form8-K filed on May 15, 2017, which are incorporated by reference herein.
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’sMoody’s annual report on Form
10-K for the year ended December 31,
2016,2022, 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.
Forward-looking and other statements in this document may also address our corporate responsibility progress, plans, and goals (including sustainability and environmental matters), and the inclusion of such statements is not an indication that these contents are necessarily material to investors or required to be disclosed in the Company’s filings with the Securities and Exchange Commission. In addition, historical, current, and forward-looking sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future.Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to the Company's market risk during the six months ended June 30, 2023. For a discussion of the Company’s exposure to market risk, refer to the Company’s market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of our Form 10-K for the year ended December 31, 2022.
Item 4. | Controls and Procedures |
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures: The Company carried out an evaluation, as required by Rule
13a-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 Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule
13a-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 Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
In addition, the
The Company’s management, including the Company’s Chief Executive Officer and 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.ended June 30, 2023.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For information regarding legal proceedings, see Item 1 – “Financial Statements – Notes to Condensed Consolidated Financial Statements (Unaudited),” Note
1516 “Contingencies” in this Form
10-Q.Item 1A. Risk Factors
There have been no material changes
since December 31, 2016 tofrom the significant risk factors and uncertainties
known topreviously disclosed under the
Companyheading "Risk Factors" in the Company's annual report on Form 10-K for the year ended December 31, 2022, 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 Form
10-K for the year ended December 31,
2016.2022.Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
MOODY’SItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
MOODY'S PURCHASES OF EQUITY SECURITIES
For the Three Months Ended Septemberthree months ended June 30, 2017 | | | | | | | | | | | | | | | | |
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) | |
July 1 - 31 | | | 58,672 | | | $ | 124.34 | | | | 56,761 | | | $ | 585.2 million | |
August 1 - 31 | | | 88,476 | | | $ | 130.56 | | | | 88,058 | | | $ | 573.7 million | |
September 1 - 30 | | | 78,476 | | | $ | 135.67 | | | | 77,369 | | | $ | 563.2 million | |
| | | | | | | | | | | | | | | | |
Total | | | 225,624 | | | $ | 130.75 | | | | 222,188 | | | | | |
| | | | | | | | | | | | | | | | |
(1) | Includes surrender to the Company of 1,911, 418 and 1,107 shares of common stock in July, August and September, respectively, to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees |
(2) | As of the last day of each of the months. On December 15, 2015, the Board authorized a $1 billion share repurchase program. There is no established expiration date for the remaining authorization. |
2023
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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) |
| April 1- 30 | | 73,312 | | | $ | 302.36 | | | 70,493 | | | $ | 786 | million |
| May 1- 31 | | 82,432 | | | $ | 309.46 | | | 77,891 | | | $ | 762 | million |
| June 1- 30 | | 65,422 | | | $ | 332.90 | | | 64,889 | | | $ | 740 | million |
| Total | | 221,166 | | | $ | 314.25 | | | 213,273 | | | |
(1) Includes surrender to the Company of 2,819; 4,541; and 533 shares of common stock in April, May, and June, respectively, to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees.
(2) As of the last day of each of the months. On February 9, 2021, the Board authorized $1 billion in share repurchase authority and on February 7, 2022, the Board of Directors approved an additional $750 million of share repurchase authority. At June 30, 2023 there was approximately $740 million of share repurchase authority remaining. There is no established expiration date for the remaining authorization.
During the
thirdsecond quarter of
2017,2023, Moody’s issued
0.3 milliona net 200 thousand shares under employee stock-based compensation plans.
Item 5. Other Information
Rule 10b5-1 Plans
On May 12, 2023, Robert Fauber, the Company's Chief Executive Officer, adopted a trading plan intended to satisfy Rule 10b5-1(c). The plan relates to the sale of up to 28,010 shares of Moody’s Corporation common stock between August 16, 2023 and February 7, 2024. The shares include: i) shares which will be acquired upon the exercise of employee stock options; and ii) vested restricted stock units.
Item 6. ExhibitsNot applicable
Item 6.Exhibit No | Exhibits | Description |
| 3 | | ARTICLES OF INCORPORATION AND BY-LAWS |
| | |
Exhibit
No.
.1 | | Description
|
| |
3 | | ARTICLES OF INCORPORATION ANDBY-LAWS |
| |
.1 | | |
| | |
| .2 | | |
| |
12* | | Statement of Computation of Ratios of Earnings to Fixed Charges |
| |
| 31 | | CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 |
| | |
| .1* | | |
| | |
| .2* | | |
| | |
| 32 | | CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 |
| | |
| .1* | | |
| | |
| .2* | | |
| |
101 | | XBRL |
| |
.DEF*101.INS* | | XBRL Definitions Linkbase Document |
| |
.INS* | | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
| 101.SCH* | |
.SCH* | | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL* | |
.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF* | | Inline XBRL Definitions Linkbase Document |
.LAB*101.LAB* | | Inline XBRL Taxonomy Extension Labels Linkbase Document |
| 101.PRE* | |
.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104* | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
| | |
| * Filed herewith |
| † Management contract of compensatory plan or arrangement |
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 / LINDA S. HUBER
|
| | | | Linda S. Huber |
| | | | Executive Vice President and Chief Financial Officer
(principal financial officer)
|
Date: November 8, 2017
| | | | |
| | |
| By: | By:
| | /S/ MICHAEL CRIMMINS
S / MARK KAYE |
| | | | Michael CrimminsMark Kaye |
| | | | SeniorExecutive Vice President and Chief Financial Officer
|
| | (principal financial officer) |
| | |
| By: | / S / CAROLINE SULLIVAN |
| | Caroline Sullivan |
| | Chief Accounting Officer and Corporate Controller |
| | (principal accounting officer) |
| | |
| Date: July 26, 2023 | | |
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