Document and Entity Information
Document and Entity Information | |
3 Months Ended
Mar. 31, 2010 | |
Document Type | 10-Q |
Amendment Flag | false |
Document Period End Date | 2010-03-31 |
Document Fiscal Year Focus | 2,010 |
Document Fiscal Period Focus | Q1 |
Trading Symbol | MCO |
Entity Registrant Name | MOODYS CORP /DE/ |
Entity Central Index Key | 0001059556 |
Current Fiscal Year End Date | --12-31 |
Entity Filer Category | Large Accelerated Filer |
Entity Common Stock, Shares Outstanding | 237,000,000 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (USD $) | ||
In Millions, except Per Share data | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Revenue | 476.6 | 408.9 |
Expenses | ||
Operating | 135.9 | 122.4 |
Selling, general and administrative | 128.8 | 110.2 |
Restructuring | -0.7 | 11.8 |
Depreciation and amortization | 15.8 | 15.6 |
Total expenses | 279.8 | 260 |
Operating income | 196.8 | 148.9 |
Non-operating (expense) income, net | ||
Interest (expense) income, net | -13.3 | -3.3 |
Other non-operating (expense) income, net | (1) | (4) |
Total non-operating (expense) income, net | -14.3 | -7.3 |
Income before provision for income taxes | 182.5 | 141.6 |
Provision for income taxes | 67.8 | 50.5 |
Net income | 114.7 | 91.1 |
Less: Net income attributable to noncontrolling interests | 1.3 | 0.9 |
Net income attributable to Moody's | 113.4 | 90.2 |
Earnings per share attributable to Moody's common shareholders | ||
Basic | 0.48 | 0.38 |
Diluted | 0.47 | 0.38 |
Weighted average number of shares outstanding | ||
Basic | 236.9 | 235.4 |
Diluted | 239.1 | 236.5 |
CONSOLIDATED BALANCE SHEETS (UN
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 12 Months Ended
Dec. 31, 2009 |
Current assets: | ||
Cash and cash equivalents | 496.4 | 473.9 |
Short-term investments | 7.5 | 10 |
Accounts receivable, net of allowances of $25.2 in 2010 and $24.6 in 2009 | 427 | 444.9 |
Deferred tax assets, net | 38.6 | 32.3 |
Other current assets | 38.5 | 51.8 |
Total current assets | 1,008 | 1012.9 |
Property and equipment, net of accumulated depreciation of $175.8 in 2010 and $164.8 in 2009 | 292.7 | 293 |
Goodwill | 347.3 | 349.2 |
Intangible assets, net | 100.1 | 104.9 |
Deferred tax assets, net | 203.1 | 192.6 |
Other assets | 52.1 | 50.7 |
Total assets | 2003.3 | 2003.3 |
Current liabilities: | ||
Accounts payable and accrued liabilities | 253.2 | 317.2 |
Commercial paper | 371.9 | 443.7 |
Current portion of long-term debt | 5.6 | 3.8 |
Deferred revenue | 516.2 | 471.3 |
Total current liabilities | 1146.9 | 1,236 |
Non-current portion of deferred revenue | 100.2 | 103.8 |
Long-term debt | 744.4 | 746.2 |
Deferred tax liabilities, net | 53.2 | 31.4 |
Unrecognized tax benefits | 172.9 | 164.2 |
Other liabilities | 319.7 | 317.8 |
Total liabilities | 2537.3 | 2599.4 |
Contingencies (Note 12) | ||
Shareholders' deficit: | ||
Preferred stock, par value $.01 per share; 10,000,000 shares authorized; no shares issued and outstanding | ||
Capital surplus | 364.3 | 391.1 |
Retained earnings | 3442.6 | 3,329 |
Treasury stock, at cost; 105,939,555 and 106,044,833 shares of common stock at March 31, 2010 and December 31, 2009, respectively | -4266.2 | -4288.5 |
Accumulated other comprehensive loss | -85.7 | -41.2 |
Total Moody's shareholders' deficit | -541.6 | -606.2 |
Noncontrolling interests | 7.6 | 10.1 |
Total shareholders' deficit | (534) | -596.1 |
Total liabilities and shareholders' deficit | 2003.3 | 2003.3 |
Series common stock | ||
Shareholders' deficit: | ||
Common stock | ||
Common stock | ||
Shareholders' deficit: | ||
Common stock | 3.4 | 3.4 |
1_CONSOLIDATED BALANCE SHEETS (
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) (USD $) | ||
In Millions, except Share data | Mar. 31, 2010
| Dec. 31, 2009
|
Accounts receivable, allowances | 25.2 | 24.6 |
Property and equipment, accumulated depreciation | 175.8 | 164.8 |
Preferred stock, par value | 0.01 | 0.01 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Treasury stock, shares | 105,939,555 | 106,044,833 |
Series common stock | ||
Common stock, par value | 0.01 | 0.01 |
Common stock, shares authorized | 10,000,000 | 10,000,000 |
Common stock, shares issued | 0 | 0 |
Common stock, shares outstanding | 0 | 0 |
Common stock | ||
Common stock, par value | 0.01 | 0.01 |
Common stock, shares authorized | 1,000,000,000 | 1,000,000,000 |
Common stock, shares issued | 342,902,272 | 342,902,272 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Cash flows from operating activities | ||
Net income | 114.7 | 91.1 |
Reconciliation of net income to net cash provided by operating activities: | ||
Depreciation and amortization | 15.8 | 15.6 |
Stock-based compensation expense | 14.8 | 14.5 |
Excess tax benefits from stock-based compensation plans | (3) | -0.4 |
Changes in assets and liabilities: | ||
Accounts receivable | 13.5 | 16 |
Other current assets | 6.6 | 26.9 |
Other assets | -12.5 | (8) |
Accounts payable and accrued liabilities | -44.8 | -33.2 |
Restructuring | -3.2 | 8.6 |
Deferred revenue | 44.2 | 41.9 |
Unrecognized tax benefits | 8.7 | 13.7 |
Other liabilities | 9.3 | 8.3 |
Net cash provided by operating activities | 164.1 | 195 |
Cash flows from investing activities | ||
Capital additions | -16.2 | -12.4 |
Purchases of short-term investments | -7.3 | -0.3 |
Sales and maturities of short-term investments | 9.9 | |
Cash paid for acquisitions, net of cash acquired | -0.9 | |
Net cash used in investing activities | -13.6 | -13.6 |
Cash flows from financing activities | ||
Borrowings under revolving credit facilities | 1,464 | |
Repayments of borrowings under revolving credit facilities | (1,609) | |
Issuance of commercial paper | 788.3 | 2359.8 |
Repayments of commercial paper | (860) | (2,272) |
Net proceeds from stock-based compensation plans | 12.5 | 1.3 |
Cost of treasury shares repurchased | -29.9 | |
Excess tax benefits from stock-based compensation plans | 3 | 0.4 |
Payment of dividends | -24.9 | -23.5 |
Payment of dividends to noncontrolling interests | -0.6 | -2.9 |
Payments under capital lease obligations | -0.3 | -0.4 |
Net cash used in financing activities | -111.9 | -82.3 |
Effect of exchange rate changes on cash and cash equivalents | -16.1 | -3.3 |
Net increase in cash and cash equivalents | 22.5 | 95.8 |
Cash and cash equivalents, beginning of the period | 473.9 | 245.9 |
Cash and cash equivalents, end of the period | 496.4 | 341.7 |
GLOSSARY OF TERMS AND ABBREVIAT
GLOSSARY OF TERMS AND ABBREVIATIONS | |
3 Months Ended
Mar. 31, 2010 | |
GLOSSARY OF TERMS AND ABBREVIATIONS | GLOSSARY OF TERMS AND ABBREVIATIONS The following terms, abbreviations and acronyms are used to identify frequently used terms in this report: TERM DEFINITION ACNielsen ACNielsen Corporation a former affiliate of Old DB Analytics Moodys Analytics reportable segment of MCO formed in January 2008, which includes the non-rating commercial activities of MCO AOCI Accumulated other comprehensive income (loss); a separate component of shareholders equity (deficit) ASC The FASB Accounting Standards Codification; the sole source of authoritative GAAP as of July 1, 2009 except for rules and interpretive releases of the SEC, which are also sources of authoritative GAAP for SEC registrants ASU The FASB Accounting Standards Updates to the ASC. It also provides background information for accounting guidance and the bases for conclusions on the changes in the ASC. ASUs are not considered authoritative until codified into the ASC. Basel II Capital adequacy framework published in June 2004 by the Basel Committee on Banking Supervision Board The board of directors of the Company Bps Basis points Canary Wharf Lease Operating lease agreement entered into on February 6, 2008 for office space in London, England, occupied by the Company in the second half of 2009. CDOs Collateralized debt obligations CESR Committee of European Securities Regulators CFG Corporate finance group; an LOB of MIS CMBS Commercial mortgage-backed securities; part of CREF Cognizant Cognizant Corporation a former affiliate of Old D comprised the IMS Health and NMR businesses Company Moodys Corporation and its subsidiaries; MCO; Moodys COSO Committee of Sponsoring Organizations of the Treadway Commission CP Commercial paper CP Notes Unsecured commercial paper notes CP Program The Companys commercial paper program entered into on October 3, 2007 CRAs Credit rating agencies CREF Commercial real estate finance which includes REITs, commercial real estate CDOs and MBS; part of SFG DB Business Old DBs Dun Bradstreet operating company DBPP Defined benefit pension plans Debt/EBITDA Ratio of Total Debt to EBITDA Directors Plan The 1998 MCO Non-Employee Directors Stock Incentive Plan Distribution Date September 30, 2000; the date which old DB separated into two publicly traded companies Moodys Corporation and New DB EBITDA Earnings before interest, taxes, depreciation and amortization ECAIs External Credit Assessment Institutions ECB European Central Bank TERM DEFINITION EMEA Represents countries within Europe, the Middle East and Africa EPS Earnings per share ETR Effective tax rate EU European Union EUR Euros Excess Tax Benefit 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 that the option or restricted share is expensed under GAAP Exchange Act The Securities Exchange Act of 1934, as amended FASB Financial |
DESCRIPTION OF BUSINESS AND BAS
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION | |
3 Months Ended
Mar. 31, 2010 | |
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION | NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Moodys is a provider of (i)credit ratings, (ii)credit and economic related research, data and analytical tools, (iii)risk management software and (iv)quantitative credit risk measures, credit portfolio management solutions and training services. In 2007 and prior years, Moodys operated in two reportable segments: Moodys Investors Service and Moodys KMV. Beginning in January 2008, Moodys segments were changed to reflect the Reorganization announced in August 2007 and Moodys now reports in two new reportable segments: MIS and MA. As a result of the Reorganization, the rating agency remains in the MIS operating segment and several ratings business lines have been realigned. All of Moodys other non-rating commercial activities are included within the new Moodys Analytics segment. The MIS segment publishes credit ratings on a wide range of debt obligations and the entities that issue such obligations in markets worldwide. Revenue is derived from the originators and issuers of such transactions who use MISs ratings to support the distribution of their debt issues to investors. The MA segment develops a wide range of products and services that support the credit risk management activities of institutional participants in global financial markets. These offerings include quantitative credit risk scores, credit processing software, economic research, analytical models, financial data, and specialized advisory and training services. MA also distributes investor-oriented research and data developed by MIS as part of its rating process, including in-depth research on major debt issuers, industry studies and commentary on topical events. The Company operated as part of Old DB until September30, 2000, when Old DB separated into two publicly traded companies Moodys Corporation and New DB. At that time, Old DB distributed to its shareholders shares of New DB stock. New DB comprised the business of Old DBs Dun Bradstreet operating company. The remaining business of Old DB consisted solely of the business of providing ratings and related research and credit risk management services and was renamed Moodys Corporation. For purposes of governing certain ongoing relationships between the Company and New DB after the 2000 Distribution and to provide for an orderly transition, the Company and New DB entered into various agreements including a distribution agreement, tax allocation agreement and employee benefits agreement. These interim financial statements have been prepared in accordance with the instructions to Form 10-Q and should be read in conjunction with the Companys consolidated financial statements and related notes in the Companys 2009 annual report on Form 10-K filed with the SEC on March1, 2010. 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 (consisting of 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 consolida |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
3 Months Ended
Mar. 31, 2010 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Other than the update to the Companys revenue recognition policy pursuant to the early adoption of ASU No.2009-13, Multiple-Deliverable Revenue Arrangements further described below, there have been no material changes to the Companys significant accounting policies from those disclosed in its Form 10-K filed with the SEC for the year ended December31, 2009. Revenue Recognition Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or the services have been provided and accepted by the customer when applicable, fees are determinable and the collection of resulting receivables is considered probable. In October 2009, the FASB issued ASU No.2009-13, Multiple-Deliverable Revenue Arrangements (ASU2009-13). The new standard changes the requirements for establishing separate units of accounting in a multiple element arrangement and requires the allocation of arrangement consideration based on the relative selling price of each deliverable.The Company has elected to early adopt ASU 2009-13 on a prospective basis for applicable transactions originating or materially modified on or after January1, 2010. If applied in the same manner to the year ended December31, 2009, ASU 2009-13 would not have had a material impact on net revenue reported for both its MIS and MA segments in terms of the timing and pattern of revenue recognition. The adoption of ASU 2009-13 did not have a significant effect on the Companys net revenue in the period of adoption and is also not expected to have a significant effect on the Companys net revenue in periods after the initial adoption when applied to multiple element arrangements based on the currently anticipated business volume and pricing. For 2010 and future periods, pursuant to the guidance of ASU 2009-13, when a sales arrangement contains multiple deliverables, the Company allocates revenue to each deliverable based on its relative selling price which is determined based on its vendor specific objective evidence (VSOE) if available, third party evidence (TPE) if VSOE is not available, or estimated selling price (ESP) if neither VSOE nor TPE is available. The Companys products and services will generally continue to qualify as separate units of accounting under ASU 2009-13. The Company evaluates each deliverable in an arrangement to determine whether it represents a separate unit of accounting. A deliverable constitutes a separate unit of accounting when it has stand-alone value to the customers and if the arrangement includes a customer refund or return right relative to the delivered item, the delivery and performance of the undelivered item is considered probable and substantially in the Companys control. In instances where the aforementioned criteria are not met, the deliverable is combined with the undelivered items and revenue recognition is determined as one single unit. The Company determines whether its selling price in a multi-element transaction meets the VSOE criteria by using the price charged for a deliverable when sold separately. In instances where the Company is not able to establish VSOE fo |
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION | |
3 Months Ended
Mar. 31, 2010 | |
STOCK-BASED COMPENSATION | 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: ThreeMonthsEnded March31, 2010 2009 Stock compensation cost $ 14.8 $ 14.5 Tax benefit $ 5.9 $ 5.4 During the first quarter of 2010, the Company granted 2.3million employee stock options, which had a weighted average grant date fair value of $10.43 per share based on the Black-Scholes option-pricing model. The Company also granted 1.1million shares of restricted stock in the first quarter of 2010, which had a weighted average grant date fair value of $26.40 per share. Of the shares of restricted stock granted, approximately 0.3million contained a condition whereby the number of shares that ultimately vest are based on the achievement of certain non-market based performance metrics of the Company over a three year period. The following weighted average assumptions were used in determining the fair value for options granted in 2010: Expected dividend yield 1.57 % Expected stock volatility 44 % Risk-free interest rate 2.74 % Expected holding period 5.9years Grant date fair value $10.43 On April20, 2010, the shareholders of the Company approved an increase in the number of shares which may be issued with respect to awards granted under the 2001 Plan. The 2001 Plan, which is shareholder approved, now permits the granting of up to 35.6million shares, of which not more than 15.0million shares are available for grants of awards other than stock options. Unrecognized compensation expense at March31, 2010 was $55.3 million and $49.9 million for stock options and nonvested restricted stock, respectively, which is expected to be recognized over a weighted average period of 1.7years and 1.6 years, respectively. The following tables summarize information relating to stock option exercises and restricted stock vesting: ThreeMonthsEnded March31, Stock option exercises: 2010 2009 Proceeds from stock option exercises $ 16.2 $ 2.8 Aggregate intrinsic value $ 8.4 $ 1.1 Tax benefit realized upon exercise $ 3.4 $ 0.4 ThreeMonthsEnded March31, Restricted stock vesting: 2010 2009 Fair value of shares vested $ 12.3 $ 7.9 Tax benefit realized upon vesting $ 4.6 $ 2.9 |
INCOME TAXES
INCOME TAXES | |
3 Months Ended
Mar. 31, 2010 | |
INCOME TAXES | NOTE 4. INCOME TAXES Moodys effective tax rate was 37.2% and 35.7% for the three month periods ended March31, 2010 and 2009, respectively. The increase in the effective tax rate was primarily due to reductions in UTBs and other tax related liabilities in the prior period that did not occur in the current quarter. The Company classifies interest related to UTBs in interest expense in its consolidated statements of operations. Penalties, if incurred, would be recognized in other non-operating expenses. During first quarter of 2010, the Company had an overall increase in its UTBs of $8.7 million ($5.4 million, net of federal tax benefit), primarily relating to U.S. tax issues. Prepaid taxes of $4.1 million and $18.6 million at March31, 2010 and December31, 2009, respectively, are included in other current assets in the consolidated balance sheets. Moodys Corporation and subsidiaries are subject to U.S. federal income tax as well as income tax in various state, local and foreign jurisdictions. Moodys federal tax returns filed for the years 2006 through 2008 remain subject to examination by the IRS. The Companys tax filings in New York State for the years 2004 through 2007 are currently under examination. The income tax returns for 2008 remain open to examination for both New York State and New York City. Tax filings in the U.K. for 2001 through 2006 are currently under examination by the U.K. taxing authorities and for 2007 and 2008 remain open to examination. Forongoingaudits related to open tax years, itispossiblethe balance of UTBs could decreasein the next twelve monthsas a result of the settlement of these audits, which might involve the payment of additional taxes, the adjustment of certain deferred taxes and/or the recognition of tax benefits. It is also possible thatnew issuesmight be raised by tax authoritieswhich could necessitateincreasesto the balance of UTBs. As the Company is unable to predict the timing or outcomeof these audits,it is therefore unable to estimate theamount of changesto the balance of UTBsat this time.However, the Company believes that it has adequately provided for its financial exposure for all open tax years by tax jurisdiction in accordance with the applicable provisions of topic 740 of the ASC regarding UTBs.Additionally, the Company is seeking tax rulings on certain tax positions which, if granted, could decrease the balance of UTPs over the next twelve months however, due to the uncertainty involved with this process, the Company is unable to estimate the amount of changes to the balance of UTPs at this time. |
WEIGHTED AVERAGE SHARES OUTSTAN
WEIGHTED AVERAGE SHARES OUTSTANDING | |
3 Months Ended
Mar. 31, 2010 | |
WEIGHTED AVERAGE SHARES OUTSTANDING | NOTE 5. WEIGHTED AVERAGE SHARES OUTSTANDING Below is a reconciliation of basic to diluted shares outstanding: ThreeMonthsEnded March31, 2010 2009 Basic 236.9 235.4 Dilutive effect of shares issuable under stock-based compensation plans 2.2 1.1 Diluted 239.1 236.5 Anti-dilutive options to purchase common shares and restricted stock excluded from the table above 16.4 18.3 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 March31, 2010 and 2009. These assumed proceeds include Excess Tax Benefits and any unrecognized compensation on the awards. |
SHORT-TERM INVESTMENTS
SHORT-TERM INVESTMENTS | |
3 Months Ended
Mar. 31, 2010 | |
SHORT-TERM INVESTMENTS | NOTE 6. SHORT-TERM INVESTMENTS Short-term investments are securities with maturities greater than 90 days at the time of purchase that are available for operations in the next twelve months. The short-term investments, primarily consisting of certificates of deposit, are classified as held-to-maturity and therefore are carried at cost. The remaining contractual maturities of the short-term investments were one month to four months and one month to three months as of March31, 2010 and December31, 2009, respectively. Interest and dividends are recorded into income when earned. |
DERIVATIVE INSTRUMENTS AND HEDG
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | |
3 Months Ended
Mar. 31, 2010 | |
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | NOTE 7. 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. The Company engages in hedging activities to protect against FX risks from forecasted billings and related revenue denominated in the euro and the GBP. FX options and forward exchange contracts are utilized to hedge exposures related to changes in FX rates. As of March31, 2010, all FX options and forward exchange contracts had maturities between one and eightmonths. The hedging program mainly utilizes FX options. The forward exchange contracts are immaterial. Both the FX options and forward exchange contracts are designated as cash flow hedges. The following table summarizes the notional amounts of the Companys outstanding FX options: March31, 2010 December31, 2009 Notional amount of Currency Pair: GBP/USD 3.1 5.0 EUR/USD 6.1 9.9 EUR/GBP 13.7 21.0 In May 2008, the Company entered into interest rate swaps with a total notional amount of $150.0 million to protect against fluctuations in the LIBOR-based variable interest rate on the 2008 Term Loan, further described in Note 11. These interest rate swaps are designated as cash flow hedges. The Company also enters into foreign exchange forwards to mitigate the change in fair value on certain intercompany loans denominated in currencies other than the U.S. dollar. These forward contracts are not designated as hedging instruments under the applicable sections of Topic 815 of the ASC. Accordingly, changes in the fair value of these contracts are recognized immediately in other non-operating (expense) income, net in the Companys consolidated statements of operations along with the FX gain or loss recognized on the intercompany loan. The tables below show the classification between assets and liabilities on the Companys consolidated balance sheets of the fair value of derivative instruments as well as information on gains/(losses) on those instruments: Fair Value of Derivative Instruments Asset Liability March31, 2010 December31, 2009 March31, 2010 December31, 2009 Derivatives designated as hedging instruments: FX options $ 1.1 $ 1.2 $ $ Interest rate swaps 8.6 7.6 Total derivatives designated as hedging instruments 1.1 1.2 8.6 7.6 Derivatives not designated as hedging instruments: FX forwards on intercompany loans 0.3 1.0 1.0 Total $ 1.1 $ 1.5 $ 9.6 $ 8.6 The fair value of FX options and interest rate swaps are included in other current assets and other liabilities, respectively, in the consolidated balance sheets at March31, 2010 and December31, 2009. The |
GOODWILL AND OTHER ACQUIRED INT
GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS | |
3 Months Ended
Mar. 31, 2010 | |
GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS | NOTE 8. GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS The following table summarizes the activity in goodwill for the periods indicated: Three Months Ended March31, 2010 Year Ended December31, 2009 MIS MA Consolidated MIS MA Consolidated Beginning balance $ 11.1 $ 338.1 $ 349.2 $ 10.6 $ 327.4 $ 338.0 Additions/adjustments (0.3 ) 5.0 4.7 FX translation 0.2 (2.1 ) (1.9 ) 0.8 5.7 6.5 Ending balance $ 11.3 $ 336.0 $ 347.3 $ 11.1 $ 338.1 $ 349.2 The additions/adjustments in 2009 for the MA segment in the table above relate primarily to adjustments made to the purchase accounting associated with acquisitions made in the fourth quarter of 2008. Acquired intangible assets and related amortization consisted of: March31, 2010 December31, 2009 Customer lists $ 80.0 $ 80.6 Accumulated amortization (44.3 ) (42.8 ) Net customer lists 35.7 37.8 Trade secret 25.5 25.5 Accumulated amortization (9.2 ) (8.7 ) Net trade secret 16.3 16.8 Software 53.2 55.0 Accumulated amortization (15.7 ) (14.8 ) Net software 37.5 40.2 Other 28.0 26.8 Accumulated amortization (17.4 ) (16.7 ) Net other 10.6 10.1 Total acquired intangible assets, net $ 100.1 $ 104.9 Other intangible assets primarily consist of databases, trade names and covenants not to compete. Amortization expense is as follows: ThreeMonthsEnded March 31, 2010 2009 Amortization expense $ 4.0 $ 4.0 Estimated future amortization expense for acquired intangible assets subject to amortization is as follows: Year Ending December31, 2010 (after March 31) $ 11.8 2011 14.7 2012 14.1 2013 13.9 2014 10.6 Thereafter 35.0 Intangible assets are reviewed for impairment whenever circumstances indicate that the carrying amount may not be recoverable. If the estimated undiscounted future cash flows are lower than the carrying amount of the related asset, a loss is recognized for the difference between the carrying amount and the estimated fair value of the asset. Goodwill is tested for impairment annually as of November30th, or more frequently if circumstances indicate the assets may be impaired. For the three months ended March31, 2010 there were no impairments to goodwill or intangible assets. For the three months ended March31, 2009, there were no impairments to goodwill, however $0.2 million of intangible assets was included in the restructuring charge as further described in Note 9 below. |
RESTRUCTURING
RESTRUCTURING | |
3 Months Ended
Mar. 31, 2010 | |
RESTRUCTURING | NOTE 9. RESTRUCTURING On March27, 2009 the Company approved the 2009 Restructuring Plan to reduce costs in response to a strategic review of its business in certain jurisdictions and weak global economic and market conditions. The 2009 Restructuring Plan consisted of headcount reductions of approximately 150 positions representing approximately 4% of the Companys workforce at December31, 2008 as well as contract termination costs and the divestiture of non-strategic assets. The Companys plan included closing offices in South Bend, Indiana; Jakarta, Indonesia and Taipei, Taiwan. There was $0.2 million in accelerated amortization for intangible assets recognized in the first quarter of 2009 relating to the closure of the Jakarta, Indonesia office. The remaining liability relating to this charge will result in cash outlays that will be substantially paid out over the next twelve months. The cumulative amount of expense incurred from inception through March31, 2010 for the 2009 Restructuring Plan was $14.6 million. The 2009 Restructuring Plan was substantially complete at September30, 2009. On December31, 2007, the Company approved the 2007 Restructuring Plan that reduced global headcount by approximately 275 positions, or approximately 7.5% of the workforce, in response to the Companys reorganization announced in August 2007 and a decline in the then current and anticipated issuance of rated debt securities in some market sectors. Included in the 2007 Restructuring Plan was a reduction of staff as a result of: (i)consolidation of certain corporate staff functions, (ii)the integration of businesses comprising MA and (iii)an anticipated decline in new securities issuance in some market sectors. The 2007 Restructuring Plan also called for the termination of technology contracts as well as the outsourcing of certain technology functions. The cumulative amount of expense incurred from inception through March31, 2010 for the 2007 Restructuring Plan was $49.7 million. The 2007 Restructuring Plan was substantially complete as of December31, 2008. Total expenses included in the accompanying consolidated statements of operations are as follows: ThreeMonthsEnded March31, 2010 2009 2007 Restructuring Plan $ 0.3 $ 0.6 2009 Restructuring Plan (1.0 ) 11.2 Total $ (0.7 ) $ 11.8 The amount related to the 2009 Restructuring Plan for the three months ended March31, 2009 reflects costs associated with initial estimates for this plan. All other amounts in the table above reflect adjustments to previous estimates for both plans. Changes to the restructuring liability during the first three months of 2010 were as follows: Employee Termination Costs Contract Termination Costs Total Restructuring Liability Severance Pension Settlements Total Balance at December31, 2009 $ 4.4 $ 8.1 $ 12.5 $ 1.5 $ 14.0 2007 Restructuring Plan Cost incurred and adjustments 0.3 0.3 Cash payments (0.3 ) |
PENSION AND OTHER POST-RETIREME
PENSION AND OTHER POST-RETIREMENT BENEFITS | |
3 Months Ended
Mar. 31, 2010 | |
PENSION AND OTHER POST-RETIREMENT BENEFITS | NOTE 10. PENSION AND OTHER POST-RETIREMENT BENEFITS Moodys maintains funded and unfunded noncontributory Defined Benefit Pension Plans. The DBPPs provide defined benefits using a cash balance formula based on years of service and career average salary for its employees or final average pay for selected executives. The Company also provides certain healthcare and life insurance benefits for retired U.S. employees. The post-retirement healthcare plans are contributory with participants contributions adjusted annually; the life insurance plans are noncontributory. Moodys funded and unfunded pension plans, the post-retirement healthcare plans and the post-retirement life insurance plans are collectively referred to herein as the Post-Retirement Plans. Effective January1, 2008, the Company no longer offers DBPPs to employees hired or rehired on or after January1, 2008. New employees will instead receive a retirement contribution of similar benefit value under the Companys Profit Participation Plan. Current participants of the Companys DBPPs continue to accrue benefits based on existing plan benefit formulas. The components of net periodic benefit expense related to the Post-Retirement Plans are as follows: ThreeMonthsEndedMarch 31, Pension Plans Other Post-Retirement Plans 2010 2009 2010 2009 Components of net periodic expense Service cost $ 3.5 $ 3.1 $ 0.2 $ 0.2 Interest cost 3.1 2.6 0.2 0.2 Expected return on plan assets (2.7 ) (2.5 ) Amortization of net actuarial loss from earlier periods 0.8 0.2 Amortization of net prior service costs from earlier periods 0.2 0.1 Net periodic expense $ 4.9 $ 3.5 $ 0.4 $ 0.4 In March 2010, the Patient Protection and Affordable Care Act (the Act) and the related reconciliation measure, which modifies certain provisions of the Act, were signed into law. The Act repeals the current rule permitting deduction of the portion of the drug coverage expense that is offset by the Medicare Part D subsidy. The provision of the Act is effective for taxable years beginning after December31, 2010 and the reconciliation measure delays the aforementioned repeal of the drug coverage expense reduction by two years to December31, 2012. The Company has accounted for the enactment of the two laws in the period ending March31, 2010, for which the impact to the Companys income tax expense and net income was immaterial. |
INDEBTEDNESS
INDEBTEDNESS | |
3 Months Ended
Mar. 31, 2010 | |
INDEBTEDNESS | NOTE 11. INDEBTEDNESS The following table summarizes total indebtedness: March31, 2010 December31, 2009 2007 Facility $ $ Commercial paper, net of unamortized discount of $0.1 million at 2010 and $0.2 million at 2009 371.9 443.7 Current Portion of Long-Term Debt 5.6 3.8 Notes payable: Series 2005-1 Notes 300.0 300.0 Series 2007-1 Notes 300.0 300.0 2008 Term Loan 144.4 146.2 Total Debt 1,121.9 1,193.7 Current portion (377.5 ) (447.5 ) Total long-term debt $ 744.4 $ 746.2 2007 Facility On September28, 2007, the Company entered into a $1.0 billion five-year senior, unsecured revolving credit facility, expiring in September 2012. The 2007 Facility will serve, in part, to support the Companys CP Program described below. Interest on borrowings is payable at rates that are based on LIBOR plus a premium that can range from 16.0 to 40.0 basis points of the outstanding borrowing amount depending on the Debt/EBITDA ratio. The Company also pays quarterly facility fees, regardless of borrowing activity under the 2007 Facility. The quarterly fees for the 2007 Facility can range from 4.0 to10.0 basis points per annum of the facility amount, depending on the Companys Debt/EBITDA ratio. The Company also pays a utilization fee of 5.0basis points on borrowings outstanding when the aggregate amount outstanding exceeds 50% of the total facility. The 2007 Facility contains certain covenants that, among other things, restrict the ability of the Company and certain of its subsidiaries, without the approval of the lenders, to engage in mergers, consolidations, asset sales, transactions with affiliates and sale-leaseback transactions or to incur liens, as defined in the related agreement. The 2007 Facility also contains financial covenants that, among other things, require the Company to maintain a Debt/EBITDA ratio of not more than 4.0 to 1.0 at the end of any fiscal quarter. Commercial Paper On October3, 2007, 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. Amounts available under the CP Program may be re-borrowed. The CP Program is supported by the Companys 2007 Facility. The maturities 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 at the time of issuance. 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)federal funds rate; (d)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 weighted average interest rate on CP borrowings outstanding was 0.2% and 0.3% as of March31, 2010 and December31, 2009, respecti |
CONTINGENCIES
CONTINGENCIES | |
3 Months Ended
Mar. 31, 2010 | |
CONTINGENCIES | NOTE 12. CONTINGENCIES From time to time, Moodys is involved in legal and tax proceedings, governmental investigations, claims and litigation that are incidental to the Companys business, including claims based on ratings assigned by MIS. Moodys is also subject to ongoing tax audits in the normal course of business. Management periodically assesses the Companys liabilities and contingencies in connection with these matters based upon the latest information available. Moodys discloses material pending legal proceedings pursuant to SEC rules and other pending matters as it may determine to be appropriate. Following the events in the U.S. subprime residential mortgage sector and the credit markets more broadly over the last two years, MIS and other credit rating agencies are the subject of intense scrutiny, increased regulation, ongoing investigation, and civil litigation. Legislative, regulatory and enforcement entities around the world are considering additional legislation, regulation and enforcement actions, including with respect to MISs compliance with newly imposed regulatory standards. Moodys has received subpoenas and inquiries from states attorneys general and other governmental authorities and is responding to such investigations and inquiries. Moodys Wall Street Analytics unit is cooperating with an investigation by the SEC and the Department of Justice concerning services provided by that unit to certain financial institutions in connection with the valuations used by those institutions with respect to certain financial instruments held by such institutions. On July1, 2008, Moodys publicly announced the results of the Companys investigation into the issues raised in a May21, 2008 newspaper report concerning a coding error in a model used in the rating process for certain constant-proportion debt obligations. The Companys investigation determined that, in April 2007, members of a European rating surveillance committee engaged in conduct contrary to Moodys Code of Professional Conduct. On March18, 2010, MIS received a Wells Notice from the Staff of the SEC stating that the Staff is considering recommending that the Commission institute administrative and cease-and-desist proceedings against MIS in connection with MISs initial June 2007 application on SEC Form NRSRO to register as a nationally recognized statistical rating organization under the Credit Rating Agency Reform Act of 2006. That application, which is publicly available on the Regulatory Affairs page of http://www.moodys.com, included a description of MISs procedures and principles for determining credit ratings. The Staff has informed Moodys that the recommendation it is considering is based on the theory that MISs description of its procedures and principles were rendered false and misleading as of the time the application was filed with the SEC in light of the Companys finding that a rating committee policy had been violated. MIS disagrees with the Staff that the violation of a company policy by a company employee renders the policy itself false and misleading and has submitted a response to the Wells Notice explaining why its initial application was accurate a |
COMPREHENSIVE INCOME AND NONCON
COMPREHENSIVE INCOME AND NONCONTROLLING INTERESTS | |
3 Months Ended
Mar. 31, 2010 | |
COMPREHENSIVE INCOME AND NONCONTROLLING INTERESTS | NOTE 13. COMPREHENSIVE INCOME AND NONCONTROLLING INTERESTS The components of total comprehensive income, net of tax, are as follows: Three months ended March31, 2010 2009 Shareholders ofMoodys Corporation Noncontrolling Interests Total Shareholders ofMoodys Corporation Noncontrolling Interests Total Net income $ 113.4 $ 1.3 $ 114.7 $ 90.2 $ 0.9 $ 91.1 Net realized and unrealized gain/(loss) on cash flow hedges (net of tax of $0.8 million and $0.3 million in 2010 and 2009, respectively) 0.5 0.5 FX translation (net of tax of $20.4 million and $13.8 million in 2010 and 2009, respectively) (44.8 ) 0.3 (44.5 ) (31.9 ) 0.7 (31.2 ) Amortization of actuarial losses and prior service costs (net of tax of $0.7 million and $0.1 million in 2010 and 2009, respectively) 0.3 0.3 0.2 0.2 Total comprehensive income $ 68.9 $ 1.6 $ 70.5 $ 59.0 $ 1.6 $ 60.6 The following tables summarize the activity in the Companys noncontrolling interests: Threemonthsended March31, 2010 2009 Beginning Balance $ 10.1 $ 8.3 Net income attributable to noncontrolling interests 1.3 0.9 Dividends declared to noncontrolling interests (4.1 ) (2.9 ) FX translation 0.3 (0.7 ) Ending Balance $ 7.6 $ 5.6 |
SEGMENT INFORMATION
SEGMENT INFORMATION | |
3 Months Ended
Mar. 31, 2010 | |
SEGMENT INFORMATION | NOTE 14. SEGMENT INFORMATION The Company operates in two reportable segments: MIS and MA. 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. Additionally, overhead costs and corporate expenses of the Company are allocated to each segment based on a revenue-split methodology. Overhead expenses include costs such as rent and occupancy, information technology and support staff such as finance, human resource, information technology and legal. Eliminations in the table below represent intersegment royalty revenue/expense. Below is financial information by segment, MIS and MA revenue by line of business and consolidated revenue information by geographic area, each of which is for the three month periods ended March31, 2010 and 2009, and total assets by segment as of March31, 2010 and December31, 2009. Financial Information by Segment Three Months Ended March31, 2010 2009 MIS MA Eliminations Consolidated MIS MA Eliminations Consolidated Revenue $ 350.8 141.1 $ (15.3 ) $ 476.6 $ 284.9 $ 138.7 $ (14.7 ) $ 408.9 Expenses: Operating, SGA 177.5 102.5 (15.3 ) 264.7 152.6 94.7 (14.7 ) 232.6 Restructuring (0.5 ) (0.2 ) (0.7 ) 7.6 4.2 11.8 Depreciation and amortization 8.1 7.7 15.8 7.7 7.9 15.6 Total 185.1 110.0 (15.3 ) 279.8 167.9 106.8 (14.7 ) 260.0 Operating income $ 165.7 $ 31.1 $ $ 196.8 $ 117.0 $ 31.9 $ $ 148.9 The cumulative restructuring charges incurred since the fourth quarter of 2007 through March31, 2010 for both restructuring plans, which are further described in Note 9 above, are $48.3 million and $16.0 million for the MIS and MA operating segments, respectively. In the fourth quarter of 2009, the MA businesses were realigned and renamed to reflect the reporting unit structure for the MA segment at December31, 2009. Pursuant to this realignment, the subscriptions business was renamed RDA and the software business was renamed RMS. The revised groupings classify certain subscription-based risk management software revenue and advisory services relating to software sales to the redefined RMS business. MIS and MA Revenue by Line of Business The table below presents revenue by LOB within each reportable segment and reflects the aforementioned MA business realignment: ThreeMonthsEndedMarch31, 2010 2009 MIS: Structured finance (SFG) $ 71.5 $ 72.4 |
RECENTLY ISSUED ACCOUNTING STAN
RECENTLY ISSUED ACCOUNTING STANDARDS | |
3 Months Ended
Mar. 31, 2010 | |
RECENTLY ISSUED ACCOUNTING STANDARDS | NOTE 15. RECENTLY ISSUED ACCOUNTING STANDARDS Adopted: In June 2009, the FASB issued a new accounting standard related to the consolidation of variable interest entities. This new standard eliminates the quantitative approach previously required for determining the primary beneficiary of a variable interest entity and requires ongoing qualitative reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. This new standard also requires enhanced disclosures regarding an enterprises involvement in variable interest entities. The Company has adopted this new accounting standard as of January1, 2010 and the implementation did not impact its consolidated financial statements. In October 2009, the FASB issued ASU No.2009-13, Multiple-Deliverable Revenue Arrangements (ASU2009-13). The new standard changes the requirements for establishing separate units of accounting in a multiple element arrangement and requires the allocation of arrangement consideration to each deliverable based on the relative selling price. The selling price for each deliverable is based on vendor-specific objective evidence of selling price (VSOE) if available, third-party evidence (TPE) if VSOE is not available, or estimated selling price (ESP) if neither VSOE nor TPE is available.The Company has elected to early adopt ASU 2009-13 on a prospective basis for applicable transactions originating or materially modified on or after January1, 2010. The early adoption of this ASU did not have a material impact on the Companys consolidated financial statements. Further information on the early adoption of this standard is set forth in Note 2 to the condensed consolidated financial statements. In January 2010, the FASB issued ASU No.2010-06, Improving Disclosures about Fair Value Measurements. The new standard requires disclosure regarding transfers in and out of Level 1 and Level 2 classifications within the fair value hierarchy as well as requiring further detail of activity within the Level 3 category of the fair value hierarchy. The new standard also requires disclosures regarding the fair value for each class of assets and liabilities, which is a subset of assets or liabilities within a line item in a companys balance sheet. Additionally, the standard will require further disclosures surrounding inputs and valuation techniques used in fair value measurements. The new disclosures and clarifications of existing disclosures set forth in this ASU are effective for interim and annual reporting periods beginning after December15, 2009, except for the additional disclosures regarding Level 3 fair value measurements, for which the effective date is for fiscal years and interim periods within those years beginning after December15, 2010. The Company has partially adopted the provisions of this ASU as of January1, 2010 for all new disclosure requirements except for the aforementioned requirements regarding Level 3 fair-value measurements, for which the Company will adopt that portion of the ASU on January1, 2011. The portion of this ASU that was adopted on January1, 2010 did not have a material impact on the Companys consolidated financi |
SUBSEQUENT EVENT
SUBSEQUENT EVENT | |
3 Months Ended
Mar. 31, 2010 | |
SUBSEQUENT EVENT | NOTE 16. SUBSEQUENT EVENT On April20, 2010, the Board approved the declaration of a quarterly dividend of $0.105 per share of Moodys common stock, payable on June10, 2010 to shareholders of record at the close of business on May20, 2010. |