MOODYS CORP /DE/
10-Qs and 10-Ks
PROXIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
| Form |
|
||||
(Mark one)
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
||||
For the quarterly period ended
September 30, 2022
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)
|
|
|
||||||||||
| (State of Incorporation) | (I.R.S. Employer Identification No.) | ||||||||||
(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 | ||||||||||||
|
|
|
|
||||||||||||
|
|
|
|
||||||||||||
|
|
|
|
||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
☑ No ☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months, or for such shorter period that the registrant was required to submit such files.
Yes
☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
|
|
☑ |
Accelerated filer
|
☐ | |||||||||||
| Non-accelerated filer | ☐ |
Smaller reporting company
|
|
|||||||||||
|
Emerging growth company
|
|
|||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
| Shares Outstanding at September 30, 2022 | ||
|
|
||
1
|
MOODY’S CORPORATION
INDEX TO FORM 10-Q |
||||||||
| Page(s) | ||||||||
|
3
-6
|
||||||||
|
Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended
September 30, 2022
and
2021
|
||||||||
|
43
-44
|
||||||||
|
44
-45
|
||||||||
|
45
-73
|
||||||||
|
73
-78
|
||||||||
|
|
||||||||
2
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 definite-lived intangible assets acquired by the Company from all business combination transactions
|
||||
|
Adjusted Diluted EPS
|
Diluted EPS excluding the impact of certain items as detailed in the section entitled “Non-GAAP Financial Measures”
|
||||
|
Adjusted Net Income
|
Net Income excluding the impact of certain items as detailed in the section entitled “Non-GAAP Financial Measures”
|
||||
|
Adjusted Operating Income
|
Operating income excluding 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(L)
|
Accumulated other comprehensive income/loss; a separate component of shareholders’ equity
|
||||
|
Annualized Recurring Revenue (ARR)
|
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: China, India, Indonesia, Japan, Korea, Malaysia, Singapore, Sri Lanka and Thailand
|
||||
|
ASR
|
Accelerated Share Repurchase
|
||||
|
ASU
|
The FASB Accounting Standards Update to the ASC. 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
|
||||
| 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
|
||||
| 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 | ||||
| CDP |
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
|
||||
|
CMBS
|
Commercial mortgage-backed securities; an asset class within SFG
|
||||
| COLI | Corporate-Owned Life Insurance | ||||
| Commission | European Commission | ||||
|
Common Stock
|
The Company’s common stock
|
||||
|
Company
|
Moody’s Corporation and its subsidiaries; MCO; Moody’s
|
||||
| Cortera | A provider of North American credit data and workflow solutions; the Company acquired Cortera in March 2021 | ||||
| COVID-19 | An outbreak of a novel strain of coronavirus resulting in an international public health crisis and a global pandemic | ||||
|
CP
|
Commercial Paper
|
||||
|
CP Program
|
A program entered into on August 3, 2016 allowing the Company to privately place CP up to a maximum of $1 billion for which the maturity may not exceed 397 days from the date of issue, and which is backstopped by the 2021 Facility
|
||||
|
CRAs
|
Credit rating agencies
|
||||
| Data and Information (D&I) |
LOB within MA which provides vast data sets on companies and securities via data feeds and data applications products
|
||||
3
|
TERM
|
DEFINITION
|
||||
| Decision Solutions (DS) |
LOB within MA that provides software and workflow tools for specific use cases (banking, insurance, KYC/KYS, CRE and structured finance solutions). This LOB utilizes components from the Data & Information and Research & Insights LOBs to provide integrated risk solutions
|
||||
|
Dodd-Frank Act
|
Dodd-Frank Wall Street Reform and Consumer Protection Act
|
||||
|
EMEA
|
Represents countries within Europe, the Middle East and Africa
|
||||
|
EPS
|
Earnings per share
|
||||
|
ERS
|
Enterprise Risk Solutions; former LOB within MA, which offered risk management software solutions as well as related risk management advisory engagements services. As of January 1, 2022, the MA LOBs have been realigned from RD&A and ERS to Decision Solutions, Research and Insights, and Data and Information
|
||||
|
ESG
|
Environmental, Social, and Governance
|
||||
|
ESMA
|
European Securities and Markets Authority
|
||||
| ESTR | Euro Short-Term Rate | ||||
|
ETR
|
Effective tax rate
|
||||
|
EU
|
European Union
|
||||
|
EURIBOR
|
The Euro Interbank Offered Rate
|
||||
|
Excess Tax Benefits
|
The difference between the tax benefit realized at exercise of an option or delivery of a restricted share and the tax benefit recorded at the time the option or restricted share is expensed under GAAP
|
||||
|
Exchange Act
|
The Securities Exchange Act of 1934, as amended
|
||||
|
External Revenue
|
Revenue excluding any intersegment amounts
|
||||
|
FASB
|
Financial Accounting Standards Board
|
||||
|
FIG
|
Financial institutions group; an LOB of MIS
|
||||
|
Free Cash Flow
|
Net cash provided by operating activities less cash paid for capital additions
|
||||
|
FX
|
Foreign exchange
|
||||
|
GAAP
|
U.S. Generally Accepted Accounting Principles
|
||||
|
GBP
|
British pounds
|
||||
| GDP | Gross 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 provider of credit ratings and research in India | ||||
| kompany | 360kompany AG (kompany); a Vienna, Austria-based platform for business verification and Know Your Customer (KYC) technology solutions, acquired by the Company in February 2022 | ||||
|
Korea
|
Republic of South Korea
|
||||
| KYC | Know-your-customer | ||||
|
LIBOR
|
London Interbank Offered Rate
|
||||
|
LOB
|
Line of business
|
||||
|
MA
|
Moody’s Analytics - a reportable segment of MCO 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 - Decision Solutions; Research and Insights; and Data and Information
|
||||
|
MAKS
|
Moody’s Analytics Knowledge Services; formerly known as Copal Amba; provided offshore research and analytic services to the global financial and corporate sectors; business was divested in the fourth quarter of 2019 and was formerly part of the PS LOB and a reporting unit within the MA reportable segment | ||||
|
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; and MIS Other
|
||||
|
MIS Other
|
Consists of financial instruments pricing services in the Asia-Pacific region, ICRA non-ratings revenue and revenue from providing ESG research, data and assessments. These businesses are components of MIS; MIS Other is an LOB of MIS
|
||||
4
|
TERM
|
DEFINITION
|
||||
|
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 MIS and MA | ||||
|
Net Income
|
Net income attributable to Moody’s Corporation, which excludes net income from consolidated noncontrolling interests belonging to the minority interest holder
|
||||
|
NM
|
Percentage change is not meaningful
|
||||
|
Non-GAAP
|
A financial measure not in accordance with GAAP; these measures, when read in conjunction with the Company’s reported results, can provide useful supplemental information for investors analyzing period-to-period comparisons of the Company’s performance, facilitate comparisons to competitors’ operating results and to provide greater transparency to investors of supplemental information used by management in its financial and operational decision making
|
||||
|
NRSRO
|
Nationally Recognized Statistical Rating Organization, which is a credit rating agency registered with the SEC
|
||||
|
OCI
|
Other comprehensive income (loss); includes gains and losses on cash flow and net investment hedges, certain gains and losses relating to pension and other retirement benefit obligations and foreign currency translation adjustments
|
||||
|
Operating segment
|
Term defined in the ASC relating to segment reporting; the ASC defines an operating segment as a component of a business entity that has each of the three following characteristics: i) the component engages in business activities from which it may recognize revenue and incur expenses; ii) the operating results of the component are regularly reviewed by the entity’s chief operating decision maker; and iii) discrete financial information about the component is available
|
||||
| PassFort | A U.K. SaaS-based workflow platform for identity verification, customer onboarding, and risk analysis; acquired by the Company in November 2021 | ||||
|
PPIF
|
Public, project and infrastructure finance; an LOB of MIS
|
||||
|
Q3
|
Third Quarter
|
||||
|
RD&A
|
Research, Data and Analytics; former LOB within MA that offered subscription-based research, data and analytical products, including: credit ratings produced by MIS; credit research; quantitative credit scores and other analytical tools; economic research and forecasts; business intelligence and company information products; commercial real estate data and analytical tools; and learning solutions. As of January 1, 2022, the MA LOBs have been realigned from RD&A and ERS to Decision Solutions, Research and Insights, and Data and Information
|
||||
| RealXData | A provider of CRE lease-level portfolio management with benchmarking and rent forecasting capabilities; acquired by the Company in September 2021 | ||||
|
Recurring Revenue
|
For MIS, represents recurring monitoring fees of a rated debt obligation and/or entities that issue such obligations, as well as revenue from programs such as commercial paper, medium-term notes and shelf registrations. For MIS Other, represents subscription-based revenue. For MA, represents subscription-based revenue and software maintenance revenue
|
||||
|
Reform Act
|
Credit Rating Agency Reform Act of 2006
|
||||
|
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) |
LOB within MA that
provides models, scores, expert insights and commentary. This LOB includes credit research; credit models and analytics; and economics data and models
|
||||
|
Revenue Accounting Standard
|
Updates to the ASC pursuant to ASU No. 2014-09, “Revenue from Contracts with Customers (ASC Topic 606).” This accounting guidance significantly changed the accounting framework under U.S. GAAP relating to revenue recognition and to the accounting for the deferral of incremental costs of obtaining or fulfilling a contract with a customer
|
||||
|
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
|
||||
| SBTi |
Science Based Targets initiative; a partnership between CDP, the United Nations Global Compact, World Resources Institute and the World Wide Fund for Nature created to encourage
the private sector to take the lead on urgent climate action
|
||||
5
|
TERM
|
DEFINITION
|
||||
|
SEC
|
U.S. Securities and Exchange Commission
|
||||
|
Securities Act
|
Securities Act of 1933, as amended
|
||||
|
SFG
|
Structured finance group; an LOB of MIS
|
||||
|
SG&A
|
Selling, general and administrative expenses
|
||||
| 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 MIS, represents the initial rating of a new debt issuance as well as other one-time fees. For MIS Other, represents revenue from professional services as well as data services, research and analytical engagements. For MA, represents perpetual software license fees and revenue from software implementation services, risk management advisory projects, and training and certification services
|
||||
|
U.K.
|
United Kingdom
|
||||
|
U.S.
|
United States
|
||||
|
USD
|
U.S. dollar
|
||||
|
UTPs
|
Uncertain tax positions
|
||||
| WEF | World Economic Forum | ||||
| YTD | Year-to-date | ||||
| 2020 MA Strategic Reorganization Restructuring Program | Restructuring program approved by the chief executive officer of Moody’s on December 22, 2020, relating to a strategic reorganization in the MA reportable segment | ||||
| 2022 - 2023 Geolocation Restructuring Program |
Restructuring program approved by the chief executive officer of Moody’s on June 30, 2022 and expanded on October 24, 2022, relating to the Company's post-COVID-19 geolocation strategy
|
||||
|
2013 Senior Notes due 2024
|
Principal amount of $500 million, 4.875% senior unsecured notes due in February 2024
|
||||
|
2014 Senior Notes due 2044
|
Principal amount of $600 million, 5.25% senior unsecured notes due in July 2044
|
||||
|
2015 Senior Notes due 2027
|
Principal amount of €500 million, 1.75% senior unsecured notes due in March 2027
|
||||
|
2017 Senior Notes due 2023
|
Principal amount of $500 million, 2.625% senior unsecured notes due January 15, 2023
|
||||
|
2017 Senior Notes due 2028
|
Principal amount of $500 million, 3.250% senior unsecured notes due January 15, 2028
|
||||
|
2018 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
|
||||
| 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 August 19, 2041 | ||||
| 2021 Senior Notes due 2061 | Principal amount of $500 million, 3.10% senior unsecured notes due November 15, 2061 | ||||
| 2022 Senior Notes due 2052 | Principal amount of $500 million, 3.75% senior unsecured notes due February 25, 2052 | ||||
| 2022 Senior Notes due 2032 | Principal amount of $500 million, 4.25% senior unsecured notes due January 15, 2032 | ||||
6
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MOODY’S CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in millions, except per share data)
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30, |
||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenue | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Expenses | |||||||||||||||||||||||
| Operating |
|
|
|
|
|||||||||||||||||||
| Selling, general and administrative |
|
|
|
|
|||||||||||||||||||
| Depreciation and amortization |
|
|
|
|
|||||||||||||||||||
| Restructuring |
|
|
|
|
|||||||||||||||||||
| Total expenses |
|
|
|
|
|||||||||||||||||||
| Operating income |
|
|
|
|
|||||||||||||||||||
| Non-operating (expense) income, net | |||||||||||||||||||||||
| Interest expense, net |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Other non-operating income (expense), net |
|
(
|
|
|
|||||||||||||||||||
| Total non-operating (expense) income, net |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Income before provision for income taxes |
|
|
|
|
|||||||||||||||||||
| Provision for income taxes |
|
|
|
|
|||||||||||||||||||
| Net income attributable to Moody's | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Earnings per share attributable to Moody's common shareholders | |||||||||||||||||||||||
| Basic | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Diluted | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Weighted average number of shares outstanding | |||||||||||||||||||||||
| Basic |
|
|
|
|
|
||||||||||||||||||
| Diluted |
|
|
|
|
|
||||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
7
MOODY’S CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Amounts in millions)
|
Three Months Ended
September 30, 2022
|
Three Months Ended
September 30, 2021
|
||||||||||||||||||||||||||||||||||
|
Pre-tax
amounts |
Tax
amounts |
After-tax
amounts |
Pre-tax
amounts |
Tax
amounts |
After-tax
amounts |
||||||||||||||||||||||||||||||
| Net Income | $ |
|
$ |
|
|||||||||||||||||||||||||||||||
| Other Comprehensive Income (Loss): | |||||||||||||||||||||||||||||||||||
| Foreign Currency Adjustments: | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments, net | $ |
(
|
$ |
|
(
|
$ |
(
|
$ |
|
(
|
|||||||||||||||||||||||||
| Net gains on net investment hedges |
|
(
|
|
|
(
|
|
|||||||||||||||||||||||||||||
| Cash Flow Hedges: | |||||||||||||||||||||||||||||||||||
| Reclassification of losses included in net income |
|
(
|
|
|
|
|
|||||||||||||||||||||||||||||
| Pension and Other Retirement Benefits: | |||||||||||||||||||||||||||||||||||
| Amortization of actuarial losses/prior service costs and settlement charge included in net income |
|
|
|
|
(
|
|
|||||||||||||||||||||||||||||
| Net actuarial gains and prior service costs |
|
|
|
|
(
|
|
|||||||||||||||||||||||||||||
| Total other comprehensive (loss) income | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||||||||
| Comprehensive income |
|
|
|||||||||||||||||||||||||||||||||
| Less: comprehensive (loss) income attributable to noncontrolling interests |
(
|
(
|
|||||||||||||||||||||||||||||||||
| Comprehensive Income Attributable to Moody's | $ |
|
$ |
|
|||||||||||||||||||||||||||||||
|
Nine Months Ended
September 30, 2022 |
Nine Months Ended
September 30, 2021 |
||||||||||||||||||||||||||||||||||
|
Pre-tax
amounts |
Tax
amounts |
After-tax
amounts |
Pre-tax
amounts |
Tax
amounts |
After-tax
amounts |
||||||||||||||||||||||||||||||
| Net Income | $ |
|
$ |
|
|||||||||||||||||||||||||||||||
| Other Comprehensive Income (Loss): | |||||||||||||||||||||||||||||||||||
| Foreign Currency Adjustments: | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments, net | $ |
(
|
$ |
|
(
|
$ |
(
|
$ |
|
(
|
|||||||||||||||||||||||||
| Foreign currency translation adjustments - reclassification of losses included in net income |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Net gains on net investment hedges |
|
(
|
|
|
(
|
|
|||||||||||||||||||||||||||||
| Net investment hedges - reclassification of gains included in net income |
|
|
|
(
|
|
(
|
|||||||||||||||||||||||||||||
| Cash Flow Hedges: | |||||||||||||||||||||||||||||||||||
| Reclassification of losses included in net income |
|
(
|
|
|
|
|
|||||||||||||||||||||||||||||
| Pension and Other Retirement Benefits: | |||||||||||||||||||||||||||||||||||
| Amortization of actuarial losses/prior service costs and settlement charge included in net income |
|
|
|
|
(
|
|
|||||||||||||||||||||||||||||
| Net actuarial gains and prior service costs |
|
(
|
|
|
(
|
|
|||||||||||||||||||||||||||||
| Total other comprehensive (loss) income | $ |
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
(
|
$ |
(
|
|||||||||||||||||||||||
| Comprehensive income |
|
|
|||||||||||||||||||||||||||||||||
| Less: comprehensive (loss) income attributable to noncontrolling interests |
(
|
(
|
|||||||||||||||||||||||||||||||||
| Comprehensive Income Attributable to Moody's | $ |
|
$ |
|
|||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
8
MOODY’S CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in millions, except share and per share data)
| September 30, 2022 | December 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ |
|
$ |
|
|||||||
| Short-term investments |
|
|
|||||||||
|
Accounts receivable, net of allowance for credit losses of $
|
|
|
|||||||||
| Other current assets |
|
|
|||||||||
| Total current assets |
|
|
|||||||||
|
Property and equipment, net of accumulated depreciation of $
|
|
|
|||||||||
| Operating lease right-of-use assets |
|
|
|||||||||
| Goodwill |
|
|
|||||||||
| Intangible assets, net |
|
|
|||||||||
| Deferred tax assets, net |
|
|
|||||||||
| Other assets |
|
|
|||||||||
| Total assets | $ |
|
$ |
|
|||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued liabilities | $ |
|
$ |
|
|||||||
| Current portion of operating lease liabilities |
|
|
|||||||||
| Deferred revenue |
|
|
|||||||||
| Total current liabilities |
|
|
|||||||||
| Non-current portion of deferred revenue |
|
|
|||||||||
| Long-term debt |
|
|
|||||||||
| Deferred tax liabilities, net |
|
|
|||||||||
| Uncertain tax positions |
|
|
|||||||||
| Operating lease liabilities |
|
|
|||||||||
| Other liabilities |
|
|
|||||||||
| Total liabilities |
|
|
|||||||||
|
Contingencies (Note 17)
|
|
|
|||||||||
| Shareholders' equity: | |||||||||||
|
Preferred stock, par value $
|
|
|
|||||||||
|
Series common stock, par value $
|
|
|
|||||||||
|
Common stock, par value $
|
|
|
|||||||||
| Capital surplus |
|
|
|||||||||
| Retained earnings |
|
|
|||||||||
|
Treasury stock, at cost;
|
(
|
(
|
|||||||||
| Accumulated other comprehensive loss |
(
|
(
|
|||||||||
| Total Moody's shareholders' equity |
|
|
|||||||||
| Noncontrolling interests |
|
|
|||||||||
| Total shareholders' equity |
|
|
|||||||||
| Total liabilities, noncontrolling interests and shareholders' equity | $ |
|
$ |
|
|||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
9
MOODY’S CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in millions)
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net income | $ |
|
$ |
|
|||||||
| Reconciliation of net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization |
|
|
|||||||||
| Stock-based compensation |
|
|
|||||||||
| Deferred income taxes |
|
(
|
|||||||||
| FX translation losses reclassified to net income |
|
|
|||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable |
|
(
|
|||||||||
| Other current assets |
(
|
|
|||||||||
| Other assets |
|
(
|
|||||||||
| Lease obligations |
(
|
(
|
|||||||||
| Accounts payable and accrued liabilities |
(
|
(
|
|||||||||
| Deferred revenue |
(
|
(
|
|||||||||
| Uncertain tax positions |
(
|
(
|
|||||||||
| Other liabilities |
(
|
(
|
|||||||||
| Net cash provided by operating activities |
|
|
|||||||||
| Cash flows from investing activities | |||||||||||
| Capital additions |
(
|
(
|
|||||||||
| Purchases of investments |
(
|
(
|
|||||||||
| Sales and maturities of investments |
|
|
|||||||||
| Cash paid for acquisitions, net of cash acquired |
(
|
(
|
|||||||||
| Receipts from settlements of net investment hedges |
|
|
|||||||||
| Payments for settlements of net investment hedges |
|
(
|
|||||||||
| Net cash used in investing activities |
(
|
(
|
|||||||||
| Cash flows from financing activities | |||||||||||
| Issuance of notes |
|
|
|||||||||
| Repayment of notes |
(
|
|
|||||||||
| Proceeds from stock-based compensation plans |
|
|
|||||||||
| Repurchase of shares related to stock-based compensation |
(
|
(
|
|||||||||
| Treasury shares |
(
|
(
|
|||||||||
| Dividends |
(
|
(
|
|||||||||
| Debt issuance costs and related fees |
(
|
(
|
|||||||||
| Dividends to noncontrolling interest |
(
|
(
|
|||||||||
| Net cash (used in) provided by financing activities |
(
|
|
|||||||||
| Effect of exchange rate changes on cash and cash equivalents |
(
|
(
|
|||||||||
| Decrease in cash and cash equivalents |
(
|
(
|
|||||||||
| Cash and cash equivalents, beginning of period |
|
|
|||||||||
| Cash and cash equivalents, end of period | $ |
|
$ |
|
|||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
10
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 June 30, 2021
|
|
$ |
|
$ |
|
$ |
|
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||||||
| Net income |
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Dividends ($
|
(
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation |
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for stock-based compensation plans at average cost, net |
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Treasury shares repurchased |
(
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Currency translation adjustment, net of net investment hedge activity (net of tax of $
|
(
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Net actuarial gains and prior service costs (net of tax of $
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Amortization of prior service costs/actuarial losses and settlement charge (net of tax of $
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net realized gain on cash flow hedges |
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Balance at September 30, 2021
|
|
$ |
|
$ |
|
$ |
|
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
11
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, 2020
|
|
$ |
|
$ |
|
$ |
|
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||||||
| Net income |
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Dividends ($
|
(
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation |
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for stock-based compensation plans at average cost, net |
(
|
|
(
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Treasury shares repurchased |
(
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Currency translation adjustment, net of net investment hedge activity (net of tax of $
|
(
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Net actuarial losses and prior service costs (net of tax of $
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Amortization of prior service costs/actuarial losses and settlement charge (net of tax of $
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized gain on cash flow hedges |
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 |
|
$ |
|
$ |
|
$ |
|
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
12
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 June 30, 2022
|
|
$ |
|
$ |
|
$ |
|
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||||||
| Net income |
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Dividends ($
|
(
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation |
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for stock-based compensation plans at average cost, net |
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Treasury shares repurchased |
(
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Currency translation adjustment, net of net investment hedge activity (net of tax of $
|
(
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of prior service costs and actuarial losses |
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Balance at September 30, 2022
|
|
$ |
|
$ |
|
$ |
|
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
13
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 |
|
$ |
|
$ |
|
$ |
|
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||||||
| Net income |
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Dividends ($
|
(
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation |
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for stock-based compensation plans at average cost, net |
(
|
|
(
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Shares issued as consideration to acquire kompany
(1)
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Treasury shares repurchased |
(
|
(
|
(
|
(
|
(
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Currency translation adjustment, net of net investment hedge activity (net of tax of $
|
(
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Net actuarial gains and prior service costs (net of tax of $
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of prior service costs and actuarial losses |
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized gain on cash flow hedges |
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 |
|
$ |
|
$ |
|
$ |
|
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||||||
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.
14
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 global integrated risk assessment firm that empowers organizations and investors to make better decisions. Moody’s reports in
two
reportable segments: MIS and MA.
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, including various corporate, financial institution and governmental obligations, and structured finance securities.
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 integrated risk assessment solutions that enable business leaders to identify, measure and manage the implications of interrelated risks and opportunities.
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 2021 annual report on Form 10-K filed with the SEC on February 22, 2022. The results of interim periods are not necessarily indicative of results for the full year or any subsequent period. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
Certain reclassifications have been made to prior period amounts to conform to the current presentation.
Adoption of New Accounting Standards
On January 1, 2022, the Company adopted ASU 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers" ("ASU No. 2021-08"). This ASU requires companies to apply the definition of a performance obligation under ASC Topic 606 to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business combination. The adoption of this ASU will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. Accordingly, upon adoption, the Company will no longer be required to adjust acquired deferred revenue to fair value in business combination transactions. The amendments in ASU No. 2021-08 are applied prospectively and have been applied to business combination transactions completed subsequent to January 1, 2022.
COVID-19
The COVID-19 pandemic has not had a material adverse impact on the Company's reported results to date and is currently not expected to have a material adverse impact on its near-term outlook. However, Moody's is unable to predict the longer-term impact that the pandemic may have on its business, future results of operations, financial position or cash flows due to numerous uncertainties.
Russia/Ukraine Conflict
The Company is closely monitoring the impact of the ongoing Russia/Ukraine conflict on all aspects of its business. In response to the conflict, the Company is no longer conducting commercial operations in Russia for both MIS and MA and is complying with all applicable regulatory restrictions set forth by the jurisdictions in which Moody's operates. Furthermore, the Company also has withdrawn MIS credit ratings on Russian entities.
While Moody's Russian operations and net assets are not material, broader global market volatility, which partially relates to uncertainties surrounding the conflict, has contributed to an adverse impact on rated issuance volumes in 2022. The Company is unable to predict either the near-term or longer-term impact that the conflict may have on its financial position and operating results due to numerous uncertainties regarding the severity and duration of the conflict and its broader potential macroeconomic impact.
Reclassification of Previously Reported Revenue by LOB
In the first quarter of 2022, the Company realigned its revenue by LOB reporting structure for the MA operating segment to enhance insight and transparency into this business. As of January 1, 2022, the MA LOBs have been realigned from RD&A and ERS to:
–
Decision Solutions (DS) -
provides software and workflow tools for specific use cases (banking, insurance, KYC/KYS, CRE and structured finance solutions). This LOB utilizes components from the Data & Information and Research & Insights LOBs to provide integrated risk solutions;
–
Research & Insights (R&I) -
provides models, scores, expert insights and commentary. This LOB includes: credit research; credit models and analytics; and economics data and models; and
–
Data & Information (D&I) -
provides vast data sets on companies and securities via data feeds and data applications products.
Prior year revenue by LOB disclosures have been reclassified to conform to the new LOB reporting structure, which is presented in Note 2.
15
NOTE 2.
REVENUES
Revenue by Category
The following table presents the Company’s revenues disaggregated by LOB:
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30, |
||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| MIS: | |||||||||||||||||||||||
| Corporate Finance (CFG) | |||||||||||||||||||||||
| Investment-grade | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| High-yield |
|
|
|
|
|||||||||||||||||||
| Bank loans |
|
|
|
|
|||||||||||||||||||
|
Other accounts
(1)
|
|
|
|
|
|||||||||||||||||||
| Total CFG |
|
|
|
|
|||||||||||||||||||
| Structured Finance (SFG) | |||||||||||||||||||||||
| Asset-backed securities |
|
|
|
|
|||||||||||||||||||
| RMBS |
|
|
|
|
|||||||||||||||||||
| CMBS |
|
|
|
|
|||||||||||||||||||
| Structured credit |
|
|
|
|
|||||||||||||||||||
| Other accounts |
|
|
|
|
|||||||||||||||||||
| Total SFG |
|
|
|
|
|||||||||||||||||||
| Financial Institutions (FIG) | |||||||||||||||||||||||
| Banking |
|
|
|
|
|||||||||||||||||||
| Insurance |
|
|
|
|
|||||||||||||||||||
| Managed investments |
|
|
|
|
|||||||||||||||||||
| Other accounts |
|
|
|
|
|||||||||||||||||||
| Total FIG |
|
|
|
|
|||||||||||||||||||
| Public, Project and Infrastructure Finance (PPIF) | |||||||||||||||||||||||
| Public finance / sovereign |
|
|
|
|
|||||||||||||||||||
| Project and infrastructure |
|
|
|
|
|||||||||||||||||||
| Total PPIF |
|
|
|
|
|||||||||||||||||||
| Total ratings revenue |
|
|
|
|
|||||||||||||||||||
| MIS Other |
|
|
|
|
|||||||||||||||||||
| Total external revenue |
|
|
|
|
|||||||||||||||||||
| Intersegment revenue |
|
|
|
|
|||||||||||||||||||
| Total MIS |
|
|
|
|
|||||||||||||||||||
| MA: | |||||||||||||||||||||||
| Decision Solutions |
|
|
|
|
|||||||||||||||||||
| Research and Insights |
|
|
|
|
|||||||||||||||||||
| Data and Information |
|
|
|
|
|||||||||||||||||||
| Total external revenue |
|
|
|
|
|||||||||||||||||||
| Intersegment revenue |
|
|
|
|
|||||||||||||||||||
| Total MA |
|
|
|
|
|||||||||||||||||||
| Eliminations |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Total MCO | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(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 ICRA corporate finance revenue.
16
The following table presents the Company’s revenues disaggregated by LOB and geographic area:
| Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||
| U.S. | Non-U.S | Total | U.S. | Non-U.S | Total | ||||||||||||||||||||||||||||||
| MIS: | |||||||||||||||||||||||||||||||||||
| Corporate Finance | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Structured Finance |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Financial Institutions |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Public, Project and Infrastructure Finance |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total ratings revenue |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| MIS Other |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total MIS |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| MA: | |||||||||||||||||||||||||||||||||||
| Decision Solutions |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Research and Insights |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Data and Information |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total MA |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total MCO | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||
| U.S. | Non-U.S | Total | U.S. | Non-U.S | Total | ||||||||||||||||||||||||||||||
| MIS: | |||||||||||||||||||||||||||||||||||
| Corporate Finance | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Structured Finance |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Financial Institutions |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Public, Project and Infrastructure Finance |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total ratings revenue |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| MIS Other |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total MIS |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| MA: | |||||||||||||||||||||||||||||||||||
| Decision Solutions |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Research and Insights |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Data and Information |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total MA |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total MCO | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
17
The following table presents the Company’s reportable segment revenues disaggregated by segment and geographic region:
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30, |
||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| MIS: | |||||||||||||||||||||||
| U.S. | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Non-U.S.: | |||||||||||||||||||||||
| EMEA |
|
|
|
|
|||||||||||||||||||
| Asia-Pacific |
|
|
|
|
|||||||||||||||||||
| Americas |
|
|
|
|
|||||||||||||||||||
| Total Non-U.S. |
|
|
|
|
|||||||||||||||||||
| Total MIS |
|
|
|
|
|||||||||||||||||||
| MA: | |||||||||||||||||||||||
| U.S. |
|
|
|
|
|||||||||||||||||||
| Non-U.S.: | |||||||||||||||||||||||
| EMEA |
|
|
|
|
|||||||||||||||||||
| Asia-Pacific |
|
|
|
|
|||||||||||||||||||
| Americas |
|
|
|
|
|||||||||||||||||||
| Total Non-U.S. |
|
|
|
|
|||||||||||||||||||
| Total MA |
|
|
|
|
|||||||||||||||||||
| Total MCO | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
18
|
Three Months Ended September 30,
|
|||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| Transaction | Recurring | Total | Transaction | Recurring | Total | ||||||||||||||||||||||||||||||
| Corporate Finance | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% | ||||||||||||||||||||||||
| Structured Finance | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% | ||||||||||||||||||||||||
| Financial Institutions | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% | ||||||||||||||||||||||||
| Public, Project and Infrastructure Finance | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% | ||||||||||||||||||||||||
| MIS Other | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% | ||||||||||||||||||||||||
| Total MIS | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% | ||||||||||||||||||||||||
| Decision Solutions | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% | ||||||||||||||||||||||||
| Research and Insights | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% | ||||||||||||||||||||||||
| Data and Information | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% | ||||||||||||||||||||||||
| Total MA | $ |
|
(1)
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% | ||||||||||||||||||||||||
| Total Moody's Corporation | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% | ||||||||||||||||||||||||
| Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| Transaction | Recurring | Total | Transaction | Recurring | Total | ||||||||||||||||||||||||||||||
| Corporate Finance | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% | ||||||||||||||||||||||||
| Structured Finance | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% | ||||||||||||||||||||||||
| Financial Institutions | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% | ||||||||||||||||||||||||
| Public, Project and Infrastructure Finance | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% | ||||||||||||||||||||||||
| MIS Other | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% | ||||||||||||||||||||||||
| Total MIS | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% | ||||||||||||||||||||||||
| Decision Solutions | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% | ||||||||||||||||||||||||
| Research and Insights | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% | ||||||||||||||||||||||||
| Data and Information | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% | ||||||||||||||||||||||||
| Total MA | $ |
|
(1)
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% | ||||||||||||||||||||||||
| Total Moody's Corporation | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
|
|
% |
|
% |
|
% |
|
% |
|
% |
|
% | ||||||||||||||||||||||||
19
The following table presents the timing of revenue recognition:
|
Three Months Ended September 30, 2022
|
Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||||
| MIS | MA | Total | MIS | MA | Total | ||||||||||||||||||||||||||||||
| Revenue recognized at a point in time | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Revenue recognized over time |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||
| MIS | MA | Total | MIS | MA | Total | ||||||||||||||||||||||||||||||
| Revenue recognized at a point in time | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Revenue recognized over time |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
Unbilled receivables, deferred revenue and remaining performance obligations
Unbilled receivables
Certain MIS arrangements contain contractual terms whereby the customers are billed in arrears for annual monitoring services, requiring revenue to be accrued as an unbilled receivable as such services are provided. In addition, for certain MA arrangements, the timing of when the Company has the unconditional right to consideration and recognizes revenue occurs prior to invoicing the customer.
The following table presents the Company's unbilled receivables, which are included within accounts receivable, net, at September 30, 2022 and December 31, 2021:
|
As of September 30, 2022
|
As of December 31, 2021
|
||||||||||||||||||||||
| MIS | MA | MIS | MA | ||||||||||||||||||||
| Unbilled Receivables | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
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.
|
Three Months Ended September 30, 2022
|
Three Months Ended September 30, 2021
|
||||||||||||||||||||||||||||||||||
| MIS | MA | Total | MIS | MA | Total | ||||||||||||||||||||||||||||||
|
Balance at June 30,
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Changes in deferred revenue | |||||||||||||||||||||||||||||||||||
| Revenue recognized that was included in the deferred revenue balance at the beginning of the period |
(
|
(
|
(
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||
| Increases due to amounts billable excluding amounts recognized as revenue during the period |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Increases due to acquisitions during the period |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Effect of exchange rate changes |
(
|
(
|
(
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||
| Total changes in deferred revenue |
(
|
(
|
(
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||
|
Balance at September 30,
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
20
| Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||
| MIS | MA | Total | MIS | MA | Total | ||||||||||||||||||||||||||||||
| Balance at December 31, | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Changes in deferred revenue | |||||||||||||||||||||||||||||||||||
| Revenue recognized that was included in the deferred revenue balance at the beginning of the period |
(
|
(
|
(
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||
| Increases due to amounts billable excluding amounts recognized as revenue during the period |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Increases due to acquisitions during the period |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Effect of exchange rate changes |
(
|
(
|
(
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||
| Total changes in deferred revenue |
|
(
|
(
|
|
(
|
(
|
|||||||||||||||||||||||||||||
|
Balance at September 30,
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Deferred revenue - current | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Deferred revenue - non-current | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
For the MIS segment, the changes in the deferred revenue balance during the three and nine months ended September 30, 2022 were primarily related to the significant portion of contract renewals that occurred during the first quarter of 2022 and are generally recognized over a one year period.
For the MA segment, the decrease in deferred revenue for the three months ended September 30, 2022 was primarily due to the recognition of annual subscription and maintenance billings from December 2021 and January 2022. For the nine months ended September 30, 2022, the decrease in the deferred revenue balance is attributable to recognition of revenues related to the aforementioned December 2021 billings and unfavorable changes in FX translation rates being mostly offset by the impact of the high concentration of billings in the first quarter of 2022.
Remaining performance obligations
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 September 30, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $
103
million. The Company expects to recognize into revenue approximately
20
% 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 a practical expedient set forth in ASC Topic 606 permitting the omission from the amounts stated above relating to unsatisfied performance obligations for contracts with an original expected length of one year or less.
Remaining performance obligations in the MA segment include both amounts recorded as deferred revenue on the balance sheet as of September 30, 2022 as well as amounts not yet invoiced to customers as of September 30, 2022, largely reflecting future revenue related to signed multi-year arrangements for hosted and installed subscription-based products. As of September 30, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $
3.1
billion. The Company expects to recognize into revenue approximately
60
% of this balance within
one year
, approximately
30
% of this balance between one to two years and the remaining amount thereafter.
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, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Stock-based compensation cost | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Tax benefit | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
During the first nine months of 2022, the Company granted
0.1
million employee stock options, which had a weighted average grant date fair value of $
84.00
per share. The Company also granted
0.6
million shares of restricted stock in the first nine months of 2022, which had a weighted average grant date fair value of $
321.70
per share. Both the employee stock options and restricted stock generally vest ratably over
four years
. Additionally, the Company granted
0.1
million shares of performance-based awards whereby the number of shares that ultimately vest are based on the achievement of certain non-market-based performance metrics of the Company over
three years
. The weighted average grant date fair value of these awards was $
310.62
per share.
21
The following weighted average assumptions were used in determining the fair value using the Black-Scholes option-pricing model for options granted in 2022:
| Expected dividend yield |
|
% | |||
| Expected stock volatility |
|
% | |||
| Risk-free interest rate |
|
% | |||
| Expected holding period |
|
||||
Unrecognized stock-based compensation expense at September 30, 2022 was $
18
million and $
260
million for stock options and unvested restricted stock, respectively, which is expected to be recognized over a weighted average period of
2.1
years and
2.6
years, respectively. Additionally, there was $
34
million of unrecognized stock-based compensation expense relating to the aforementioned non-market-based performance-based awards, which is expected to be recognized over a weighted average period of
1.6
years.
The following table summarizes information relating to stock option exercises and restricted stock vesting:
|
Nine Months Ended
September 30, |
|||||||||||
| 2022 |
2021
|
||||||||||
| Exercise of stock options: | |||||||||||
| Proceeds from stock option exercises | $ |
|
$ |
|
|||||||
| Aggregate intrinsic value | $ |
|
$ |
|
|||||||
| Tax benefit realized upon exercise | $ |
|
$ |
|
|||||||
|
Number of shares exercised
(1)
|
|
|
|||||||||
| Vesting of restricted stock: | |||||||||||
| Fair value of shares vested | $ |
|
$ |
|
|||||||
| Tax benefit realized upon vesting | $ |
|
$ |
|
|||||||
| Number of shares vested |
|
|
|||||||||
| Vesting of performance-based restricted stock: | |||||||||||
| Fair value of shares vested | $ |
|
$ |
|
|||||||
| Tax benefit realized upon vesting | $ |
|
$ |
|
|||||||
| Number of shares vested |
|
|
|||||||||
NOTE 4.
INCOME TAXES
Moody’s effective tax rate (ETR) was
20.5
% and
23.4
% for the three months ended September 30, 2022 and 2021, respectively, and
21.3
% and
20.2
% for the nine months ended September 30, 2022 and 2021, respectively. The
2.9
% decrease in the ETR for the three months ended September 30, 2022 compared to the same period in the prior year was primarily due to lower pre-tax income, which increases the percentage impact of net beneficial discrete items, as well as a favorable mix of earnings in the jurisdictions in which Moody’s operates. The
1.1
% increase in the ETR for the nine months ended September 30, 2022 compared to the same period in the prior year was primarily due to tax benefits realized upon resolution of UTPs during 2021 that did not recur to the same extent in 2022 and a non-deductible loss associated with the Company no longer conducting commercial operations in Russia. The Company’s year-to-date 2022 income tax expense 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 2022: i) Excess Tax Benefits from stock-based compensation of $
19
million; and ii) net reductions in UTPs of $
20
million related to the resolution of UTPs.
The Company classifies interest related to UTPs in interest expense, net in its consolidated statements of operations. Penalties, if incurred, would be recognized in other non-operating (expense) income, net. The Company had a decrease in its UTPs of $
28
million (net of federal tax) during the third quarter of 2022 and a decrease in its UTPs of $
80
million ($
75
million net of federal tax) during the nine months of 2022, which primarily related to the aforementioned resolution of UTPs.
22
For ongoing audits, it is possible the balance of UTPs could decrease in the next twelve months as a result of the settlement of such 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 will be raised by tax authorities which could necessitate increases to the balance of UTPs. As the Company is unable to predict the timing or outcome of these audits, it is unable to estimate the amount of changes to the balance of UTPs at this time. However, the Company believes that it has adequately provided for its financial exposure relating to all open tax years, by tax jurisdiction, in accordance with the applicable provisions of Topic 740 of the ASC regarding UTPs.
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Income taxes paid | $ |
|
$ |
|
|||||||
NOTE 5.
RECONCILIATION OF WEIGHTED AVERAGE SHARES OUTSTANDING
|
Three Months Ended September 30,
|
Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Basic |
|
|
|
|
|||||||||||||||||||
| Dilutive effect of shares issuable under stock-based compensation plans |
|
|
|
|
|||||||||||||||||||
| Diluted |
|
|
|
|
|||||||||||||||||||
| Anti-dilutive options to purchase common shares and restricted stock as well as contingently issuable restricted stock which are excluded from the table above |
|
|
|
|
|||||||||||||||||||
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 September 30, 2022 and 2021.
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 Company paid $
500
million to the counterparty and received an initial delivery of
1.2
million shares of its common stock. Final settlement of the ASR agreement was completed in April 2022 and the Company received delivery of an additional
0.3
million shares of the Company’s common 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 and final share settlement were recorded as a reduction to shareholders’ equity.
23
NOTE 7.
CASH EQUIVALENTS AND INVESTMENTS
The table below provides additional information on the Company’s cash equivalents and investments:
| As of September 30, 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)
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Mutual funds | $ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| As of December 31, 2021 | |||||||||||||||||||||||||||||||||||
|
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)
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Mutual funds | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
(1)
Consists of time deposits and money market deposit accounts. The remaining contractual maturities for the certificates of deposits classified as short-term investments are
one month
to
12
months at both September 30, 2022 and December 31, 2021. The remaining contractual maturities for the certificates of deposits classified in other assets are
13
months to
27
months at September 30, 2022 and
13
months to
29
months at December 31, 2021. Time deposits with a maturity of less than
90
days at time of purchase are classified as cash and cash equivalents.
In addition, the Company invests in Corporate-Owned Life Insurance (COLI). As of September 30, 2022 and December 31, 2021, the contract value of the COLI was $
38
million and $
37
million, respectively.
NOTE 8.
ACQUISITIONS
The material business combination described below is accounted for using the acquisition method of accounting whereby assets acquired and liabilities assumed were recognized at fair value or other values set forth in U.S. GAAP on the date of the transaction. Any excess of the purchase price over the fair value of the assets acquired and liabilities assumed was recorded to goodwill. 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.
RMS
On September 15, 2021, the Company acquired
100
% of RMS, a global provider of climate and natural disaster risk modeling and analytics. The cash payment was funded with new debt financing and a combination of U.S. and offshore cash on hand. The acquisition will expand Moody’s insurance data and analytics business and accelerate the development of the Company’s global integrated risk capabilities to address the next generation of risk assessment.
| Cash paid at closing | $ |
|
|||
|
Replacement equity compensation awards
|
|
||||
| Total consideration | $ |
|
|||
24
Shown below is the purchase price allocation, which summarizes the fair value of the assets and liabilities assumed, at the date of acquisition:
|
Cash
(1)
|
$ |
|
|||||||||
| Accounts receivable |
|
||||||||||
|
Other current assets
(1)
|
|
||||||||||
| Property and equipment, net |
|
||||||||||
| Operating lease right-of-use assets |
|
||||||||||
| Intangible assets: | |||||||||||
|
Customer relationships (
|
$ |
|
|||||||||
|
Product technology (
|
|
||||||||||
|
Trade name (
|
|
||||||||||
|
Total intangible assets (
|
|
||||||||||
|
Goodwill
(1)
|
|
||||||||||
| Deferred tax assets, net |
|
||||||||||
| Other assets |
|
||||||||||
| Liabilities: | |||||||||||
|
Accounts payable and accrued liabilities
(1)
|
$ |
(
|
|||||||||
| Deferred revenue |
(
|
||||||||||
| Operating lease liabilities |
(
|
||||||||||
| Deferred tax liabilities, net |
(
|
||||||||||
|
Uncertain tax positions
(1)
|
(
|
||||||||||
| Other liabilities |
(
|
||||||||||
| Total liabilities |
(
|
||||||||||
| Net assets acquired | $ |
|
|||||||||
(1)
During the third quarter of 2022, the Company adjusted the purchase price allocation pursuant to the receipt of additional information from the sellers relating to RMS's pre-acquisition income taxes. These adjustments included a decrease to UTPs of $
25
million along with other immaterial adjustments. These adjustments resulted in a corresponding decrease in goodwill of $
19
million.
Goodwill
The goodwill recognized as a result of this acquisition includes, among other things, the value of combining the complementary product portfolios of Moody's and RMS, which is expected to extend the Company's reach into new market segments. The goodwill also includes the combined company's ability to accelerate technology innovations into new product adjacencies (leveraging RMS's team of data scientists, modelers and software engineers) as well as combining RMS's products with Moody’s core data and analytics offerings to provide holistic integrated risk solutions.
Goodwill, of which $
1,267
million and $
90
million has been assigned to the MA and MIS segments, respectively, is not deductible for tax purposes. The amount of goodwill allocated to the MIS segment relates to the integration of certain of RMS's models/processes into the Company's ESG solutions offerings.
Other assets in the table above includes an indemnification asset of $
95
million related to UTPs assumed in the transaction, for which the Company expects to be indemnified by the sellers in the event of an unfavorable outcome.
Transaction costs
Transaction costs incurred in the year ended December 31, 2021 directly related to the RMS acquisition were $
22
million and were recorded in SG&A expenses in the statement of operations.
Supplementary Unaudited Pro Forma Information
25
| Three Months Ended September 30, 2021 |
Nine Months Ended
September 30, 2021 |
|||||||
| Pro forma Revenue | $ |
|
$ |
|
||||
| Pro forma Net Income attributable to Moody's | $ |
|
$ |
|
||||
NOTE 9.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company is exposed to global market risks, including risks from changes in FX rates and changes in interest rates. Accordingly, the Company uses derivatives in certain instances to manage the aforementioned financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for speculative purposes.
Derivatives and non-derivative instruments designated as accounting hedges:
Fair Value Hedges
Interest Rate Swaps
The Company has entered into interest rate swaps to convert the fixed interest rate on certain of its long-term debt to a floating interest rate based on the 3-month LIBOR, 6-month LIBOR, and 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, net in the Company’s consolidated statements of operations.
The following table summarizes the Company’s interest rate swaps designated as fair value hedges:
| Notional Amount | ||||||||||||||||||||||||||
| Hedged Item | Nature of Swap |
As of
September 30, 2022
|
As of
December 31, 2021
|
Floating Interest Rate | ||||||||||||||||||||||
| 2017 Senior Notes due 2023 | Pay Floating/Receive Fixed | $ |
|
$ |
|
|
||||||||||||||||||||
| 2017 Senior Notes due 2028 | Pay Floating/Receive Fixed | $ |
|
$ |
|
|
||||||||||||||||||||
| 2020 Senior Notes due 2025 | Pay Floating/Receive Fixed | $ |
|
$ |
|
|
||||||||||||||||||||
| 2014 Senior Notes due 2044 | Pay Floating/Receive Fixed | $ |
|
$ |
|
|
||||||||||||||||||||
| 2018 Senior Notes due 2048 | Pay Floating/Receive Fixed | $ |
|
$ |
|
|
||||||||||||||||||||
|
2018 Senior Notes due 2029
(1)
|
Pay Floating/Receive Fixed | $ |
|
$ |
|
|
||||||||||||||||||||
|
2022 Senior Notes due 2052
(2)
|
Pay Floating/Receive Fixed | $ |
|
$ |
|
|
||||||||||||||||||||
|
2022 Senior Notes due 2032
(3)
|
Pay Floating/Receive Fixed | $ |
|
$ |
|
|
||||||||||||||||||||
| Total | $ |
|
$ |
|
||||||||||||||||||||||
(1)
Executed in the first quarter of 2022.
(2)
Executed in the second quarter of 2022.
(3)
Executed in the third quarter of 2022.
Refer to Note 15 for information on the cumulative amount of fair value hedging adjustments included in the carrying amount of the above hedged items.
26
The following table summarizes the impact to the statements of operations of the Company’s interest rate swaps designated as fair value hedges:
| 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 September 30,
|
Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
| Interest expense, net | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
||||||||||||||||||||||||
|
Descriptions |
Location on Consolidated Statements of Operations | |||||||||||||||||||||||||||||||
| Net interest settlements and accruals on interest rate swaps |
Interest expense, net
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Fair value changes on interest rate swaps | Interest expense, net | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||||||||
| Fair value changes on hedged debt | Interest expense, net | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
Net investment hedges
Debt designated as net investment hedges
The Company has designated €
500
million of the 2015 Senior Notes Due 2027 and €
750
million of the 2019 Senior Notes due 2030 as net investment hedges 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. These hedges are designated as accounting hedges under the applicable sections of ASC Topic 815 and will end upon the repayment of the notes in 2027 and 2030, respectively, unless terminated early at the discretion of the Company.
Cross currency swaps designated as net investment 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:
| September 30, 2022 | ||||||||||||||||||||||||||
| Pay | Receive | |||||||||||||||||||||||||
| Nature of Swap | Notional Amount | Weighted Average Interest Rate | Notional Amount | Weighted Average Interest Rate | ||||||||||||||||||||||
| Pay Fixed/Receive Fixed | € |
|
|
$ |
|
|
||||||||||||||||||||
| Pay Floating/Receive Floating |
|
|
|
|
||||||||||||||||||||||
| Pay Floating/Receive Floating |
|
|
|
|
||||||||||||||||||||||
| Total | € |
|
$ |
|
||||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||||
| Pay | Receive | |||||||||||||||||||||||||
| Nature of Swap | Notional Amount | Weighted Average Interest Rate | Notional Amount | Weighted Average Interest Rate | ||||||||||||||||||||||
| Pay Fixed/Receive Fixed | € |
|
|
$ |
|
|
||||||||||||||||||||
| Pay Floating/Receive Floating |
|
|
|
|
||||||||||||||||||||||
| Total | € |
|
$ |
|
||||||||||||||||||||||
27
| Years Ending December 31, | ||||||||
| 2026 | € |
|
||||||
| 2027 | € |
|
||||||
| 2028 | € |
|
||||||
| 2029 | € |
|
||||||
| 2031 | € |
|
||||||
| 2032 | € |
|
||||||
| Total | € |
|
||||||
The following tables provide information on the gains/(losses) on the Company’s net investment and cash flow hedges:
| Derivative and Non-Derivative Instruments in Net Investment Hedging Relationships | Amount of Gain/(Loss) Recognized in AOCL on Derivative, net of Tax | Amount of Gain/(Loss) Reclassified from AOCL into Income, net of Tax | Gain/(Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) | |||||||||||||||||||||||||||||||||||
|
Three Months Ended
September 30,
|
Three Months Ended
September 30,
|
Three Months Ended
September 30,
|
||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||||
| FX forward contracts | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||
| Cross currency swaps |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Long-term debt |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Total net investment hedges | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||
| Derivatives in Cash Flow Hedging Relationships | ||||||||||||||||||||||||||||||||||||||
| Interest rate contracts | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
||||||||||||||||||||||||||
| Total cash flow hedges | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
||||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
||||||||||||||||||||||||||
| Derivative and Non-Derivative Instruments in Net Investment Hedging Relationships | Amount of Gain/(Loss) Recognized in AOCL on Derivative, net of Tax | Amount of Gain/(Loss) Reclassified from AOCL into Income, net of Tax | Gain/(Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) | |||||||||||||||||||||||||||||||||||
|
Nine Months Ended
September 30, |
Nine Months Ended
September 30, |
Nine Months Ended
September 30, |
||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||||
| FX forward contracts | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||
| Cross currency swaps |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Long-term debt |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Total net investment hedges | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||
| Derivatives in Cash Flow Hedging Relationships | ||||||||||||||||||||||||||||||||||||||
| Interest rate contracts | $ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
||||||||||||||||||||||||||
| Total cash flow hedges | $ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
||||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
||||||||||||||||||||||||||
28
The cumulative amount of net investment hedge and cash flow hedge gains (losses) remaining in AOCL is as follows:
| Cumulative Gains/(Losses), net of tax | |||||||||||
| September 30, 2022 | December 31, 2021 | ||||||||||
|
Net investment hedges
|
|||||||||||
| Cross currency swaps | $ |
|
$ |
|
|||||||
| FX forwards |
|
|
|||||||||
| Long-term debt |
|
(
|
|||||||||
| Total net investment hedges | $ |
|
$ |
|
|||||||
| Cash flow hedges | |||||||||||
| Interest rate contracts | $ |
(
|
$ |
(
|
|||||||
| Cross currency swaps |
|
|
|||||||||
| Total cash flow hedges |
(
|
(
|
|||||||||
| Total net gain (loss) in AOCL | $ |
|
$ |
(
|
|||||||
Derivatives not designated as accounting hedges:
Foreign exchange forwards
The Company also enters into foreign exchange forward 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 Topic 815 of the ASC. Accordingly, changes in the fair value of these contracts are recognized immediately in other non-operating 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 January 2023.
The following table summarizes the notional amounts of the Company’s outstanding foreign exchange forwards:
| September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||
| Notional amount of currency pair: | Sell | Buy | Sell | Buy | |||||||||||||||||||||||||
| Contracts to sell USD for GBP | $ |
|
£ |
|
$ |
|
£ |
|
|||||||||||||||||||||
| Contracts to sell USD for Japanese yen | $ |
|
¥ |
|
$ |
|
¥ |
|
|||||||||||||||||||||
| Contracts to sell USD for Canadian dollars | $ |
|
C$ |
|
$ |
|
C$ |
|
|||||||||||||||||||||
| Contracts to sell USD for Singapore dollars | $ |
|
S$ |
|
$ |
|
S$ |
|
|||||||||||||||||||||
| Contracts to sell USD for euros | $ |
|
€ |
|
$ |
|
€ |
|
|||||||||||||||||||||
| Contracts to sell USD for Russian ruble | $ |
|
₽ |
|
$ |
|
₽ |
|
|||||||||||||||||||||
| Contracts to sell USD for Indian rupee | $ |
|
₹ |
|
$ |
|
₹ |
|
|||||||||||||||||||||
| Contracts to sell GBP for USD | £ |
|
$ |
|
£ |
|
$ |
|
|||||||||||||||||||||
| Contracts to sell euros for USD | € |
|
$ |
|
€ |
|
$ |
|
|||||||||||||||||||||
NOTE: € = euro, £ = British pound, $ = U.S. dollar, ¥ = Japanese yen, C$ = Canadian dollar, S$= Singapore dollars,
₽
= Russian ruble, ₹= Indian rupee
The following table summarizes the impact to the consolidated statements of operations relating to the net losses on the Company’s derivatives which are not designated as hedging instruments:
| Derivatives not designated as accounting hedges | Location on Consolidated Statements of Operations |
Three Months Ended
September 30,
|
Nine Months Ended
September 30, |
|||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
| FX forwards | Other non-operating income, net | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||||||||
|
Foreign exchange forwards relating to RMS acquisition
(1)
|
Other non-operating (expense) income, net | $ |
|
$ |
(
|
$ |
|
$ |
(
|
|||||||||||||||||||||||
(1)
The Company entered into forward contracts to sell $
1,675
million for £
1,200
to hedge a portion of the GBP denominated RMS purchase price. The contract was terminated on September 14, 2021 and resulted in a $
13
million loss.
29
The table below shows the classification between assets and liabilities on the Company’s consolidated balance sheets for the fair value of the derivative instrument as well as the carrying value of its non-derivative debt instruments designated and qualifying as net investment hedges:
| Derivative and Non-Derivative Instruments | ||||||||||||||||||||
| Balance Sheet Location | September 30, 2022 | December 31, 2021 | ||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Derivatives designated as accounting hedges: | ||||||||||||||||||||
| Cross-currency swaps designated as net investment hedges | Other assets | $ |
|
$ |
|
|||||||||||||||
| Interest rate swaps designated as fair value hedges | Other assets |
|
|
|||||||||||||||||
| Total derivatives designated as accounting hedges |
|
|
||||||||||||||||||
| Derivatives not designated as accounting hedges: | ||||||||||||||||||||
| FX forwards on certain assets and liabilities | Other current assets |
|
|
|||||||||||||||||
| Total assets | $ |
|
$ |
|
||||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Derivatives designated as accounting hedges: | ||||||||||||||||||||
| Cross-currency swaps designated as net investment hedges | Other liabilities | $ |
|
$ |
|
|||||||||||||||
| Interest rate swaps designated as fair value hedges | Other liabilities |
|
|
|||||||||||||||||
| Total derivatives designated as accounting hedges |
|
|
||||||||||||||||||
| Non-derivatives designated as accounting hedges: | ||||||||||||||||||||
| Long-term debt designated as net investment hedge | Long-term debt |
|
|
|||||||||||||||||
| Derivatives not designated as accounting hedges: | ||||||||||||||||||||
| FX forwards on certain assets and liabilities | Accounts payable and accrued liabilities |
|
|
|||||||||||||||||
| Total liabilities | $ |
|
$ |
|
||||||||||||||||
NOTE 10.
GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS
| Nine Months Ended September 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||||||||||||||||||
|
Additions/
adjustments
(1)
|
|
— |
|
|
— |
|
|
— |
|
||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments |
(
|
— |
(
|
(
|
— |
(
|
(
|
— |
(
|
||||||||||||||||||||||||||||||||||||||||||||
| Ending balance | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||||||||||||||||||
30
| Year Ended December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||||||||||||||||||
|
Additions/
adjustments
(2)
|
|
— |
|
|
— |
|
|
— |
|
||||||||||||||||||||||||||||||||||||||||||||
|
Foreign currency translation
adjustments |
(
|
— |
(
|
(
|
— |
(
|
(
|
— |
(
|
||||||||||||||||||||||||||||||||||||||||||||
| Ending balance | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||||||||||||||||||
(1)
The 2022 additions/adjustments for the MA segment in the table above primarily relate to the acquisition of kompany in the first quarter of 2022, partially offset by RMS measurement period adjustments in the third quarter of 2022, which are more fully discussed in Note 8.
(2)
The 2021 additions/adjustments for the MA segment in the table above relate to the acquisitions of Cortera, RMS, RealXData, Bogard, and PassFort. The 2021 additions/adjustments for the MIS segment relate to certain revenue synergies from the RMS acquisition that are expected to benefit the ESG solutions group within the MIS Other LOB.
Acquired intangible assets and related amortization consisted of:
|
September 30,
2022 |
December 31,
2021 |
||||||||||
| Customer relationships | $ |
|
$ |
|
|||||||
| Accumulated amortization |
(
|
(
|
|||||||||
| Net customer relationships |
|
|
|||||||||
| Software/product technology |
|
|
|||||||||
| Accumulated amortization |
(
|
(
|
|||||||||
| Net software/product technology |
|
|
|||||||||
| Database |
|
|
|||||||||
| Accumulated amortization |
(
|
(
|
|||||||||
| Net database |
|
|
|||||||||
| Trade names |
|
|
|||||||||
| Accumulated amortization |
(
|
(
|
|||||||||
| Net trade names |
|
|
|||||||||
|
Other
(1)
|
|
|
|||||||||
| Accumulated amortization |
(
|
(
|
|||||||||
| Net other |
|
|
|||||||||
| Total acquired intangible assets, net | $ |
|
$ |
|
|||||||
(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
September 30,
|
Nine Months Ended
September 30, |
||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
|
Amortization expense
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
31
NOTE 11.
RESTRUCTURING
On June 30, 2022, the chief executive officer of Moody’s approved a restructuring program (the “2022 - 2023 Geolocation Restructuring Program”) for which the scope was expanded in October 2022, prior to the filing of this quarterly report on Form 10-Q.
T
he Company estimates that the program will result in annualized savings of $
100
million to $
135
million per year. 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 from their current locations. The exit from certain leased office spaces is expected to begin late in 2022 or early 2023 and is expected to result in $
50
million to $
70
million of pre-tax charges to either terminate or sublease the affected real estate leases. The program also includes $
75
million to $
100
million of pre-tax personnel-related restructuring charges, an amount that includes severance and related costs primarily determined under the Company’s existing severance plans. The savings generated from the 2022 - 2023 Geolocation Restructuring Program are expected to strengthen the Company's operating margin, with a portion being deployed to support strategic investments, including the Company's Workplace of the Future 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 are expected to be $
75
million to $
100
million, which are expected to be paid through 2024.
On December 22, 2020, the chief executive officer of Moody’s approved a restructuring program (the “2020 MA Strategic Reorganization Restructuring Program”) that the Company estimates will result in annualized savings of $
20
million per year. This program relates to a strategic reorganization in the MA reportable segment consisting of severance and related costs primarily determined under the Company’s existing severance plans. The 2020 MA Strategic Reorganization Restructuring Program resulted in a total of $
19
million in pre-tax charges and was substantially completed in the first half of 2021. Cash outlays associated with this program are expected to be $
20
million, which will be paid through 2022.
Total expense included in the accompanying consolidated statements of operations relating to the aforementioned restructuring program is below:
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30, |
||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| 2020 MA Strategic Reorganization Restructuring Program | $ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
| 2022 - 2023 Geolocation Restructuring Program |
|
|
|
|
|||||||||||||||||||
| Total Restructuring | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Employee Termination Costs | |||||
|
Balance as of December 31, 2021
|
$ |
|
|||
| 2020 MA Strategic Reorganization Restructuring Program: | |||||
| Cost incurred and adjustments |
(
|
||||
| Cash payments and adjustments |
(
|
||||
| 2022 - 2023 Geolocation Restructuring Program: | |||||
| Cost incurred and adjustments |
|
||||
| Cash payments and adjustments |
(
|
||||
|
Balance as of September 30, 2022
|
$ |
|
|||
| Cumulative expense incurred to date | |||||
| 2020 MA Strategic Reorganization Restructuring Program | $ |
|
|||
| 2022 - 2023 Geolocation Restructuring Program | $ |
|
|||
32
NOTE 12.
FAIR VALUE
The table below presents information about items that are carried at fair value at September 30, 2022 and December 31, 2021:
| Fair Value Measurement as of September 30, 2022 | |||||||||||||||||
| Description | Balance | Level 1 | Level 2 | ||||||||||||||
|
Assets:
|
|||||||||||||||||
|
Derivatives
(1)
|
$ |
|
$ |
|
$ |
|
|||||||||||
| Mutual funds |
|
|
|
||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
|||||||||||
| Liabilities: | |||||||||||||||||
|
Derivatives
(1)
|
$ |
|
$ |
|
$ |
|
|||||||||||
| Total | $ |
|
$ |
|
$ |
|
|||||||||||
| Fair Value Measurement as of December 31, 2021 | |||||||||||||||||
| Description | Balance | Level 1 | Level 2 | ||||||||||||||
| Assets: | |||||||||||||||||
|
Derivatives
(1)
|
$ |
|
$ |
|
$ |
|
|||||||||||
| Mutual funds |
|
|
|
||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
|||||||||||
| Liabilities: | |||||||||||||||||
|
Derivatives
(1)
|
$ |
|
$ |
|
$ |
|
|||||||||||
| Total | $ |
|
$ |
|
$ |
|
|||||||||||
(1)
Represents FX forward contracts, interest rate swaps and cross-currency swaps as more fully described in Note 9 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 money market mutual funds:
Derivatives:
In determining the fair value of the derivative contracts in the table above, the Company utilizes industry standard valuation models. Where applicable, these models project future cash flows and discount the future amounts to a present value using spot rates, forward points, currency volatilities, interest rates as well as the risk of non-performance of the Company and the counterparties with whom it has derivative contracts. The Company established strict counterparty credit guidelines and only enters into transactions with financial institutions that adhere to these guidelines. Accordingly, the risk of counterparty default is deemed to be minimal.
Mutual funds:
The mutual funds in the table above are deemed to be equity securities with readily determinable fair values with changes in the fair value recognized through net income under ASC Topic 321. The fair value of these instruments is determined using Level 1 inputs as defined in the ASC Topic 820.
33
NOTE 13.
OTHER BALANCE SHEET AND STATEMENTS OF OPERATIONS INFORMATION
The following tables contain additional detail related to certain balance sheet captions:
| September 30, 2022 | December 31, 2021 | ||||||||||
| Other current assets: | |||||||||||
| Prepaid taxes | $ |
|
$ |
|
|||||||
| Prepaid expenses |
|
|
|||||||||
| Capitalized costs to obtain and fulfill sales contracts |
|
|
|||||||||
| Other |
|
|
|||||||||
| Total other current assets | $ |
|
$ |
|
|||||||
| Other assets: | |||||||||||
| Investments in non-consolidated affiliates | $ |
|
$ |
|
|||||||
| Deposits for real-estate leases |
|
|
|||||||||
| Indemnification assets related to acquisitions |
|
|
|||||||||
| Mutual funds and fixed deposits |
|
|
|||||||||
| Company owned life insurance (at contract value) |
|
|
|||||||||
| Costs to obtain sales contracts |
|
|
|||||||||
| Derivative instruments designated as accounting hedges |
|
|
|||||||||
| Pension and other retirement employee benefits |
|
|
|||||||||
| Other |
|
|
|||||||||
| Total other assets | $ |
|
$ |
|
|||||||
| Accounts payable and accrued liabilities: | |||||||||||
| Salaries and benefits | $ |
|
$ |
|
|||||||
| Incentive compensation |
|
|
|||||||||
| Customer credits, advanced payments and advanced billings |
|
|
|||||||||
| Dividends |
|
|
|||||||||
| Professional service fees |
|
|
|||||||||
| Interest accrued on debt |
|
|
|||||||||
| Accounts payable |
|
|
|||||||||
| Income taxes |
|
|
|||||||||
| Pension and other retirement employee benefits |
|
|
|||||||||
| Accrued royalties |
|
|
|||||||||
| Foreign exchange forwards on certain assets and liabilities |
|
|
|||||||||
| Restructuring liability |
|
|
|||||||||
| Other |
|
|
|||||||||
| Total accounts payable and accrued liabilities | $ |
|
$ |
|
|||||||
| Other liabilities: | |||||||||||
| Pension and other retirement employee benefits | $ |
|
$ |
|
|||||||
| Interest accrued on UTPs |
|
|
|||||||||
| MAKS indemnification provisions |
|
|
|||||||||
| Income tax liability - non-current portion |
|
|
|||||||||
| Derivative instruments designated as accounting hedges |
|
|
|||||||||
| Restructuring liability - non-current portion |
|
|
|||||||||
| Other |
|
|
|||||||||
| Total other liabilities | $ |
|
$ |
|
|||||||
34
Allowance for credit losses:
During the nine months ended September 30, 2022, the Company increased its allowance for credit losses by $
10
million. This increase was primarily due to reserves recorded for the Company's Russian-domiciled customers pursuant to the impacts of the Russia/Ukraine conflict, which is more fully described in Note 1.
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 consolidated balance sheets:
| September 30, 2022 | December 31, 2021 | ||||||||||
|
Equity method investments
(1)
|
$ |
|
$ |
|
|||||||
|
Investments measured using the measurement alternative
(2)
|
|
|
|||||||||
| Other |
|
|
|||||||||
| Total investments in non-consolidated affiliates | $ |
|
$ |
|
|||||||
|
(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 under the equity method, the most significant of which is 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 non-consolidated affiliates, which are included within other non-operating income, net, are disclosed within the table below.
Other non-operating income (expense), net:
The following table summarizes the components of other non-operating income (expense), net:
|
Three Months Ended September 30,
|
Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
|
FX gain/(loss)
(1)
|
$ |
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
|
Purchase price hedge loss
(2)
|
|
(
|
|
(
|
|||||||||||||||||||
| Net periodic pension costs - other components |
|
|
|
|
|||||||||||||||||||
| Income from investments in non-consolidated affiliates |
|
|
|
|
|||||||||||||||||||
| Other |
(
|
|
(
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
(
|
$ |
|
$ |
|
|||||||||||||||
|
(1)
FX loss for the nine months ended
September 30, 2022 includes FX translation losses of $
|
|||||||||||||||||||||||
|
(2)
The amounts for the three and nine months ended September 30, 2021 represent a loss in the prior year on a forward contract used to hedge a portion of the GBP denominated RMS purchase price.
|
|||||||||||||||||||||||
35
NOTE 14.
COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table provides details about the reclassifications out of AOCL:
|
Three Months Ended September 30,
|
Location in the consolidated statements of operations | ||||||||||||||||
| Losses on cash flow hedges | 2022 | 2021 | |||||||||||||||
| Interest rate contract | $ |
(
|
$ |
(
|
Other non-operating income, net | ||||||||||||
| Income tax effect of item above |
|
|
Provision for income taxes | ||||||||||||||
| Total net gains (losses) on cash flow hedges |
|
(
|
|||||||||||||||
| Pension and other retirement benefits | |||||||||||||||||
| Amortization of actuarial losses and prior service costs included in net income |
(
|
(
|
Other non-operating income, net | ||||||||||||||
| Settlement charge |
|
(
|
Other non-operating income, net | ||||||||||||||
| Total before income taxes |
(
|
(
|
|||||||||||||||
| Income tax effect of items above |
|
|
Provision for income taxes | ||||||||||||||
| Total pension and other retirement benefits |
(
|
(
|
|||||||||||||||
| Total net losses included in Net Income attributable to reclassifications out of AOCL | $ |
(
|
$ |
(
|
|||||||||||||
| Nine Months Ended September 30, | Location in the consolidated statements of operations | ||||||||||||||||
| Losses on currency translation adjustments | 2022 | 2021 | |||||||||||||||
| Foreign currency translation adjustments - reclassification of losses included in net income | $ |
(
|
$ |
|
Other non-operating income, net | ||||||||||||
| Total losses on currency translation adjustments |
(
|
|
|||||||||||||||
| Losses on cash flow hedges | |||||||||||||||||
| Interest rate contract |
(
|
(
|
Other non-operating income, net | ||||||||||||||
| Income tax effect of item above |
|
|
Provision for income taxes | ||||||||||||||
| Total net losses on cash flow hedges |
(
|
(
|
|||||||||||||||
| Gains (losses) on net investment hedges | |||||||||||||||||
| FX forwards |
|
|
Other non-operating income, net | ||||||||||||||
| Income tax effect of item above |
|
(
|
Provision for income taxes | ||||||||||||||
| Total net gains on net investment hedges |
|
|
|||||||||||||||
| Pension and other retirement benefits | |||||||||||||||||
| Amortization of actuarial losses and prior service costs included in net income |
(
|
(
|
Other non-operating income, net | ||||||||||||||
| Settlement charge |
|
(
|
Other non-operating income, net | ||||||||||||||
| Total before income taxes |
(
|
(
|
|||||||||||||||
| Income tax effect of item above |
|
|
Provision for income taxes | ||||||||||||||
| Total pension and other retirement benefits |
(
|
(
|
|||||||||||||||
| Total net losses included in Net Income attributable to reclassifications out of AOCL | $ |
(
|
$ |
(
|
|||||||||||||
36
The following tables show changes in AOCL by component (net of tax):
|
Three Months Ended September 30,
|
|||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| 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 June 30,
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
| Other comprehensive income/(loss) before reclassifications |
|
|
(
|
|
(
|
|
|
(
|
|
(
|
|||||||||||||||||||||||||
| Amounts reclassified from AOCL |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Other comprehensive income/(loss) |
|
|
(
|
|
(
|
|
|
(
|
|
(
|
|||||||||||||||||||||||||
|
Balance at September 30,
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
| Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| 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,
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
| Other comprehensive income/(loss) before reclassifications |
|
|
(
|
|
(
|
|
|
(
|
|
(
|
|||||||||||||||||||||||||
| Amounts reclassified from AOCL |
|
|
|
|
|
|
|
|
(
|
|
|||||||||||||||||||||||||
| Other comprehensive income/(loss) |
|
|
(
|
|
(
|
|
|
(
|
|
(
|
|||||||||||||||||||||||||
|
Balance at September 30,
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
37
NOTE 15.
INDEBTEDNESS
The Company’s debt is recorded at its carrying amount, which represents the issuance amount plus or minus any issuance premium or discount, except for certain debt as depicted in the table below, which is recorded at the carrying amount adjusted for the fair value of an interest rate swap used to hedge the fair value of the note.
The following table summarizes total indebtedness:
| September 30, 2022 | |||||||||||||||||||||||||||||
| Notes Payable: | Principal Amount |
Fair Value of Interest Rate Swaps
(1)
|
Unamortized (Discount) Premium
|
Unamortized Debt Issuance Costs | Carrying Value | ||||||||||||||||||||||||
|
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
|||||||||||||||||||
|
|
|
(
|
|
(
|
|
||||||||||||||||||||||||
|
|
|
|
|
(
|
|
||||||||||||||||||||||||
|
|
|
(
|
(
|
(
|
|
||||||||||||||||||||||||
|
|
|
(
|
(
|
(
|
|
||||||||||||||||||||||||
|
|
|
(
|
(
|
(
|
|
||||||||||||||||||||||||
|
|
|
|
(
|
(
|
|
||||||||||||||||||||||||
|
|
|
(
|
(
|
(
|
|
||||||||||||||||||||||||
|
|
|
|
(
|
(
|
|
||||||||||||||||||||||||
|
|
|
|
(
|
(
|
|
||||||||||||||||||||||||
|
|
|
|
(
|
(
|
|
||||||||||||||||||||||||
|
|
|
|
(
|
(
|
|
||||||||||||||||||||||||
|
|
|
|
(
|
(
|
|
||||||||||||||||||||||||
|
|
|
(
|
(
|
(
|
|
||||||||||||||||||||||||
|
|
|
(
|
(
|
(
|
|
||||||||||||||||||||||||
| Total long-term debt | $ |
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
|
|||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||||||||
| Notes Payable: | Principal Amount |
Fair Value of Interest Rate Swaps
(1)
|
Unamortized (Discount) Premium
|
Unamortized Debt Issuance Costs | Carrying Value | ||||||||||||||||||||||||
|
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
|||||||||||||||||||
|
|
|
(
|
|
(
|
|
||||||||||||||||||||||||
|
|
|
|
|
(
|
|
||||||||||||||||||||||||
|
|
|
|
|
(
|
|
||||||||||||||||||||||||
|
|
|
|
(
|
(
|
|
||||||||||||||||||||||||
|
|
|
|
(
|
(
|
|
||||||||||||||||||||||||
|
|
|
(
|
(
|
(
|
|
||||||||||||||||||||||||
|
|
|
|
(
|
(
|
|
||||||||||||||||||||||||
|
|
|
(
|
(
|
(
|
|
||||||||||||||||||||||||
|
|
|
|
(
|
(
|
|
||||||||||||||||||||||||
|
|
|
|
(
|
(
|
|
||||||||||||||||||||||||
|
|
|
|
(
|
(
|
|
||||||||||||||||||||||||
|
|
|
|
(
|
(
|
|
||||||||||||||||||||||||
|
|
|
|
(
|
(
|
|
||||||||||||||||||||||||
| Total long-term debt | $ |
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
|
|||||||||||||||||||
(1)
The fair value of interest rate swaps in the table above represents the cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged debt.
38
Notes Payable
In the first nine months of 2022, the Company issued the 2022 Senior Notes due 2052 and the 2022 Senior Notes due 2032. The key terms of this debt issuance are set forth in the table above.
Additionally, in the first nine months of 2022, the Company fully repaid $
500
million of the 2017 Senior Notes due 2023.
The repayment schedule for the Company’s borrowings is as follows:
| Year Ending December 31, | Year Ending Total | |||||||
|
2022 (After September 30,)
|
$ |
|
||||||
| 2023 |
|
|||||||
| 2024 |
|
|||||||
| 2025 |
|
|||||||
| 2026 |
|
|||||||
| Thereafter |
|
|||||||
| Total | $ |
|
||||||
Interest expense, net
The following table summarizes the components of interest as presented in the consolidated statements of operations and the cash paid for interest:
|
Three Months Ended
September 30,
|
Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Income | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Expense on borrowings |
(
|
(
|
(
|
(
|
|||||||||||||||||||
|
Income (expense) on UTPs and other tax related liabilities
(2)
|
(
|
(
|
(
|
|
|||||||||||||||||||
| Net periodic pension costs - interest component |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Interest expense, net | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
|
Interest paid
(1)
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(1)
Interest paid includes net settlements on interest rate swaps more fully discussed in Note 9.
(2)
Income (expense) on UTPs and other tax related liabilities for the nine months ended September 30, 2021 includes a $
40
million benefit relating to the reversal of tax-related interest accruals pursuant to the resolution of tax matters.
The fair value and carrying value of the Company’s debt as of September 30, 2022 and December 31, 2021 are as follows:
| September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | ||||||||||||||||||||
| Long-term debt | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
The fair value of the Company’s long-term debt is estimated based on quoted market prices for similar instruments. Accordingly, the inputs used to estimate the fair value of the Company’s long-term debt are classified as Level 2 inputs within the fair value hierarchy.
NOTE 16.
LEASE COMMITMENTS
39
The following table presents the components of the Company’s lease cost:
|
Three Months Ended September 30,
|
Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Operating lease cost | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Sublease income |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Variable lease cost |
|
|
|
|
|||||||||||||||||||
| Total lease cost | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
The following tables present other information related to the Company’s operating leases:
|
Three Months Ended September 30,
|
Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Cash paid for amounts included in the measurement of operating lease liabilities | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| September 30, 2022 | September 30, 2021 | ||||||||||
|
Weighted-average remaining lease term
|
|
|
|||||||||
|
Weighted-average discount rate applied to operating leases
|
|
% |
|
% | |||||||
The following table presents a maturity analysis of the future minimum lease payments included within the Company’s operating lease liabilities at September 30, 2022:
| Year Ending December 31, | Operating Leases | |||||||
|
2022 (After September 30,)
|
$ |
|
||||||
| 2023 |
|
|||||||
| 2024 |
|
|||||||
| 2025 |
|
|||||||
| 2026 |
|
|||||||
| After 2026 |
|
|||||||
| Total lease payments (undiscounted) |
|
|||||||
| Less: Interest |
|
|||||||
| Present value of lease liabilities: | $ |
|
||||||
| Lease liabilities - current | $ |
|
||||||
| Lease liabilities - noncurrent | $ |
|
||||||
NOTE 17.
CONTINGENCIES
Given the nature of the 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. Moody’s and MIS also are subject to periodic reviews, inspections, examinations and investigations by regulators in the U.S. and other jurisdictions, any of which may result in claims, legal proceedings, assessments, fines, penalties or restrictions on business activities. Moody’s also is subject to ongoing tax audits as addressed in Note 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.
40
NOTE 18.
SEGMENT INFORMATION
The Company is organized into
two
operating segments: MIS and MA and accordingly, the Company reports in
two
reportable segments: MIS and MA.
The MIS segment consists of
five
LOBs. The CFG, FIG, PPIF and SFG LOBs generate revenue principally from fees for the assignment and ongoing monitoring of credit ratings on debt obligations and the entities that issue such obligations in markets worldwide. The MIS Other LOB primarily consists of financial instruments pricing services in the Asia-Pacific region, ICRA non-ratings revenue and revenue from providing ESG research, data and assessments.
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.
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 MIS. Additionally, revenue for MA and expenses for MIS include an intersegment fee charged to MIS from MA for certain MA products and services utilized in MIS’s ratings process. These intersegment fees are generally based on the market value of the products and services being transferred between the segments.
Overhead expenses include costs such as rent and occupancy, information technology and support staff such as finance, human resources and 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 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 by reportable segment. Adjusted Operating Income is a financial metric utilized by the Company’s chief operating decision maker to assess the profitability of each reportable segment. Refer to Note 2 for further details on the components of the Company’s revenue.
|
Three Months Ended September 30,
|
|||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
|
MIS
|
MA
|
Eliminations
|
Consolidated
|
MIS
|
MA
|
Eliminations
|
Consolidated
|
||||||||||||||||||||||||||||||||||||||||
| Total external revenue | $ |
|
$ |
|
$ | — | $ |
|
$ |
|
$ |
|
$ | — | $ |
|
|||||||||||||||||||||||||||||||
| Intersegment revenue |
|
|
(
|
— |
|
|
(
|
— | |||||||||||||||||||||||||||||||||||||||
| Revenue |
|
|
(
|
|
|
|
(
|
|
|||||||||||||||||||||||||||||||||||||||
| Operating, SG&A |
|
|
(
|
|
|
|
(
|
|
|||||||||||||||||||||||||||||||||||||||
| Adjusted Operating Income | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||
| Add: |
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Depreciation and
amortization |
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
| Restructuring |
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
| Operating Income | $ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||||||||
41
| Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
|
MIS
|
MA
|
Eliminations
|
Consolidated
|
MIS
|
MA
|
Eliminations
|
Consolidated
|
||||||||||||||||||||||||||||||||||||||||
| Total external revenue | $ |
|
$ |
|
$ | — | $ |
|
$ |
|
$ |
|
$ | — | $ |
|
|||||||||||||||||||||||||||||||
| Intersegment revenue |
|
|
(
|
— |
|
|
(
|
— | |||||||||||||||||||||||||||||||||||||||
| Revenue |
|
|
(
|
|
|
|
(
|
|
|||||||||||||||||||||||||||||||||||||||
| Operating, SG&A |
|
|
(
|
|
|
|
(
|
|
|||||||||||||||||||||||||||||||||||||||
| Adjusted Operating Income | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||
| Add: | |||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization |
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
| Restructuring |
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
| Operating Income | $ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||||||||
The cumulative restructuring charge for the MA reportable segment related to the 2020 MA Strategic Reorganization Restructuring Program is $
19
million. The cumulative restructuring charge for the MIS and MA reportable segments related to the 2022 - 2023 Geolocation Restructuring Program is $
15
million and $
18
million, respectively. The restructuring programs are more fully discussed in Note 11.
Consolidated Revenue Information by Geographic Area
|
Three Months Ended September 30,
|
Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| United States | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Non-U.S.: | |||||||||||||||||||||||
| EMEA |
|
|
|
|
|||||||||||||||||||
| Asia-Pacific |
|
|
|
|
|||||||||||||||||||
| Americas |
|
|
|
|
|||||||||||||||||||
| Total Non-U.S. |
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
NOTE 19.
SUBSEQUENT EVENT
42
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 Form 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
79
for a discussion of uncertainties, risks and other factors associated with these statements.
THE COMPANY
Moody’s is a global integrated risk assessment firm that empowers organizations and investors to make better decisions. Moody’s reports in two segments: MIS and MA.
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, including various corporate, financial institution and governmental obligations, and structured finance securities.
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 integrated risk assessment solutions that enable business leaders to identify, measure and manage the implications of interrelated risks and opportunities.
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 throughout 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 efforts to promote sustainability-related thought leadership, assessments and data to market participants include adhering 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. Moody's also issues an annual report on Stakeholder Sustainability and on how the Company has implemented the Task Force on Climate-related Financial Disclosures (“TCFD”) recommendations. Moody’s sustainability-related achievements during the first three quarters of 2022 included the following:
–
Validated Moody’s long-term net-zero targets with SBTi;
–
Rolled out an all-employee training on Sustainability and ESG;
–
Named 2021 CDP Supplier Engagement Leader on Climate Action for second consecutive year;
–
Awarded Best ESG Reporting (large-cap) from IR Magazine U.S. 2022 and ‘Sustainability reporting of the year – Americas’ from Environmental Finance Company Awards 2022;
–
Published Moody’s 2021 Stakeholder Sustainability report and 2021 TCFD report;
–
Issued an inaugural global tax policy; and
–
Updated Moody’s decarbonization plan
The Board oversees sustainability matters, with assistance from the Audit, Governance & Nominating and Compensation & Human Resources Committees, as part of its oversight of management and the Company’s overall strategy. The Board also oversees Moody’s policies for assessing and managing our exposure to risk, including climate-related risks such as business continuity disruption.
Current Matters Impacting Moody's Business
Current Macroeconomic Uncertainties/Market Volatility
The Company is monitoring current macroeconomic and geopolitical uncertainties that have contributed to declines in rated issuance volumes in 2022. 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 in 2022 has resulted in declines in rated issuance volumes, the Company believes that these declines are predominantly transitory in nature. However, due to various uncertainties, Moody's is unable to predict the severity and duration of current macroeconomic and geopolitical uncertainties and their potential impact on future ratings issuance volumes. Refer to Item 1A. “Risk Factors” contained in the Company’s annual report on Form 10-K for the year ended December 31, 2021 for further disclosure relating to these risks.
43
Russia/Ukraine Conflict
The Company is closely monitoring the impact of the ongoing Russia/Ukraine conflict on all aspects of its business. In response to the conflict, the Company is no longer conducting commercial operations in Russia for both MIS and MA and is complying with all applicable regulatory restrictions set forth by the jurisdictions in which Moody's operates. Furthermore, the Company also has withdrawn MIS credit ratings on Russian entities.
While Moody's Russian operations and net assets are not material, broader global market volatility, which partially relates to uncertainties surrounding the conflict, has contributed to an adverse impact on rated issuance volumes in 2022. This impact to rated issuance volumes is more fully discussed in the "Results of Operations" section of this MD&A. The Company is unable to predict either the near-term or longer-term impact that the conflict may have on its financial position and operating results due to numerous uncertainties regarding the severity and duration of the conflict and its broader potential macroeconomic impact.
COVID-19
The Company continues to closely monitor the impact of the COVID-19 pandemic on all aspects of its business. The Company continues to monitor regional developments relating to the COVID-19 pandemic to inform decisions regarding its offices and its business travel policies. As of the date of the filing of this quarterly report on Form 10-Q, the Company has reopened all of its offices for employees to access.
The COVID-19 pandemic has not had a material adverse impact on the Company's reported results to date and is currently not expected to have a material adverse impact on its near-term outlook. However, Moody's is unable to predict the longer-term impact that the pandemic may have on its business, future results of operations, financial position or cash flows due to numerous uncertainties. Refer to Item 1A. “Risk Factors” contained in the Company’s annual report on Form 10-K for the year ended December 31, 2021 for further disclosure relating to the risks of the COVID-19 pandemic on the Company's business.
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 accepted in the United States. The preparation of these financial statements requires Moody’s to make estimates and judgments that affect reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the dates of the financial statements and revenue and expenses during the reporting periods. These estimates are based on historical experience and on other assumptions that are believed to be reasonable under the circumstances. On an ongoing basis, Moody’s evaluates its estimates, including those related to revenue recognition, accounts receivable allowances, contingencies, restructuring, goodwill and acquired intangible assets, pension and other retirement benefits, stock-based compensation, and income taxes. Actual results may differ from these estimates under different assumptions or conditions. Item 7, MD&A, in the Company’s annual report on Form 10-K for the year ended December 31, 2021, includes descriptions of some of the judgments that Moody’s makes in applying its accounting estimates in these areas. Since the date of the annual report on Form 10-K, there have been no material changes to the Company’s critical accounting estimates disclosures other than the update below relating to the results of the Company's annual impairment assessment as of July 31, 2022.
Goodwill and Other Acquired Intangible Assets
On July 31st of each year, Moody’s evaluates its goodwill for impairment at the reporting unit level, defined as an operating segment (i.e., MIS and MA), or one level below an operating segment (i.e., a component of an operating segment). At July 31, 2022, the Company has four 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 two reporting units within MA consisting of businesses that offer: i) data and data-driven analytical solutions; and ii) risk management software, workflow and CRE solutions.
The Company evaluates the recoverability of goodwill using a two-step impairment test approach at the reporting unit level. In the first step, the Company assesses various qualitative factors to determine whether the fair value of a reporting unit may be less than its carrying amount. If a determination is made based on the qualitative factors that 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 quantitatively 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, realignments or if there are indicators of potential impairment. 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.
The Company last performed quantitative assessments on all reporting units at July 31, 2021, pursuant to a change in reporting unit structure in the MA reportable segment, which is more fully discussed in Item 7, MD&A, in the Company's annual report on Form 10-K for the year ended December 31, 2021. The quantitative assessments performed at July 31, 2021 resulted in fair values that significantly exceeded carrying values for all reporting units.
44
Determining the fair value of a reporting unit involves the use of significant estimates and assumptions, which are more fully described within Item 7, MD&A, in the Company’s annual report on Form 10-K for the year ended December 31, 2021. In addition, the Company also makes certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of its reporting units.
Annual goodwill impairment assessment performed at July 31, 2022
At July 31, 2022, the Company performed a qualitative assessment for each of the reporting units. The qualitative analyses resulted in the Company determining that it was not more likely than not that the fair value of any reporting unit was less than its carrying amount.
Reportable Segments
The Company is organized into two reportable segments as of September 30, 2022: MIS and MA, which are more fully described in the section entitled “The Company” above and in Note 18 to the condensed consolidated financial statements.
Reclassification of Previously Reported Revenue by LOB
In the first quarter of 2022, the Company realigned its revenue by LOB reporting structure for the MA operating segment to enhance insight and transparency into this business. As of January 1, 2022, the MA LOBs have been realigned from RD&A and ERS to:
–
Decision Solutions (DS) -
provides software and workflow tools for specific use cases (banking, insurance, KYC/KYS, CRE and structured finance solutions). This LOB utilizes components from the Data & Information and Research & Insights LOBs to provide integrated risk solutions;
–
Research & Insights (R&I) -
provides models, scores, expert insights and commentary. This LOB includes: credit research; credit models and analytics; and economics data and models; and
–
Data & Information (D&I) -
provides vast data sets on companies and securities via data feeds and data applications products.
Prior year revenue by LOB amounts have been reclassified to conform to the new LOB reporting structure, which is presented below in the section entitled "Results of Operations."
RESULTS OF OPERATIONS
Impact of acquisitions on comparative results
Moody’s completed the following acquisitions, which impact the Company's year-over-year comparative results:
–
Cortera on March 19, 2021;
–
RMS on September 15, 2021;
–
RealXData on September 17, 2021;
–
PassFort on November 30, 2021; and
–
kompany on February 28, 2022.
Refer to the section entitled "Non-GAAP Financial Measures" of this MD&A for the definitions of how the Company determines certain organic growth measures used in this MD&A that exclude the impact of acquisition activity.
The following footnotes are applicable throughout the discussion of the Company's results of operations:
(1)
Refer to the section entitled "Non-GAAP Financial Measures" of this MD&A for the definition and methodology that the Company utilizes to calculate this metric.
(2)
Refer to the section entitled "Key Performance Metrics" of this MD&A for the definition and methodology that the Company utilizes to calculate this metric.
(3)
Adjusted Operating Income, Adjusted Operating Margin and Adjusted Diluted EPS are non-GAAP financial measures. Refer to the section entitled "Non-GAAP Financial Measures" of this MD&A for further information regarding these measures.
45
Three months ended September 30, 2022 compared with three months ended September 30, 2021
Executive Summary
The following table provides an executive summary of key operating results for the quarter ended September 30, 2022. Following this executive summary is a more detailed discussion of the Company’s operating results as well as a discussion of the operating results of the Company’s reportable segments.
|
Three Months Ended
September 30,
|
||||||||||||||
| Financial measure: | 2022 | 2021 |
% Change Favorable
(Unfavorable) |
Insight and Key Drivers of Change Compared to Prior Year
|
||||||||||
| Moody's total revenue | $ | 1,275 | $ | 1,526 | (16 | %) |
— reflects lower MIS revenue partially offset by growth in MA
|
|||||||
| MIS external revenue | $ | 590 | $ | 925 | (36 | %) |
— credit market activity remained muted across all sectors given ongoing market volatility, central bank actions, high levels of balance sheet cash, as well as heightened inflationary and recessionary concerns
|
|||||||
| MA external revenue | $ | 685 | $ | 601 | 14 | % |
— inorganic growth from acquisitions; and
— sustained demand for Know Your Customer solutions, credit research and insights, and data feeds;
partially offset by:
— unfavorable changes in FX translation rates
|
|||||||
| Total operating and SG&A expenses | $ | 778 | $ | 789 | 1 | % |
— operational and integration costs associated with recent acquisitions; and
— increases in hiring and salary growth;
offset by:
— lower incentive compensation accruals and performance-based equity compensation; and
— favorable changes in FX translation rates
|
|||||||
| Depreciation and amortization | $ | 83 | $ | 61 | (36 | %) |
— higher amortization of intangible assets reflecting recent M&A activity (most notably RMS); and
— higher amortization relating to internally developed software
|
|||||||
| Total non-operating (expense) income, net | $ | (32) | $ | (57) | 44 % |
— increase in FX gains primarily due to the strengthening of the U.S. dollar to the euro; and
— a $13 million loss in the prior year on a forward contract used to hedge a portion of the GBP-denominated RMS purchase price
|
||||||||
| Operating margin | 32.4 | % | 44.3 | % | (1,190 | BPS) |
— margin declines primarily due to the aforementioned decrease in MIS revenue
|
|||||||
| Adjusted Operating Margin | 39.0 | % | 48.3 | % | (930 | BPS) | ||||||||
| ETR | 20.5 | % | 23.4 | % | (290 | BPS) |
— primarily reflects lower pre-tax income and a favorable mix of earnings in the jurisdictions in which Moody’s operates
|
|||||||
| Diluted EPS | $ | 1.65 | $ | 2.53 | (35 | %) |
— mainly due to declines in MIS revenue
|
|||||||
| Adjusted Diluted EPS | $ | 1.85 | $ | 2.69 | (31 | %) | ||||||||
46
Moody's Corporation
|
Three Months Ended September 30,
|
% Change Favorable
(Unfavorable)
|
||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Revenue: | |||||||||||||||||
| United States | $ | 668 | $ | 841 | (21 | %) | |||||||||||
| Non-U.S.: | |||||||||||||||||
| EMEA | 393 | 443 | (11 | %) | |||||||||||||
| Asia-Pacific | 129 | 149 | (13 | %) | |||||||||||||
| Americas | 85 | 93 | (9 | %) | |||||||||||||
| Total Non-U.S. | 607 | 685 | (11 | %) | |||||||||||||
| Total | 1,275 | 1,526 | (16 | %) | |||||||||||||
| Expenses: | |||||||||||||||||
| Operating | 393 | 394 | — | % | |||||||||||||
| SG&A | 385 | 395 | 3 | % | |||||||||||||
| Depreciation and amortization | 83 | 61 | (36 | %) | |||||||||||||
| Restructuring | 1 | — | NM | ||||||||||||||
| Total | 862 | 850 | (1 | %) | |||||||||||||
| Operating income | $ | 413 | $ | 676 | (39 | %) | |||||||||||
|
Adjusted Operating Income
(3)
|
$ | 497 | $ | 737 | (33 | %) | |||||||||||
| Interest expense, net | $ | (58) | $ | (53) | (9 | %) | |||||||||||
| Other non-operating income, net | 26 | (4) | NM | ||||||||||||||
| Non-operating (expense) income, net | $ | (32) | $ | (57) | 44 | % | |||||||||||
| Net income attributable to Moody's | $ | 303 | $ | 474 | (36 | %) | |||||||||||
| Diluted weighted average shares outstanding | 183.9 | 187.3 | 2 | % | |||||||||||||
| Diluted EPS attributable to Moody's common shareholders | $ | 1.65 | $ | 2.53 | (35 | %) | |||||||||||
|
Adjusted Diluted EPS
(3)
|
$ | 1.85 | $ | 2.69 | (31 | %) | |||||||||||
| Operating margin | 32.4 | % | 44.3 | % | |||||||||||||
|
Adjusted Operating Margin
(3)
|
39.0 | % | 48.3 | % | |||||||||||||
| Effective tax rate | 20.5 | % | 23.4 | % | |||||||||||||
The table below shows Moody’s global staffing by geographic area:
| September 30, | Change | ||||||||||||||||||||||
| 2022 | 2021 | % | |||||||||||||||||||||
| MIS | U.S. | 1,547 | 1,442 | 7 | % | ||||||||||||||||||
| Non-U.S. | 3,969 | 3,725 | 7 | % | |||||||||||||||||||
| Total | 5,516 | 5,167 | 7 | % | |||||||||||||||||||
| MA | U.S. | 2,859 | 2,602 | 10 | % | ||||||||||||||||||
| Non-U.S. | 4,368 | 3,770 | 16 | % | |||||||||||||||||||
| Total | 7,227 | 6,372 | 13 | % | |||||||||||||||||||
| MSS | U.S. | 785 | 697 | 13 | % | ||||||||||||||||||
| Non-U.S. | 1,043 | 888 | 17 | % | |||||||||||||||||||
| Total | 1,828 | 1,585 | 15 | % | |||||||||||||||||||
| Total MCO | U.S. | 5,191 | 4,741 | 9 | % | ||||||||||||||||||
| Non-U.S. | 9,380 | 8,383 | 12 | % | |||||||||||||||||||
| Total | 14,571 | 13,124 | 11 | % | |||||||||||||||||||
47
GLOBAL REVENUE
|
Three months ended September 30,
|
||||||||||||||
2022
-----------------------------------------------------------------------------------
2021
_______________________________________________
_________
_______________________________________________
|
Global revenue ⇓ $251 million
|
U.S. Revenue ⇓ $173 million
|
Non-U.S. Revenue ⇓ $78 million
|
|||||||||||||||
The decrease in global revenue reflected declines in MIS, mainly in the U.S. and EMEA, partially offset by growth in MA in all regions. Refer to the section entitled “Segment Results” of this MD&A for a more fulsome discussion of the Company’s segment revenue.
–
Foreign currency translation unfavorably impacted global revenue by 4% percent.
–
Organic constant currency revenue
(1)
decreased 17%.
|
Q3 Operating Expense ⇓ $1 million
|
Q3 SG&A Expense ⇓ $10 million
|
|||||||
---------- ---------
|
Compensation expenses decreased $22 million reflecting:
|
Compensation expenses increased $13 million reflecting:
|
|||||||
|
— lower incentive compensation accruals and performance-based equity compensation of $32 million, which aligns with actual/projected financial and operating performance; and
|
— higher salaries and benefits of $26 million primarily due to hiring and salary increases; and | |||||||
|
— lower salaries and benefits of $15 million reflecting a higher percentage of costs capitalized in MA for product development;
partially offset by:
|
— inorganic growth from acquisitions of $13 million;
partially offset by:
|
|||||||
|
— lower incentive compensation accruals and performance-based equity compensation of $20 million, which aligns with actual/projected financial and operating performance.
|
||||||||
| — inorganic growth from acquisitions of $29 million. | ||||||||
|
Non-compensation expenses increased $21 million reflecting:
|
Non-compensation expenses decreased $23 million reflecting:
|
|||||||
|
— inorganic growth from acquisitions of $10 million; and
|
— operating and transaction-related costs in 2021 associated with acquisitions, most notably $22 million in RMS acquisition-related costs that did not recur in 2022; and
|
|||||||
|
— higher costs of $7 million primarily relating to strategic initiatives to support business growth coupled with enhancements to technology infrastructure to enable automation, innovation and efficiency.
|
— charitable contributions via the Moody's Foundation in 2021 that did not recur in 2022;
partially offset by:
|
|||||||
|
— inorganic growth from acquisitions of $9 million.
|
||||||||
48
| Depreciation and amortization | ||
The increase in depreciation and amortization expense is driven by amortization of intangible assets recently acquired (primarily RMS) and amortization of internally developed software recently capitalized.
|
Operating margin 32.4%, down 1,190 BPS
|
Adjusted Operating Margin 39.0%, down 930 BPS
|
||||
Overall, margin declines primarily resulted from the aforementioned decrease in MIS revenue.
|
Interest Expense, net ⇑ $5 million
|
Other non-operating income ⇑ $30 million
|
||||
| Increase in expense is primarily due to: | Increase in income is primarily due to: | |||||||||||||
|
— higher interest on borrowings resulting from the issuance of new long-term debt in 2022 (refer to the "Material Cash Requirements" section of this MD&A for further information on the Company's indebtedness)
|
— higher FX gains of $15 million primarily due to the strengthening of the U.S. dollar relative to the euro; and
|
|||||||||||||
|
— a $13 million loss in 2021 on a forward contract used to hedge a portion of the GBP-denominated RMS purchase price.
|
||||||||||||||
|
ETR ⇓ 290 BPS
|
||
The decrease in ETR primarily reflects lower pre-tax income, which increases the percentage impact of net beneficial discrete items, and a favorable mix of earnings in the jurisdictions in which Moody’s operates.
|
Diluted EPS ⇓ $0.88
|
Adjusted Diluted EPS ⇓ $0.84
|
||||
Diluted EPS and Adjusted Diluted EPS declined mainly due to lower operating income and Adjusted Operating Income, respectively, the components of which are more fully described above. Refer to the section entitled “Non-GAAP Financial Measures” of this MD&A for items excluded in the derivation of Adjusted Diluted EPS.
49
Segment Results
Moody’s Investors Service
The table below provides a summary of revenue and operating results, followed by further insight and commentary:
|
Three Months Ended
September 30,
|
% Change Favorable
(Unfavorable)
|
||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Revenue: | |||||||||||||||||
| Corporate finance (CFG) | $ | 277 | $ | 488 | (43 | %) | |||||||||||
| Structured finance (SFG) | 101 | 143 | (29 | %) | |||||||||||||
| Financial institutions (FIG) | 109 | 153 | (29 | %) | |||||||||||||
| Public, project and infrastructure finance (PPIF) | 92 | 130 | (29 | %) | |||||||||||||
| Total ratings revenue | 579 | 914 | (37 | %) | |||||||||||||
| MIS Other |
|
|
— | % | |||||||||||||
| Total external revenue | 590 | 925 | (36 | %) | |||||||||||||
| Intersegment revenue |
|
|
2 | % | |||||||||||||
| Total MIS revenue | 633 | 967 | (35 | %) | |||||||||||||
| Expenses: | |||||||||||||||||
| Operating and SG&A (external) | 342 | 385 | 11 | % | |||||||||||||
| Operating and SG&A (intersegment) | 2 | 2 | — | % | |||||||||||||
| Total operating and SG&A | 344 | 387 | 11 | % | |||||||||||||
| Adjusted Operating Income | $ | 289 | $ | 580 | (50 | %) | |||||||||||
| Adjusted Operating Margin | 45.7 | % | 60.0 | % | |||||||||||||
| Depreciation and amortization |
|
|
(24 | %) | |||||||||||||
The following chart presents changes in rated issuance volumes compared to the
third quarter
of
2021. To the extent that changes in rated issuance volumes had a material impact to MIS's revenue compared to the prior year, those impacts are discussed below.
50
MOODY'S INVESTORS SERVICE REVENUE
|
Three months ended September 30,
|
||||||||||||||
2022
-----------------------------------------------------------------------------------
2021
_______________________________________________
_________
_______________________________________________
|
MIS: Global revenue ⇓ $335 million
|
U.S. Revenue ⇓ $218 million
|
Non-U.S. Revenue ⇓ $117 million
|
||||||
–
The decrease in global MIS revenue primarily reflects a 41% decrease in rated issuance volumes, which resulted in transaction revenue declining $335 million compared to the same period in the prior year. The decline in rated issuance volumes compared to the third quarter of 2021 reflected muted credit market activity across all sectors given ongoing market volatility, central bank actions, high levels of balance sheet cash, as well as heightened inflationary and recessionary concerns
.
–
Foreign currency translation unfavorably impacted MIS revenue by three percentage points.
CFG REVENUE
|
Three months ended September 30,
|
||||||||||||||
2022
-----------------------------------------------------------------------------------
2021
_______________________________________________
_________
_______________________________________________
|
CFG: Global revenue ⇓ $211 million
|
U.S. Revenue ⇓ $146 million
|
Non-U.S. Revenue ⇓ $65 million
|
||||||
51
Global CFG revenue for the three months ended September 30, 2022 and 2021 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 programs such as commercial paper, medium term notes, and ICRA corporate finance revenue.
The decrease in CFG revenue of 43% reflected declines in both U.S. (44%) and internationally (42%).
Transaction revenue decreased $213 million compared to the same period in the prior year.
The decrease compared to a strong period of issuance in the third quarter of 2021 reflected declines in leveraged finance and investment-grade issuance activity in all regions resulting from muted credit market activity across all sectors given ongoing market volatility, central bank actions, high levels of balance sheet cash, as well as heightened inflationary and recessionary concerns
.
Changes in foreign currency translation rates unfavorably impacted CFG revenue by
two percentage points.
SFG REVENUE
|
Three months ended September 30,
|
||||||||||||||
2022
---------------------------------------------------------------------------
2021
_______________________________________________
_________
_______________________________________________
|
SFG: Global revenue ⇓ $42 million
|
U.S. Revenue ⇓ $29 million
|
Non-U.S. Revenue ⇓ $13 million
|
||||||
52
Global SFG revenue for the three months ended September 30, 2022 and 2021 was comprised as follows:
The 29% decrease in SFG revenue was substantially all in the U.S. and EMEA.
Transaction revenue decreased $42 million compared to the third quarter of 2021.
The most notable drivers of the decline in SFG revenue included lower CLO and RMBS activity reflecting higher credit spreads given ongoing market volatility, central bank actions, and heightened inflationary and recessionary concerns.
Changes in foreign currency translation rates unfavorably impacted SFG revenue by three percentage points.
FIG REVENUE
|
Three months ended September 30,
|
||||||||||||||
2022
-----------------------------------------------------------------------------------
2021
_______________________________________________
_________
_______________________________________________
|
FIG: Global revenue ⇓ $44 million
|
U.S. Revenue ⇓ $24 million
|
Non-U.S. Revenue ⇓ $20 million
|
||||||
Global FIG revenue for the three months ended September 30, 2022 and 2021 was comprised as follows:
53
The decrease in FIG revenue of 29% reflected revenue declines in both U.S. (34%) and internationally (24%).
Transaction revenue decreased $42 million compared to the third quarter of 2021.
The most notable drivers of the decline reflected lower revenue from U.S. banking and insurance issuers, mainly due to:
–
an unfavorable product mix; and
–
lower rated issuance volumes resulting from market volatility and macroeconomic/geopolitical uncertainties.
Changes in foreign currency translation rates unfavorably impacted FIG revenue by four
percentage points.
PPIF REVENUE
|
Three months ended September 30,
|
||||||||||||||
2022
-----------------------------------------------------------------------------------
2021
_______________________________________________
_________
_______________________________________________
|
PPIF: Global revenue ⇓ $38 million
|
U.S. Revenue ⇓ $19 million
|
Non-U.S. Revenue ⇓ $19 million
|
||||||
Global PPIF revenue for the three months ended September 30, 2022 and 2021 was comprised as follows:
Transaction revenue decreased $38 million compared to the third quarter of 2021.
The decrease in PPIF revenue of 29% reflected declines in the U.S. (25%) and internationally (35%).
The main drivers of the decrease were:
–
declines in U.S. public finance and project finance revenue resulting from market volatility, which increased funding costs, coupled with issuers in these sectors being currently well capitalized; and
–
declines in international sovereign and project/infrastructure finance activity compared to a strong prior year period.
Changes in foreign currency translation rates unfavorably impacted PPIF revenue by three percentage points.
54
|
MIS: Q3 Operating and SG&A Expense ⇓ $43 million
|
||
The decline is due to lower compensation costs of $46 million, partially offset by higher non-compensation costs of $3 million, with the most notable drivers reflecting:
| Compensation costs | Non-compensation costs | |||||||
| The decrease is primarily due to: | The modest increase is primarily due to: | |||||||
|
— lower incentive compensation accruals and performance-based equity compensation, which aligns with actual/projected financial and operating performance; and
|
— higher costs relating to strategic initiatives to support business growth coupled with enhancements to technology infrastructure to enable automation, innovation and efficiency; and | |||||||
|
— favorable changes in FX translation rates.
|
— higher travel costs compared to minimal travel in the prior year in light of COVID-19;
mostly offset by:
|
|||||||
| — charitable contributions via the Moody's Foundation in 2021 that did not recur in 2022; and | ||||||||
| — favorable changes in FX translation rates. | ||||||||
|
MIS: Adjusted Operating Margin 45.7% ⇓ 1,430 BPS
|
||
The MIS Adjusted Operating Margin decline primarily reflected the aforementioned 36% decrease in revenue.
55
Moody’s Analytics
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)
|
||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Revenue: | |||||||||||||||||
| Decision Solutions (DS) | $ |
|
$ |
|
30 | % | |||||||||||
| Research and Insights (R&I) |
|
|
4 | % | |||||||||||||
| Data and Information (D&I) |
|
|
1 | % | |||||||||||||
| Total external revenue | 685 | 601 | 14 | % | |||||||||||||
| Intersegment revenue |
|
|
— | % | |||||||||||||
| Total MA revenue | 687 | 603 | 14 | % | |||||||||||||
| Expenses: | |||||||||||||||||
| Operating and SG&A (external) | 436 | 404 | (8 | %) | |||||||||||||
| Operating and SG&A (intersegment) | 43 | 42 | (2 | %) | |||||||||||||
| Total operating and SG&A | 479 | 446 | (7 | %) | |||||||||||||
| Adjusted Operating Income | $ | 208 | $ | 157 | 32 | % | |||||||||||
| Adjusted Operating Margin | 30.3 | % | 26.0 | % | |||||||||||||
| Depreciation and amortization |
|
|
(41 | %) | |||||||||||||
| Restructuring |
|
|
NM | ||||||||||||||
MOODY'S ANALYTICS REVENUE
|
Three months ended September 30,
|
||
2022
-----------------------------------------------------------------------------------
2021
_______________________________________________
_________
_______________________________________________
|
MA: Global revenue ⇑ $84 million
|
U.S. Revenue ⇑ $45 million
|
Non-U.S. Revenue ⇑ $39 million
|
||||||
The 14% increase in global MA revenue reflects growth both in the U.S. (17%) and internationally (11%) in all LOBs and includes revenue from the acquisitions of RMS, RealXData, PassFort and kompany. Changes in foreign currency translation rates unfavorably impacted MA revenue by seven percentage points.
–
Organic constant currency revenue growth
(1)
was 9% reflecting increases across all LOBs.
–
ARR
(2)
grew 9% representing increased demand for KYC and banking products within the Decision Solutions LOB coupled with growth for company data and ratings feeds products in the Data & Information LOB.
56
DECISION SOLUTIONS REVENUE
|
Three months ended September 30,
|
||||||||||||||
2022
-----------------------------------------------------------------------------------
2021
_______________________________________________
_________
_______________________________________________
|
DS: Global revenue ⇑ $75 million
|
U.S. Revenue ⇑ $36 million
|
Non-U.S. Revenue ⇑ $39 million
|
||||||
Global DS revenue grew 30% compared to the third quarter of 2021 and reflects growth in both the U.S. (34%) and internationally (27%) with the most notable drivers of the increase reflecting:
–
inorganic revenue growth from the acquisitions of RMS, PassFort, RealXData, and kompany; and
–
continued demand for KYC and compliance solutions reflecting increased customer and supplier risk data usage.
Changes in foreign currency translation rates unfavorably impacted DS revenue by five percentage points.
Constant currency organic revenue
(1)
growth was 7%.
ARR
(2)
grew 10%.
RESEARCH AND INSIGHTS REVENUE
|
Three months ended September 30,
|
||
2022
-----------------------------------------------------------------------------------
2021
_________________________________________________
__
________________________________________________
|
R&I: Global revenue ⇑ $7 million
|
U.S. Revenue ⇑ $4 million
|
Non-U.S. Revenue ⇑ $3 million
|
||||||
Global R&I revenue increased 4% compared to the third quarter of 2021 and reflects growth in both the U.S. (4%) and internationally (4%) mainly driven by continued strong retention and demand for credit research, analytics and models.
Changes in foreign currency translation rates unfavorably impacted R&I revenue by six percentage points.
Constant currency revenue growth
(1)
was 10%.
ARR
(2)
grew 8%.
57
DATA AND INFORMATION REVENUE
|
Three months ended September 30,
|
||
2022
-----------------------------------------------------------------------------------
2021
__________________________________________________
__
____________________________________________________
|
D&I: Global revenue ⇑ $2 million
|
U.S. Revenue ⇑ $5 million
|
Non-U.S. Revenue ⇓ $3 million
|
||||||
Global D&I revenue increased 1% compared to the third quarter of 2021 and reflects growth in the U.S. (9%) partially offset by decreases internationally (3%) mainly driven by:
–
strong retention and new sales for ratings feeds coupled with pricing increases; and
–
continued demand for company data.
Changes in foreign currency translation rates unfavorably impacted D&I revenue by eleven percentage points.
Organic constant currency revenue growth
(1)
was 12%.
ARR
(2)
grew 9%.
|
MA: Q3 Operating and SG&A Expense ⇑ $32 million
|
||
The increase in operating and SG&A expenses compared to the third quarter of 2021 reflected growth in compensation costs of $39 million partially offset by a decrease in non-compensation of $7 million. The most notable drivers of these changes were:
| Compensation costs | Non-compensation costs | |||||||
| The increase is primarily due to: | The decrease is primarily due to: | |||||||
| — inorganic expense growth from acquisitions; and | — transaction-related costs in 2021 associated with acquisitions, most notably $22 million in RMS acquisition-related costs that did not recur in 2022; | |||||||
|
— higher salaries and benefits related to headcount growth;
partially offset by:
|
||||||||
| — favorable changes in FX translation rates. | — charitable contributions via the Moody's Foundation in 2021 that did not recur in 2022; and | |||||||
|
— favorable changes in FX translation rates;
partially offset by:
|
||||||||
| — operating and integration-related costs associated with recent acquisitions. | ||||||||
58
|
MA: Adjusted Operating Margin 30.3% ⇑ 430 BPS
|
||
The Adjusted Operating Margin increase for MA is primarily due to the 14% increase in global MA revenue.
| Depreciation and amortization | ||
The increase in depreciation and amortization expense is driven by higher amortization of intangible assets reflecting recent M&A activity (most notably RMS) and amortization of internally developed software.
59
Nine months ended September 30, 2022 compared with nine months ended September 30, 2021
Executive Summary
–
The following table provides an executive summary of key operating results for the nine months ended September 30, 2022. Following this executive summary is a more detailed discussion of the Company’s operating results as well as a discussion of the operating results of the Company’s reportable segments.
| Nine Months Ended September 30, | ||||||||||||||
| Financial measure: | 2022 | 2021 | % Change | Insight and Key Drivers of Change Compared to Prior Year | ||||||||||
| Moody's total revenue | $ | 4,178 | $ | 4,679 | (11 | %) | — reflects lower MIS revenue partially offset by growth in MA | |||||||
| MIS external revenue | $ | 2,123 | $ | 2,941 | (28 | %) |
— credit market activity remained muted across all sectors given ongoing market volatility, central bank actions, high levels of balance sheet cash, as well as heightened inflationary and recessionary concerns
|
|||||||
| MA external revenue | $ | 2,055 | $ | 1,738 | 18 | % |
— inorganic growth from acquisitions; and
— strong organic growth across all LOBs, most notably for KYC and compliance solutions coupled with continued strong retention and demand for credit research, analytics and models
|
|||||||
| Total operating and SG&A expenses | $ | 2,327 | $ | 2,167 | (7 | %) |
— operational and integration costs associated with recent acquisitions; and
— increases in hiring and salary growth;
partially offset by:
— lower incentive compensation accruals and performance-based equity compensation; and
— favorable changes in FX translation rates
|
|||||||
| Depreciation and amortization | $ | 242 | $ | 180 | (34 | %) |
— higher amortization of intangible assets reflecting recent M&A activity (most notably RMS); and
— amortization of internally developed software
|
|||||||
| Restructuring | $ | 32 | $ | 2 | NM |
— the 2022 charge is pursuant to the Company's 2022 - 2023 Geolocation Restructuring Program, more fully discussed in Note 11 to the condensed consolidated financial statements
|
||||||||
| Total non-operating (expense) income, net | $ | (144) | $ | (91) | (58 | %) |
— reflects a $40 million benefit in the prior period related to the reversal of tax-related interest accruals pursuant to the resolution of tax matters; and
— the 2022 amount includes FX translation losses of $20 million reclassified to earnings resulting from the Company no longer conducting commercial operations in Russia
|
|||||||
| Operating margin | 37.7 | % | 49.8 | % | (1210 BPS) | — margin declines primarily due to the aforementioned decrease in MIS revenue | ||||||||
| Adjusted Operating Margin | 44.3 | % | 53.7 | % | (940 BPS) | |||||||||
| ETR | 21.3 | % | 20.2 | % | (110BPS) |
— primarily reflects the non-deductible nature of the aforementioned FX translation losses resulting from the Company no longer conducting commercial operations in Russia; and
— the resolution of UTPs in the first nine months of 2021 that did not recur to the same extent in the first nine months of 2022;
partially offset by:
— a favorable mix of earnings in the jurisdictions in which Moody's operates
|
||||||||
| Diluted EPS | $ | 6.10 | $ | 9.51 | (36 | %) | — primarily due to declines in MIS revenue coupled with the aforementioned increase in expenses | |||||||
| Adjusted Diluted EPS | $ | 6.96 | $ | 9.96 | (30 | %) | ||||||||
60
Moody’s Corporation
| Nine Months Ended September 30, |
% Change Favorable
(Unfavorable) |
||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Revenue: | |||||||||||||||||
| United States | $ | 2,214 | $ | 2,557 | (13 | %) | |||||||||||
| Non-U.S.: | |||||||||||||||||
| EMEA | 1,271 | 1,402 | (9 | %) | |||||||||||||
| Asia-Pacific | 422 | 460 | (8 | %) | |||||||||||||
| Americas | 271 | 260 | 4 | % | |||||||||||||
| Total Non-U.S. | 1,964 | 2,122 | (7 | %) | |||||||||||||
| Total | 4,178 | 4,679 | (11 | %) | |||||||||||||
| Expenses: | |||||||||||||||||
| Operating | 1,203 | 1,152 | (4 | %) | |||||||||||||
| SG&A | 1,124 | 1,015 | (11 | %) | |||||||||||||
| Depreciation and amortization | 242 | 180 | (34 | %) | |||||||||||||
| Restructuring | 32 | 2 | NM | ||||||||||||||
| Total | 2,601 | 2,349 | (11 | %) | |||||||||||||
| Operating income | 1,577 | 2,330 | (32 | %) | |||||||||||||
|
Adjusted Operating Income
(1)
|
1,851 | 2,512 | (26 | %) | |||||||||||||
| Interest expense, net | (166) | (109) | (52 | %) | |||||||||||||
| Other non-operating income, net | 22 | 18 | 22 | % | |||||||||||||
| Non-operating (expense) income, net | (144) | (91) | (58 | %) | |||||||||||||
| Net income attributable to Moody’s | $ | 1,128 | $ | 1,787 | (37 | %) | |||||||||||
| Diluted weighted average shares outstanding | 184.9 | 188.0 | 2 | % | |||||||||||||
| Diluted EPS attributable to Moody’s common shareholders | $ | 6.10 | $ | 9.51 | (36 | %) | |||||||||||
|
Adjusted Diluted EPS
(1)
|
$ | 6.96 | $ | 9.96 | (30 | %) | |||||||||||
| Operating margin | 37.7 | % | 49.8 | % | |||||||||||||
|
Adjusted Operating Margin
(1)
|
44.3 | % | 53.7 | % | |||||||||||||
| Effective tax rate | 21.3 | % | 20.2 | % | |||||||||||||
GLOBAL REVENUE
|
Nine months ended September 30,
|
||
2022
-----------------------------------------------------------------------------------
2021
_______________________________________________
_________
_______________________________________________
|
Global revenue ⇓ $501 million
|
U.S. Revenue ⇓ $343 million
|
Non-U.S. Revenue ⇓ $158 million
|
|||||||||||||||
61
The decrease in global revenue reflected declines in MIS in all regions, partially offset by growth in MA in all regions. Refer to the section entitled “Segment Results” of this MD&A for a more fulsome discussion of the Company’s segment revenue.
Changes in foreign currency translation rates unfavorably impacted global revenue by three percent.
Organic constant currency revenue
(1)
for MCO decreased 13%.
(1)
Refer to the section entitled "Non-GAAP Financial Measures" of this MD&A for the definition and methodology that the Company utilizes to calculate this metric.
|
YTD Operating Expense ⇑ $51 million
|
YTD SG&A Expense ⇑ $109 million
|
|||||||
-------------------------------------
|
Compensation expenses decreased $9 million and reflected:
|
Compensation expenses increased $74 million reflecting:
|
|||||||
|
— lower incentive compensation accruals and performance-based equity compensation of $67 million, which aligns with actual/projected financial and operating performance; and
|
— inorganic growth from acquisitions of $43 million; and | |||||||
|
— higher salaries and benefits of approximately $86 million primarily due to hiring and salary increases;
partially offset by:
|
||||||||
|
— approximately $35 million in higher compensation costs eligible for capitalization in 2022 reflecting certain product development in the MA operating segment;
partially offset by:
|
— lower incentive compensation accruals and performance-based equity compensation of $46 million, which aligns with actual/projected financial and operating performance.
|
|||||||
| — inorganic growth from acquisitions of $101 million. | ||||||||
|
Non-compensation expenses increased $60 million reflecting:
|
Non-compensation expenses increased $35 million reflecting:
|
|||||||
|
— inorganic growth from acquisitions of $31 million; and
|
— inorganic growth from acquisitions of $30 million; and
|
|||||||
|
— higher costs of $20 million relating to strategic initiatives to support business growth coupled with enhancements to technology infrastructure to enable automation, innovation and efficiency.
|
— higher bad debt reserves of $13 million resulting from the impact of the Russia/Ukraine conflict;
partially offset by:
|
|||||||
|
— charitable contributions via the Moody's Foundation in 2021 that did not recur in 2022.
|
||||||||
| Depreciation and amortization | ||
The increase in depreciation and amortization expense is driven by higher amortization of intangible assets reflecting recent M&A activity (most notably RMS) and amortization of internally developed software.
| Restructuring | ||
The restructuring charge in the first nine months of 2022 relates to the Company's 2022 - 2023 Geolocation Restructuring Program as more fully discussed in Note 11 to the condensed consolidated financial statements.
|
Operating margin 37.7%, down 1,210 BPS
|
Adjusted Operating Margin 44.3%, down 940 BPS
|
||||
Overall, margin declines resulted from the aforementioned decrease in MIS revenue coupled with operating expense growth (mainly from inorganic expense growth from acquisitions).
62
|
Interest Expense, net ⇑ $57 million
|
Other non-operating income ⇑ $4 million
|
||||
| Increase in expense is primarily due to: | Increase in income is primarily due to: | |||||||
|
— a $40 million benefit in the prior year related to the reversal of tax-related interest accruals pursuant to the resolution of UTPs; and
|
— an increase in FX gains primarily due to the strengthening of the U.S. dollar relative to the euro;
|
|||||||
|
— higher interest on borrowings resulting from the issuance of new long-term debt in 2022 (refer to the "Material Cash Requirements" section of this MD&A for further information on the Company's indebtedness).
|
— a $13 million loss in 2021 on a forward contract used to hedge a portion of the GBP-denominated RMS purchase price;
|
|||||||
|
— an $11 million benefit in 2022 relating to statute of limitations lapses on certain indemnification obligations relating to the MAKS divestiture; and
|
||||||||
|
— an $8 million loss in 2021 on the settlement of pension obligations resulting from lump sum distributions from the Company's defined benefit pension plans;
partially offset by
|
||||||||
|
— FX translation losses of $20 million reclassified to earnings resulting from the Company no longer conducting commercial operations in Russia (refer to the section above entitled "Russia/Ukraine Conflict" for further information).
|
||||||||
|
ETR ⇑ 110 BPS
|
||
The drivers for the increase in the ETR include:
–
approximately $40 million in higher tax benefits from the resolution of UTPs in the first nine months of 2021 compared to the first nine months of 2022; and
–
the non-deductible nature of the aforementioned FX translation losses resulting from the Company no longer conducting commercial operations in Russia;
partially offset by:
–
a favorable mix of earnings in the jurisdictions in which Moody's operates.
|
Diluted EPS ⇓ $3.41
|
Adjusted Diluted EPS ⇓ $3.00
|
||||
Diluted EPS and Adjusted Diluted EPS declined mainly due to lower operating income and Adjusted Operating Income, respectively. Refer to the section entitled “Non-GAAP Financial Measures” of this MD&A for items excluded in the derivation of Adjusted Diluted EPS.
63
Moody’s Investors 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) |
||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Revenue: | |||||||||||||||||
| Corporate finance (CFG) | $ | 1,016 | $ | 1,643 | (38 | %) | |||||||||||
| Structured finance (SFG) | 368 | 399 | (8 | %) | |||||||||||||
| Financial institutions (FIG) | 368 | 465 | (21 | %) | |||||||||||||
| Public, project and infrastructure finance (PPIF) | 337 | 403 | (16 | %) | |||||||||||||
| Total ratings revenue | 2,089 | 2,910 | (28 | %) | |||||||||||||
| MIS Other | 34 | 31 | 10 | % | |||||||||||||
| Total external revenue | 2,123 | 2,941 | (28 | %) | |||||||||||||
| Intersegment royalty | 129 | 124 | 4 | % | |||||||||||||
| Total | 2,252 | 3,065 | (27 | %) | |||||||||||||
| Expenses: | |||||||||||||||||
| Operating and SG&A (external) | 1,033 | 1,073 | 4 | % | |||||||||||||
| Operating and SG&A (intersegment) | 5 | 6 | 17 | % | |||||||||||||
| Total operating and SG&A expense | 1,038 | 1,079 | 4 | % | |||||||||||||
| Adjusted Operating Income | $ | 1,214 | $ | 1,986 | (39 | %) | |||||||||||
| Adjusted Operating Margin | 53.9 | % | 64.8 | % | |||||||||||||
| Depreciation and amortization | 60 | 53 | (13 | %) | |||||||||||||
| Restructuring | 15 | — | NM | ||||||||||||||
The following chart presents changes in rated issuance volumes compared to the first nine months of
2021. To the extent that changes in rated issuance volumes had a material impact to MIS's revenue compared to the prior year, those impacts are discussed below.
64
MOODY'S INVESTORS SERVICE REVENUE
|
Nine months ended September 30,
|
||
2022
-----------------------------------------------------------------------------------
2021
_______________________________________________
_________
_______________________________________________
|
MIS: Global revenue ⇓ $818 million
|
U.S. Revenue ⇓ $508 million
|
Non-U.S. Revenue ⇓ $310 million
|
||||||
–
The decrease in global MIS revenue primarily relates to a 30% decrease in rated issuance volumes, which resulted in transaction revenue declining $827 million compared to the same period in the prior year. The decline in rated issuance volumes compared to the first nine months of 2021 reflected muted credit market activity across all sectors given ongoing market volatility, central bank actions, high levels of balance sheet cash, as well as heightened inflationary and recessionary concerns
.
–
Changes in foreign currency translation rates unfavorably impacted MIS revenue by two percentage points.
CFG REVENUE
|
Nine months ended September 30,
|
||
2022
-----------------------------------------------------------------------------------
2021
_______________________________________________
_________
_______________________________________________
|
CFG: Global revenue ⇓ $627 million
|
U.S. Revenue ⇓ $420 million
|
Non-U.S. Revenue ⇓ $207 million
|
||||||
65
Global CFG revenue for the nine months ended September 30, 2022 and 2021 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 programs such as commercial paper, medium term notes, and ICRA corporate finance revenue.
The decrease in CFG revenue of 38% reflected declines both in the U.S. and internationally of 38% each, which resulted in a $635 million decrease in transaction revenue.
The most notable drivers of the decrease compared to the first nine months of 2021 reflected declines in leveraged finance and investment-grade issuance activity compared to a strong prior year period resulting from muted credit market activity given ongoing market volatility, central bank actions, high levels of balance sheet cash, as well as heightened inflationary and recessionary concerns
.
SFG REVENUE
|
Nine months ended September 30,
|
||
2022
-----------------------------------------------------------------------------------
2021
_______________________________________________
_________
_______________________________________________
|
SFG: Global revenue ⇓ $31 million
|
U.S. Revenue ⇓ $5 million
|
Non-U.S. Revenue ⇓ $26 million
|
||||||
Global SFG revenue for the nine months ended September 30, 2022 and 2021 was comprised as follows:
The decrease in SFG revenue of 8% reflected declines in both the U.S. (2%) and internationally (18%). Transaction revenue decreased $34 million compared to the first nine months of 2021.
66
The most notable drivers of the decline in SFG revenue were:
–
a decrease in CLO refinancing activity in the U.S. and EMEA resulting from the widening of credit spreads for this asset class;
partially offset by:
–
strong growth in U.S. CMBS securitization activity before a widening of credit spreads late in the first quarter of 2022.
Changes in foreign currency translation rates unfavorably impacted SFG revenue by three percentage points.
FIG REVENUE
|
Nine months ended September 30,
|
||
2022
-----------------------------------------------------------------------------------
2021
_______________________________________________
_________
_______________________________________________
|
FIG: Global revenue ⇓ $97 million
|
U.S. Revenue ⇓ $61 million
|
Non-U.S. Revenue ⇓ $36 million
|
||||||
Global FIG revenue for the nine months ended September 30, 2022 and 2021 was comprised as follows:
The decrease in FIG revenue of 21% reflected declines in both the U.S. (27%) and internationally (15%) which resulted in a $93 million decrease in transaction revenue compared to the same period in the prior year.
The most notable drivers of the decline reflected lower revenue from banking and insurance issuers, mainly due to:
–
an unfavorable product mix; and
–
a decline in opportunistic issuance, as banks, insurers and asset management issuers were well capitalized following financing activity in the prior year period ahead of anticipated interest rate increases.
Changes in foreign currency translation rates unfavorably impacted FIG revenue by three percentage points.
67
PPIF REVENUE
|
Nine months ended September 30,
|
||
2022
-----------------------------------------------------------------------------------
2021
_______________________________________________
_________
_______________________________________________
|
PPIF: Global revenue ⇓ $66 million
|
U.S. Revenue ⇓ $23 million
|
Non-U.S. Revenue ⇓ $43 million
|
||||||
Global PPIF revenue for the nine months ended September 30, 2022 and 2021 was comprised as follows:
Transaction revenue decreased $65 million compared to the same period in the prior year.
The 16% decrease in PPIF revenue reflected declines in both the U.S. (10%) and internationally (25%). The decrease in revenue was mainly due to:
–
declines in U.S. public finance revenue resulting from market volatility, which increased funding costs, coupled with issuers in this sector being currently well capitalized; and
–
declines in sovereign, project finance and infrastructure finance rated issuance volumes in EMEA resulting from market volatility and rising funding costs.
Changes in foreign currency translation rates unfavorably impacted PPIF revenue by two percentage points.
|
MIS: YTD Operating and SG&A Expense ⇓ $40 million
|
||
68
The decrease in operating and SG&A expense reflects an $85 million decrease in compensation costs partially offset by a $45 million increase in non-compensation expenses. The most notable drivers of these changes are as follows:
| Compensation costs | Non-compensation costs | |||||||
| The decrease is primarily due to: | The increase is primarily due to: | |||||||
|
— lower incentive compensation accruals and performance-based equity compensation, which aligns with actual/projected financial and operating performance; and
|
— higher bad debt reserves resulting from the impact of the Russia/Ukraine conflict, which represented approximately 35% of the increase; | |||||||
|
— favorable changes in FX translation rates.
|
— higher costs relating to strategic initiatives to support business growth coupled with enhancements to technology infrastructure to enable automation, innovation and efficiency, which represented approximately 25% of the increase; and | |||||||
|
— higher travel costs resulting from minimal travel in the prior year in light of COVID-19, which represented approximately 15% of the increase;
partially offset by:
|
||||||||
|
— charitable contributions via the Moody's Foundation in 2021 that did not recur in 2022.
|
||||||||
| Other Expenses | ||
The restructuring charge in the first nine months of 2022 relates to the Company's 2022 - 2023 Geolocation Restructuring Program as more fully discussed in Note 11 to the condensed consolidated financial statements.
|
Adjusted Operating Margin of 53.9% ⇓ 1,090 BPS
|
||
The MIS Adjusted Operating Margin decline primarily reflected the aforementioned 28% decrease in revenue.
69
Moody’s Analytics
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) |
||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Revenue: | |||||||||||||||||
| Decision Solutions (DS) | $ | 971 | $ | 697 | 39 | % | |||||||||||
| Research and Insights (R&I) | 552 | 523 | 6 | % | |||||||||||||
| Data and Information (D&I) | 532 | 518 | 3 | % | |||||||||||||
| Total external revenue | 2,055 | 1,738 | 18 | % | |||||||||||||
| Intersegment revenue | 5 | 6 | (17 | %) | |||||||||||||
| Total MA Revenue | 2,060 | 1,744 | 18 | % | |||||||||||||
| Expenses: | |||||||||||||||||
| Operating and SG&A (external) | 1,294 | 1,094 | (18 | %) | |||||||||||||
| Operating and SG&A (intersegment) | 129 | 124 | (4 | %) | |||||||||||||
| Total operating and SG&A expense | 1,423 | 1,218 | (17 | %) | |||||||||||||
| Adjusted Operating Income | $ | 637 | $ | 526 | 21 | % | |||||||||||
| Adjusted Operating Margin | 30.9 | % | 30.2 | % | |||||||||||||
| Depreciation and amortization | 182 | 127 | (43 | %) | |||||||||||||
| Restructuring | 17 | 2 | NM | ||||||||||||||
MOODY'S ANALYTICS REVENUE
|
Nine months ended September 30,
|
||
2022
-----------------------------------------------------------------------------------
2021
_______________________________________________
_________
_______________________________________________
|
MA: Global revenue ⇑ $317 million
|
U.S. Revenue ⇑ $165 million
|
Non-U.S. Revenue ⇑ $152 million
|
||||||
The 18% increase in global MA revenue reflects growth both in the U.S. (22%) and internationally (15%) in all LOBs and includes revenue from the acquisitions of Cortera, RMS, RealXData, PassFort and kompany. Change in foreign currency translation rates unfavorably impacted MA revenue by five percentage points.
–
Organic constant currency revenue
(1)
growth was 10%.
–
ARR
(2)
grew 9% reflecting increased demand for KYC and banking products within the Decision Solutions LOB coupled with growth for company data and ratings feeds products in the Data & Information LOB.
70
DECISION SOLUTIONS REVENUE
|
Nine months ended September 30,
|
||
2022
-----------------------------------------------------------------------------------
2021
_______________________________________________
_________
_______________________________________________
|
DS: Global revenue ⇑ $274 million
|
U.S. Revenue ⇑ $131 million
|
Non-U.S. Revenue ⇑ $143 million
|
||||||
Global DS revenue grew 39% compared to the first nine months of 2021 with the most notable drivers of the increase reflecting:
–
inorganic revenue growth from the acquisitions of RMS, PassFort, RealXData and kompany;
–
continued demand for KYC and compliance solutions reflecting increased customer and supplier risk data usage;
–
growth in recurring revenue for banking solutions reflecting strong renewals of multi-year commitments; and
–
growth in subscription-based revenue for pension and actuarial modeling tools in support of certain international accounting standards relating to insurance contracts.
Changes in foreign currency translation rates unfavorably impacted DS revenue by four percentage points.
Organic constant currency revenue
(1)
grew 10%.
ARR
(2)
grew 10%.
RESEARCH AND INSIGHTS REVENUE
|
Nine months ended September 30,
|
||
2022
-----------------------------------------------------------------------------------
2021
_______________________________________________
_________
_______________________________________________
|
R&I: Global revenue ⇑ $29 million
|
U.S. Revenue ⇑ $19 million
|
Non-U.S. Revenue ⇑ $10 million
|
||||||
Global R&I revenue increased 6% compared to the first nine months of 2021 mainly driven by growth in recurring revenue of 6%, primarily due to continued strong retention and demand for credit research, analytics and models.
Changes in foreign currency translation rates unfavorably impacted R&I revenue by two
percentage points.
71
Constant currency revenue
(1)
growth for R&I was 8%.
ARR
(2)
grew 8%.
DATA AND INFORMATION REVENUE
|
Nine months ended September 30,
|
||
2022
-----------------------------------------------------------------------------------
2021
_______________________________________________
_________
_______________________________________________
|
D&I: Global revenue ⇑ $14 million
|
U.S. Revenue ⇑ $15 million
|
Non-U.S. Revenue ⇓ $1 million
|
||||||
Global D&I revenue increased 3% compared to the first nine months of 2021 and includes inorganic revenue growth from the acquisition of Cortera. The main drivers of the increase were:
–
continued strong retention and new sales for ratings feeds coupled with pricing increases; and
–
increased demand for company data.
Changes in foreign currency translation unfavorably impacted D&I revenue by eight percentage points.
Organic constant currency revenue
(1)
growth for D&I was 10%.
ARR
(2)
grew 9%.
|
MA: YTD Operating and SG&A Expense ⇑ $200 million
|
||
The increase in operating and SG&A expenses compared to the first nine months of 2021 is primarily due to growth in both compensation and non-compensation costs of $153 million and $47 million, respectively, reflecting:
| Compensation costs | Non-compensation costs | |||||||
|
— inorganic expense growth from acquisitions, which represented approximately 95% of the growth;
partially offset by:
|
— operating and integration-related costs associated with recent acquisitions;
partially offset by:
|
|||||||
| — favorable changes in FX translation rates. | — favorable changes in FX translation rates. | |||||||
72
|
MA: Adjusted Operating Margin 30.9% ⇑ 70BPS
|
||
The Adjusted Operating Margin increase for MA is primarily due to the 18% increase in global MA revenue partially offset by operational and integration-related costs associated with recent acquisitions.
| Depreciation and amortization | ||
| Restructuring | ||
The restructuring charge in the first nine months of 2022 relates to the Company's 2022 - 2023 Geolocation Restructuring Program as more fully discussed in Note 11 to the condensed consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
Moody's remains committed to using its cash flow to create value for shareholders by both investing in the Company'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 dividends and share repurchases.
Cash Flow
The Company is currently financing its operations, capital expenditures, acquisitions and share repurchases from operating and financing 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) |
||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Net cash provided by operating activities | $ | 1,097 | $ | 1,706 | $ | (609) | |||||||||||
| Net cash used in investing activities | $ | (172) | $ | (2,161) | $ | 1,989 | |||||||||||
| Net cash (used in) provided by financing activities | $ | (957) | $ | 135 | $ | (1,092) | |||||||||||
|
Free Cash Flow
(1)
|
$ | 893 | $ | 1,629 | $ | (736) | |||||||||||
(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 in the nine months ended September 30, 2022 decreased $609 million compared to the same period in 2021 primarily reflecting a decrease in net income (see section entitled “Results of Operations” of this MD&A for further discussion).
Net cash used in investing activities
The $1,989 million decrease in cash used in investing activities in the nine months ended September 30, 2022 compared to the same period in 2021 primarily reflects:
–
higher cash paid of $1,929 million in the prior year for acquisitions, primarily reflecting the acquisition of RMS in 2021; and
–
higher net cash receipts of $243 million in 2022 relating to the settlement of net investment hedges;
partially offset by:
–
an increase in cash paid for capital additions of $127 million reflecting product development and investments relating to strategic initiatives to support business growth and to enhance technology infrastructure to enable automation, innovation and efficiency; and
–
$56 million in higher net purchases of investments in 2022 compared to the same period in the prior year (refer to Note 7 and Note 13 to the condensed consolidated financial statements for further information on the Company's investments)
.
Net cash (used in) provided by financing activities
The $1,092 million increase in cash used in financing activities in the nine months ended September 30, 2022 compared to the same period in the prior year was primarily attributed to:
–
higher net issuance (issuance, less repayment) of $690 million in long term debt in 2021;
–
higher cash paid for treasury share repurchases in 2022 of $355 million, which includes payment for shares made under an ASR agreement executed in the first quarter of 2022; and
73
–
higher dividend payments of $40 million in 2022.
Cash and cash equivalents and short-term investments
The Company’s aggregate cash and cash equivalents and short-term investments of $1.7 billion at September 30, 2022 included approximately $1.6 billion located outside of the U.S. Approximately 29% of the Company’s aggregate cash and cash equivalents and short-term investments is denominated in euros and British pounds. The Company manages both its U.S. and non-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 has commenced repatriating 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
Indebtedness
At September 30, 2022, Moody’s had $7.5 billion of outstanding debt and approximately $1 billion of additional capacity available under the Company’s CP Program, which is backstopped by the $1.25 billion 2021 Facility.
The repayment schedule for the Company’s borrowings outstanding at September 30, 2022 is as follows:
For additional information on the Company's outstanding debt, refer to Note 15 to the condensed consolidated financial statements.
Future interest payments and fees associated with the Company's debt and credit facility are expected to be $4.3 billion, of which approximately $271 million is expected to be paid over the next twelve months.
Management may consider pursuing additional long-term financing when it is appropriate in light of cash requirements for operations, share repurchases and other strategic opportunities, which would result in higher financing costs.
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 September 30, 2022, these purchase obligations totaled $236 million, of which $158 million is expected to be paid in the next twelve months.
Leases
The Company has operating lease obligations of $493 million at September 30, 2022, primarily related to real estate leases, of which $104 million in payments are expected over the next twelve months. For more information on the Company's operating leases, refer to Note 16 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 September 30, 2022, 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.
74
Dividends and share repurchases
On October 24, 2022, the Board approved the declaration of a quarterly dividend of $0.70 per share for Moody’s common stock, payable December 14, 2022 to shareholders of record at the close of business on November 23, 2022. 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 September 30, 2022, the Company had approximately $848 million of remaining authority. There is no established expiration date for the remaining authorizations.
Restructuring
As more fully discussed in Note 11 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 from their current locations. Cash outlays associated with this program are expected to be $75 million to $100 million, which are expected to be paid through 2024.
Sources of Funding to Satisfy Material 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 over 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 as 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 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-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
:
The Company presents Adjusted Operating Income and Adjusted Operating Margin because management deems these metrics to be useful measures to provide additional perspective on Moody's operating performance. Adjusted Operating Income excludes the impact of: i) depreciation and amortization; and ii) restructuring charges/adjustments. Depreciation and amortization are excluded because companies utilize productive assets of different ages and use different methods of acquiring and depreciating productive assets. Restructuring charges are excluded as the frequency and magnitude of these charges may vary widely across periods and companies.
Management believes that the exclusion of 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, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Operating income | $ | 413 | $ | 676 | $ | 1,577 | $ | 2,330 | |||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Depreciation and amortization | 83 | 61 | 242 | 180 | |||||||||||||||||||
| Restructuring | 1 | — | 32 | 2 | |||||||||||||||||||
| Adjusted Operating Income | $ | 497 | $ | 737 | $ | 1,851 | $ | 2,512 | |||||||||||||||
| Operating margin | 32.4 | % | 44.3 | % | 37.7 | % | 49.8 | % | |||||||||||||||
| Adjusted Operating Margin | 39.0 | % | 48.3 | % | 44.3 | % | 53.7 | % | |||||||||||||||
75
Adjusted Net Income and Adjusted Diluted EPS attributable to Moody's common shareholders:
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 impact of: i) amortization of acquired intangible assets; ii) restructuring charges; and iii) FX translation losses reclassified to earnings resulting from the Company no longer conducting commercial operations in Russia.
The Company excludes the impact of amortization of acquired intangible assets as companies utilize intangible assets with different estimated 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. Restructuring charges and FX translation losses resulting from the Company no longer conducting commercial operations in Russia are excluded as the frequency and magnitude of these items may vary widely across periods and companies.
The Company excludes the aforementioned items to provide additional perspective when 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.
Below is a reconciliation of these measures to their most directly comparable U.S. GAAP amounts:
|
Three Months Ended September 30,
|
Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
|
Amounts in millions
|
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||
| Net income attributable to Moody's common shareholders | $ | 303 | $ | 474 | $ | 1,128 | $ | 1,787 | |||||||||||||||||||||||||||
| Pre-Tax Acquisition-Related Intangible Amortization Expenses | $ | 48 | $ | 37 | $ | 150 | $ | 108 | |||||||||||||||||||||||||||
| Tax on Acquisition-Related Intangible Amortization Expenses | (11) | (8) | (35) | (24) | |||||||||||||||||||||||||||||||
| Net Acquisition-Related Intangible Amortization Expenses |
|
37 |
|
29 |
|
115 |
|
84 | |||||||||||||||||||||||||||
| Pre-Tax Restructuring | $ | 1 | $ | — | $ | 32 | $ | 2 | |||||||||||||||||||||||||||
| Tax on Restructuring | (1) | — | (8) | — | |||||||||||||||||||||||||||||||
| Net Restructuring | — | — | 24 | 2 | |||||||||||||||||||||||||||||||
|
FX losses resulting from the Company no longer conducting commercial operations in Russia
|
— | — | 20 | — | |||||||||||||||||||||||||||||||
| Adjusted Net Income |
|
$ | 340 |
|
$ | 503 |
|
$ | 1,287 |
|
$ | 1,873 | |||||||||||||||||||||||
|
Three Months Ended September 30,
|
Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||
| Diluted earnings per share attributable to Moody's common shareholders | $ | 1.65 | $ | 2.53 | $ | 6.10 | $ | 9.51 | |||||||||||||||||||||||||||
| Pre-Tax Acquisition-Related Intangible Amortization Expenses | $ | 0.26 | $ | 0.20 | $ | 0.81 | $ | 0.57 | |||||||||||||||||||||||||||
| Tax on Acquisition-Related Intangible Amortization Expenses | (0.06) | (0.04) | (0.19) | (0.13) | |||||||||||||||||||||||||||||||
| Net Acquisition-Related Intangible Amortization Expenses | 0.20 | 0.16 | 0.62 | 0.44 | |||||||||||||||||||||||||||||||
| Pre-Tax Restructuring | $ | 0.01 | $ | — | $ | 0.17 | $ | 0.01 | |||||||||||||||||||||||||||
| Tax on Restructuring | (0.01) | — | (0.04) | — | |||||||||||||||||||||||||||||||
| Net Restructuring | — | — | 0.13 | 0.01 | |||||||||||||||||||||||||||||||
| FX losses resulting from the Company no longer conducting commercial operations in Russia | — | — | 0.11 | — | |||||||||||||||||||||||||||||||
| Adjusted Diluted EPS | $ | 1.85 | $ | 2.69 | $ | 6.96 | $ | 9.96 | |||||||||||||||||||||||||||
Note: the tax impacts in the table above were calculated using tax rates in effect in the jurisdiction for which the item relates.
76
Free Cash Flow
:
The Company defines Free Cash Flow as net cash provided by operating activities minus payments for capital additions. Management believes that Free Cash Flow is a useful metric in assessing the Company’s cash flows to service debt, pay dividends and to fund acquisitions and share repurchases. Management deems capital expenditures essential to the Company’s product and service innovations and maintenance of Moody’s operational capabilities. Accordingly, capital expenditures are deemed to be a recurring use of Moody’s cash flow. Below is a reconciliation of the Company’s net cash flows from operating activities to Free Cash Flow:
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net cash flows provided by operating activities | $ | 1,097 | $ | 1,706 | |||||||
| Capital additions | (204) | (77) | |||||||||
| Free Cash Flow | $ | 893 | $ | 1,629 | |||||||
| Net cash flows used in investing activities | $ | (172) | $ | (2,161) | |||||||
| Net cash flows (used in) provided by financing activities | $ | (957) | $ | 135 | |||||||
Organic Constant Currency Revenue Growth (Decline)/Constant Currency Revenue Growth (Decline):
Beginning in the second quarter of 2022, the Company began presenting organic constant currency revenue growth (decline) and constant currency revenue growth (decline) as its non-GAAP measure of revenue growth (decline). Previously, the Company presented organic revenue growth (decline), which excluded only the impact of certain acquisition activity. Management deems this revised measure to be useful in providing additional perspective in assessing the Company's revenue growth (decline) excluding both the inorganic revenue impacts from certain acquisition activity and the impacts of changes in foreign exchange rates. The Company calculates the dollar impact of foreign exchange as the difference between the translation of its current period non-USD functional currency results using prior comparative period weighted average foreign exchange translation rates and current year as reported results.
Below is a reconciliation of the Company's reported revenue and growth rates to its organic constant currency revenue growth (decline) and constant currency revenue growth (decline) measures:
|
Three Months Ended September 30,
|
Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| Amounts in millions | 2022 | 2021 | Change | Growth | 2022 | 2021 | Change | Growth | |||||||||||||||||||||||||||||||||||||||
| MA revenue | $ | 685 | $ | 601 | $ | 84 | 14% | $ | 2,055 | $ | 1,738 | $ | 317 | 18% | |||||||||||||||||||||||||||||||||
| FX impact | 41 | — | 41 | 81 | — | 81 | |||||||||||||||||||||||||||||||||||||||||
| Inorganic revenue from acquisitions | (70) | — | (70) | (232) | — | (232) | |||||||||||||||||||||||||||||||||||||||||
| Organic constant currency MA revenue | $ | 656 | $ | 601 | $ | 55 | 9% | $ | 1,904 | $ | 1,738 | $ | 166 | 10% | |||||||||||||||||||||||||||||||||
| Decision Solutions revenue | $ | 325 | $ | 250 | $ | 75 | 30% | $ | 971 | $ | 697 | $ | 274 | 39% | |||||||||||||||||||||||||||||||||
| FX impact | 12 | — | 12 | 28 | — | 28 | |||||||||||||||||||||||||||||||||||||||||
| Inorganic revenue from acquisitions | (70) | — | (70) | (230) | — | (230) | |||||||||||||||||||||||||||||||||||||||||
| Organic constant currency Decision Solutions revenue | $ | 267 | $ | 250 | $ | 17 | 7% | $ | 769 | $ | 697 | $ | 72 | 10% | |||||||||||||||||||||||||||||||||
| Research and Insights revenue | $ | 184 | $ | 177 | $ | 7 | 4% | $ | 552 | $ | 523 | $ | 29 | 6% | |||||||||||||||||||||||||||||||||
| FX impact | 10 | — | 10 | 15 | — | 15 | |||||||||||||||||||||||||||||||||||||||||
| Constant currency Research and Insights revenue | $ | 194 | $ | 177 | $ | 17 | 10% | $ | 567 | $ | 523 | $ | 44 | 8% | |||||||||||||||||||||||||||||||||
| Data and Information revenue | $ | 176 | $ | 174 | $ | 2 | 1% | $ | 532 | $ | 518 | $ | 14 | 3% | |||||||||||||||||||||||||||||||||
| FX impact | 19 | — | 19 | 38 | — | 38 | |||||||||||||||||||||||||||||||||||||||||
| Inorganic revenue from acquisitions | — | — | — | (2) | — | (2) | |||||||||||||||||||||||||||||||||||||||||
| Organic constant currency Data and Information revenue | $ | 195 | $ | 174 | $ | 21 | 12% | $ | 568 | $ | 518 | $ | 50 | 10% | |||||||||||||||||||||||||||||||||
77
|
Three Months Ended September 30,
|
Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| Amounts in millions | 2022 | 2021 | Change | Growth | 2022 | 2021 | Change | Growth | |||||||||||||||||||||||||||||||||||||||
| MCO revenue | $ | 1,275 | $ | 1,526 | $ | (251) | (16)% | $ | 4,178 | $ | 4,679 | $ | (501) | (11)% | |||||||||||||||||||||||||||||||||
| FX impact | 67 | — | 67 | 142 | — | 142 | |||||||||||||||||||||||||||||||||||||||||
| Inorganic revenue from acquisitions | (70) | — | (70) | (232) | — | (232) | |||||||||||||||||||||||||||||||||||||||||
| Organic constant currency MCO revenue | $ | 1,272 | $ | 1,526 | $ | (254) | (17)% | $ | 4,088 | $ | 4,679 | $ | (591) | (13)% | |||||||||||||||||||||||||||||||||
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 | September 30, 2022 | September 30, 2021 | Change | Growth | |||||||||||||||||||
| ARR | |||||||||||||||||||||||
| Decision Solutions | $ | 1,177 | $ | 1,071 | $ | 106 | 10% | ||||||||||||||||
| Research and Insights | 740 | 688 | 52 | 8% | |||||||||||||||||||
| Data and Information | 745 | 683 | 62 | 9% | |||||||||||||||||||
| Total MA ARR | $ | 2,662 | $ | 2,442 | $ | 220 | 9% | ||||||||||||||||
RECENTLY ISSUED ACCOUNTING STANDARDS
Refer to Note 1 to the condensed consolidated financial statements located in Part I of this Form 10-Q for a discussion on the impact to the Company relating to recently issued accounting pronouncements.
CONTINGENCIES
Legal proceedings in which the Company is involved also may impact Moody’s liquidity or operating results. No assurance can be provided as to the outcome of such proceedings. In addition, litigation inherently involves significant costs. For information regarding legal proceedings, see Item 1 - "Financial Statements", Note 17 "Contingencies” in this Form 10-Q.
REGULATION
MIS, certain of the Company's credit rating affiliates and many of the issuers and/or securities that MIS and the affiliates rate, are subject to extensive regulation in the U.S., EU and in other countries (including by state and local authorities). In addition, some of the services offered by MA and its affiliates are subject to regulation in a number of countries. MA also derives a significant amount of its sales from banks and other financial services providers who are subject to regulatory oversight and who are required to pass through certain regulatory requirements to key suppliers such as MA. Existing and proposed laws and regulations can impact the Company’s operations, products and the markets in which the Company operates. Additional laws and regulations 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 Company’s operations, including the issuance of credit ratings, and may negatively impact the Company’s profitability and ability to compete, or result in changes in the demand for the Company’s products and services, in the manner in which the Company’s products and services are utilized and in the manner in which the Company operates.
The regulatory landscape continues to evolve. In the U.S., CRAs are subject to extensive regulation primarily pursuant to the Reform Act and the Dodd-Frank Act. The Reform Act added Section 15E to the Exchange Act and provided the SEC with the authority to establish a registration and oversight program for CRAs registered as NRSROs. The Dodd-Frank Act added additional provisions to Section 15E. Future government transitions, can bring potential changes in the laws affecting CRAs and/or the enforcement of any new or existing legislation, regulation or directives by government authorities.
78
In the EU, the CRA industry is registered and supervised through a pan-EU regulatory framework. ESMA has direct supervisory responsibility for registered CRAs throughout the EU. MIS’s EU CRA subsidiaries are registered and are subject to formal regulation and periodic inspection. From time to time, ESMA publishes interpretive guidance, or thematic reports regarding various aspects of the CRA regulation and, annually, sets out its work program for the forthcoming year. The Commission is moving forward with their sustainable finance strategy released in July 2021. This includes further assessments in respect of both CRAs and sustainability ratings and research, which might lead to legislative action.
On December 31, 2020, the MIS U.K. registered CRA ceased to be registered with and regulated by ESMA and became subject to regulation by the U.K. Financial Conduct Authority (FCA). Regulatory arrangements also came into effect in both the U.K. and the EU to allow credit ratings to be available for regulatory use in both the EU and the U.K. MIS has put arrangements in place to endorse its U.K. credit ratings into the EU and its EU credit ratings into the U.K. The U.K. Government is considering bringing ESG data and ratings firms within the scope of FCA authorization and regulation. The FCA has said that it sees a clear rationale for regulating them.
In light of the regulations that have gone into effect in both the EU and the U.S. (as well as many other countries), periodically and as a matter of course pursuant to their enabling legislation, regulatory authorities have, and will continue to, publish reports that describe their oversight activities. In addition, other legislation, regulation and/or interpretation of existing regulation relating to the Company’s operations, including credit rating, ancillary and research services has been or 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 CRAs. If enacted, any such legislation, regulation or support could change the competitive landscape in which the Company operates. The legal status of CRAs has been addressed by courts in various jurisdictions 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 the Company.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this quarterly report on Form 10-Q are forward-looking statements and are based on future expectations, plans and prospects for the Company's business and operations that involve a number of risks and uncertainties. Such statements involve estimates, projections, goals, forecasts, assumptions and uncertainties that could cause actual results or outcomes to differ materially from those contemplated, expressed, projected, anticipated or implied in the forward-looking statements. Those statements appear at various places throughout this quarterly report on Form 10-Q, including in the sections entitled “Contingencies” under Item 2, “MD&A”, commencing on page
43
of this quarterly report on Form 10-Q, under “Legal Proceedings” in Part II, Item 1, of this Form 10-Q, and elsewhere in the context of statements containing the words “believe,” “expect,” “anticipate,” “intend,” “plan,” “will,” “predict,” “potential,” “continue,” “strategy,” “aspire,” “target,” “forecast,” “project,” “estimate,” “should,” “could,” “may,” and similar expressions or words and variations thereof relating to the Company’s views on future events, trends and contingencies 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 are made as of the date of this quarterly report on Form 10-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, 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 certain factors 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:
•
the impact of general economic conditions, including inflation and related monetary policy actions by governments in response to inflation, on worldwide credit markets and economic activity and its effect on the volume of debt and other securities issued in domestic and/or global capital markets;
•
the global impacts of each of the crisis in Ukraine and COVID-19 on volatility in the U.S. and 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 rates, inflation and other volatility in the financial markets;
•
the level of merger and acquisition activity in the U.S. and abroad;
•
the uncertain effectiveness and possible collateral consequences of U.S. and foreign government actions affecting credit markets, international trade and economic policy, including those related to tariffs, tax agreements and trade barriers;
•
the impact of MIS’s withdrawal of its credit ratings on Russian entities and of Moody’s no longer conducting commercial operations in Russia;
•
concerns in the marketplace affecting our credibility or otherwise affecting market perceptions of the integrity or utility of independent credit agency ratings;
79
•
the introduction of competing products or technologies by other companies;
•
pricing pressure from competitors and/or customers;
•
the level of success of new product development and global expansion;
•
the impact of regulation as an NRSRO, the potential for new U.S., state and local legislation and regulations;
•
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 inquiries to which Moody’s may be subject from time to time;
•
provisions in U.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 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;
•
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 Moody’s global tax planning initiatives;
•
exposure to potential criminal sanctions or civil remedies if Moody’s fails to comply with foreign and U.S. laws and regulations that are applicable in the jurisdictions in which Moody’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 Moody’s to successfully integrate acquired businesses;
•
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.
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 Moody’s annual report on Form 10-K for the year ended December 31, 2021, 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
In the nine months ended September 30, 2022, the Company entered into new hedging transactions, which are disclosed in Note 9 to the condensed consolidated financial statements. The sensitivity analyses disclosed in our Form 10-K for the year ended December 31, 2021 have been updated below to reflect the Company's derivative instrument portfolio as of September 30, 2022.
Foreign exchange risk:
The effects of revaluing assets and liabilities that are denominated in currencies other than a subsidiary’s functional currency are charged to other non-operating income (expense), net in the Company’s consolidated statements of operations. Accordingly, the Company enters into foreign exchange forwards to partially mitigate the change in fair value on certain assets and liabilities denominated in currencies other than a subsidiary’s functional currency. The following table shows the impact to the fair value of the forward contracts if currencies being purchased were to weaken by 10%:
80
|
Foreign Currency Forwards
(1)
|
Impact on fair value of contract | |||||||||||||
| Sell | Buy | |||||||||||||
| U.S. dollar | Euro | $19 million unfavorable impact | ||||||||||||
| U.S. dollar | British pound | $13 million unfavorable impact | ||||||||||||
| U.S. dollar | Canadian dollar | $12 million unfavorable impact | ||||||||||||
| U.S. dollar | Singapore dollar | $5 million unfavorable impact | ||||||||||||
| U.S. dollar | Indian rupee | $2 million unfavorable impact | ||||||||||||
| U.S. dollar | Japanese yen | $1 million unfavorable impact | ||||||||||||
| $52 million unfavorable impact | ||||||||||||||
(1)
Refer to Note 9 to the consolidated financial statements in this Form 10-Q for further detail on the forward contracts.
The change in fair value of the foreign exchange forward contracts would be offset by FX revaluation gains or losses on underlying assets and liabilities denominated in currencies other than a subsidiary’s functional currency.
Derivatives and non-derivatives designated as net investment hedges:
The Company designates derivative instruments and foreign currency-denominated debt as hedges of foreign currency risk of net investments in certain foreign subsidiaries (net investment hedges) under ASC Topic 815,
Derivatives and Hedging
.
Cross-currency swaps
The Company has cross-currency swaps designated as hedges of euro denominated net investments in subsidiaries. Refer to Note 9 of this Form 10-Q for further details regarding these derivative instruments as of September 30, 2022.
If the euro were to strengthen 10% relative to the U.S. dollar, there would be an approximate $284 million unfavorable impact to the fair value of the cross-currency swaps recognized in OCI, which would be offset by favorable currency translation gains on the Company’s euro net investment in foreign subsidiaries.
Interest rate and credit risk:
Interest rate swaps designated as a fair value hedge:
The Company’s interest rate risk management objectives are to reduce the funding cost and volatility to the Company and to alter the interest rate exposure to a desired risk profile. Moody’s uses interest rate swaps as deemed necessary to assist in accomplishing these objectives. The Company is exposed to interest rate risk on its various outstanding fixed-rate debt for which the fair value of the outstanding fixed rate debt fluctuates based on changes in interest rates. 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 and 6-month LIBOR as well as SOFR. These swaps are adjusted to fair market value based on prevailing interest rates at the end of each reporting period and fluctuations are recorded as a reduction or addition to the carrying value of the borrowing, while net interest payments are recorded as interest expense/income in the Company’s consolidated statement of operations. A hypothetical change of 100 BPS in the LIBOR/SOFR-based swap rate would result in an approximate $114 million change to the fair value of the swaps, which would be offset by the change in fair value of the hedged item.
Additional information on these interest rate swaps is disclosed in Note 9 to the condensed consolidated financial statements of this Form 10-Q.
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.
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 ended September 30, 2022.
During the fiscal year ended December 31, 2021, the Company acquired RMS and during the nine months ended September 30, 2022, Moody's integrated the acquired entity into the Company’s financial reporting processes and procedures and internal controls over financial reporting.
81
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 17 “Contingencies” in this Form 10-Q.
Item 1A. Risk Factors
There have been no material changes from the significant risk factors and uncertainties previously disclosed under the heading "Risk Factors" in the Company's annual report on Form 10-K for the year ended December 31, 2021, 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, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
MOODY'S PURCHASES OF EQUITY SECURITIES
For the three months ended September 30, 2022
| 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 | 395,958 | $ | 281.82 | 391,930 | $ | 850 | million | |||||||||||||||||||
| August 1- 31 | 5,469 | $ | 301.87 | 5,411 | $ | 848 | million | |||||||||||||||||||
| September 1- 30 | 1,083 | $ | — | — | $ | 848 | million | |||||||||||||||||||
| Total | 402,510 | $ | 282.09 | 397,341 | ||||||||||||||||||||||
(1)
Includes surrender to the Company of 4,028; 58; and 1,083 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 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 September 30, 2022 there was approximately $848 million of combined share repurchase authority remaining. There is no established expiration date for the remaining authorization.
During the third quarter of 2022, Moody’s issued a net 36 thousand shares under employee stock-based compensation plans.
Item 5. Other Information
For information regarding the expansion of the 2022 - 2023 Geolocation Restructuring Program, see Note 11 "Restructuring” in Part 1, Item 1 of this quarterly report on Form 10-Q.
82
Item 6. Exhibits
|
Exhibit No
|
Description
|
|||||||
| 3 |
ARTICLES OF INCORPORATION AND BY-LAWS
|
|||||||
| .1 | ||||||||
| .2 | ||||||||
| 4 | INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES | |||||||
| .1 | ||||||||
| 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.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* | Inline XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF* | Inline XBRL Definitions Linkbase Document | |||||||
| 101.LAB* | Inline XBRL Taxonomy Extension Labels Linkbase Document | |||||||
| 101.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 | ||||||||
83
SIGNATURES
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 / MARK KAYE | |||||||
|
Mark Kaye
|
||||||||
|
Executive 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: October 26, 2022 | ||||||||
84
TABLE OF CONTENTS
Part I. Financial InformationprintItem 1. Financial StatementsprintNote 1. Description Of Business and Basis Of PresentationprintNote 2. RevenuesprintNote 3. Stock-based CompensationprintNote 4. Income TaxesprintNote 5. Reconciliation Of Weighted Average Shares OutstandingprintNote 6. Accelerated Share Repurchase ProgramprintNote 7. Cash Equivalents and InvestmentsprintNote 8. AcquisitionsprintNote 9. Derivative Instruments and Hedging ActivitiesprintNote 10. Goodwill and Other Acquired Intangible AssetsprintNote 11. RestructuringprintNote 12. Fair ValueprintNote 13. Other Balance Sheet and Statements Of Operations InformationprintNote 14. Comprehensive Income and Accumulated Other Comprehensive LossprintNote 15. IndebtednessprintNote 16. Lease CommitmentsprintNote 17. ContingenciesprintNote 18. Segment InformationprintNote 19. Subsequent EventprintItem 2. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 3. Quantitative and Qualitative Disclosures About Market RiskprintItem 4. Controls and ProceduresprintPart II. Other InformationprintItem 1. Legal ProceedingsprintItem 1A. Risk FactorsprintItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 5. Other InformationprintItem 6. Exhibitsprint