MOODY'S CORPORATION This discussion and analysis of financial condition and results of operations should be read in conjunction with theMoody's Corporation consolidated financial statements and notes thereto included elsewhere in this annual report on Form 10-K. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains Forward-Looking Statements. See "Forward-Looking Statements" commencing on page 66 and Item 1A. "Risk Factors" commencing on page 27 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.
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 on the reopening of its offices and its business travel policies. As of the date of the filing of this annual report on Form 10-K, the Company has reopened most of its offices for employees to access on a voluntary basis. 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" 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 inthe 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 critical accounting estimates. Actual results may differ from these estimates under different assumptions or conditions. The following accounting estimates are considered critical because they are particularly dependent on management's judgment about matters that are uncertain at the time the accounting estimates are made and changes to those estimates could have a material impact on the Company's consolidated results of operations or financial condition.
OnJuly 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). Prior to the second quarter of 2021, MA's reporting unit structure consisted of five reporting units (Content, ERS, MALS, Bureauvan Dijk and Reis). Pursuant to a strategic reorganization in the MA segment which was completed in the second quarter of 2021, MA's reporting unit structure has been reorganized into two reporting units. MA's two new reporting units generally consist of: i) businesses offering data and data-driven analytical solutions; and ii) risk-management software, workflow and CRE solutions. This reorganization did not result in a change to the Company's reportable segments. The Company performed qualitative assessments of the reporting units impacted by the reorganization immediately before and after the reorganization became effective. These qualitative assessments 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. Subsequent to the aforementioned reorganization of the MA reporting units, the Company now 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. MOODY'S 2021 10-K
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The RMS business was acquired onSeptember 15, 2021 and$1,266 million of goodwill was assigned to the MA reporting unit consisting of risk-management software, workflow and CRE solutions,$90 million was assigned to the MIS reporting unit, and$20 million was assigned to the MA reporting unit consisting of businesses offering data and data-driven analytical solutions. In addition, the Company acquired PassFort onNovember 30, 2021 and$138 million of goodwill was assigned to the reporting unit consisting of businesses offering data and data-driven analytical solutions. As the acquisitions of these businesses were completed after the Company's annual impairment assessment date ofJuly 31, 2021 , goodwill acquired in these transactions was not subject to the Company's impairment assessment described below. 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.
Annual goodwill impairment assessment performed at
AtJuly 31, 2021 , the Company performed quantitative assessments for each of the four reporting units. These quantitative assessments were performed to provide new baseline valuations under the aforementioned new reporting unit structure. These quantitative assessments resulted in fair values that significantly exceeded carrying value for all reporting units. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions, which are more fully described below. 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.
Other assets and liabilities, including applicable corporate assets, are allocated to the extent they are related to the operation of respective reporting units.
Matters concerning the ICRA reporting unit
ICRA has reported various matters relating to: (i) an adjudication order and fine imposed (and subsequently enhanced) by theSecurities and Exchange Board of India (SEBI) in connection with credit ratings assigned to one of ICRA's customers and the customer's subsidiaries, which are being appealed by ICRA; (ii) the completion of internal examinations regarding various anonymous complaints, and actions taken by ICRA's board based on the examinations' findings; and (iii) a separate internal examination of certain allegations against two former senior ICRA officials. An unfavorable resolution of the aforementioned matters may negatively impact ICRA's future operating results, which could result in an impairment of goodwill and amortizable intangible assets in future quarters.
Methodologies and significant estimates utilized in determining the fair value of reporting units:
The following is a discussion regarding the Company's methodology for determining the fair value of its reporting units, excluding ICRA, atJuly 31, 2021 . As ICRA is a publicly traded company inIndia , the Company was able to observe its fair value based on its market capitalization. The fair value of each reporting unit, excluding ICRA, was estimated using a discounted cash flow methodology and comparable public company and precedent transaction multiples. The discounted cash flow analysis requires significant estimates, including projections of future operating results and cash flows of each reporting unit that are based on internal budgets and strategic plans, expected long-term growth rates, terminal values, weighted average cost of capital and the effects of external factors and market conditions. Changes in these estimates and assumptions could materially affect the estimated fair value of each reporting unit that could result in an impairment charge to reduce the carrying value of goodwill, which could be material to the Company's financial position and results of operations. Moody's allocates newly acquired goodwill to reporting units based on the reporting unit expected to benefit from the acquisition.
The sensitivity analyses on the future cash flows and WACC assumptions are described below. These key assumptions utilized in the discounted cash flow valuation methodology require significant management judgment:
-Future cash flow assumptions - The projections for future cash flows utilized in the models are derived from historical experience and assumptions regarding future growth and profitability of each reporting unit. These projections are consistent with the Company's operating budget and strategic plan. Cash flows for the five years subsequent to the date of the quantitative goodwill impairment test were utilized in the determination of the fair value of each reporting unit. The growth rates assumed a gradual increase in revenue based on new customer acquisition and new products. Beyond five years a terminal value was determined using a perpetuity growth rate based on inflation and real GDP growth rates. A sensitivity 42 MOODY'S 2021 10-K
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analysis of the revenue growth rates was performed on all reporting units. For each reporting unit analyzed, a 10% reduction in the revenue growth rates used would not have resulted in its carrying value exceeding its estimated fair value. -WACC - The WACC is the rate used to discount each reporting unit's estimated future cash flows. The WACC is calculated based on the proportionate weighting of the cost of debt and equity. The cost of equity is based on a risk-free interest rate and an equity risk factor, which is derived from public companies similar to the reporting unit and which captures the perceived risks and uncertainties associated with the reporting unit's cash flows. The cost of debt component is calculated as the weighted average cost associated with all of the Company's outstanding borrowings as of the date of the impairment test and was immaterial to the computation of the WACC. The cost of debt and equity is weighted based on the debt to market capitalization ratio of publicly traded companies with similarities to the reporting unit being tested. The WACC for all reporting units ranged from 8.0% to 8.5% as ofJuly 31, 2021 . Differences in the WACC used between reporting units is primarily due to distinct risks and uncertainties regarding the cash flows of the different reporting units. A sensitivity analysis of the WACC was performed on all reporting units as ofJuly 31, 2021 for each reporting unit. For all reporting units, an increase in the WACC of one percentage point would not result in the carrying value of the reporting unit exceeding its fair value.
Long-lived assets
Long-lived assets, which consist primarily of amortizable intangible assets, operating lease ROU assets and property and equipment, are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Under the first step of the recoverability assessment, Moody's compares the estimated undiscounted future cash flows attributable to the asset or asset group to its carrying value. If the undiscounted future cash flows are greater than the carrying value, no further assessment is required. If the undiscounted future cash flows are less than the carrying value, Moody's proceeds with step two of the assessment. Under step two of this assessment, Moody's is required to determine the fair value of the asset or asset group and recognize an impairment loss if the carrying amount exceeds its fair value. In performing this assessment, Moody's must include assumptions that market participants would use in their estimates of fair value, including the estimated future cash flows and discount rate. Moody's must apply judgment in developing estimated future cash flows and in the determination of market participant assumptions.
Income Taxes
The Company is subject to income taxes in theU.S. and various foreign jurisdictions. The Company's tax assets and liabilities are affected by the amounts charged for services provided and expenses incurred as well as other tax matters such as intercompany transactions. The Company accounts for income taxes under the asset and liability method in accordance with ASC Topic 740. Therefore, income tax expense is based on reported income before income taxes, and deferred income taxes reflect the effect of temporary differences between the amounts of assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. The Company is subject to tax audits in various jurisdictions. The Company regularly assesses the likely outcomes of such audits in order to determine the appropriateness of liabilities for UTPs. The Company classifies interest related to income taxes as a component of interest expense in the Company's consolidated financial statements and associated penalties, if any, as part of other non-operating expenses. For UTPs, ASC Topic 740 requires a company to first determine whether it is more-likely-than-not (defined as a likelihood of more than fifty percent) that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more-likely-than-not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority. As the determination of liabilities related to UTPs and associated interest and penalties requires significant estimates to be made by the Company, there can be no assurance that the Company will accurately predict the outcomes of these audits, and thus the eventual outcomes could have a material impact on the Company's operating results or financial condition.
Revenue Recognition and Costs to Obtain a Contract with a Customer
Revenue is recognized when control of promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
The discussion below outlines areas of the Company's revenue recognition process that require significant management judgment and estimates. Refer to Note 2 of the consolidated financial statements for a comprehensive discussion regarding the Company's accounting policies relating to the recognition of revenue and costs to obtain a contract with a customer.
Allocating consideration to performance obligations:
Management judgment is required in the determination of the SSP, which is utilized to allocate the transaction price to each distinct performance obligation at contract inception when the contract includes multiple distinct performance obligations.
In the MIS segment, the SSP for both ratings and monitoring services is generally based upon directly observable selling prices where the rating or monitoring service is sold separately.
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In the MA segment, for performance obligations where an observable price exists, such as PCS, the observable price is utilized. If an observable price does not currently exist, the Company will utilize management's best estimate of SSP for that good or service using estimation methods that maximize the use of observable data points.
The SSP in both segments is usually apportioned along the lines of class of customer, nature of product/services, and other attributes related to those products and services. Once SSP is determined for each performance obligation, the transaction price, including any discount, is allocated based on the relative SSP of the separate performance obligations.
Costs to Obtain a Contract with a Customer:
Costs incurred to obtain customer contracts, such as sales commissions, are deferred and recorded within other current assets and other assets when such costs are determined to be incremental to obtaining a contract, would not have been incurred otherwise and the Company expects to recover those costs. These costs are amortized to expense on a systematic basis consistent with the transfer of products or services to the customer for which the asset relates. Depending on the line of business to which the contract relates, this amortization period may be based upon the average economic life of the products sold or average period for which services are provided, inclusive of anticipated contract renewals. Contingencies Accounting for contingencies, including those matters described in Note 21 to the consolidated financial statements, is highly subjective and requires the use of judgments and estimates in assessing their magnitude and likely outcome. In many cases, the outcomes of such matters will be determined by third parties, including governmental or judicial bodies. The provisions made in the consolidated financial statements, as well as the related disclosures, represent management's best estimates of the current status of such matters and their potential outcome based on a review of the facts and in consultation with outside legal counsel where deemed appropriate. The Company regularly reviews contingencies and as new information becomes available may, in the future, adjust its associated liabilities. 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 toSEC rules and other pending matters as it may determine to be appropriate. In view of the inherent difficulty of assessing the potential outcome of legal proceedings, governmental, regulatory and legislative investigations and inquiries, claims and litigation and similar matters and contingencies, particularly when the claimants seek large or indeterminate damages or assert novel legal theories or the matters involve a large number of parties, the Company often cannot predict what the eventual outcome of the pending matters will be or the timing of any resolution of such matters. The Company also may be unable to predict the impact (if any) that any such matters may have on how its business is conducted, on its competitive position or on its financial position, results of operations or cash flows. As the process to resolve any pending matters progresses, management will continue to review the latest information available and assess its ability to predict the outcome of such matters and the effects, if any, on its operations and financial condition and to accrue for and disclose such matters as and when required. However, because such matters are inherently unpredictable and unfavorable developments or resolutions can occur, the ultimate outcome of such matters, including the amount of any loss, may differ from those estimates.
Accounts Receivable Allowances
OnJanuary 1, 2020 , the Company adopted ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" as more fully described in Note 1 to the consolidated financial statements. As the Company's accounts receivable are short-term in nature, the adoption of this ASU did not have a material impact to the Company's allowance for bad debts or its policies and procedures for determining the allowance. In order to determine an estimate of expected credit losses, receivables are segmented based on similar risk characteristics including historical credit loss patterns and industry or class of customers to calculate reserve rates. The Company uses an aging method for developing its allowance for credit losses by which receivable balances are grouped based on aging category. A reserve rate is calculated for each aging category, which is generally based on historical information, and is adjusted, when necessary, for current conditions (e.g., macroeconomic or industry related) and reasonable and supportable forecasts about the future. The Company also considers customer specific information (e.g., bankruptcy or financial difficulty) when estimating its expected credit losses, as well as the economic environment of the customers, both from an industry and geographic perspective, in evaluating the need for allowances. Expected credit losses are reflected as additions to the accounts receivable allowance. Actual uncollectible account write-offs are recorded against the allowance.
The impact on operating income relating to a one percentage point change in the
Company's reserve rates would be approximately
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Pension and Other Retirement Benefits
The expenses, assets and liabilities that Moody's reports for its Retirement Plans are dependent on many assumptions concerning the outcome of future events and circumstances. These significant assumptions include the following:
-future compensation increases based on the Company's long-term actual experience and future outlook;
-long-term expected return on pension plan assets based on historical portfolio results and the expected future average annual return for each major asset class within the plan's portfolio (which is principally comprised of equity and fixed-income investments); and
-discount rates based on current yields on high-grade corporate long-term bonds.
The discount rates used to measure the present value of the Company's benefit obligation for its Retirement Plans as ofDecember 31, 2021 were derived using a cash flow matching method whereby the Company compares each plan's projected payment obligations by year with the corresponding yield on theFTSE pension discount curve. The cash flows by plan are then discounted back to present value to determine the discount rate applicable to each plan. Moody's major assumptions vary by plan and assumptions used are set forth in Note 15 to the consolidated financial statements. In determining these assumptions, the Company consults with third-party actuaries and other advisors as deemed appropriate. While the Company believes that the assumptions used in its calculations are reasonable, differences in actual experience or changes in assumptions could have a significant effect on the expenses, assets and liabilities related to the Company's Retirement Plans. Additionally, the Company has updated its mortality assumption by adopting the newly released mortality improvement scale MP-2021 to accompany the Pri2012 mortality tables to reflect the latest information regarding future mortality expectations by theSociety of Actuaries . When actual plan experience differs from the assumptions used, actuarial gains or losses arise. Excluding differences between the expected long-term rate of return assumption and actual returns on plan assets, the Company amortizes, as a component of annual pension expense, total outstanding actuarial gains or losses over the estimated average future working lifetime of active plan participants to the extent that the gain/loss exceeds 10% of the greater of the beginning-of-year projected benefit obligation or the market-related value of plan assets. For Moody's Retirement Plans, the total actuarial losses as ofDecember 31, 2021 that have not been recognized in annual expense are$65 million , and Moody's expects to recognize a net periodic expense of$4 million in 2022 related to the amortization of actuarial losses. For Moody's fundedU.S. pension plan, the differences between the expected long-term rate of return assumption and actual returns could also affect the net periodic pension expense. As permitted under ASC Topic 715, the Company amortizes the impact of asset returns over a five-year period for purposes of calculating the market-related value of assets that is used in determining the expected return on assets' component of annual expense and in calculating the total unrecognized gain or loss subject to amortization. As ofDecember 31, 2021 , the Company has an unrecognized asset gain of$44 million , of which$13 million will be recognized in the market-related value of assets that is used to calculate the expected return on assets component of 2022 expense. The table below shows the estimated effect that a one percentage-point decrease in each of these assumptions will have on Moody's 2022 income before provision for income taxes. These effects have been calculated using the Company's current projections of 2022 expenses, assets and liabilities related to Moody's Retirement Plans, which could change as updated data becomes available. Estimated Impact on 2022 Income before Provision for Income Taxes (dollars in millions) Assumptions Used for 2022 (Decrease)/Increase Weighted Average Discount Rates (1) 2.60%/2.65% $ (10) Weighted Average Assumed Compensation Growth Rate 3.63 % $ 1 Assumed Long-Term Rate of Return on Pension Assets 5.05 % $ (5)
(1)Weighted average discount rates of 2.60% and 2.65% for pension plans and Other Retirement Plans, respectively.
Based on current projections, the Company estimates that expenses related to Retirement Plans will be approximately$13 million in 2022, a decrease compared to the$31 million recognized in 2021.
Leases
The Company's operating leases do not provide an implicit interest rate.
Accordingly, the Company must estimate the secured incremental borrowing rate
attributable to the currency in which the lease is denominated in the derivation
of operating lease liabilities and related operating lease ROU Assets. This
secured incremental borrowing rate is based on the information available at the
lease commencement date and is utilized in the determination of the present
value of lease payments.
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In addition, certain of Moody's leases have the option to extend the lease beyond the initial term or terminate the lease prior to the end of the term. For these leases, Moody's may be required to exercise significant judgment to determine when that option is reasonably certain of being exercised, which will impact the lease term and determination of the lease liability and corresponding ROU Asset.
Investments in Non-consolidated Affiliates
Equity method investments are reviewed for indicators of other-than-temporary impairment on a quarterly basis. These investments are written down to fair value if there is evidence of a loss in value that is other-than-temporary.
For equity investments without a readily determinable fair value for which the Company does not have significant influence, Moody's generally elects to measure these investments at cost, less impairment, adjusted for subsequent observable price changes as of the date that an observable transaction takes place. The Company performs an assessment on a quarterly basis to determine if there are indicators of impairment for its investments in non-consolidated affiliates. If there are indicators of impairment, the Company estimates the investment's fair value and records an impairment if the carrying value of the investment exceeds its fair value. In situations where estimation of fair value is required for investments in non-consolidated affiliates, the Company considers various factors, including: recent observable investee equity transactions, comparable public company/precedent transaction multiples and discounted cash flow models. The estimation of fair value for these investments may involve significant judgment.
Other Estimates
In addition to the critical accounting estimates described above, there are other accounting estimates within Moody's consolidated financial statements. Management believes the current assumptions and other considerations used to estimate amounts reflected in Moody's consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in Moody's consolidated financial statements, the resulting changes could have a material adverse effect on Moody's consolidated results of operations or financial condition.
See Note 2 to the consolidated financial statements for further information on significant accounting policies that impact Moody's.
REPORTABLE SEGMENTS
The Company is organized into two reportable segments atDecember 31, 2021 : MIS and MA, which are more fully described in the section entitled "The Company" above and in Note 22 to the consolidated financial statements.
RESULTS OF OPERATIONS
This section of this Form 10-K generally discusses year endedDecember 31, 2021 and 2020 financial results and year-to-year comparisons between these years. Discussions related to the year endedDecember 31, 2019 financial results and year-to-year comparisons between the years endedDecember 31, 2020 and 2019 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 .
Impact of acquisitions/divestitures on comparative results
-Moody's completed the following acquisitions, which impact the Company's year-over-year comparative results:
-
-Acquire Media on
-
-Catylist on
-
-RMS on
-RealXData on
-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.
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Year ended
Executive Summary
The following table provides an executive summary of key operating results for the year endedDecember 31, 2021 . 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. Year EndedDecember 31 , % Change Favorable /
Insight and
2021 2020 (Unfavorable) Year
Moody's total revenue $ 6,218 $ 5,371 16 % - reflects strong growth in both segments
MIS External Revenue $ 3,812 $ 3,292 16 % - strong growth mainly driven by leveraged finance
issuance as issuers refinanced existing debt and
funded M&A activity; and
- increased CLO and CMBS activity amid favorable
market conditions
MA External Revenue $ 2,406 $ 2,079 16 % - strong growth in KYC and compliance solutions, as
well as research and data feeds;
- inorganic growth from acquisitions;
- ongoing recurring revenue growth in ERS from
subscription-based sales to banking, insurance and
asset management customers; and
- favorable changes in FX translation rates; partially
offset by:
- a decline in ERS transaction-based revenue
reflecting MA's strategic shift to higher margin
SaaS-based products, which produce recurring revenue
Total operating and SG&A
(15 %) - Approximately seven percentage points of the growth expenses
reflects inorganic expenses from acquisitions,
including
RMS; and
- Approximately five percentage points of the growth
reflects higher incentive compensation, stock-based
compensation, and commissions aligned with operating
performance.
Total non-operating$ (89) $ (159) 44 %
- a
tax-related interest accruals pursuant to the
resolution of uncertain tax positions; and
- a
of the Company's minority investment in VisibleRisk
for shares of
Operating Margin 45.7 % 44.5 % 120BPS - margin expansion reflects strong revenue growth Adjusted Operating 49.9 % 49.7 % 20BPS outpacing operating expense growth Margin ETR 19.6 % 20.3 % 70BPS
- higher benefits of approximately
the resolution of UTPs in 2021; partially offset by
- lower Excess Tax Benefits in 2021
Diluted EPS $ 11.78 $ 9.39 25 % - increase reflects strong operating income/Adjusted
Operating Income growth as described above and
includes $0.54 /share and $0.20 /share in benefits
Adjusted Diluted EPS $ 12.29 $ 10.15 21 % related to the resolution of uncertain tax positions
(and related interest) in 2021 and 2020, respectively.
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Table of ContentsMoody's Corporation Year Ended December 31, % Change Favorable 2021 2020 (Unfavorable) Revenue: United States$ 3,416 $ 2,955 16 % Non-U.S.: EMEA 1,866 1,545 21 % Asia-Pacific 596 571 4 % Americas 340 300 13 % Total Non-U.S. 2,802 2,416 16 % Total 6,218 5,371 16 % Expenses: Operating 1,637 1,475 (11 %) SG&A 1,480 1,229 (20 %) Restructuring - 50 100 % Depreciation and amortization 257 220 (17 %) Loss pursuant to the divestiture of MAKS - 9 100 % Total 3,374 2,983 (13 %) Operating income 2,844 2,388 19 % Adjusted Operating Income (1) 3,101 2,667 16 % Interest expense, net (171) (205) 17 % Other non-operating income, net 82 46 78 % Non-operating (expense) income, net (89) (159) 44 % Net income attributable to Moody's$ 2,214 $ 1,778 25 % Diluted weighted average shares outstanding 187.9 189.3 1 % Diluted EPS attributable to Moody's common shareholders$ 11.78 $ 9.39 25 % Adjusted Diluted EPS (1)$ 12.29 $ 10.15 21 % Operating margin 45.7 % 44.5 % Adjusted Operating Margin (1) 49.9 % 49.7 % Effective tax rate 19.6 % 20.3 % (1)Adjusted Operating Income, Adjusted Operating Margin and Adjusted Diluted EPS attributable to Moody's common shareholders are non-GAAP financial measures. Refer to the section entitled "Non-GAAP Financial Measures" of this Management Discussion and Analysis for further information regarding these measures.
GLOBAL REVENUE
2021----------------------------------------------------------------------------------------------------------------------2020
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Global revenue ?$847 million U.S. Revenue ?$461 million Non-U.S. Revenue ?$386 million The increase in global revenue reflected growth in both reportable segments. Refer to the section entitled "Segment Results" of this MD&A for a more fulsome discussion of the Company's segment revenue.
Operating Expense ?
[[Image Removed: mco-20211231_g104.jpg]]-------------------------------------[[Image Removed: mco-20211231_g105.jpg]]----------- Compensation expenses increased$126 million Compensation expenses increased$133 million reflecting: reflecting: - higher incentive and stock-based compensation - higher incentive and stock-based compensation accruals accruals aligned with financial and operating aligned with financial and operating performance; performance; - inorganic growth from acquisitions; and - inorganic growth from acquisitions; and - hiring and salary increases - hiring and salary
increases
Non-compensation expenses increased
reflecting:
- higher costs relating to strategic initiatives to - higher costs relating to strategic initiatives to
support business growth coupled with enhancements support business growth coupled with enhancements to
to technology infrastructure to enable automation, technology infrastructure to enable automation,
innovation and efficiency; and innovation and efficiency; and
- operational costs associated with recent - costs associated with recent acquisitions, including
acquisitions $22 million in RMS acquisition-related costs
Other Expenses
The restructuring charge of
-the non-cash impairment of certain leased real estate assets (ROU Assets and leasehold improvements) pursuant to the rationalization of certain real estate in response to the COVID-19 pandemic; and
-severance costs associated with a strategic realignment in the MA segment.
Further detail on the Company's restructuring programs are more fully discussed in Note 11 to the consolidated financial statements.
The 2020 amount includes a$9 million loss pursuant to the divestiture of MAKS relating to customary post-closing completion adjustments pursuant to the sale of the business in the fourth quarter of 2019. Operating margin 45.7%, up 120 BPS Adjusted Operating
Margin 49.9%, up 20 BPS
Operating margin and Adjusted Operating Margin expansion reflects strong revenue growth outpacing growth in total operating expenses.
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Interest Expense, net ?
The decrease in expense is primarily due to: The increase in income is primarily due to: - approximately$40 million higher benefit in - a$36 million non-cash gain relating to the 2021 related to the reversal of tax-related exchange of the Company's minority investment in interest accruals pursuant to the resolution of VisibleRisk for shares ofBitSight ; and uncertain tax positions; - a decrease of$11 million in prepayment - higher income of$18 million in 2021 on certain of penalties on the early repayment of long-term the Company's investments in non-consolidated debt; affiliates; partially offset by partially offset by
- a
of limitations lapses on certain indemnification
consolidated financial statements). obligations relating to the MAKS divestiture; and
- a $13 million loss on a forward contract used to
hedge a portion of the GBP denominated RMS purchase
price.
ETR ? 70BPS
The 2021 and 2020 ETR include $70 million and $34 million , respectively, in tax
benefits relating to the resolution of uncertain tax positions. The
aforementioned benefit to the 2021 ETR was diluted by higher income before
provision for income taxes compared to the prior year. Additionally, there was a
$29 million decrease in Excess Tax Benefits in 2021 compared to the prior year.
Diluted EPS ? $2.39 Adjusted Diluted EPS ? $2.14
Diluted EPS in 2021 of $11.78 increased $2.39 Adjusted Diluted EPS of $12.29 in 2021 increased
compared to 2020, mainly due to higher operating $2.14 compared to 2020 (refer to the section
income. Diluted EPS in 2021 and 2020 also entitled "Non-GAAP Financial Measures" of this
include $0.54 /share and $0.20 /share, MD&A for items excluded in the derivation of
respectively, in benefits related to the Adjusted Diluted EPS) mainly due to higher
aforementioned resolution of uncertain tax Adjusted Operating Income. Adjusted Diluted EPS
positions (and related interest). in 2021 and 2020
includes
$0.20 /share,
respectively, in benefits related to
the aforementioned resolution of uncertain tax
positions (and related interest). Refer to the
section entitled "Non-GAAP Financial Measures" of
this MD&A for items excluded in the derivation of
Adjusted Diluted EPS.
50 MOODY'S 2021 10-K
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Table of Contents Segment Results Moody's Investors Service
The table below provides a summary of revenue and operating results, followed by further insight and commentary:
Year Ended December 31, % Change Favorable
2021 2020 (Unfavorable)
Revenue:
Corporate finance (CFG) $ 2,087 $ 1,857 12 %
Financial institutions (FIG) 602 530 14 %
Public, project and infrastructure finance
(PPIF) 521 496 5 %
Structured finance (SFG) 560 362 55 %
Total ratings revenue 3,770 3,245 16 %
MIS Other 42 47 (11 %)
Total external revenue 3,812 3,292 16 %
Intersegment royalty 165 148 11 %
Total 3,977 3,440 16 %
Expenses:
Operating and SG&A (external) 1,496 1,380 (8 %)
Operating and SG&A (intersegment) 7 7 - %
Total operating and SG&A 1,503 1,387 (8 %)
Adjusted Operating Income $ 2,474 $ 2,053 21 %
Adjusted Operating Margin 62.2 % 59.7 %
Restructuring (1) 19 105 %
Depreciation and amortization 72 70 (3 %)
The following chart presents changes in rated issuance volumes compared to 2020.
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.
[[Image Removed: mco-20211231_g106.jpg]]
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MOODY'S INVESTORS SERVICE REVENUE
2021----------------------------------------------------------------------------------------------------------------------2020
__________________________________________________________________________________________________________________________________________________________
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[[Image Removed: mco-20211231_g108.jpg]]
[[Image Removed: mco-20211231_g109.jpg]]
[[Image Removed: mco-20211231_g110.jpg]]
MIS: Global revenue ?
-The increase in global MIS revenue reflected strong growth across all ratings LOBs.
-Transaction revenue grew
CFG REVENUE
2021----------------------------------------------------------------------------------------------------------------------2020
__________________________________________________________________________________________________________________________________________________________
[[Image Removed: mco-20211231_g111.jpg]]
[[Image Removed: mco-20211231_g112.jpg]]
[[Image Removed: mco-20211231_g113.jpg]]
[[Image Removed: mco-20211231_g114.jpg]]
CFG: Global revenue ?
Global CFG revenue for the years ended
[[Image Removed: mco-20211231_g115.jpg]]
(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.
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The increase in CFG revenue of 12% reflected growth both in theU.S. (7%) and internationally (24%), which resulted in a$199 million increase in transaction revenue.
The most notable drivers of this increase were:
- strong growth in bank loan and speculative-grade bond activity in theU.S. and EMEA as issuers refinanced existing debt in light of favorable market conditions and funded M&A activity; partially offset by: -lower investment grade rated issuance volumes following very strong issuance volumes in the prior year when issuers were bolstering their balance sheets in light of uncertainties relating to the COVID-19 crisis.
FIG REVENUE
2021----------------------------------------------------------------------------------------------------------------------2020
__________________________________________________________________________________________________________________________________________________________
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[[Image Removed: mco-20211231_g117.jpg]]
[[Image Removed: mco-20211231_g118.jpg]]
[[Image Removed: mco-20211231_g119.jpg]]
FIG: Global revenue ?
Global FIG revenue for the years ended
[[Image Removed: mco-20211231_g120.jpg]]
The increase in FIG revenue of 14% reflected growth both in the U.S. (16%) and
internationally (12%) which resulted in a $55 million increase in transaction
revenue compared to the prior year.
The most notable driver of the increase was higher banking revenue in the U.S.
and EMEA reflecting both the benefit of favorable changes in product mix and
pricing increases coupled with opportunistic issuer activity in light of
favorable market conditions.
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PPIF REVENUE
2021----------------------------------------------------------------------------------------------------------------------2020
__________________________________________________________________________________________________________________________________________________________
[[Image Removed: mco-20211231_g121.jpg]]
[[Image Removed: mco-20211231_g122.jpg]]
[[Image Removed: mco-20211231_g123.jpg]]
[[Image Removed: mco-20211231_g124.jpg]]
PPIF: Global revenue ?
Global PPIF revenue for the years ended
[[Image Removed: mco-20211231_g125.jpg]]
Transaction revenue increased
The 5% increase in PPIF revenue reflected growth internationally (17%) partially
offset be a slight decline in the
-higher project and infrastructure finance revenue which benefitted from favorable changes in product mix and pricing increases;
partially offset by:
-a decline in
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SFG REVENUE
2021----------------------------------------------------------------------------------------------------------------------2020
__________________________________________________________________________________________________________________________________________________________
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[[Image Removed: mco-20211231_g128.jpg]][[Image Removed: mco-20211231_g129.jpg]]
SFG: Global revenue ?
Global SFG revenue for the years ended
[[Image Removed: mco-20211231_g130.jpg]]
The increase in SFG revenue of 55% reflected growth both in the
-an increase in CLO refinancing and securitization activity as a result of:
-favorable market conditions for this asset class in the
-higher issuance to complete deals prior to the expected market transition from LIBOR
-an increase inU.S. CMBS activity reflecting a narrowing of credit spreads for this asset class compared to a challenging prior year period when securitization activity for retail and hotel properties was adversely impacted by the COVID-19 crisis. Foreign currency translation favorably impacted SFG revenue by two percentage points. MOODY'S 2021 10-K 55
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MIS: Operating and SG&A Expense ? $116 million
[[Image Removed: mco-20211231_g131.jpg]]
The growth reflects a
Compensation costs Non-compensation costs
The increase is primarily due to: The increase is primarily due to:
- higher incentive and stock-based - higher costs to support the Company's initiative
compensation accruals aligned with financial to enhance technology infrastructure to enable
and operating performance automation, innovation and efficiency as well as
to support business growth;
partially offset by:
- lower estimates for credit losses primarily
reflecting an increase in reserves in 2020
resulting from the anticipated impact of the
COVID-19 crisis
Other Expenses
The restructuring charge in 2020 relates to the Company's restructuring programs as more fully discussed in Note 11 to the consolidated financial statements.
MIS: Adjusted Operating Margin 62.2% ? 250BPS
MIS Adjusted Operating Margin increased reflecting strong revenue growth partially offset by growth in operating and SG&A expenses.
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The table below provides a summary of revenue and operating results, followed by further insight and commentary:
Year Ended December 31, % Change Favorable
2021 2020 (Unfavorable)
Revenue:
Research, data and analytics (RD&A) $ 1,745 $ 1,514 15 %
Enterprise risk solutions (ERS) 661 565 17 %
Total external revenue 2,406 2,079 16 %
Intersegment revenue 7 7 - %
Total MA Revenue 2,413 2,086 16 %
Expenses:
Operating and SG&A (external) 1,621 1,324 (22 %)
Operating and SG&A (intersegment) 165 148 (11 %)
Total operating and SG&A 1,786 1,472 (21 %)
Adjusted Operating Income $ 627 $ 614 2 %
Adjusted Operating Margin 26.0 % 29.4 %
Restructuring 1 31 97 %
Depreciation and amortization 185 150 (23 %)
Loss pursuant to the divestiture of MAKS - 9 100 %
MOODY'S ANALYTICS REVENUE
2021----------------------------------------------------------------------------------------------------------------------2020
__________________________________________________________________________________________________________________________________________________________
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[[Image Removed: mco-20211231_g134.jpg]]
[[Image Removed: mco-20211231_g135.jpg]]
MA: Global revenue ?
The 16% increase in global MA revenue reflects strong growth both in the
-Foreign currency translation favorably impacted MA revenue by two percentage points.
-Organic revenue growth was 9%.
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RD&A REVENUE
2021----------------------------------------------------------------------------------------------------------------------2020
__________________________________________________________________________________________________________________________________________________________
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[[Image Removed: mco-20211231_g137.jpg]][[Image Removed: mco-20211231_g138.jpg]]
[[Image Removed: mco-20211231_g139.jpg]]
RD&A: Global revenue ?
Global RD&A revenue grew 15% compared to 2020 reflecting growth in the
-strong demand for KYC and compliance solutions reflecting increased customer and supplier risk data usage;
-strong renewals and new sales related to credit research and data feeds; and
-inorganic revenue growth from acquisitions.
Foreign currency translation favorably impacted RD&A revenue by two percentage points.
Organic revenue growth for RD&A was 12%.
ERS REVENUE
2021----------------------------------------------------------------------------------------------------------------------2020
__________________________________________________________________________________________________________________________________________________________
[[Image Removed: mco-20211231_g140.jpg]][[Image Removed: mco-20211231_g141.jpg]][[Image Removed: mco-20211231_g142.jpg]]
[[Image Removed: mco-20211231_g143.jpg]]
ERS: Global revenue ?
Global ERS revenue increased 17% compared to 2020, mainly from growth in theU.S. (43%). Recurring revenue grew 30% compared to 2020. Transaction revenue declined by 32% compared to 2020.
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The most notable drivers of the growth reflected:
-inorganic revenue growth from the acquisitions of RMS and ZMFS;
-growth in subscription-based revenue, most notably for actuarial modeling tools in support of certain international accounting standards relating to insurance contracts and demand from asset managers for risk management solutions; and
-favorable foreign currency translation which impacted revenue by two percentage points.
partially offset by:
-lower non-recurring software and services revenue due to a de-emphasizing of these lower margin offerings.
Organic total revenue and organic recurring revenue for ERS grew 1% and 11%, respectively. Organic transaction revenue declined 38%.
MA: Operating and SG&A Expense ? $297 million
[[Image Removed: mco-20211231_g144.jpg]]
The increase in operating and SG&A expenses compared to 2020 reflected growth in
both compensation and non-compensation costs of $167 million and $130 million ,
respectively. The most notable drivers of this growth were:
Compensation costs Non-compensation costs
- salary increases and inorganic expense growth - accelerated spending relating to strategic
from acquisitions; initiatives to support business growth coupled with
enhancements to technology infrastructure to enable
- higher incentive compensation accruals aligned automation, innovation and efficiency; and
with financial and operating performance; and
- unfavorable changes in FX translation rates - costs associated with recent acquisitions,
including $22 million in RMS acquisition-related
costs
Other Expenses
The restructuring charge in 2020 relates to the Company's restructuring programs as more fully discussed in Note 11 to the consolidated financial statements.
The
MA: Adjusted Operating Margin 26.0% ? 340BPS
The Adjusted Operating Margin contraction for MA reflects operating expense growth outpacing RD&A and ERS revenue growth.
MOODY'S 2021 10-K 59
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Table of Contents MARKET RISK Foreign exchange risk: Moody's maintains a presence in more than 40 countries. In 2021, approximately 42% of the Company's revenue and approximately 38% of the Company expenses were denominated in functional currencies other than theU.S. dollar, principally in the British pound and the euro. As such, the Company is exposed to market risk from changes in FX rates. As ofDecember 31, 2021 , approximately 52% of Moody's assets were located outside theU.S. , making the Company susceptible to fluctuations in FX rates. The effects of translating assets and liabilities of non-U.S. operations with non-U.S. functional currencies to theU.S. dollar are charged or credited to OCI. 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%:
Foreign Currency Forwards (1)
Sell Buy Impact on fair value of contract
U.S. dollar British pound $12 million unfavorable impact
U.S. dollar Canadian dollar $11 million unfavorable impact
U.S. dollar Euro $36 million unfavorable impact
U.S. dollar Japanese yen $2 million unfavorable impact
U.S. dollar Singapore dollar $6 million unfavorable impact
U.S. dollar Indian Rupee $1 million unfavorable impact
U.S. dollar Russian Ruble $1 million unfavorable impact
British pound U.S. dollar $21 million unfavorable impact
$90 million unfavorable impact
(1)Refer to Note 7 to the consolidated financial statements in Item 8 of this Form 10-K 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
As of
-Cross-currency swaps to exchange an aggregate amount of €909 million with
corresponding euro fixed interest rates for an aggregate amount of
-Cross-currency swaps to exchange an aggregate amount of €1,179 million with corresponding interest based on the floating 3-month EURIBOR for an aggregate amount of$1,350 million with corresponding interest based on the floating 3-monthU.S. LIBOR.
If the euro were to strengthen 10% relative to the
Euro-denominated debt
As ofDecember 31, 2021 , the Company has designated €500 million of the 2015 Senior Notes and €750 million of the 2019 Senior Notes as a net investment hedge to mitigate FX exposure relating to euro denominated net investments in subsidiaries. If the euro were to strengthen 10% relative to theU.S. dollar, there would be an approximate$142 million unfavorable adjustment to OCI related to these net investment hedges. This adjustment would be offset by favorable translation adjustments on the Company's euro net investment in subsidiaries.
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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. 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-based swap rate would result in an approximate$69 million change to the fair value of the swap, 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 7 to the consolidated financial statements located in Item 8 of this Form 10-K.
Moody's cash equivalents consist of investments in high-quality investment-grade securities within and outside theU.S. with maturities of three months or less when purchased. The Company manages its credit risk exposure by allocating its cash equivalents among various money market deposit accounts and certificates of deposit and by limiting the amount it can invest with any single issuer. Short-term investments primarily consist of certificates of deposit.
LIQUIDITY AND CAPITAL RESOURCES
Moody's remains committed to using its strong 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:
Year Ended December 31, $ Change
Favorable
2021 2020 (unfavorable)
Net cash provided by operating activities
$ (2,619) $ (1,077) $ (1,542) Net cash used in financing activities$ (122) $ (351) $ 229 Free Cash Flow (1)$ 1,866 $ 2,043 $ (177) (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 the section entitled "Non-GAAP Financial Measures" of this MD&A for further information on this financial measure.
Net cash provided by operating activities
Net cash flows from operating activities decreased
-higher cash paid for income taxes of
-various changes in working capital, most notably from higher accounts
receivable balances at
partially offset by:
-an increase in net income compared to the same period in the prior year reflecting the Company's strong performance in 2021 (see section entitled "Results of Operations" for further discussion);
-a
-a
Net cash used in investing activities
The
-an increase in cash paid for acquisitions of$1,282 million (refer to Note 9 to the consolidated financial statements for further discussion on the Company's M&A activity); and MOODY'S 2021 10-K 61
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-
Net cash used in financing activities
The
-the net issuance of
partially offset by:
-an increase in cash paid for treasury share repurchases of
Cash and cash equivalents and short-term investments
The Company's aggregate cash and cash equivalents and short-term investments of$1.9 billion atDecember 31, 2021 included approximately$1.5 billion located outside of theU.S. Approximately 26% of the Company's aggregate cash and cash equivalents and short-term investments is denominated in euros and British pounds. The Company manages both itsU.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 toU.S. tax. The Company continues to evaluate which entities it will indefinitely reinvest earnings outside theU.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 theU.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
The repayment schedule for the Company's borrowings outstanding at
[[Image Removed: mco-20211231_g145.jpg]]
Future interest payments and fees associated with the Company's debt and credit
facility are expected to be $3.3 billion , of which approximately $212 million is
expected to be paid over the next twelve months. For additional information on
the Company's outstanding debt, CP program and 2021 Facility, refer to Note 18
to the consolidated financial statements.
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 ofDecember 31, 2021 , these purchase obligations totaled$233 million , of which$133 million is expected to be paid in the next twelve months.
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Leases
The Company has operating lease obligations of
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 atDecember 31, 2021 , 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. For further information on the Company's pension and other retirement plan obligations, refer to Note 15 to the consolidated financial statements.
Dividends and share repurchases
On
OnDecember 16, 2019 , the Board authorized$1 billion in share repurchase authority and onFebruary 9, 2021 , the Board approved an additional$1 billion in share repurchase authority. AtDecember 31, 2021 , the Company had approximately$1,081 million of remaining authority. Additionally, onFebruary 7, 2022 , the Board of Directors approved an additional$750 million of share repurchase authority. There is no established expiration date for the remaining authorizations.
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 in 2022. 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 theSEC 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 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; ii)
restructuring charges/adjustments; and iii) a loss pursuant to the divestiture
of MAKS. 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. The loss pursuant to the divestiture of MAKS is excluded as the
frequency and magnitude of divestiture activity may vary widely from period to
period and across 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.
Year ended December 31,
2021 2020
Operating income $ 2,844 $ 2,388
Adjustments:
Restructuring - 50
Depreciation and amortization 257 220
Loss pursuant to the divestiture of MAKS - 9
Adjusted Operating Income $ 3,101 $ 2,667
Operating margin 45.7 % 44.5 %
Adjusted Operating Margin 49.9 % 49.7 %
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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/adjustments; iii) a non-cash gain relating to the Company's minority investment inBitSight ; and iv) a loss pursuant to the divestiture of MAKS. The Company excludes the impact of amortization of acquired intangible assets as companies utilize intangible assets with different ages and have different methods of acquiring and amortizing intangible assets. 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, the non-cash gain relating to the Company's minority interest inBitSight and the loss pursuant to the divestiture of MAKS 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. Year ended December 31, Amounts in millions 2021 2020 Net income attributable to Moody's common shareholders$ 2,214 $ 1,778
Pre-Tax Acquisition-Related Intangible Amortization Expenses
$ 158 $ 124
Tax on Acquisition-Related Intangible Amortization Expenses
(36) (28)
Net Acquisition-Related Intangible Amortization Expenses 122 96
Pre-Tax Restructuring $ - $ 50
Tax on Restructuring - (12)
Net Restructuring - 38
Pre-Tax gain relating to minority investment in
$ - Tax on gain relating to minority investment in BitSight 9 - Net gain relating to minority investment in BitSight (27) - Loss pursuant to the divestiture of MAKS - 9 Adjusted Net Income$ 2,309 $ 1,921 Below is a reconciliation of this measure to its most directly comparableU.S. GAAP amount: Year ended December 31, 2021 2020
Diluted earnings per share attributable to Moody's common shareholders
$ 11.78 $ 9.39
Pre-Tax Acquisition-Related Intangible Amortization Expenses
$ 0.84 $ 0.66
Tax on Acquisition-Related Intangible Amortization Expenses
(0.19) (0.15)
Net Acquisition-Related Intangible Amortization Expenses 0.65 0.51
Pre-Tax Restructuring $ - $ 0.26
Tax on Restructuring - (0.06)
Net Restructuring - 0.20
Pre-Tax gain relating to minority investment in
$ -
Tax on gain relating to minority investment in
-
Net gain relating to minority investment in BitSight (0.14) -
Loss pursuant to the divestiture of MAKS - 0.05
Adjusted Diluted EPS $ 12.29 $ 10.15 Note: the tax impacts in the table above were calculated using tax rates in effect in the jurisdiction for which the item relates.
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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:
Year ended December 31,
2021 2020
Net cash provided by operating activities $ 2,005 $ 2,146
Capital additions (139) (103)
Free Cash Flow $ 1,866 $ 2,043
Net cash used in investing activities $ (2,619) $ (1,077)
Net cash used in financing activities$ (122) $ (351) Organic Revenue: The Company presents the organic revenue and organic revenue growth (including organic recurring revenue and organic recurring revenue growth for the MA segment) because management deems these metrics to be useful measures which provide additional perspective in assessing the revenue growth excluding the inorganic revenue impacts from certain acquisition activity. The following table details the periods excluded from each acquisition to determine organic revenue.
Period excluded to determine organic revenue
Acquisition Acquisition Date growth
Regulatory DataCorp February 13, 2020 January 1, 2021 - February 12, 2021
Acquire Media October 21, 2020 January 1, 2021 - October 20, 2021
ZM Financial Systems December 7, 2020 January 1, 2021 - December 6, 2021
Catylist December 30, 2020 January 1, 2021 - December 29, 2021
Cortera March 19, 2021 March 19, 2021 - December 31, 2021
RMS September 15, 2021 RealXDataSeptember 17, 2021
Below is a reconciliation of MA's reported revenue and growth rates to its organic revenue and organic growth rates:
Year Ended December 31,
Amounts in millions 2021 2020 Change Growth
MA revenue $ 2,406 $ 2,079 $ 327 16%
Inorganic revenue from acquisitions (136) - (136)
Organic MA revenue $ 2,270 $ 2,079 $ 191 9%
RD&A revenue $ 1,745 $ 1,514 $ 231 15%
Inorganic revenue from acquisitions (46) - (46)
Organic RD&A revenue $ 1,699 $ 1,514 $ 185 12%
ERS revenue $ 661 $ 565 $ 96 17%
Inorganic revenue from acquisitions (90) - (90)
Organic ERS revenue $ 571 $ 565 $ 6 1%
ERS recurring revenue $ 582 $ 448 $ 134 30%
Inorganic recurring revenue from
acquisitions (84) - (84)
Organic ERS recurring revenue $ 498 $ 448 $ 50 11%
ERS transaction revenue $ 79 $ 117 $ (38) (32%)
Inorganic transaction revenue from
acquisitions (6) - (6)
Organic ERS transaction revenue $ 73 $ 117 $ (44) (38%)
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Year Ended December 31,
Amounts in millions 2021 2020 Change Growth
MA recurring revenue $ 2,236 $ 1,882 $ 354 19%
Inorganic recurring revenue from acquisitions (130) - (130)
Organic MA recurring revenue $ 2,106 $ 1,882 $ 224 12%
Recently Issued Accounting Pronouncements
Refer to Note 2 to the consolidated financial statements located in Part II, Item 8 on this Form 10-K 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 Part II, Item 8 - "Financial Statements", Note 21 "Contingencies" in this Form 10-K.
Forward-Looking Statements
Certain statements contained in this annual report on Form 10-K are forward-looking statements and are based on future expectations, plans and prospects for the business and operations of the Company 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 annual report on Form 10-K, including in the sections entitled "Contingencies" under Item 7, "MD&A", commencing on page 41 of this annual report on Form 10-K, under "Legal Proceedings" in Part I, Item 3, of this Form 10-K, 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 annual report on Form 10-K, 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 examples of factors, risks and uncertainties that could cause actual results to differ, perhaps materially, from those indicated by these forward-looking statements. Those factors, risks and uncertainties include, but are not limited to the impact of COVID-19 on volatility in theU.S. and world financial markets, on general economic conditions and GDP in theU.S. and worldwide, and on Moody's own operations and personnel; future worldwide credit market disruptions or economic slowdowns, which could affect the volume of debt and other securities issued in domestic and/or global capital markets; other matters that could affect the volume of debt and other securities issued in domestic and/or global capital markets, including regulation, credit quality concerns, changes in interest rates, inflation and other volatility in the financial markets such as that due to Brexit and uncertainty as companies transition away from LIBOR; the level of merger and acquisition activity in theU.S. and abroad; the uncertain effectiveness and possible collateral consequences ofU.S. and foreign government actions affecting credit markets, international trade and economic policy, including those related to tariffs, tax agreements and trade barriers; concerns in the marketplace affecting our credibility or otherwise affecting market perceptions of the integrity or utility of independent credit agency ratings; the introduction of competing products or technologies by other companies; pricing pressure from competitors and/or customers; the level of success of new product development and global expansion; the impact of regulation as an NRSRO, the potential for newU.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 inU.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; the possible loss of key employees; failures or malfunctions of our operations and infrastructure; any vulnerabilities to cyber threats or other cybersecurity concerns; the outcome of any review by controlling tax authorities of Moody's global tax planning initiatives; exposure to potential criminal sanctions or civil remedies if Moody's fails to comply with foreign andU.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 or other business combinations and the ability of Moody's to successfully integrate acquired businesses; currency and foreign exchange volatility; the level of future cash flows; the levels of capital investments; and a decline in the demand for credit risk management tools by financial institutions. Other factors, risks and uncertainties relating to our acquisition of RMS could cause our actual results to differ, perhaps materially, from those indicated by these forward-looking statements, including risks relating to the integration of RMS's operations, products and employees into Moody's and the possibility that anticipated 66 MOODY'S 2021 10-K
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synergies and other benefits of the acquisition will not be realized in the amounts anticipated or will not be realized within the expected timeframe; risks that the acquisition could have an adverse effect on the business of RMS or its prospects, including, without limitation, on relationships with vendors, suppliers or customers; claims made, from time to time, by vendors, suppliers or customers; changes in theU.S. ,Europe (primarily theU.K. ),Japan ,India or global marketplaces that have an adverse effect on the business of RMS. 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 currently, or in the future could be, amplified by the COVID-19 outbreak, and 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 endedDecember 31, 2021 , and in other filings made by Moody's from time to time with theSEC 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 Moody'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 Moody's business, results of operations and financial condition. New factors may emerge from time to time, and it is not possible for Moody's to predict new factors, nor can Moody's 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 theSecurities 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information in response to this item is set forth under the caption "Market Risk" in Part II, Item 7 on page 60 of this annual report on Form 10-K.
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ITEM 8. FINANCIAL STATEMENTS
Index to Financial Statements
Page(s)
Management's Report on Internal Control Over Financial Reporting 69
Report of Independent Registered Public Accounting Firm 70 -71
Consolidated Financial Statements:
Consolidated Statements of Operations 72
Consolidated Statements of Comprehensive Income 73
Consolidated Balance Sheets 74
Consolidated Statements of Cash Flows 75
Consolidated Statements of Shareholders' Equity 76 -78
Notes to Consolidated Financial Statements 79 -129
Schedules are omitted as not required or inapplicable or because the required
information is provided in the consolidated financial statements, including the
notes thereto.
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MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management ofMoody's Corporation is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined by theSEC in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, internal control over financial reporting is a process designed by, or under the supervision of, the Company's principal executive and principal financial officers, or persons performing similar functions, and effected by the Company's Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Moody's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of Moody's management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management of the Company evaluated and assessed the design and operational
effectiveness of the Company's internal control over financial reporting as of
Our assessment of and conclusion on the effectiveness of our internal control over financial reporting as ofDecember 31, 2021 did not include the internal controls of RMS, which was acquired during our fiscal year endedDecember 31, 2021 and will be included in our assessment of and conclusion on the effectiveness of our internal control over financial reporting for the fiscal year endingDecember 31, 2022 . The total assets (excluding acquired goodwill and intangible assets which are included within the scope of this assessment) and revenues of RMS represent approximately$333 million and$81 million , respectively, of the corresponding amounts in our consolidated financial statements for the fiscal year endedDecember 31, 2021 .
Based on the assessment performed, management has concluded that Moody's
maintained effective internal control over financial reporting as of
The effectiveness of our internal control over financial reporting as of
/s/ROBERT FAUBER Robert Fauber
President and Chief Executive Officer
/s/MARK KAYE Mark Kaye
Executive Vice President and Chief Financial Officer
February 18, 2022 MOODY'S 2021 10-K 69
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Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Opinions on the Consolidated Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets ofMoody's Corporation and subsidiaries (the Company) as ofDecember 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, shareholders' equity, and cash flows for each of the years in the three-year period endedDecember 31, 2021 , and the related notes (collectively, the consolidated financial statements). We also have audited the Company's internal control over financial reporting as ofDecember 31, 2021 , based on criteria established in Internal Control - Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of theTreadway Commission . In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2021 and 2020 and the results of its operations and its cash flows for each of the years in the three-year period endedDecember 31, 2021 in conformity withU.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as ofDecember 31, 2021 based on criteria established in Internal Control - Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of theTreadway Commission . The Company acquired RMS during 2021, and management excluded from its assessment of the effectiveness of the Company's internal control over financial reporting as ofDecember 31, 2021 , RMS's internal control over financial reporting associated with total assets of$333 million and total revenues of$81 million included in the consolidated financial statements of the Company as of and for the year endedDecember 31, 2021 . Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of RMS.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's consolidated financial statements and an opinion on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with thePublic Company Accounting Oversight Board (United States ) (PCAOB) and are required to be independent with respect to the Company in accordance with theU.S. federal securities laws and the applicable rules and regulations of theSecurities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Carrying value of goodwill
As discussed in Note 10 to the consolidated financial statements, the goodwill balance as ofDecember 31, 2021 was$5,999 million . The Company evaluates its reporting units for impairment on an annual basis, or more frequently if there are changes in the reporting structure of the Company or indicators of potential impairment. The Company has four primary reporting units as ofDecember 31, 2021 : two within the Company's Moody's Investors Service segment and two within theMoody's Analytics segment. We identified the assessment of the carrying value of goodwill in the reporting units within theMoody's Analytics segment as a critical audit matter due to the significant degree of judgment required in evaluating assumptions about revenue growth rates and the discount rates used to measure the reporting unit fair values. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company's goodwill impairment process, including controls related to revenue growth rates and the discount rates used to measure the reporting unit fair values. We evaluated management's judgments relating to the assumed revenue growth rates by comparing the Company's revenue growth rates to the Company's underlying business strategies and growth plans. We evaluated management's judgments relating to the Company's discount rates by comparing them to appropriate benchmark interest rates. We also performed sensitivity analyses to assess the impact of alternative assumptions on management's impairment conclusion. We compared the Company's historical revenue forecasts to actual results to assess the Company's ability to accurately forecast. We involved valuation professionals with specialized skills and knowledge, who assisted in assessing the significant assumptions used to develop the discount rates, including the relevance and reliability of the information used.
Gross uncertain tax positions
As discussed in Note 17 to the consolidated financial statements, the Company has recorded uncertain tax positions (UTPs), excluding associated interest, of$388 million as ofDecember 31, 2021 . The Company determines whether it is more-likely-than-not that a tax position will be sustained based on its technical merits as of the reporting date. A tax position that meets this more-likely-than-not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority. We identified the assessment of the Company's gross UTPs as a critical audit matter because complex judgment was required in evaluating the Company's interpretation of tax law and its estimate of the ultimate resolution of the tax positions. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of internal controls over the Company's tax process, including those related to the timely identification of UTPs, the assessment of new information related to previously identified UTPs, and the measurement of UTPs. We involved valuation professionals with specialized skills and knowledge, who assisted in assessing transfer pricing studies for compliance with applicable laws and regulations. Additionally, we involved tax professionals with specialized skills and knowledge, who assisted in:
•evaluating the Company's interpretation of tax laws and judgments about the administrative practices of tax authorities
•inspecting settlement documents with applicable taxing authorities
•assessing the expiration of statutes of limitations
•performing an assessment of the Company's tax positions and comparing the results to the Company's assessment.
In addition, we evaluated the Company's ability to accurately estimate its gross UTPs by comparing historical gross UTPs to actual results upon conclusion of tax audits or expiration of the statute of limitations.
/s/
We have served as the Company's auditor since 2008.
New York, New York February 18, 2022 MOODY'S 2021 10-K 71
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MOODY'S CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in millions, except per share data) Year Ended December 31, 2021 2020 2019 Revenue$ 6,218 $ 5,371 $ 4,829 Expenses Operating 1,637 1,475 1,387 Selling, general and administrative 1,480 1,229 1,167 Restructuring - 50 60 Depreciation and amortization 257 220 200 Acquisition-Related Expenses - - 3 Loss pursuant to the divestiture of MAKS - 9 14 Total expenses 3,374 2,983 2,831 Operating income 2,844 2,388 1,998 Non-operating (expense) income, net Interest expense, net (171) (205) (208) Other non-operating income, net 82 46 20 Non-operating (expense) income, net (89) (159) (188) Income before provision for income taxes 2,755 2,229 1,810 Provision for income taxes 541 452 381 Net income 2,214 1,777 1,429
Less: Net (loss) income attributable to noncontrolling interests
- (1) 7
Net income attributable to Moody's $ 2,214 $ 1,778 $ 1,422
Earnings per share
Basic $ 11.88 $ 9.48 $ 7.51
Diluted $ 11.78 $ 9.39 $ 7.42
Weighted average shares outstanding
Basic 186.4 187.6 189.3
Diluted 187.9 189.3 191.6
The accompanying notes are an integral part of the consolidated financial statements.
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MOODY'S CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in millions) Year EndedDecember 31, 2021 Year EndedDecember 31, 2020
Year Ended
Pre-tax Tax After-tax Pre-tax Tax After-tax Pre-tax Tax After-tax
amounts amounts amounts amounts amounts amounts amounts amounts amounts
Net Income $ 2,214 $ 1,777 $ 1,429
Other Comprehensive Income
(Loss):
Foreign Currency Adjustments:
Foreign currency translation
adjustments, net $ (303) $ 11 $
(292)
(22)$ (1) $ (23) Foreign currency translation adjustments - reclassification of losses included in net income - - - - - - 32 - 32 Net gains (losses) on net investment hedges 319 (77) 242 (364) 91 (273) 35 (9) 26 Net investment hedges - reclassification of gains included in net income (2) 1 (1) (1) - (1) (3) 1 (2) Cash Flow Hedges: Net losses on cash flow hedges - - - (68) 17 (51) - - - Reclassification of losses included in net income 2 - 2 3 (1) 2 - - - Pension and Other Retirement Benefits: Amortization of actuarial losses/prior service costs and settlement charge included in net income 19 (5) 14 8 (2) 6 3 (1) 2 Net actuarial gains (losses) and prior service costs 73 (18) 55 (42) 10 (32) (32) 8 (24) Total Other Comprehensive Income (Loss)$ 108 $ (88) $ 20 $ (103) $ 102 $ (1) $ 13 $ (2) $ 11 Comprehensive Income 2,234 1,776 1,440 Less: comprehensive (loss) income attributable to noncontrolling interests (2) (8) 11 Comprehensive Income Attributable to Moody's$ 2,236 $ 1,784 $ 1,429 The accompanying notes are an integral part of the consolidated financial statements. MOODY'S 2021 10-K 73
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MOODY'S CORPORATION CONSOLIDATED BALANCE SHEETS (Amounts in millions, except share and per share data) December 31, 2021 2020 ASSETS Current assets: Cash and cash equivalents$ 1,811 $ 2,597 Short-term investments 91 99 Accounts receivable, net of allowances for credit losses of$32 in 2021 and$34 in 2020 1,720 1,430 Other current assets 389 383 Total current assets 4,011 4,509 Property and equipment, net 347 278 Operating lease right-of-use assets 438 393 Goodwill 5,999 4,556 Intangible assets, net 2,467 1,824 Deferred tax assets, net 384 334 Other assets 1,034 515 Total assets$ 14,680 $ 12,409 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities$ 1,142 $ 1,039 Current portion of operating lease liabilities 105 94 Deferred revenue 1,249 1,089 Total current liabilities 2,496 2,222 Non-current portion of deferred revenue 86 98 Long-term debt 7,413 6,422 Deferred tax liabilities, net 488 404 Uncertain tax positions 388 483 Operating lease liabilities 455 427 Other liabilities 438 590 Total liabilities 11,764 10,646 Contingencies (Note 21) Shareholders' equity: Preferred stock, par value$.01 per share; 10,000,000 shares authorized; no shares issued and outstanding - -
Series common stock, par value
- -
Common stock, par value
3 3 Capital surplus 885 735 Retained earnings 12,762 11,011
(10,513) (9,748)
Accumulated other comprehensive loss (410) (432)
Total Moody's shareholders' equity 2,727 1,569
Noncontrolling interests 189 194
Total shareholders' equity 2,916 1,763
Total liabilities and shareholders' equity $
14,680
The accompanying notes are an integral part of the consolidated financial statements.
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MOODY'S CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in millions) Year Ended December 31, 2021 2020 2019 Cash flows from operating activities Net income$ 2,214 $ 1,777 $ 1,429 Reconciliation of net income to net cash provided by operating activities: Depreciation and amortization 257 220 200 Stock-based compensation 175 154 136 Deferred income taxes (218) (44) (38) Prepayment penalty relating to early redemption of debt 13 24 12 Non-cash gain related to minority interest in BitSight (36) - - Settlement of treasury rate lock - (68) - ROU asset impairment & other non-cash restructuring/impairment charges - 36 38 Loss pursuant to the divestiture of MAKS - 9 14 Changes in assets and liabilities: Accounts receivable (257) 31 (134) Other current assets (12) (38) (88) Other assets (26) (49) (69) Lease obligations (11) (10) (16) Accounts payable and accrued liabilities 80 247 65 Deferred revenue 65 (29) 76
Unrecognized tax positions and other non-current tax liabilities
(184) (12) 8
Other liabilities (55) (102) 42
Net cash provided by operating activities 2,005 2,146 1,675
Cash flows from investing activities
Capital additions (139) (103) (69)
Purchases of investments (437) (181) (138)
Sales and maturities of investments 147 104 174
Cash received upon disposal of a business, net of cash transferred to purchaser
- - 226
Cash paid for acquisitions, net of cash acquired (2,179) (897) (162)
Receipts from settlements of net investment hedges 37 2 12
Payments for settlements of net investment hedges (48) (2) (7)
Net cash (used in) provided by investing activities (2,619) (1,077) 36
Cash flows from financing activities
Issuance of notes 1,672 1,491 824
Repayment of notes (500) (800) (950)
Issuance of commercial paper - 789 1,317
Repayment of commercial paper - (792) (1,320)
Proceeds from stock-based compensation plans 38 51 45
Repurchase of shares related to stock-based compensation (83) (104) (77)
Treasury shares (750) (503) (991)
Dividends (463) (420) (378)
Dividends to noncontrolling interests (5) (1) (3)
Payment for noncontrolling interest - (23) (12)
Debt issuance costs, extinguishment costs and related fees (31)
(39) (18)
Net cash used in financing activities (122) (351) (1,563)
Effect of exchange rate changes on cash and cash equivalents (50)
47 (1)
(Decrease) increase in cash and cash equivalents (786) 765 147
Cash and cash equivalents, beginning of period 2,597 1,832 1,685
Cash and cash equivalents, end of period $ 1,811
The accompanying notes are an integral part of the consolidated financial
statements.
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MOODY'S CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Amounts in millions, except per share data) Shareholders of Moody's Corporation Accumulated Common Stock Treasury Stock Other Total Moody's Non- Total Capital Retained Comprehensive Shareholders' Controlling Shareholders' Shares Amount Surplus Earnings Shares Amount Loss Equity Interests Equity Balance atDecember 31, 2018 342.9$ 3 $ 601 $ 8,594 (151.6)$ (8,313) $ (426) $ 459$ 197 $ 656 Net income 1,422 1,422 7 1,429 Dividends ($2.00 per share) (380) (380) (3) (383) Adoption of ASU 2018-02, relating to the Tax Act 20 (20) - - Stock-based compensation 136 136 136 Shares issued for stock-based compensation plans at average cost, net (70) 1.6 38 (32) (32) Purchase of noncontrolling interest (9) (9) (3) (12) Non-controlling interest resulting from majority acquisition ofVigeo Eiris - 17 17Treasury shares repurchased (16) (5.2) (975) (991) (991) Currency translation adjustment, net of net investment hedge activity (net of tax of$9 million ) 29 29 4 33 Net actuarial losses and prior service cost (net of tax of$8 million ) (24) (24)
(24)
Amortization of prior service costs and actuarial losses (net of tax of$1 million ) 2 2 2 Balance atDecember 31, 2019 342.9$ 3 $ 642 $ 9,656 (155.2)$ (9,250) $ (439) $ 612$ 219 $ 831
The accompanying notes are an integral part of the consolidated financial statements.
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MOODY'S CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY continued (Amounts in millions, except per share data)
Shareholders of Moody's Corporation
Accumulated
Common Stock Treasury Stock Other Total Moody's Non- Total
Capital Retained Comprehensive Shareholders' Controlling Shareholders'
Shares Amount Surplus Earnings Shares Amount Loss Equity Interests Equity
Balance at December 31, 2019 342.9 $ 3 $ 642 $ 9,656 (155.2) $ (9,250) $ (439) $ 612 $ 219 $ 831
Net income 1,778 1,778 - 1,778
Dividends ($2.24 per share) (421) (421) (3) (424)
Adoption of New Credit Losses Accounting Standard (2) (2) (2) Stock-based compensation 154 154 154 Shares issued for stock-based compensation plans at average cost, net (58) 1.4 5 (53)
(53)
Purchase of noncontrolling interest (3) (3) (14) (17)Treasury shares repurchased - (2.0) (503) (503) (503) Currency translation adjustment, net of net investment hedge activity (net of tax of$78 million ) 82 82 (8)
74
Net actuarial losses and prior service cost (net of tax of$10 million ) (32) (32) (32) Amortization of prior service costs and actuarial losses (net of tax of$2 million ) 6 6 6 Net realized and unrealized loss on cash flow hedges (net of tax of$16 million ) (49) (49)
(49)
Balance atDecember 31, 2020 342.9$ 3 $ 735 $ 11,011 (155.8)$ (9,748) $ (432)$ 1,569 $ 194 $ 1,763 The accompanying notes are an integral part of the consolidated financial statements. (continued on next page) MOODY'S 2021 10-K 77
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MOODY'S CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY continued (Amounts in millions, except per share data)
Shareholders of Moody's Corporation
Accumulated
Common Stock Treasury Stock Other Total Moody's Non- Total
Capital Retained Comprehensive Shareholders' Controlling Shareholders'
Shares Amount Surplus Earnings Shares Amount Loss Equity Interests Equity
Balance at December 31, 2020 342.9 $ 3 $ 735 $ 11,011 (155.8) $ (9,748) $ (432) $ 1,569 $ 194 $ 1,763
Net income 2,214 2,214 - 2,214
Dividends ($2.48 per share) (463) (463) (3) (466)
Stock-based compensation 175 175 175
Shares issued for stock-based
compensation plans at average
cost, net (25) 0.7 (15) (40) (40)
Treasury shares repurchased - (2.2) (750) (750) (750)
Currency translation
adjustment, net of net
investment hedge activity (net
of tax of $65 million ) (49) (49) (2) (51)
Net actuarial gains and prior service cost (net of tax of$18 million ) 55 55 55 Amortization of prior service costs/ actuarial losses and settlement charge (net of tax of$5 million ) 14 14
14
Net realized and unrealized gain on cash flow hedges 2 2
2
Balance atDecember 31, 2021 342.9$ 3 $ 885 $ 12,762 (157.3)$ (10,513) $ (410)$ 2,727 $ 189 $ 2,916
The accompanying notes are an integral part of the consolidated financial statements.
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MOODY'S CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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.
Adoption of New Accounting Standards
OnJanuary 1, 2020 , the Company adopted ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." The Company has implemented policies and procedures in compliance with the "expected credit loss" impairment model, which included: (1) refinement of the grouping of receivables with similar risk characteristics; and (2) processes to identify information that can be used to develop reasonable and supportable forecasts of factors that could affect the collectability of the reported amount of the receivable. As the Company's accounts receivable are short-term in nature, the adoption of this ASU did not have a material impact to the Company's allowance for bad debts or its policies and procedures for determining the allowance. Refer to Note 2 for further information on how the Company determines its reserves for expected credit losses. The Company recorded a$2 million cumulative-effect adjustment to retained earnings to increase its allowance for credit losses upon adoption. OnJanuary 1, 2020 , the Company adopted ASU No. 2018-15, "Intangibles-Goodwill andOther-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract." This ASU requires implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same provisions of authoritative guidance for internal-use software, and amortized over the non-cancellable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. The Company is now required to present the amortization of capitalized implementation costs in the same line item in the statement of operations as the fees associated with the hosting service (i.e. operating and SG&A expense) and classify the related payments in the statement of cash flows in the same manner as payments made for fees associated with the hosting service (i.e. cash flows from operating activities). This ASU also requires capitalization of implementation costs in the balance sheet to be consistent with the location of prepayment of fees for the hosting element (i.e. within other current assets or other assets). The Company adopted this ASU prospectively to all implementation costs incurred after the date of adoption and it did not have a material impact on the Company's current financial statements. The future impact to the Company's financial statements will relate to the aforementioned classification of these capitalized costs and related amortization. InJanuary 2021 , the FASB issued ASU 2021-01, "Reference Rate Reform - Scope," which clarified the scope and application of the original guidance, ASU No. 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU No. 2020-04"), issued inMarch 2020 . ASU No. 2020-04 provides temporary optional expedients and exceptions to theU.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. Both ASU's were effective upon issuance, and the Company may elect to apply the amendments prospectively throughDecember 31, 2022 as the transition from LIBOR is completed. Refer to Recently Issued Accounting Pronouncements in Note 2 for further information. OnDecember 31, 2020 , the Company adopted ASU No. 2018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans". This ASU eliminates requirements for certain disclosures and requires additional disclosures under defined benefit pension plans and other postretirement plans. The Company is also now required to present a narrative description of significant gains or losses in the benefit obligation over the past year. The Company adopted this ASU retrospectively for all periods presented with the new required disclosures presented in Note 15. OnJanuary 1, 2021 , the Company adopted ASU No. 2019-04, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825 Financial Instruments." This ASU clarifies and improves guidance related to the recently issued standards updates on credit losses, hedging, and recognition and measurement of financial instruments. The Company adopted this ASU prospectively and it did not have a material impact on the Company's financial statements. MOODY'S 2021 10-K
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OnJanuary 1, 2021 , the Company adopted ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." This ASU simplifies the accounting for income taxes by eliminating certain exceptions to the general principles in Topic 740, Income Taxes, and clarifies certain aspects of the existing guidance to promote consistency among reporting entities. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company adopted this ASU prospectively and it did not have a material impact on the Company's current financial statements.
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.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include those ofMoody's Corporation and its majority- and wholly-owned subsidiaries. The effects of all intercompany transactions have been eliminated. Investments in companies for which the Company has significant influence over operating and financial policies but not a controlling interest are accounted for on an equity basis whereby the Company records its proportional share of the investment's net income or loss as part of other non-operating income (expense), net and any dividends received reduce the carrying amount of the investment. Equity investments without a readily determinable fair value for which the Company does not have significant influence are accounted for under the ASC 321 measurement alternative; these investments are recorded at initial cost, less impairment, adjusted upward or downward for any observable price changes in similar investments. The Company applies the guidelines set forth in Topic 810 of the ASC in assessing its interests in variable interest entities to decide whether to consolidate an entity. The Company has reviewed the potential variable interest entities and determined that there are no consolidation requirements under Topic 810 of the ASC. The Company consolidates its ICRA subsidiaries on a three month lag.
Cash and Cash Equivalents
Cash equivalents principally consist of investments in money market deposit accounts as well as certificates of deposit with maturities of three months or less when purchased.
Short-term Investments Short-term investments are securities with maturities greater than 90 days at the time of purchase that are available for operations in the next 12 months. The Company's short-term investments primarily consist of certificates of deposit and their cost approximates fair value due to the short-term nature of the instruments. Interest and dividends on these investments are recorded into income when earned. Property and Equipment
Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives. Expenditures for maintenance and repairs that do not extend the economic useful life of the related assets are charged to expense as incurred.
Computer Software Developed or Obtained for Internal Use
The Company capitalizes costs related to software developed or obtained for internal use. These assets, included in property and equipment in the consolidated balance sheets, relate to the Company's financial, website and other systems. Such costs generally consist of direct costs for third-party license fees, professional services provided by third parties and employee compensation, in each case incurred either during the application development stage or in connection with upgrades and enhancements that increase functionality. Such costs are depreciated over their estimated useful lives on a straight-line basis. Costs incurred during the preliminary project stage of development as well as maintenance costs are expensed as incurred. The Company also capitalizes implementation costs incurred in cloud computing arrangements (i.e., hosting arrangements) and depreciates the costs over the non-cancellable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised or for which the exercise is controlled by the service provider. The Company classifies the amortization of capitalized implementation costs in the same line item in the statement of operations as the fees associated with the hosting service (i.e., operating and SG&A expense) and classifies the related payments in the statement of cash flows in the same manner as payments made for fees associated with the hosting service (i.e. cash flows from operating activities). In addition, the capitalization of implementation costs is reflected in the balance sheet consistent with the location of prepayment of fees for the hosting element (i.e., within other current assets or other assets).
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), annually as ofJuly 31 or more frequently if impairment indicators arise in accordance with ASC Topic 350. 80 MOODY'S 2021 10-K
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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, reporting unit 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.Goodwill is assigned to a reporting unit at the date when an acquisition is integrated into one of the established reporting units, and is based on which reporting unit is expected to benefit from the synergies of the acquisition. For purposes of assessing the recoverability of goodwill, 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.
Impairment of long-lived assets and definite-lived intangible assets
Long-lived assets (including ROU Assets) and amortizable intangible assets are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Under the first step of the recoverability assessment, the Company compares the estimated undiscounted future cash flows attributable to the asset or asset group to their carrying value. If the undiscounted future cash flows are greater than the carrying value, no further assessment is required. If the undiscounted future cash flows are less than the carrying value, Moody's proceeds with step two of the assessment. Under step two of this assessment, Moody's is required to determine the fair value of the asset or asset group (reduced by the estimated cost to sell the asset for assets or disposal groups classified as held-for-sale) and recognize an impairment loss if the carrying amount exceeds its fair value. Stock-Based Compensation The Company records compensation expense over the requisite service period for all share-based payment award transactions granted to employees based on the fair value of the equity instrument at the time of grant. This includes shares issued under stock option and restricted stock plans.
Derivative Instruments and Hedging Activities
Based on the Company's risk management policy, the Company may use derivative
financial instruments to reduce exposure to changes in foreign exchange rates
and interest rates. The Company does not enter into derivative financial
instruments for speculative purposes. All derivative financial instruments are
recorded on the balance sheet at their respective fair values on a gross basis.
The changes in the value of derivatives that qualify as fair value hedges are
recorded in the same income statement line item in earnings in which the
corresponding adjustment to the carrying value of the hedged item is presented.
The entire change in the fair value of derivatives that qualify as cash flow
hedges is recorded to OCI and such amounts are reclassified from AOCI(L) to the
same income statement line in earnings in the same period or periods during
which the hedged transaction affects income. The Company assesses effectiveness
for net investment hedges using the spot-method. The entire change in the fair
value of derivatives that qualify as net investment hedges is initially recorded
to OCI. Those changes in fair value attributable to components included in the
assessment of hedge effectiveness in a net investment hedge are recorded in the
currency translation adjustment component of OCI and remain in AOCI(L) until the
period in which the hedged item affects earnings. Those changes in fair value
attributable to components excluded from the assessment of hedge effectiveness
in a net investment hedge are recorded to OCI and amortized to earnings using a
systematic and rational method over the duration of the hedge. Any changes in
the fair value of derivatives that the Company does not designate as hedging
instruments under Topic 815 of the ASC are recorded in the consolidated
statements of operations in the period in which they occur.
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Revenue Recognition and Costs to Obtain or Fulfill a Contract with a Customer
Revenue recognition:
Revenue is recognized when control of promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
When contracts with customers contain multiple performance obligations, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to each distinct performance obligation on a relative SSP basis. The Company determines the SSP by using the price charged for a deliverable when sold separately or uses management's best estimate of SSP for goods or services not sold separately using estimation techniques that maximize observable data points, including: internal factors relevant to its pricing practices such as costs and margin objectives; standalone sales prices of similar products; pricing policies; percentage of the fee charged for a primary product or service relative to a related product or service; and customer segment and geography. Additional consideration is also given to market conditions such as competitor pricing strategies and market trends.
Sales, usage-based, value added and other taxes are excluded from revenues.
MIS Revenue
In the MIS segment, revenue arrangements with multiple elements are generally comprised of two distinct performance obligations, a rating and the related monitoring service. Revenue attributed to ratings of issued securities is generally recognized when the rating is delivered to the issuer. Revenue attributed to monitoring of issuers or issued securities is recognized ratably over the period in which the monitoring is performed, generally one year. In the case of certain structured finance products, primarily CMBS, issuers can elect to pay all of the annual monitoring fees upfront. These fees are deferred and recognized over the future monitoring periods based on the expected lives of the rated securities. MIS arrangements generally have standard contractual terms for which the stated payments are due at conclusion of the ratings process for ratings and either upfront or in arrears for monitoring services; and are signed by customers either on a per issue basis or at the beginning of the relationship with the customer. In situations when customer fees for an arrangement may be variable, the Company estimates the variable consideration at inception using the expected value method based on analysis of similar contracts in the same line of business, which is constrained based on the Company's assessment of the realization of the adjustment amount. The Company allocates the transaction price within arrangements that include multiple performance obligations based upon the relative SSP of each service. The SSP for both rating and monitoring services is generally based upon observable selling prices where the rating or monitoring service is sold separately to similar customers.
MA Revenue
In the MA segment, products and services offered by the Company include hosted research and data subscriptions, installed and hosted software subscriptions, perpetual installed software licenses and related maintenance, or PCS, and professional services. Subscription and PCS contracts are generally invoiced in advance of the contractual coverage period, which is principally one year, but can range from 3-5 years; while perpetual software licenses are generally invoiced upon delivery and professional services are invoiced as those services are provided. Payment terms and conditions vary by contract type, but primarily include a requirement of payment within 30 to 60 days. Revenue from research, data and other hosted subscriptions is recognized ratably over the related subscription period as MA's performance obligation to provide access to these products is progressively fulfilled over the stated term of the contract. A large portion of these services are invoiced in the months of November, December and January. Revenue from the sale of a software license, when considered distinct from the related software implementation services, is generally recognized at the time the product master or first copy is delivered or transferred to the customer. PCS is generally recognized ratably over the contractual period commencing when the software license is fully delivered. Revenue from installed software subscriptions, which includes PCS, is bifurcated into a software license performance obligation and a PCS performance obligation, which follow the patterns of recognition described above. For implementation services and other service projects within the ERS andESA businesses for which fees are fixed, the Company determined progress towards completion is most accurately measured on a percentage-of-completion basis (input method) as this approach utilizes the most directly observable data points and is therefore used to recognize the related revenue. For implementation services where price varies based on time expended, a time-based measure of progress towards completion of the performance obligation is utilized.
Revenue from professional services rendered is generally recognized as the services are performed over time.
Products and services offered within the MA segment are sold either stand-alone or together in various combinations. In instances where an arrangement contains multiple performance obligations, the Company accounts for the individual performance obligations separately if they are considered distinct. Revenue is generally allocated to all performance obligations based upon the relative SSP at contract inception. For certain performance obligations, judgment is required to determine the SSP. Revenue is recognized for each performance obligation based upon the conditions for revenue recognition noted above.
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In the MA segment, customers usually pay a fixed fee for the products and services based on signed contracts. However, accounting for variable consideration is applied mainly for: i) estimates for cancellation rights and price concessions and ii) T&M based services.
The Company estimates the variable consideration associated with cancellation rights and price concessions based on the expected amount to be provided to customers and reduces the amount of revenue to be recognized. T&M based contracts represent about half of MA's service projects within the ERS andESA businesses. The Company provides agreed upon services at a contracted daily or hourly rate. The commitment represents a series of goods and services that are substantially the same and have the same pattern of transfer to the customer. As such, if T&M services are sold with other MA products, the Company allocates the variable consideration entirely to the T&M performance obligation if the services are sold at standard pricing or at a similar discount level compared to other performance obligations in the same revenue contract. If these criteria are not met, the Company estimates variable consideration for each performance obligation upfront. Each form of variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal of any incremental revenue will not occur.
Costs to Obtain or Fulfill a Contract with a Customer:
Costs to obtain a contract with a customer
Costs incurred to obtain customer contracts, such as sales commissions, are deferred and recorded within other current assets and other assets when such costs are determined to be incremental to obtaining a contract, would not have been incurred otherwise and the Company expects to recover those costs. These costs are amortized to expense on a systematic basis consistent with the transfer of the products or services to the customer. Depending on the line of business to which the contract relates, this may be based upon the average economic life of the products sold or average period for which services are provided, inclusive of anticipated contract renewals. Determining the estimated economic life of the products sold requires judgment with respect to anticipated future technological changes. Costs to obtain customer contracts are only incurred in the MA segment.
Cost to fulfill a contract with a customer
Costs incurred to fulfill customer contracts, are deferred and recorded within other current assets and other assets when such costs relate directly to a contract, generate or enhance resources of the Company that will be used in satisfying performance obligations in the future and the Company expects to recover those costs.
The Company capitalizes work-in-process costs for in-progress MIS ratings, which is recognized consistent with the rendering of the related services to the customers, as ratings are issued.
In addition, within the MA segment, the Company capitalizes royalty costs related to third-party information data providers associated with hosted company information and business intelligence products. These costs are amortized to expense consistent with the recognition pattern of the related revenue over time.
Accounts Receivable Allowances
In order to determine an estimate of expected credit losses, receivables are segmented based on similar risk characteristics including historical credit loss patterns and industry or class of customers to calculate reserve rates. The Company uses an aging method for developing its allowance for credit losses by which receivable balances are stratified based on aging category. A reserve rate is calculated for each aging category which is generally based on historical information, and is adjusted, when necessary, for current conditions (e.g., macroeconomic or industry related) and reasonable and supportable forecasts about the future. The Company also considers customer specific information (e.g., bankruptcy or financial difficulty) when estimating its expected credit losses, as well as the economic environment of the customers, both from an industry and geographic perspective, in evaluating the need for allowances. Expected credit losses are reflected as additions to the accounts receivable allowance. Actual uncollectible account write-offs are recorded against the allowance.
Leases
The Company has operating leases, of which substantially all relate to the lease
of office space. The Company's leases which are classified as finance leases are
not material to the consolidated financial statements.
The Company determines if an arrangement meets the definition of a lease at
contract inception. The Company recognizes in its consolidated balance sheet a
lease liability and an ROU Asset for all leases with a lease term greater than
12 months. In determining the length of the lease term, the Company utilizes
judgment in assessing the likelihood of whether it is reasonably certain that it
will exercise an option to extend or early-terminate a lease, if such options
are provided in the lease agreement.
ROU Assets represent the Company's right to use an underlying asset for the
lease term and lease liabilities represent the Company's obligation to make
lease payments arising from the lease. ROU Assets and lease liabilities are
recognized at the lease commencement date based on the present value of lease
payments over the lease term. As substantially all of the Company's leases do
not provide an implicit interest rate, the Company uses its estimated secured
incremental borrowing rates at the lease commencement date in determining the
present value of lease payments. These secured incremental borrowing rates are
attributable to the currency in which the lease is denominated.
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At commencement, the Company's initial measurement of the ROU Asset is calculated as the present value of the remaining lease payments (i.e., lease liability), with additive adjustments reflecting: initial direct costs (e.g., broker commissions) and prepaid lease payments (if any); and reduced by any lease incentives provided by the lessor if: (i) received before lease commencement or (ii) receipt of the lease incentive is contingent upon future events for which the occurrence is both probable and within the Company's control. Lease expense for minimum operating lease payments is recognized on a straight-line basis over the lease term. This straight-line lease expense represents a single lease cost which is comprised of both an interest accretion component relating to the lease liability and amortization of the ROU Assets. The Company records this single lease cost in operating and SG&A expenses. However, in situations where an operating lease ROU Asset has been impaired, the subsequent amortization of the ROU Asset is then recorded on a straight-line basis over the remaining lease term and is combined with accretion expense on the lease liability to result in single operating lease cost (which subsequent to impairment will no longer follow a straight-line recognition pattern). The Company has lease agreements which include lease and non-lease components. For the Company's office space leases, the lease components (e.g., fixed rent payments) and non-lease components (e.g., fixed common-area maintenance costs) are combined and accounted for as a single lease component. Variable lease payments (e.g. variable common-area-maintenance costs) are only included in the initial measurement of the lease liability to the extent those payments depend on an index or a rate. Variable lease payments not included in the lease liability are recognized in net income in the period in which the obligation for those payments is incurred.
Contingencies
Moody's is involved in legal and tax proceedings, governmental, regulatory and legislative investigations and inquiries, claims and litigation that are incidental to the Company's business, including claims based on ratings assigned by MIS. Moody's is also subject to ongoing tax audits in the normal course of business. Management periodically assesses the Company's liabilities and contingencies in connection with these matters based upon the latest information available. Moody's discloses material pending legal proceedings pursuant toSEC rules and other pending matters as it may determine to be appropriate. 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 toSEC rules and other pending matters as it may determine to be appropriate. In view of the inherent difficulty of assessing the potential outcome of legal proceedings, governmental, regulatory and legislative investigations and inquiries, claims and litigation and similar matters and contingencies, particularly when the claimants seek large or indeterminate damages or assert novel legal theories or the matters involve a large number of parties, the Company often cannot predict what the eventual outcome of the pending matters will be or the timing of any resolution of such matters. The Company also may be unable to predict the impact (if any) that any such matters may have on how its business is conducted, on its competitive position or on its financial position, results of operations or cash flows. As the process to resolve any pending matters progresses, management will continue to review the latest information available and assess its ability to predict the outcome of such matters and the effects, if any, on its operations and financial condition and to accrue for and disclose such matters as and when required. However, because such matters are inherently unpredictable and unfavorable developments or resolutions can occur, the ultimate outcome of such matters, including the amount of any loss, may differ from those estimates.
Operating Expenses
Operating expenses include costs associated with the development and production of the Company's products and services and their delivery to customers. These expenses principally include employee compensation and benefits and travel costs that are incurred in connection with these activities. Operating expenses are charged to income as incurred.
Selling, General and Administrative Expenses
SG&A expenses include such items as compensation and benefits for corporate officers and staff and compensation and other expenses related to sales. They also include items such as office rent, business insurance, professional fees and gains and losses from sales and disposals of assets. SG&A expenses are charged to income as incurred.
Foreign Currency Translation
For all operations outside theU.S. where the Company has designated the local currency as the functional currency, assets and liabilities are translated intoU.S. dollars using end of year exchange rates, and revenue and expenses are translated using average exchange rates for the year. For these foreign operations, currency translation adjustments are recorded to other comprehensive income. 84 MOODY'S 2021 10-K
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Comprehensive Income
Comprehensive income represents the change in net assets of a business enterprise during a period due to transactions and other events and circumstances from non-owner sources including: foreign currency translation impacts; net actuarial gains and losses and net prior service costs related to pension and other retirement plans; and gains and losses on derivative instruments designated as net investment hedges or cash flow hedges. Comprehensive income items, including cumulative translation adjustments of entities that are less-than-wholly-owned subsidiaries, will be reclassified to noncontrolling interests and thereby, adjusting accumulated other comprehensive income proportionately in accordance with the percentage of ownership interest of the non-controlling shareholder.
Income Taxes
The Company accounts for income taxes under the asset and liability method in accordance with ASC Topic 740. Therefore, income tax expense is based on reported income before income taxes and deferred income taxes reflect the effect of temporary differences between the amounts of assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. The Company classifies interest related to unrecognized tax benefits as a component of interest expense in its consolidated statements of operations. Penalties are recognized in other non-operating expenses. For UTPs, the Company first determines whether it is more-likely-than-not (defined as a likelihood of more than fifty percent) that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more-likely-than-not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority. OnDecember 22, 2017 , the Tax Act was signed into law, resulting in all previously undistributed foreign earnings being subject toU.S. tax. The Company has provided deferred taxes for those entities whose earnings are not considered indefinitely reinvested.
Fair Value of Financial Instruments
The Company's financial instruments include cash, cash equivalents, trade receivables and payables, and certain short-term investments consisting primarily of certificates of deposit and money market deposits, all of which are short-term in nature and, accordingly, approximate fair value.
The Company also invests in mutual funds, which are accounted for as equity securities with readily determinable fair values under ASC Topic 321. The Company measures these investments at fair value with both realized gains and losses and unrealized holding gains and losses for these investments included in net income.
Also, the Company uses derivative instruments to manage certain financial exposures that occur in the normal course of business. These derivative instruments are carried at fair value in the Company's consolidated balance sheets.
Fair value is defined by the ASC 820 as the price that would be received from selling an asset or paid to transfer a liability (i.e., an exit price) in an orderly transaction between market participants at the measurement date. The determination of this fair value is based on the principal or most advantageous market in which the Company could commence transactions and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance. Also, determination of fair value assumes that market participants will consider the highest and best use of the asset.
The ASC establishes a fair value hierarchy whereby the inputs contained in valuation techniques used to measure fair value are categorized into three broad levels as follows:
Level 1: quoted market prices in active markets that the reporting entity has the ability to access at the date of the fair value measurement;
Level 2: inputs other than quoted market prices described in Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities;
Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value measurement of the assets or liabilities.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk principally consist of cash and cash equivalents, short-term investments, trade receivables and derivatives.
The Company manages its credit risk exposure by allocating its cash equivalents among various money market deposit accounts and certificates of deposits. Short-term investments primarily consist of certificates of deposit as ofDecember 31, 2021 and 2020. The Company manages its credit risk exposure on cash equivalents and short-term investments by limiting the amount it can invest with any single entity. No customer accounted for 10% or more of accounts receivable atDecember 31, 2021 or 2020. MOODY'S 2021 10-K
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Earnings per Share of Common Stock
Basic shares outstanding is calculated based on the weighted average number of shares of common stock outstanding during the reporting period. Diluted shares outstanding is calculated giving effect to all potentially dilutive common shares, assuming that such shares were outstanding and dilutive during the reporting period.
Pension and Other Retirement Benefits
Moody's maintains various noncontributory DBPPs as well as other contributory and noncontributory retirement plans. The expense and assets/liabilities that the Company reports for its pension and other retirement benefits are dependent on many assumptions concerning the outcome of future events and circumstances. These assumptions represent the Company's best estimates and may vary by plan. The differences between the assumptions for the expected long-term rate of return on plan assets and actual experience is spread over a five-year period to the market-related value of plan assets, which is used in determining the expected return on assets component of annual pension expense. All other actuarial gains and losses are generally deferred and amortized over the estimated average future working life of active plan participants. The Company recognizes as an asset or liability in its consolidated balance sheet the funded status of its defined benefit retirement plans, measured on a plan-by-plan basis. Changes in the funded status due to actuarial gains/losses are recorded as part of other comprehensive income during the period the changes occur. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements
InJanuary 2021 , the FASB issued ASU 2021-01, "Reference Rate Reform - Scope," which clarified the scope and application of the original guidance, ASU No. 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU No. 2020-04"), issued inMarch 2020 (codified into ASC Topic 848 "Reference Rate Reform"). ASU No. 2020-04 provides temporary optional expedients and exceptions to theU.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. Both ASU's were effective upon issuance, and the Company may elect to apply the amendments prospectively throughDecember 31, 2022 as the transition from LIBOR is completed. As ofDecember 31, 2021 , the Company has interest rate swaps designated as fair value hedges and cross currency swaps designated as net investment hedges referencing three-month or six-month USD LIBOR with aggregate notional amounts as disclosed in Note 6. For derivative instruments that will be outstanding at the transition date, the Company intends to modify the contractual terms of the instruments to replace LIBOR with another reference rate, such as SOFR. Pursuant to the modification of the contractual terms of these instruments, the Company intends to utilize the various optional expedients set forth in ASC Topic 848 relating to derivative instruments used in hedging relationships. InOctober 2021 , the FASB issued ASU 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers" ("ASU No. 2021-08"). ASU No. 2021-08 will require 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. Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU No. 2021-08 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. ASU No. 2021-08 is effective for fiscal years beginning afterDecember 15, 2022 , with early adoption permitted. The Company intends to early adopt this ASU effectiveJanuary 1, 2022 .
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Table of Contents NOTE 3 REVENUES Revenue by Category
The following table presents the Company's revenues disaggregated by LOB:
Year Ended December 31,
2021 2020 2019
MIS:
Corporate finance (CFG)
Investment-grade $ 439 $ 636 $ 379
High-yield 411 352 258
Bank loans 606 287 313
Other accounts (CFG) (1) 631 582 547
Total CFG 2,087 1,857 1,497
Financial institutions (FIG)
Banking 411 355 320
Insurance 145 137 119
Managed investments 36 28 25
Other accounts (FIG) 10 10 12
Total FIG 602 530 476
Public, project and infrastructure finance (PPIF)
Public finance / sovereign 244 250 222
Project and infrastructure 277 246 224
Total PPIF 521 496 446
Structured finance (SFG)
Asset-backed securities 118 98 99
RMBS 123 96 95
CMBS 102 61 81
Structured credit 215 105 148
Other accounts (SFG) 2 2 4
Total SFG 560 362 427
Total ratings revenue 3,770 3,245 2,846
MIS Other 42 47 29
Total external revenue 3,812 3,292 2,875
Intersegment royalty 165 148 134
Total MIS 3,977 3,440 3,009
MA:
Research, data and analytics (RD&A) 1,745 1,514 1,273
Enterprise risk solutions (ERS) 661 565 522 Professional services (PS)(2) - - 159 Total external revenue 2,406 2,079 1,954 Intersegment revenue 7 7 9 Total MA 2,413 2,086 1,963 Eliminations (172) (155) (143) Total MCO$ 6,218 $ 5,371 $ 4,829
(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.
(2)Subsequent to the divestiture of MAKS in 2019, revenue from the MALS reporting unit, which previous to 2020 was reported in the PS LOB, is now reported as part of the RD&A LOB. Prior periods have not been reclassified as the amounts were not material.
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The following table presents the Company's revenues disaggregated by LOB and geographic area:
Year Ended December 31, 2021 Year Ended December 31, 2020 Year Ended
U.S. Non-U.S. Total U.S. Non-U.S. Total U.S. Non-U.S. Total
MIS:
Corporate finance$ 1,384 $ 703 $ 2,087 $ 1,291 $ 566 $ 1,857 $ 968 $ 529 $ 1,497 Financial institutions 289 313 602 250 280 530 200 276 476 Public, project and infrastructure finance 304 217 521 311 185 496 282 164 446 Structured finance 364 196 560 214 148 362 270 157 427 Total ratings revenue 2,341 1,429 3,770 2,066 1,179 3,245 1,720 1,126 2,846 MIS Other 3 39 42 2 45 47 1 28 29 Total MIS 2,344 1,468 3,812 2,068 1,224 3,292 1,721 1,154 2,875 MA: Research, data and analytics 758 987 1,745 668 846 1,514 558 715 1,273 Enterprise risk solutions 314 347 661 219 346 565 201 321 522 Professional services (PS)(1) - - - - - - 64 95 159 Total MA 1,072 1,334 2,406 887 1,192 2,079 823 1,131 1,954 Total MCO$ 3,416 $ 2,802 $ 6,218 $ 2,955 $ 2,416 $ 5,371 $ 2,544 $ 2,285 $ 4,829
(1)Subsequent to the divestiture of MAKS in 2019, revenue from the MALS reporting unit, which previous to 2020 was reported in the PS LOB, is now reported as part of the RD&A LOB. Prior periods have not been reclassified as the amounts were not material.
The following table presents the Company's reportable segment revenues disaggregated by segment and geographic region:
Year Ended December 31,
2021 2020 2019
MIS:
U.S. $ 2,344 $ 2,068 $ 1,721
Non-U.S.:
EMEA 930 727 686
Asia-Pacific 357 345 320
Americas 181 152 148
Total Non-U.S. 1,468 1,224 1,154
Total MIS 3,812 3,292 2,875
MA:
U.S. 1,072 887 823
Non-U.S.:
EMEA 936 818 760
Asia-Pacific 239 226 231
Americas 159 148 140
Total Non-U.S. 1,334 1,192 1,131
Total MA 2,406 2,079 1,954
Total MCO $ 6,218 $ 5,371 $ 4,829 88 MOODY'S 2021 10-K
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The following tables summarize the split between transaction and recurring
revenue. In the MIS segment, excluding MIS Other, transaction revenue represents
the initial rating of a new debt issuance as well as other one-time fees while
recurring revenue represents the recurring monitoring fees of a rated debt
obligation and/or entities that issue such obligations, as well as revenue from
programs such as commercial paper, medium-term notes and shelf registrations. In
MIS Other, transaction revenue represents revenue from professional services and
recurring revenue represents subscription-based revenues. In the MA segment,
recurring revenue represents subscription-based revenues and software
maintenance revenue. Transaction revenue in MA represents perpetual software
license fees and revenue from software implementation services, risk management
advisory projects, and training and certification services.
Year Ended December 31,
2021 2020 2019
Transaction Recurring Total Transaction Recurring Total Transaction Recurring Total
Corporate Finance $ 1,600 $ 487 $ 2,087 $ 1,401 $ 456 $ 1,857 $ 1,057 $ 440 $ 1,497
77 % 23 % 100 % 75 % 25 % 100 % 71 % 29 % 100 %
Financial Institutions $ 320 $ 282 $ 602 $ 265 $ 265 $ 530 $ 212 $ 264 $ 476
53 % 47 % 100 % 50 % 50 % 100 % 45 % 55 % 100 %
Public, Project and
Infrastructure Finance $ 354 $ 167 $ 521 $ 337 $ 159 $ 496 $ 292 $ 154 $ 446
68 % 32 % 100 % 68 % 32 % 100 % 65 % 35 % 100 %
Structured Finance $ 362 $ 198 $ 560 $ 175 $ 187 $ 362 $ 246 $ 181 $ 427
65 % 35 % 100 % 48 % 52 % 100 % 58 % 42 % 100 %
MIS Other $ 4 $ 38 $ 42 $ 4 $ 43 $ 47 $ 2 $ 27 $ 29
10 % 90 % 100 % 9 % 91 % 100 % 7 % 93 % 100 %
Total MIS $ 2,640 $ 1,172 $ 3,812 $ 2,182 $ 1,110 $ 3,292 $ 1,809 $ 1,066 $ 2,875
69 % 31 % 100 % 66 % 34 % 100 % 63 % 37 % 100 %
Research, data and
analytics $ 91 $ 1,654 $ 1,745 $ 80 $ 1,434 $ 1,514 $ 16 $ 1,257 $ 1,273
5 % 95 % 100 % 5 % 95 % 100 % 1 % 99 % 100 %
Enterprise risk solutions $ 79 $ 582 $ 661 $ 117 $ 448 $ 565 $ 118 $ 404 $ 522
12 % 88 % 100 % 21 % 79 % 100 % 23 % 77 % 100 %
Professional services(1) $ - $ - $ - $ - $ - $ - $ 159 $ - $ 159
- % - % - % - % - % - % 100 % - % 100 %
Total MA $ 170 $ 2,236 $ 2,406 $ 197 $ 1,882 $ 2,079 $ 293 $ 1,661 $ 1,954
7 % 93 % 100 % 9 % 91 % 100 % 15 % 85 % 100 %
Total Moody's Corporation $ 2,810 $ 3,408 $ 6,218 $ 2,379 $ 2,992 $ 5,371 $ 2,102 $ 2,727 $ 4,829
45 % 55 % 100 % 44 % 56 % 100 % 44 % 56 % 100 %
(1)Subsequent to the divestiture of MAKS in 2019, the RD&A LOB now includes revenue from MALS beginning in the first quarter of 2020. MALS revenue was previously reported as part of the PS LOB and prior year revenue by LOB has not been reclassified as the amounts were not material.
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The following table presents the timing of revenue recognition:
Year Ended December 31, 2021 Year Ended December 31, 2020 Year Ended
MIS MA Total MIS MA Total MIS MA Total
Revenue recognized at a
point in time $ 2,640 $ 101 $ 2,741 $ 2,182 $ 121 $ 2,303 $ 1,809 $ 132 $ 1,941
Revenue recognized over
time 1,172 2,305 3,477 1,110 1,958 3,068 1,066 1,822 2,888
Total $ 3,812 $ 2,406 $ 6,218 $ 3,292 $ 2,079 $ 5,371 $ 2,875 $ 1,954 $ 4,829 Unbilled Receivables, Deferred Revenue and Remaining Performance Obligations
Unbilled receivables
At
In addition, for certain MA arrangements, the timing of when the Company has the unconditional right to consideration and recognizes revenue occurs prior to invoicing the customer. Consequently, atDecember 31, 2021 andDecember 31, 2020 , accounts receivable included approximately$152 million and$98 million , respectively, of unbilled receivables related to the MA segment. The increase in unbilled receivables is driven by organic growth and the integration of recent acquisitions. Deferred revenue The Company recognizes deferred revenue when a contract requires a customer to pay consideration to the Company in advance of when revenue is recognized. This deferred revenue is relieved when the Company satisfies the related performance obligation and revenue is recognized.
Significant changes in the deferred revenue balances during the year ended
Year Ended December 31, 2021
MIS MA Total
Balance at December 31, 2020 $ 313 $ 874 $ 1,187
Changes in deferred revenue
Revenue recognized that was included in the deferred
revenue balance at the beginning of the period (220) (810) (1,030)
Increases due to amounts billable excluding amounts recognized as revenue during the period
207 884 1,091
Increases due to acquisitions during the period - 94 94
Effect of exchange rate changes (4) (3) (7)
Total changes in deferred revenue (17) 165 148
Balance at December 31, 2021 $ 296 $ 1,039 $ 1,335
Deferred revenue - current $ 214 $ 1,035 $ 1,249
Deferred revenue - noncurrent $ 82 $ 4 $ 86
For the MA segment, for the year ended December 31, 2021 , the increase in the
deferred revenue balance was primarily due to acquisitions (Cortera , RMS, and
PassFort) and organic growth.
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Significant changes in the deferred revenue balances during the year ended
Year
Ended
MIS MA Total
Balance at December 31, 2019 $ 322 $ 840 $ 1,162
Changes in deferred revenue
Revenue recognized that was included in the deferred
revenue balance at the beginning of the period (229) (800) (1,029)
Increases due to amounts billable excluding amounts recognized as revenue during the period
215 792 1,007
Increases due to acquisitions during the period - 24 24
Effect of exchange rate changes 5 18 23
Total changes in deferred revenue (9) 34 25
Balance at December 31, 2020 $ 313 $ 874 $ 1,187
Deferred revenue-current $ 216 $ 873 $ 1,089
Deferred revenue-noncurrent $ 97 For the MA segment, for the year endedDecember 31, 2020 , the increase in the deferred revenue balance was primarily due to acquisitions (RDC, Acquire Media, ZMFS, and Catylist) and changes in FX translation rates.
Significant changes in the deferred revenue balances during the year ended
Year
Ended
MIS MA Total
Balance at December 31, 2018 $ 325 $ 750 $ 1,075
Changes in deferred revenue
Revenue recognized that was included in the deferred
revenue balance at the beginning of the period (209) (714) (923)
Increases due to amounts billable excluding amounts recognized as revenue during the period
202 789 991
Increases due to acquisitions during the period 3 6 9
Effect of exchange rate changes 1 9 10
Total changes in deferred revenue (3) 90 87
Balance at December 31, 2019 $ 322 $ 840 $ 1,162
Deferred revenue-current $ 214 $ 836 $ 1,050
Deferred revenue-noncurrent $ 108
For the MA segment, for the year ended
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 ofDecember 31, 2021 , the aggregate amount of the transaction price allocated to remaining performance obligations was approximately$112 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 of unsatisfied performance obligations relating to 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 ofDecember 31, 2021 as well as amounts not yet invoiced to customers as ofDecember 31, 2021 largely reflecting future revenue related to signed multi-year arrangements for hosted and installed subscription-based products. As ofDecember 31, 2021 , the aggregate amount of the transaction price allocated to remaining performance obligations was approximately$3.0 billion . The Company expects to recognize into revenue approximately 65% of this balance within one year, approximately 25% of this balance between one to two years and the remaining amount thereafter. MOODY'S 2021 10-K 91
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Costs to Obtain or Fulfill a Contract with a Customer
MA Costs to Obtain a Contract with a Customer
As of December 31,
2021 2020
Capitalized costs to obtain sales contracts$ 183 $ 180 Year ended December 31, 2021 2020 2019 Amortization of capitalized costs to obtain sales contracts $ 60 $
59 $ 53
Amortization of costs incurred to obtain customer contracts is included within SG&A expenses in the consolidated statements of operations. Costs incurred to obtain customer contracts are only in the MA segment.
MIS and MA Costs to Fulfill a Contract with a Customer
As of December 31, 2021 As of December 31, 2020
MIS MA Total MIS MA Total
Capitalized costs to fulfill
sales contracts $ 14 $ 44 $ 58 $ 12 $ 35 $ 47
Year Ended Year Ended Year Ended
December 31, 2021 December 31, 2020 December 31, 2019
MIS MA Total MIS MA Total MIS MA Total
Amortization of
capitalized costs
to fulfill sales
contracts $ 48 $ 76 $ 124 $ 47 $ 66 $ 113 $ 42 $ 56 $ 98 Amortization of costs to fulfill customer contracts is included within operating expenses in the consolidated statements of operations.
NOTE 4 RECONCILIATION OF WEIGHTED AVERAGE SHARES OUTSTANDING
Below is a reconciliation of basic to diluted shares outstanding:
Year Ended December 31,
2021 2020 2019
Basic 186.4 187.6 189.3Dilutive effect of shares issuable under stock-based compensation plans
1.5 1.7 2.3
Diluted 187.9 189.3 191.6
Antidilutive options to purchase common shares and restricted stock as well as contingently issuable restricted stock which are excluded from the table above
0.2 0.2 0.2
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 December 31,
2021 , 2020 and 2019.
NOTE 5 ACCELERATED SHARE REPURCHASE PROGRAM
OnFebruary 20, 2019 , the Company entered into an ASR agreement with a financial institution counterparty to repurchase$500 million of its outstanding common stock. The Company paid$500 million to the counterparty and received an initial delivery of 2.2 million shares of its common stock. Final settlement of the ASR agreement was completed onApril 26, 2019 and the Company received delivery of an additional 0.6 million shares of the Company's common stock. In total, the Company repurchased 2.8 million shares of the Company's common stock during the term of the ASR Agreement, based on the volume-weighted average price (net of discount) of$180.33 /share over the duration of the program. The initial share repurchase and final share settlement were recorded as a reduction to shareholders' equity. 92 MOODY'S 2021 10-K
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NOTE 6 CASH EQUIVALENTS AND INVESTMENTS
The table below provides additional information on the Company's cash equivalents and investments:
As of December 31, 2021
Balance sheet location
Gross Unrealized Cash and cash Short-term
Cost Gains Fair Value equivalents investments Other assets
Certificates of deposit and money market deposit accounts (1)$ 691 $ -$ 691 $ 584 $ 91 $ 16 Mutual funds$ 65 $ 8$ 73 $ - $ - $ 73 As of December 31, 2020 Balance sheet location Gross Unrealized Cash and cash Short-term Cost Gains Fair Value equivalents investments Other assets Certificates of deposit and money market deposit accounts (1)$ 1,430 $ -$ 1,430 $ 1,325 $ 99 $ 6 Mutual funds$ 54 $ 6$ 60 $ - $ - $ 60 (1)Consists of time deposits and money market deposit accounts. The remaining contractual maturities for the certificates of deposits classified as short-term investments were one to 12 months atDecember 31, 2021 and atDecember 31, 2020 . The remaining contractual maturities for the certificates of deposits classified in other assets are 13 to 29 months atDecember 31, 2021 and 13 to 23 months atDecember 31, 2020 . 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 invested inCorporate-Owned Life Insurance (COLI) in the first quarter of 2020. As ofDecember 31, 2021 andDecember 31, 2020 , the contract value of the COLI was$37 million and$17 million , respectively.
NOTE 7 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company is exposed to global market risks, including risks from changes in FX rates and changes in interest rates. Accordingly, the Company uses derivatives in certain instances to manage the aforementioned financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for speculative purposes.
Derivatives and non-derivative instruments designated as accounting hedges:
Interest Rate Swaps Designated as Fair Value Hedges
The Company has entered into interest rate swaps to convert the fixed interest
rate on certain of its long-term debt to a floating interest rate based on the
3-month and 6-month LIBOR. The purpose of these hedges is to mitigate the risk
associated with changes in the fair value of the long-term debt, thus the
Company has designated these swaps as fair value hedges. The fair value of the
swaps is adjusted quarterly with a corresponding adjustment to the carrying
value of the debt. The changes in the fair value of the swaps and the underlying
hedged item generally offset and the net cash settlements on the swaps are
recorded each period within interest expense, net in the Company's consolidated
statements of operations.
The following table summarizes the Company's interest rate swaps designated as
fair value hedges:
Notional Amount
As of December 31,
Hedged Item Nature of Swap 2021 2020 Floating Interest Rate
2012 Senior Notes due
2022(1) Pay Floating/Receive Fixed $ - $ 330 3-month LIBOR
2017 Senior Notes due
2023 Pay Floating/Receive Fixed $ 250 $ 250 3-month LIBOR
2017 Senior Notes due
2028 Pay Floating/Receive Fixed $ 500 $ 500 3-month LIBOR
2020 Senior Notes due
2025 Pay Floating/Receive Fixed $ 300 $ 300 6-month LIBOR
2014 Senior Notes due
2044(2) Pay Floating/Receive Fixed $ 300 $ - 3-month LIBOR
2018 Senior Notes due
2048(2) Pay Floating/Receive Fixed $ 300 $ - 3-month LIBOR
Total $ 1,650 $ 1,380 (1) Terminated in conjunction with the repayment of the 2012 Senior Notes due 2022 in the fourth quarter of 2021.
(2) Executed in the third quarter of 2021.
Refer to Note 18 for information on the cumulative amount of fair value hedging adjustments included in the carrying amount of the above hedged items.
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The following table summarizes the impact to the statements of operations of the Company's interest rate swaps designated as fair value hedges:
Amount of Income (Expense)
Recognized in the Consolidated
Total amounts of financial statement line item presented in the Statements of Operations
statements of operations in which the effects of fair value hedges are
Year Ended December 31,
recorded 2021 2020 2019
Interest expense, net $ (171) $ (205) $ (208)
Location on Consolidated
Descriptions Statements of Operations
Net interest settlements and Interest expense, net $ 23 $ 19 $ 3
accruals on interest rate swaps
Fair value changes on interest Interest expense, net $ (60) $ 47 $ 25
rate swaps
Fair value changes on hedged Interest expense, net $ 60 $ (47) $ (25)
debt
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:
December 31, 2021
Pay Receive
Notional Weighted Average Notional Weighted Average Interest
Nature of Swap Amount Interest Rate Amount Rate
Pay Fixed/Receive Fixed € 909 2.16% $ 1,050 4.45%
Pay Floating/Receive Based on 3-month USD
Floating 1,179 Based on 3-month EURIBOR 1,350 LIBOR
Total € 2,088 $ 2,400
December 31, 2020
Pay Receive
Notional Weighted Average Notional Weighted Average Interest
Nature of Swap Amount Interest Rate Amount Rate
Pay Fixed/Receive Fixed € 1,079 1.43% $ 1,220 3.96%
Based on 3-month USD
Pay Floating/Receive Floating 959 Based on 3-month EURIBOR 1,080 LIBOR
Total € 2,038 $ 2,300
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As ofDecember 31, 2021 , these hedges will expire and the notional amounts will be settled as follows unless terminated early at the discretion of the Company: Year Ending December 31, 2023 € 442 2024 € 443 2026 € 450 2027 € 246 2028 € 507 Total € 2,088
Forward contracts designated as net investment hedges
The Company also entered into forward contracts to mitigate FX exposure related
to a portion of the Company's euro and GBP net investment in certain foreign
subsidiaries against changes in euro/USD and GBP/euro exchange rates. The
following table summarizes the notional amounts of the Company's outstanding
forward contracts that were designated as net investment hedges:
December 31, 2021 December 31, 2020
Notional amount of net investment
hedges Sell Buy Sell Buy
Contract to sell EUR for USD € - $ - € 524 $ 627
Contract to sell GBP for EUR £ - € - £ 134 € 148
These forward contracts expired in
Cash Flow Hedges
Interest Rate Forward Contracts
InJanuary 2020 , the Company entered into$300 million notional amount treasury rate locks with an average locked-inU.S. 30-yearTreasury rate of 2.0103%, which were designated as cash flow hedges and used to manage the Company's interest rate risk during the period prior to an anticipated issuance of 30-year debt. The treasury lock interest rate forward contracts matured onApril 30, 2020 , resulting in a cumulative loss of$68 million , which was recognized in AOCL. The loss on theTreasury rate lock will be reclassified from AOCL to earnings in the same period that the hedged transaction (i.e. interest payments on the 3.25% 2020 Senior Notes, due 2050) impacts earnings.
The following table provides information on the gains/(losses) on the Company's net investment and cash flow hedges:
Gain/(Loss) Recognized in
Amount of Gain/(Loss) Amount of Gain/(Loss) Income on Derivative
Recognized in AOCL on Reclassified from AOCL into (Amount Excluded from
Derivative, net of Tax Income, net of tax Effectiveness Testing)
Derivative and Non-Derivative Instruments Year Ended December 31, Year Ended December 31, Year Ended December 31, in Net Investment Hedging Relationships 2021 2020 2019 2021 2020 2019 2021 2020 2019 FX forward contracts$ 18 $ (14) $ 4 $ 1 $ -$ 2 $ - $ - $ - Cross currency swaps 143 (165) 29 - - - 35 50 52 Long-term debt 81 (95) (7) (1) - - - - - -
Total net investment hedges
$ 1 $ -$ 2 $ 35 $ 50 $ 52 Derivatives in Cash Flow Hedging Relationships Interest rate contracts - (51) - (2) (2) - - - - Total cash flow hedges - (51) - (2) (2) - - - - Total$ 242 $ (325) $ 26 $ (1) $ (2) $ 2 $ 35 $ 50 $ 52
(1)Due to the Company's adoption of ASU 2018-02 during 2019,
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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
December 31, 2021 December 31, 2020
Net investment hedges
FX forwards $ 29 $ 12
Cross currency swaps 19 (124)
Long-term debt (27) (108)
Total net investment hedges 21 (220)
Cash flow hedges
Interest rate contracts (49) (51)
Cross-currency swap 2 2
Total cash flow hedges (47) (49)
Total net (loss) gain in AOCL $ (26) $ (269)
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 (expense) income, net in the Company's consolidated statements of operations along with the FX gain or loss recognized on the assets and liabilities denominated in a currency other than the subsidiary's functional currency. These contracts have expiration dates at various times through April 2022.
The following table summarizes the notional amounts of the Company's outstanding foreign exchange forwards:
December 31, 2021 December 31, 2020
Notional Amount of Currency Pair: Sell Buy Sell Buy
Contracts to sell USD for GBP $ 126 £ 92 $ 295 £ 222
Contracts to sell USD for Japanese Yen $ 22 ¥ 2,500 $ 15 ¥ 1,600
Contracts to sell USD for Canadian
dollars $ 120 C$ 150 $ 107 C$ 140
Contracts to sell USD for Singapore
dollars $ 67 S$ 90 $ 59 S$ 79
Contracts to sell USD for Euros $ 364 € 315 $ 447 € 376
Contracts to sell Euros for GBP € - £ - € 135 £ 121
Contracts to sell USD for Russian
Ruble $ 16 ? 1,200 $ 13 ? 1,000
Contracts to sell USD for Indian Rupee $ 7 ? 500 $ 18 ? 1,350
Contracts to sell GBP for USD £ 172 $ 231 £ - $ -
NOTE: € = Euro, £ = British pound, S$ =
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The following table summarizes the impact to the consolidated statements of operations relating to the net gain (loss) on the Company's derivatives which are not designated as hedging instruments:
Year Ended December 31,
Derivatives Not Designated as
Accounting Hedges Location on Statement of Operations 2021 2020 2019
FX forwards Other non-operating expense, net $ (27) $ 41 $ (11) Foreign exchange forwards relating to RMS acquisition(1) Other non-operating income, net
$ (13) $ - $ -
(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.
The table below shows the classification between assets and liabilities on the
Company's consolidated balance sheets for the fair value of derivative
instruments as well as the carrying value of its non-derivative debt instruments
designated and qualifying as net investment hedges:
Derivative and Non-derivative Instruments
December 31, December 31,
Balance Sheet Location 2021 2020
Assets:
Derivatives designated as accounting hedges:
Cross-currency swaps designated as net investment
hedges Other assets $ 53 $ -
Interest rate swaps designated as fair value
hedges Other assets 13 57
Total derivatives designated as accounting hedges 66 57
Derivatives not designated as accounting hedges:
FX forwards on certain assets and liabilities Other current assets 1 31
Total assets $ 67 $ 88
Liabilities:
Derivatives designated as accounting hedges:
Accounts payable and
FX forwards designated as net investment hedges accrued liabilities
$ - $ 16 Cross-currency swaps designated as net investment Accounts payable and hedges
accrued liabilities - 23
Cross-currency swaps designated as net investment
hedges Other liabilities 17 144
Interest rate swaps designated as fair value
hedges Other liabilities 23 1
Total derivatives designated as accounting hedges 40 184
Non-derivative instruments designated as
accounting hedge:
Long-term debt designated as net investment hedge Long-term debt 1,421 1,530
Derivatives not designated as accounting hedges:
FX forwards on certain assets and liabilities Accounts payable and
accrued liabilities 12 2
Total liabilities $ 1,473 $ 1,716
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NOTE 8 PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of:
December 31,
2021 2020
Office and computer equipment (3 - 10 year estimated useful life)
$ 300 $ 260
Office furniture and fixtures (3 - 10 year estimated useful life)
52 49
Internal-use computer software (1 - 10 year estimated useful life)
771 666
Leasehold improvements and building (1 - 20 year
estimated useful life) 234 231
Total property and equipment, at cost 1,357 1,206
Less: accumulated depreciation and amortization (1,010) (928)
Total property and equipment, net $ 347 $ 278
Depreciation and amortization expense related to the above assets was $99 million, $96 million, and $97 million for the years ended December 31, 2021, 2020 and 2019, respectively.
NOTE 9 ACQUISITIONS AND DIVESTITURE
The following is a discussion of material acquisitions completed by the Company. The business combinations described below are accounted for using the acquisition method of accounting whereby assets acquired and liabilities assumed were recognized at fair value on the date of the transaction. Any excess of the purchase price over the fair value of the assets acquired and liabilities assumed was recorded to goodwill.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.
With the exception of RMS, the Company has not presented pro forma combined results for these acquisitions because the impact on previously reported statements of operations would not have been material.
PassFort
On November 30, 2021, the Company acquired 100% of PassFort, a U.
The table below details the total consideration relating to the acquisition:
Cash paid at closing $ 157 Additional consideration to be paid to sellers in 2022 (1) 1 Total consideration $ 158
(1) Represents additional consideration to be paid to the sellers following finalization of customary post-closing completion adjustments.
Shown below is the preliminary purchase price allocation, which summarizes the fair value of the assets and liabilities assumed, at the date of acquisition: Cash $ 10 Accounts receivable 1 Intangible assets: Product technology (5 year useful life) $ 14 Customer relationships (16 year useful life) 8 Trade name (4 year useful life) 1 Total intangible assets (9 year weighted average useful life) 23Goodwill 138 Liabilities: Accounts payable and accrued liabilities $ (7) Deferred revenue (1) Deferred tax liabilities (6) Total liabilities (14) Net assets acquired $ 158 98 MOODY'S 2021 10-K
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The Company has performed a preliminary valuation analysis of the fair market value of the assets and liabilities of the PassFort business. The final purchase price allocation will be determined when the Company has completed and fully reviewed the detailed valuations. The final allocation could differ materially from the preliminary allocation. The final allocation may include changes in allocations to acquired intangible assets as well as goodwill and other changes to assets and liabilities including deferred tax liabilities. The estimated useful lives of acquired intangible assets are also preliminary.
The goodwill recognized as a result of this acquisition includes, among other things, value created by combining the complementary risk assessment products of the Company and PassFort. The integration of PassFort's platform into Moody's suite of KYC and compliance offerings is expected to create a holistic workflow solution to benefit both new and existing Moody's customers.
Transaction costs
Transaction costs directly related to the PassFort acquisition were not material.
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 ofU.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.
The table below details the total consideration relating to the acquisition:
Cash paid at closing $ 1,922 Replacement equity compensation awards 5 Total consideration $ 1,927 Shown below is the preliminary purchase price allocation, which summarizes the fair value of the assets and liabilities assumed, at the date of acquisition: Cash $ 60 Accounts receivable 38 Other current assets 11 Property and equipment 13 Operating lease right-of-use assets
64
Intangible assets: Customer relationships (23 year useful life) $ 518 Product technology (7 year useful life) 212 Trade name (9 year useful life) 49 Total intangible assets (18 year weighted average useful life) 779Goodwill 1,376 Deferred tax assets, net 48 Other assets 99 Liabilities: Accounts payable and accrued liabilities $ (92) Deferred revenue (89) Operating lease liabilities (68) Deferred tax liabilities, net (214) Uncertain tax positions (96) Other liabilities (2) Total liabilities (561) Net assets acquired $ 1,927 MOODY'S 2021 10-K 99
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The Company has performed a preliminary valuation analysis of the fair market value of the assets and liabilities of the RMS business. The final purchase price allocation will be determined when the Company has completed and fully reviewed all information necessary to finalize the fair value of the acquired assets and liabilities, including deferred revenue. The final allocation could differ materially from the preliminary allocation and may include changes in allocations to acquired intangible assets (including estimated useful lives of these assets), as well as goodwill and other changes to assets and liabilities including reserves for UTPs and deferred tax liabilities.
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 $1,286 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 uncertain tax positions 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 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
Supplemental information on an unaudited pro forma basis is presented below for
the twelve months ended December 31, 2021 and 2020 as if the acquisition of RMS
occurred on January 1, 2020. The pro forma financial information is presented
for comparative purposes only, based on certain estimates and assumptions, which
the Company believes to be reasonable but not necessarily indicative of future
results of operations or the results that would have been reported if the
acquisition had been completed at January 1, 2020. The unaudited pro forma
information includes amortization of acquired intangible assets, based on the
preliminary purchase price allocation and an estimate of useful lives reflected
above, and incremental financing costs resulting from the acquisition, net of
income tax, which was estimated using the weighted average statutory tax rates
in effect in the jurisdiction for which the pro forma adjustment relates.
Year Ended December 31,
Unaudited 2021 2020
Pro forma Revenue $ 6,463 $ 5,667
Pro forma Net Income attributable to Moody's $ 2,244 $ 1,666
The unaudited pro forma results do not include any anticipated cost savings or other effects of the planned integration of RMS. Accordingly, the pro forma results above are not necessarily indicative of the results that would have been reported if the acquisition had occurred on the dates indicated, nor are the pro forma results indicative of results which may occur in the future. The RMS results included in the above have been converted toU.S. GAAP from IFRS as issued by the IASB and have been translated to USD at rates in effect for the periods presented. The RMS amounts in the pro forma results include an addition to revenue of approximately $18 million and a reduction to revenue of approximately $22 million relating to a fair value adjustment to deferred revenue required as part of acquisition accounting for the years ended December 31, 2021 and 2020, respectively.
On March 19, 2021, the Company acquired 100% of
The table below details the total consideration relating to the acquisition:
Cash paid at closing $ 138 Additional consideration paid to sellers in 2021 (1) 1 Total consideration $ 139
(1) Represents additional consideration paid to the sellers following finalization of customary post-closing completion adjustments.
Shown below is the preliminary purchase price allocation, which summarizes the fair value of the assets and liabilities assumed, at the date of acquisition:
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Table of Contents Current assets $ 7 Intangible assets: Database (10 year useful life) $ 38 Customer relationships (18 year useful life) 9 Product technology (8 year useful life) 9 Trade name (5 year useful life) 1 Total intangible assets (11 year weighted average useful life) 57 Goodwill(1) 79 Deferred tax assets(1) 16 Other assets 2 Liabilities: Accounts payable and accrued liabilities $ (1) Deferred revenue (4) Deferred tax liabilities (15) Other liabilities (2) Total liabilities (22) Net assets acquired $ 139 (1) During the third quarter of 2021, the Company received further information, that existed as of the acquisition date, with respect toCortera's deferred taxes. Accordingly, the Company recorded a measurement period adjustment of $16 million to its preliminary estimate for deferred tax assets.
Current assets in the table above include acquired cash of $4 million and accounts receivable of approximately $2 million.
The goodwill recognized as a result of this acquisition includes, among other things, the value of combining the complementary risk assessment products of the Company andCortera , which is expected to extend the Company's reach to new and evolving market segments as well as cost savings synergies, expected new customer acquisitions and products.
Transaction costs
Transaction costs directly related to the
RDC
On February 13, 2020, the Company acquired 100% of RDC, a provider of anti-money laundering and know-your-customer data and due diligence services.
The table below details the total consideration relating to the acquisition:
Cash paid at closing $ 700 Additional consideration paid to sellers in 2020 (1) 2 Total consideration $ 702
(1) Represents additional consideration paid to the sellers following finalization of customary post-closing completion adjustments.
Shown below is the purchase price allocation, which summarizes the fair value of the assets and liabilities assumed, at the date of acquisition:
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Table of Contents (Amounts in millions) Current assets $ 24 Intangible assets: Customer relationships (25 year useful life) $ 174 Database (10 year useful life) 86 Product technology (4 year useful life) 17 Trade name (3 year useful life) 3 Total intangible assets (19 year weighted average life) 280 Goodwill 494 Other assets 2 Liabilities: Accounts payable and accrued liabilities $ (5) Deferred revenue (20) Deferred tax liabilities (71) Other liabilities (2) Total liabilities (98) Net assets acquired $ 702
Current assets in the table above include acquired cash of $6 million. Additionally, current assets include accounts receivable of approximately $14 million.
The goodwill recognized as a result of this acquisition includes, among other things, the value of combining the complementary product portfolios of the Company and RDC, which is expected to extend the Company's reach to new and evolving market segments as well as cost savings synergies, expected new customer acquisitions and products.
Transaction costs
Transaction costs directly related to the RDC acquisition were not material.
Other Acquisitions
During the fourth quarter of 2020, the Company acquired three additional businesses within the MA reportable segment, which were not individually material, but are material in aggregate, to Moody's consolidated financial statements:
-In December 2020, the Company acquired 100% of Catylist, Inc., a provider of commercial real estate solutions for brokers. Catylist revenue is reported in the RD&A LOB. -In December 2020, the Company acquired 100% ofZM Financial Systems , a provider of financial management software for theU.S. banking sector. ZMFS revenue is reported in the ERS LOB. -In October 2020, the Company acquired 100% of Acquire Media, an aggregator and distributor of curated real-time news, multimedia, data, and alerts. AM revenue is reported in the RD&A LOB.
The aggregate consideration transferred for the aforementioned acquisitions of $205 million was funded by cash on hand.
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The following table summarizes the aggregate fair value of the assets acquired and liabilities assumed as of the respective closing dates for each acquisition.
(Amounts in millions) Current assets $ 5 Intangible assets: Customer relationships (18 year useful life) $ 47 Product technology (8 year useful life) 23 Database (10 year useful life) 8 Trade name (14 year useful life) 4 Total intangible assets (14 year weighted average life) 82 Goodwill 131 Other assets 3 Liabilities: Current liabilities $ (8) Long-term liabilities (8) Total liabilities (16) Net assets acquired $ 205 Divestiture
On November 8, 2019, the Company completed the sale of MAKS to Equistone
Partners Europe Limited (
This divestiture resulted in a loss of $23 million ($9 million in 2020 and $14 million in 2019), which included $32 million of currency translation losses reclassified from AOCL to the statements of operations. Additionally, in connection with this divestiture, the Company has recorded certain indemnification provisions. These provisions totaled $33 million as of both December 31, 2021 and December 31, 2020. These amounts are included in other liabilities at December 31, 2021 and 2020 in the consolidated balance sheets of the Company.
NOTE 10 GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS
The following table summarizes the activity in goodwill:
Year Ended December 31, 2021
MIS MA Consolidated
Accumulated Accumulated Accumulated
Gross impairment Net Gross impairment Net Gross impairment Net
goodwill charge goodwill goodwill charge goodwill goodwill charge goodwill
Balance at
beginning of
year $ 311 $ - $ 311 $ 4,257 $ (12) $ 4,245 $ 4,568 $ (12) $ 4,556
Additions/
adjustments (1) 90 - 90 1,525 - 1,525 1,615 - 1,615
Foreign currency
translation
adjustments (5) - (5) (167) - (167) (172) - (172)
Ending Balance $ 396 $ - $ 396 $ 5,615 $ (12) $ 5,603 $ 6,011 $ (12) $ 5,999
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Year Ended December 31, 2020
MIS MA Consolidated
Accumulated Accumulated Accumulated
Gross impairment Net Gross impairment Net Gross impairment Net
goodwill charge goodwill goodwill charge goodwill goodwill charge goodwill
Balance at
beginning of
year $ 315 $ - $ 315 $ 3,419 $ (12) $ 3,407 $ 3,734 $ (12) $ 3,722
Additions/
adjustments (2) (2) - (2) 628 - 628 626 - 626
Foreign currency
translation
adjustments (2) - (2) 210 - 210 208 - 208
Ending balance $ 311 $ - $ 311 $ 4,257 $ (12) $ 4,245 $ 4,568 $ (12) $ 4,556
(1) 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.
(2) The 2020 additions/adjustments for the MA segment in the table above relate to the acquisitions of RDC, AM, ZMFS, and Catylist.
Acquired intangible assets and related accumulated amortization consisted of:
December 31,
2021 2020
Customer relationships $ 2,101 $ 1,623
Accumulated amortization (381) (313)
Net customer relationships 1,720 1,310
Software/product technology 663 441
Accumulated amortization (219) (177)
Net software/product technology 444 264
Database 179 144
Accumulated amortization (46) (29)
Net database 133 115
Trade names 207 161
Accumulated amortization (47) (38)
Net trade names 160 123
Other (1) 54 55
Accumulated amortization (44) (43)
Net other 10 12
Total $ 2,467 $ 1,824
(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:
Year Ended December 31,
2021 2020 2019
Amortization expense $ 158 $ 124 $ 103
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Estimated future annual amortization expense for intangible assets subject to amortization is as follows: Year Ending December 31, 2022 $ 191 2023 189 2024 185 2025 180 2026 177 Thereafter 1,545
Total estimated future amortization $ 2,467
Matters concerning the ICRA reporting unit
ICRA has reported various matters relating to: (i) an adjudication order and fine imposed (and subsequently enhanced) by theSecurities and Exchange Board of India (SEBI) in connection with credit ratings assigned to one of ICRA's customers and the customer's subsidiaries, which are being appealed by ICRA; (ii) the completion of internal examinations regarding various anonymous complaints, and actions taken by ICRA's board based on the examinations' findings; and (iii) a separate internal examination of certain allegations against two former senior ICRA officials. An unfavorable resolution of the aforementioned matters may negatively impact ICRA's future operating results, which could result in an impairment of goodwill and amortizable intangible assets in future quarters.
NOTE 11 RESTRUCTURING
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 $20 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. On July 29, 2020, the chief executive officer of Moody's approved a restructuring program (the "2020 Real Estate Rationalization Restructuring Program") primarily in response to the COVID-19 pandemic which revolved around the rationalization and exit of certain real estate leases. The exit from certain leased office space began in the third quarter of 2020 and was substantially completed at December 31, 2020. The 2020 Real Estate Rationalization Restructuring Program primarily reflected non-cash charges related to the impairment of operating lease right-of-use assets and leasehold improvements. The 2020 Restructuring Program is expected to result in an estimated annualized savings of approximately $5 to $6 million a year. On October 26, 2018, the chief executive officer of Moody's approved a restructuring program (the "2018 Restructuring Program") that the Company estimates will result in annualized savings of approximately $60 million per year. The 2018 Restructuring Program, the scope of which was expanded in the second quarter of 2019, was substantially completed at December 31, 2020. The 2018 Restructuring Program included relocation of certain functions from high-cost to lower-cost jurisdictions, a reduction of staff, including from acquisitions and pursuant to a review of the business criticality of certain positions, and the rationalization and exit of certain real estate due to consolidation of various business activities. The exit from certain leased office space began in the fourth quarter of 2018 and resulted in approximately $50 million of the charges to either terminate or sublease the affected real estate leases. The 2018 Restructuring Program also included $55 million of personnel-related restructuring charges, an amount that includes severance and related costs primarily determined under the Company's existing severance plans. Cash outlays associated with the employee termination cost component of the 2018 Restructuring Program were $55 million.
Total expenses included in the accompanying consolidated statements of operations relating to the Company's restructuring programs are as follows:
Year Ended December 31,
2021 2020 2019
2018 Restructuring Program $ (2) $ (4) $ 60
2020 Real Estate Rationalization Restructuring Program - 36 -
2020 MA Strategic Reorganization Restructuring Program 2 18 -
Total Restructuring $ - $ 50 $ 60
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Cumulative expense incurred through December 31, 2021 Employee Termination Costs Contract Termination Costs 2018 Restructuring Program $ 55 $ 48 2020 Real Estate Rationalization Restructuring Program: $ - $ 36 2020 MA Strategic Reorganization Restructuring Program: $ 20 $ -
The restructuring liability for the aforementioned plans was not material at December 31, 2021, December 31, 2020, and December 31, 2019.
NOTE 12 FAIR VALUE
The table below presents information about items which are carried at fair value on a recurring basis at December 31, 2021 and 2020:
Fair value Measurement as of December 31, 2021
Description Balance Level 1 Level 2
Assets:
Derivatives (1) $ 67 $ - $ 67
Mutual funds 73 73 -
Total $ 140 $ 73 $ 67
Liabilities:
Derivatives (1) $ 52 $ - $ 52
Total $ 52 $ - $ 52
FairValue Measurement as of December 31, 2020
Description Balance Level 1 Level 2
Assets:
Derivatives (1) $ 88 $ - $ 88
Mutual funds 60 60 -
Total $ 148 $ 60 $ 88
Liabilities:
Derivatives (1) $ 186 $ - $ 186
Total $ 186 $ - $ 186
(1)Represents FX forwards on certain assets and liabilities as well as interest
rate swaps and cross-currency swaps as more fully described in Note 7 to the
consolidated financial statements.
The following are descriptions of the methodologies utilized by the Company to estimate the fair value of its derivative contracts and 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.
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NOTE 13. OTHER BALANCE SHEET INFORMATION
The following tables contain additional detail related to certain balance sheet
captions:
December 31,
2021 2020
Other current assets:
Prepaid taxes $ 112 $ 94
Prepaid expenses 99 91
Capitalized costs to obtain and fulfill sales contracts 103 93
Foreign exchange forwards on certain assets and liabilities 1
31
Other 74 74
Total other current assets $ 389 $ 383
December 31,
2021 2020
Other assets:
Investments in non-consolidated affiliates $ 443 $ 135
Deposits for real-estate leases 14 19
Indemnification assets related to acquisitions 106 15
Mutual funds and fixed deposits 89 66
Company owned life insurance (at contract value) 37 17
Costs to obtain sales contracts 138 134
Derivative instruments designated as accounting hedges 66 57 Pension and other retirement employee benefits
77 21
Other 64 51
Total other assets $ 1,034 $ 515
December 31,
2021 2020
Accounts payable and accrued liabilities:
Salaries and benefits $ 211 $ 197
Incentive compensation 324 226
Customer credits, advanced payments and advanced billings 100
42
Dividends 6 11
Professional service fees 75 53
Interest accrued on debt 85 82
Accounts payable 47 39
Income taxes 115 128
Pension and other retirement employee benefits 7 45
Accrued royalties 36
19
Foreign exchange forwards on certain assets and liabilities 12
2
Restructuring liability 4
18
Derivative instruments designated as accounting hedges -
39
Other 120
138
Total accounts payable and accrued liabilities $ 1,142 $ 1,039
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December 31,
2021 2020
Other liabilities:
Pension and other retirement employee benefits $ 235 $ 244
Interest accrued on UTPs 59 113
MAKS indemnification provisions 33 33
Income tax liability - non-current portion 23 18
Derivative instruments designated as accounting hedges 40 145
Other 48 37
Total other liabilities $ 438 $ 590
The following table provides additional detail regarding Moody's investments in
non-consolidated affiliates, as included within other assets in the consolidated
balance sheets:
December 31,
2021 2020
Investments in non-consolidated affiliates:
Equity method investments (1) $ 121 $ 118
Investments measured using the measurement alternative (2) 318 16
Other 4
1
Total investments in non-consolidated affiliates $ 443
$ 135
(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, which is more fully discussed in Note 2.
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 inBitSight .
Refer to Note 24 for disclosure on earnings from non-consolidated affiliates, which is included within other non-operating income, net.
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NOTE 14 COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table provides details about the reclassifications out of AOCL:
Year Ended December 31, Location in the consolidated
2021 2020 2019 statements of operations
Currency translation adjustment
losses
Loss pursuant to the divestiture of
Sale of foreign subsidiaries $ - $ - $ (32) MAKS
Total currency translation
adjustment losses - - (32)
Losses on cash flow hedges
Interest rate contract (2) (3) - Other non-operating income, net
Income tax effect of item above - 1 - Provision for income taxes Total net losses on cash flow hedges (2) (2)
-
Gains on net investment hedges Cross currency swaps - 1 - Other non-operating income, net FX forwards 2 - 3 Other non-operating income, net Total before income taxes 2 1
3
Income tax effect of item above (1) - (1) Provision for income taxes Total net gains on net investment hedges 1 1 2 Pension and other retirement benefits Amortization of actuarial losses and prior service costs included in net income (11) (6) (3) Other non-operating income, net Accelerated recognition of loss due to settlement (8) (2) - Other non-operating income, net Total before income taxes (19) (8)
(3)
Income tax effect of item above 5 2 1 Provision for income taxes Total pension and other retirement benefits (14) (6)
(2)
Total net losses included in Net Income attributable to reclassifications out of AOCL $ (15) $ (7) $ (32)
The following table shows changes in AOCL by component (net of tax):
Year Ended December 31, 2021
Pension and Other Retirement Gains / (Losses) on Cash Foreign Currency Net Investment
Benefits Flow Hedges Translation Adjustments Hedges Total
Balance December 31, 2020 $ (118) $ (49) $ (45) $ (220) $ (432)
Other comprehensive income/(loss) before
reclassifications 55 - (290) 242 7
Amounts reclassified from AOCL 14 2 - (1) 15
Other comprehensive income/(loss) 69 2 (290) 241 22
Balance December 31, 2021 $ (49) $ (47) $ (335) $ 21 $ (410)
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Year Ended December 31, 2020
Pension and Other Retirement Gains / (Losses) on Cash Foreign Currency Net Investment
Benefits Flow Hedges Translation Adjustments Hedges Total
Balance December 31, 2019 $ (92) $ - $ (401) $ 54 $ (439)
Other comprehensive income/(loss) before
reclassifications (32) (51) 356 (273) -
Amounts reclassified from AOCL 6 2 - (1) 7
Other comprehensive income/(loss) (26) (49) 356 (274) 7
Balance December 31, 2020 $ (118) $ (49) $ (45) $ (220) $ (432)
Year Ended December 31, 2019
Pension and Other Gains / (Losses) on Foreign Currency Net Investment
Retirement Benefits Cash Flow Hedges Translation Adjustments Hedges Total
Balance December 31, 2018 $ (53) $ - $ (406) $ 33 $ (426)
Adoption of ASU 2018-02 (17) - - (3) (20)
Other comprehensive income/(loss) before
reclassifications (24) - (27) 26 (25)
Amounts reclassified from AOCL 2 - 32 (2) 32 Other comprehensive income/(loss) (39) - 5 21 (13) Balance December 31, 2019 $ (92) $ - $ (401) $ 54 $ (439)
NOTE 15 PENSION AND OTHER RETIREMENT BENEFITS
Moody's maintains funded and unfunded noncontributory Defined Benefit Pension
Plans ("DBPPs"). The DBPPs provide defined benefits using a cash balance formula
based on years of service and career average salary or final average pay for
selected executives. The Company also provides certain healthcare and life
insurance benefits for retired U.S. employees. The retirement healthcare plans
are contributory; the life insurance plans are noncontributory. Moody's funded
and unfunded U.S. pension plans, the U.S. retirement healthcare plans and the
U.S. retirement life insurance plans are collectively referred to herein as the
"Retirement Plans". The U.S. retirement healthcare plans and the U.S. retirement
life insurance plans are collectively referred to herein as the "Other
Retirement Plans".
Through 2007, substantially all U.S. employees were eligible to participate in
the Company's DBPPs. Effective January 1, 2008, the Company no longer offers
DBPPs to U.S. employees hired or rehired on or after January 1, 2008 and new
hires in the U.S. instead will receive a retirement contribution in similar
benefit value under the Company's Profit Participation Plan. Current
participants of the Company's Retirement Plans and Other Retirement Plans
continue to accrue benefits based on existing plan benefit formulas.
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Following is a summary of changes in benefit obligations and fair value of plan assets for the Retirement Plans for the years ended December 31:
Pension Plans Other Retirement Plans
2021 2020 2021 2020
Change in benefit obligation:
Benefit obligation, beginning of the
period $ (663) $ (589) $ (48) $ (42)
Service cost (19) (17) (4) (3)
Interest cost (14) (17) (1) (1)
Plan participants' contributions - - (1) (1)
Benefits paid 68 22 2 2
Actuarial (loss) gain (6) 6 (3) 2
Assumption changes 64 (68) 7 (5)Benefit obligation, end of the period $ (570) $ (663)
$ (48) $ (48)
Change in plan assets:
Fair value of plan assets, beginning of
the period $ 528 $ 395 $ - $ -
Actual return on plan assets 34 45 - -
Benefits paid (68) (22) (2) (2)
Employer contributions 50 110 1 1
Plan participants' contributions - - 1 1
Fair value of plan assets, end of the
period $ 544 $ 528 $ - $ -
Funded Status of the plans $ (26) $ (135) $ (48) $ (48)
Amounts recorded on the consolidated
balance sheets:
Pension and retirement benefits asset -
non current $ 74 $ 21 $ - $ -
Pension and retirement benefits liability
- current (5) (44) (1) (1)
Pension and retirement benefits liability
- non current (95) (112) (47) (47)
Net amount recognized $ (26) $ (135) $ (48) $ (48)
Accumulated benefit obligation, end of the
period $ (524) $ (601)
The net decrease in the pension benefit obligation from assumption changes and
actuarial losses in 2021 primarily resulted from increases to the discount rates
and changes to certain actuarial assumptions, including increased rates of
retirement at younger ages. The net increase in the benefit obligation in 2020
primarily resulted from reductions in discount rates, partially offset by a
decrease related to lower cash balance conversion interest rates.
The following information is for those pension plans with an accumulated benefit obligation in excess of plan assets:
December 31,
2021 2020
Aggregate projected benefit obligation $ 101 $ 156 Aggregate accumulated benefit obligation $ 86 $ 138
The following table summarizes the pre-tax net actuarial losses and prior
service costs recognized in AOCL for the Company's Retirement Plans as of
December 31:
Pension Plans Other Retirement Plans
2021 2020 2021 2020
Net actuarial losses $ (61) $ (144) $ (4) $ (8)
Net prior service credits 3 3 - -Total recognized in AOCL - pretax $ (58) $ (141) $ (4)
$ (8)
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Net periodic benefit expenses recognized for the Retirement Plans for years
ended December 31:
Pension Plans Other Retirement Plans
2021 2020 2019 2021 2020 2019Components of net periodic expense Service cost $ 19 $ 17 $ 17 $ 4 $ 3 $ 3 Interest cost 14 17 21 1 1 1 Expected return on plan assets (27) (20) (20) - - - Amortization of net actuarial loss and prior service credits from earlier periods 11 7 4 1 - - Loss on settlement of pension obligations 8 2 - - - - Net periodic expense $ 25 $ 23 $ 22 $ 6 $ 4 $ 4
The following table summarizes the pre-tax amounts recorded in OCI related to the Company's Retirement Plans for the years ended December 31:
Pension Plans Other Retirement Plans
2021 2020 2019 2021 2020 2019
Amortization of net actuarial
losses and prior service credit $ 11 $ 7 $ 4 $ 1 $ - $ -
Settlement loss 8 2 - - - -
Net actuarial (loss)/gain
arising during the period 65 (37) (24) 4 (3) (6)
Total recognized in OCI -
pre-tax $ 84 $ (28) $ (20) $ 5 $ (3) $ (6)
ADDITIONAL INFORMATION:
Assumptions-Retirement Plans
Weighted-average assumptions used to determine benefit obligations at
December 31:
Pension Plans Other Retirement Plans
2021 2020 2021 2020
Discount rate 2.60 % 2.24 % 2.65 % 2.30 %
Rate of compensation increase 3.63 % 3.62 % - -
Weighted-average assumptions used to determine net periodic benefit expense for
years ended December 31:
Pension Plans Other Retirement Plans
2021 2020 2019 2021 2020 2019
Discount rate 2.24 % 3.04 % 4.07 % 2.30 % 3.05 % 4.10 %
Expected return on plan
assets 5.45 % 4.45 % 5.65 % - - -
Rate of compensation
increase 3.62 % 3.64 % 3.69 % - - -
Cash balance plan interest
crediting rate 4.50 % 4.50 % 4.50 % - - -
The expected rate of return on plan assets represents the Company's best
estimate of the long-term return on plan assets and is determined by using a
building block approach, which generally weighs the underlying long-term
expected rate of return for each major asset class based on their respective
allocation target within the plan portfolio, net of plan paid expenses. As the
assumption reflects a long-term time horizon, the plan performance in any one
particular year does not, by itself, significantly influence the Company's
evaluation. For 2021, the expected rate of return used in calculating the net
periodic benefit costs was 5.45%. For 2022, the Company's expected rate of
return assumption is 5.05% to reflect the Company's current view of long-term
capital market outlook. In addition, the Company has updated its mortality
assumption by adopting the newly released mortality improvement scale MP-2021 to
accompany the Pri2012 mortality tables to reflect the latest information
regarding future mortality expectations by the Society of Actuaries.
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Plan Assets
Moody's investment objective for the assets in the funded pension plan is to earn total returns that will minimize future contribution requirements over the long-term within a prudent level of risk. The Company works with its independent investment consultants to determine asset allocation targets for its pension plan investment portfolio based on its assessment of business and financial conditions, demographic and actuarial data, funding characteristics, and related risk factors. Other relevant factors, including historical and forward looking views of inflation and capital market returns, are also considered. Risk management practices include monitoring plan asset performance, diversification across asset classes and investment styles and periodic rebalancing toward asset allocation targets. The Company's Asset Management Committee is responsible for overseeing the investment activities of the plan, which includes selecting acceptable asset classes, defining allowable ranges of holdings by asset class and by individual investment managers, defining acceptable securities within each asset class, and establishing investment performance expectations. Ongoing monitoring of the plan includes reviews of investment performance and managers on a regular basis, annual liability measurements, and periodic asset/liability studies. The Company's investment policy uses risk-controlled investment strategies by increasing the plan's asset allocation to fixed income securities and specifying ranges of acceptable target allocation by asset class based on different levels of the plan's accounting funded status. In addition, the investment policy also requires the investment-grade fixed income assets be rebalanced between shorter and longer duration bonds as the interest rate environment changes. This investment policy is designed to help protect the plan's funded status and to limit volatility of the Company's contributions. Based on the policy, the Company's current target asset allocation is approximately 33% (range of 28% to 38%) in equity securities, 62% (range of 57% to 67%) in fixed income securities and 5% (range of 2% to 8%) in other investments and the plan will use a combination of active and passive investment strategies and different investment styles for its investment portfolios within each asset class. The plan's equity investments are diversified acrossU.S. and non-U.S. stocks of small, medium and large capitalization. The plan's fixed income investments are diversified principally acrossU.S. and non-U.S. government and corporate bonds, which are expected to help reduce plan exposure to interest rate variation and to better align assets with obligations. The plan also invests in other fixed income investments such as debts rated below investment grade, emerging market debt, and convertible securities. The plan's other investment, which is made through a private real estate debt fund, is expected to provide additional diversification benefits and absolute return enhancement to the plan assets.
Fair value of the assets in the Company's funded pension plan by asset category at December 31, 2021 and 2020 are as follows:
Fair Value Measurement as of December 31, 2021
Measured using
NAV practical % of total
Asset Category Balance Level 1 Level 2 expedient (1) assets
Cash and cash equivalent $ 4 $ - $ 4 $ - 1 %
Common/collective trust funds-equity
securities
U.S. large-cap 135 - 135 - 25 %
U.S. small and mid-cap 23 - 23 - 4 %
Emerging markets 27 - 27 - 5 %
Total equity investments 185 - 185 - 34 %
Emerging markets bond fund 30 - - 30 6 %
Common/collective trust funds-fixed income
securities
Intermediate-term investment grade U.S.
government/ corporate bonds 245 - 245 - 45 %
Mutual funds
U.S. Treasury Inflation-Protected
Securities (TIPs) 24 24 - - 4 %
Convertible securities 17 17 - - 3 %
Private investment fund-high yield
securities 14 - - 14 3 %
Total fixed-income investments 330 41 245 44 61 %
Other investment-private real estate fund 25 - - 25 4 %
Total Assets $ 544 $ 41 $ 434 $ 69 100 %
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Fair Value Measurement as of December 31, 2020
Measured using
NAV practical % of total
Asset Category Balance Level 1 Level 2 expedient (1) assets
Cash and cash equivalent $ 4 $ - $ 4 $ - 1 %
Common/collective trust funds-equity
securities
U.S. large-cap 143 - 143 - 27 %
U.S. small and mid-cap 28 - 28 - 5 %
Emerging markets 32 - 32 - 6 %
Total equity investments 203 - 203 - 38 %
Emerging markets bond fund 32 - - 32 6 %
Common/collective trust funds-fixed income
securities
Intermediate-term investment grade U.S.
government/ corporate bonds 214 - 214 - 41 %
Mutual funds
U.S. Treasury Inflation-Protected
Securities (TIPs) 23 23 - - 4 %
Convertible securities 16 16 - - 3 %
Private investment fund-high yield
securities 12 - - 12 2 %
Total fixed-income investments 297 39 214 44 56 %
Other investment-private real estate debt
fund 24 - - 24 5 %
Total Assets $ 528 $ 39 $ 421 $ 68 100 %
(1)Investments are measured using the net asset value per share (or its
equivalent) practical expedient and have not been categorized in the fair value
hierarchy. The fair value amounts presented in the table are intended to permit
a reconciliation of the fair value hierarchy to the value of the total plan
assets.
Cash and cash equivalents are primarily comprised of investments in money market
mutual funds. In determining fair value, Level 1 investments are valued based on
quoted market prices in active markets. Investments in common/collective trust
funds are valued using the NAV per unit in each fund. The NAV is based on the
value of the underlying investments owned by each trust, minus its liabilities,
and then divided by the number of shares outstanding. Common/collective trust
funds are categorized in Level 2 to the extent that they are considered to have
a readily determinable fair value. Investments for which fair value is estimated
by using the NAV per share (or its equivalent) as a practical expedient are not
categorized in the fair value hierarchy.
Except for the Company's
Cash Flows
The Company did not contribute to itsU.S. funded pension plan during 2021, but contributed $99 million to this plan during the year ended December 31, 2020. The Company made payments of $50 million and $11 million related to itsU.S. unfunded pension plan obligations during the years ended December 31, 2021 and 2020, respectively. The Company currently does not anticipate making a contribution to its funded pension plan in 2022, and does not anticipate making payments related to its unfundedU.S. pension plans and other Retirement Plans during the year ended December 31, 2022 that would be material to the Company's financial statements.
Estimated Future Benefits Payable
Estimated future benefits payments for the Retirement Plans are as follows as of year ended December 31, 2021: Year Ending December 31, Pension Plans Other Retirement Plans 2022 $ 21 $ 1 2023 23 2 2024 32 2 2025 26 2 2026 30 2 2027 - 2031 157 15 114 MOODY'S 2021 10-K
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Defined Contribution Plans
Moody's has a Profit Participation Plan covering substantially allU.S. employees. The Profit Participation Plan provides for an employee salary deferral and the Company matches employee contributions, equal to 50% of employee contribution up to a maximum of 3% of the employee's pay. Effective January 1, 2008, all new hires are automatically enrolled in the Profit Participation Plan when they meet eligibility requirements unless they decline participation. As the Company'sU.S. DBPPs are closed to new entrants effective January 1, 2008, all eligible new hires will instead receive a retirement contribution into the Profit Participation Plan in value similar to the pension benefits. Additionally, effective January 1, 2008, the Company implemented a deferred compensation plan in theU.S. , which is unfunded and provides for employee deferral of compensation and Company matching contributions related to compensation in excess of theIRS limitations on benefits and contributions under qualified retirement plans. Total expenses associated withU.S. defined contribution plans were $54 million, $44 million and $43 million in the years ended December 31, 2021, 2020, and 2019, respectively. Effective January 1, 2008, Moody's has designated the Moody's Stock Fund, an investment option under the Profit Participation Plan, as an Employee Stock Ownership Plan and, as a result, participants in the Moody's Stock Fund may receive dividends in cash or may reinvest such dividends into the Moody's Stock Fund. Moody's paid approximately $1 million during each of the years ended December 31, 2021, 2020 and 2019, respectively, for the Company's common shares held by the Moody's Stock Fund. The Company records the dividends as a reduction of retained earnings in the Consolidated Statements of Shareholders' Equity (Deficit). The Moody's Stock Fund held approximately 328,500 and 360,600 shares of Moody's common stock at December 31, 2021 and 2020, respectively.
Non-
Certain of the Company's non-U.S. operations provide pension benefits to their employees. The non-U.S. defined benefit pension plans are immaterial. For defined contribution plans, company contributions are primarily determined as a percentage of employees' eligible compensation. Expenses related to these defined contribution plans for the years ended December 31, 2021, 2020 and 2019 were $32 million, $29 million and $25 million, respectively.
NOTE 16 STOCK-BASED COMPENSATION PLANS
Under the 1998 Plan, 33.0 million shares of the Company's common stock have been reserved for issuance. The 2001 Plan, which is shareholder approved, permits the granting of up to 50.6 million shares, of which not more than 14.0 million shares are available for grants of awards other than stock options. The Stock Plans also provide for the granting of restricted stock. The Stock Plans provide that options are exercisable not later than ten years from the grant date. The vesting period for awards under the Stock Plans is generally determined by the Board at the date of the grant and has been four years except for employees who are at or near retirement eligibility, as defined, for which vesting is between one and four years. Additionally, the vesting period is three years for certain performance-based restricted stock that contain a condition whereby the number of shares that ultimately vest are based on the achievement of certain non-market based performance metrics of the Company. Options may not be granted at less than the fair market value of the Company's common stock at the date of grant. The Company maintains the Directors' Plan for its Board, which permits the granting of awards in the form of non-qualified stock options, restricted stock or performance shares. The vesting period is determined by the Board at the date of the grant and is generally one year for both options and restricted stock. Under the Directors' Plan, 1.7 million shares of common stock were reserved for issuance. Any director of the Company who is not an employee of the Company or any of its subsidiaries as of the date that an award is granted is eligible to participate in the Directors' Plan. On September 15, 2021, the Company acquired RMS, which is discussed in more detail in Note 9. As part of the acquisition, the Company registered the RMS 2014 Equity Award Plan and the RMS 2015 Equity Incentive Plan (collectively, "RMS Plans") as part of the purchase agreement to acquire RMS. Under the RMS Plans, 1.2 million shares of the Company's common stock have been reserved for issuance. The RMS Plans provide that options are exercisable not later than ten years from the grant date. The vesting period is generally determined by the Board at the date of the grant and is four years for both options and restricted stock granted during 2021. As a result of the acquisition, certain RMS employees' unvested equity awards (employee stock options and restricted stock) with an acquisition-date fair value of $33 million were converted into equity awards of the Company based on an exchange ratio as defined in the purchase agreement. The portion of the fair value of the replacement awards related to services provided prior to the acquisition was $5 million and was accounted for as consideration transferred (See Note 9). The remaining portion of the replacement awards of $28 million, which is associated with a future service requirement, will be recognized as compensation expense over the remaining vesting period.
Presented below is a summary of the stock-based compensation expense and associated tax benefit in the accompanying Consolidated Statements of Operations:
Year Ended December 31,
2021 2020 2019
Stock-based compensation expense $ 175 $ 154 $ 136
Tax benefit $ 42 $ 30 $ 29
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The fair value of each employee stock option award is estimated on the date of grant using the Black-Scholes option-pricing model that uses the assumptions noted below. The expected dividend yield is derived from the annual dividend rate on the date of grant. The expected stock volatility is based on an assessment of historical weekly stock prices of the Company as well as implied volatility from Moody's traded options. The risk-free interest rate is based onU.S. government zero coupon bonds with maturities similar to the expected holding period. The expected holding period was determined by examining historical and projected post-vesting exercise behavior activity.
The following weighted average assumptions were used for options granted (excluding the aforementioned RMS replacement awards):
Year Ended December 31,
2021 2020 2019
Expected dividend yield 0.89 % 0.80 % 1.14 %
Expected stock volatility 28 % 23 % 24 %
Risk-free interest rate 0.82 % 1.43 % 2.56 %
Expected holding period -in years 5.6 5.7 6.2
Due to the RMS replacement option awards being heavily in-the-money at the acquisition date, the Company utilized a binomial valuation approach to determine the fair value of the options, which approximated the intrinsic value of the replaced awards at the acquisition date.
The following represents the fair value of the options at grant date, including RMS replacement option awards:
Year Ended December 31,
2021 2020 2019
Weighted average grant date fair value per share
(including RMS replacement option awards) $ 121.14 $ 60.66 $ 43.29
A summary of option activity as of December 31, 2021 and changes during the year then ended is presented below:
Weighted Average Weighted Average
Exercise Price Per Remaining Aggregate
Options Shares Share Contractual Term Intrinsic Value Outstanding, December 31, 2020
1.0 $ 132.80
Granted (including RMS replacement awards) 0.2 $
249.99
Exercised (0.2) $
101.03
Outstanding, December 31, 2021 1.0 $ 166.16 5.8 years $ 224 Vested and expected to vest, December 31, 2021 1.0 $ 165.26 5.7 years $ 221 Exercisable, December 31, 2021 0.6 $ 119.88 4.4 years $ 159 The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between Moody's closing stock price on the last trading day of the year ended December 31, 2021 and the exercise prices, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options as of December 31, 2021. This amount varies based on the fair value of Moody's stock. As of December 31, 2021, there was $22 million of total unrecognized compensation expense related to options. The expense is expected to be recognized over a weighted average period of 2.2 years.
The following table summarizes information relating to stock option exercises:
Year Ended December 31,
2021 2020 2019
Proceeds from stock option exercises $ 24 $ 39 $
36
Aggregate intrinsic value $ 55 $ 132 $
114
Tax benefit realized upon exercise $ 13 $ 32 $ 27 116 MOODY'S 2021 10-K
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A summary of nonvested restricted stock activity for the year ended December 31, 2021 is presented below:
Weighted Average Grant
Date Fair Value
Nonvested Restricted Stock Shares Per Share
Balance, December 31, 2020 1.5 $ 201.30
Granted (including RMS replacement awards) 0.7 $ 296.84
Vested (0.7) $ 177.96
Forfeited (0.1) $ 242.12
Balance, December 31, 2021 1.4 $ 253.85
As of December 31, 2021, there was $209 million of total unrecognized compensation expense related to nonvested restricted stock. The expense is expected to be recognized over a weighted average period of 2.6 years.
The following table summarizes information relating to the vesting of restricted
stock awards:
Year Ended December 31,
2021 2020 2019
Fair value of shares vested $ 194 $ 202 $ 156
Tax benefit realized upon vesting $ 46 $ 46 $ 36
A summary of performance-based restricted stock activity for the year ended December 31, 2021 is presented below:
Weighted Average Grant
Performance-based restricted stock Shares Date Fair Value Per Share
Balance, December 31, 2020 0.3 $ 197.19
Granted 0.2 $ 329.71
Vested (0.1) $ 162.06
Balance, December 31, 2021 0.4 $ 266.89
The following table summarizes information relating to the vesting of the Company's performance-based restricted stock awards:
Year Ended December 31,
2021 2020 2019
Fair value of shares vested $ 28 $ 70 $ 47 Tax benefit realized upon vesting $ 7 $ 17 $ 11
As of December 31, 2021, there was $63 million of total unrecognized compensation expense related to this plan. The expense is expected to be recognized over a weighted average period of 2.1 years.
The Company has a policy of issuing treasury stock to satisfy shares issued under stock-based compensation plans.
In addition, the Company also sponsors the ESPP. Under the ESPP, 6 million shares of common stock were reserved for issuance. The ESPP permits eligible employees to purchase common stock of the Company on a monthly basis at a discount to the average of the high and the low trading prices on theNew York Stock Exchange on the last trading day of each month. This discount was 5% in 2021, 2020, and 2019 resulting in the ESPP qualifying for non-compensatory status under Topic 718 of the ASC. Accordingly, no compensation expense was recognized for the ESPP in 2021, 2020, and 2019. The employee purchases are funded through after-tax payroll deductions, which plan participants can elect from one percent to ten percent of compensation, subject to the annual federal limit. MOODY'S 2021 10-K 117
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NOTE 17 INCOME TAXES
Components of the Company's income tax provision are as follows:
Year Ended December 31,
2021 2020 2019
Current:
Federal $ 404 $ 213 $ 179
State and Local 106 68 59
Non-U.S. 249 215 181
Total current 759 496 419
Deferred:
Federal (172) 6 (19)
State and Local (45) - (3)
Non-U.S. (1) (50) (16)
Total deferred (218) (44) (38)
Total provision for income taxes $ 541 $ 452 $ 381
A reconciliation of the U.S. federal statutory tax rate to the Company's
effective tax rate on income before provision for income taxes is as follows:
Year Ended December 31,
2021 2020 2019
U.S. statutory tax rate 21.0 % 21.0 % 21.0 %
State and local taxes, net of federal tax benefit 1.5 % 2.3 % 2.2 %
Benefit of foreign operations (1.5) % (1.5) % (0.1) %
Other (1.4) % (1.5) % (2.1) %
Effective tax rate 19.6 % 20.3 % 21.0 %
Income tax paid $ 932 $ 514 $ 458
The source of income before provision for income taxes is as follows:
Year Ended December 31,
2021 2020 2019
U.S. $ 1,563 $ 1,349 $ 1,039
Non-U.S. 1,192 880 771Income before provision for income taxes $ 2,755 $ 2,229 $ 1,810
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The components of deferred tax assets and liabilities are as follows:
December 31,
2021 2020
Deferred tax assets:
Account receivable allowances $ 8 $ 9
Accumulated depreciation and amortization 10 2
Stock-based compensation 50 42
Accrued compensation and benefits 101 99
Capitalized costs 33 39
Operating lease liabilities 134 122
Deferred revenue 252 30
Net operating loss 33 17
Restructuring 1 3
Uncertain tax positions 86 98
Self-insured related reserves 10 10
Loss on net investment hedges - OCI 11 93
Other 16 10
Total deferred tax assets 745 574
Deferred tax liabilities:
Accumulated depreciation and amortization of intangible assets and
capitalized software (659) (468)
ROU Assets (102) (90)
Capital Gains (31) (23)
Self-insured related income (10) (10)
Revenue Accounting Standard - ASC 606 (7) (10)
Deferred tax on unremitted foreign earnings (12) (16)
Gain on net investment hedges - OCI (4) (8)
Other (6) (4)
Total deferred tax liabilities (831) (629)
Net deferred tax liabilities (86) (55)
Valuation allowance (18) (15)
Total net deferred tax liabilities $ (104) $ (70)
On December 22, 2017, the Tax Act was signed into law, which resulted in significant changes toU.S. corporate tax laws. The Tax Act includes a mandatory one-time deemed repatriation tax ("transition tax") on previously untaxed accumulated earnings of foreign subsidiaries and beginning in 2018 reduces the statutory federal corporate income tax rate from 35% to 21%. Due to the complexities of the Tax Act, theSEC issued guidance requiring that companies provide a reasonable estimate of the impact of the Tax Act to the extent such reasonable estimate has been determined. Accordingly, as of December 31, 2017, the Company recorded a provisional estimate for the transition tax of $247 million. In September, 2018, the Company filed its 2017 federal income tax return and revised its determination of the transition tax to $236 million, a reduction of $11 million from the estimate at December 31, 2017. The revised determination of transition tax may be impacted by a number of additional considerations, including but not limited to the issuance of additional regulations. As a result of the Tax Act, all previously net undistributed foreign earnings have now been subject toU.S. tax. The Company regularly evaluates which entities it will indefinitely reinvest earnings. The Company has provided deferred taxes for those entities whose earnings are not considered indefinitely reinvested. The Company's annual tax expense for the year ended December 31, 2021 includes Excess Tax Benefits from stock compensation of $31 million, benefits from the resolution of certain UTPs of $70 million and other net decreases to tax positions of $25 million.
The Company had valuation allowances of $18 million and $15 million at December 31, 2021 and 2020, respectively, related to foreign net operating losses for which realization is uncertain.
As of December 31, 2021, the Company had $388 million of UTPs of which $353 million represents the amount that, if recognized, would impact the effective tax rate in future periods. The decrease in 2021 resulted primarily from the resolutions of uncertain tax positions. The increase in 2020 was primarily due to the additional reserves established for non-U.S. tax exposures. MOODY'S 2021 10-K
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A reconciliation of the beginning and ending amount of UTPs is as follows:
Year Ended December 31,
2021 2020 2019
Balance as of January 1 $ 483 $ 477 $ 495
Additions for tax positions related to the current year 102 37 35
Additions for tax positions of prior years 18 17 22
Reductions for tax positions of prior years - (2) (2)
Settlements with taxing authorities (134) (5) (1)
Lapse of statute of limitations (81) (41) (44)
Reclassification to indemnification liability related to MAKS divestiture
- - (28)
Balance as of December 31 $ 388 $ 483 $ 477
The Company classifies interest related to UTPs in interest expense in its consolidated statements of operations. Penalties are recognized in other non-operating expenses. During the year ended December 31, 2021 the Company accrued net interest income of $21 million related to UTPs. During the years ended December 31, 2020 and 2019 the Company incurred net interest expense of $34 million and $28 million, respectively, related to UTPs. As of December 31, 2021, 2020 and 2019 the amount of accrued interest recorded in the Company's consolidated balance sheets related to UTPs was $59 million, $113 million and $82 million, respectively.Moody's Corporation and subsidiaries are subject toU.S. federal income tax as well as income tax in various state, local and foreign jurisdictions. The Company'sU.S. federal income tax returns for 2017 through 2019 are currently under examination and 2020 remains open to examination. The Company'sNew York State tax returns for 2017 through 2018 are currently under examination andNew York City tax returns for 2014 through 2017 are currently under examination. After the resolution of a tax audit for 2012, certain of the Company'sU.K. subsidiaries' returns from 2012 to 2020 remain open to examination. For current ongoing audits related to open tax years, the Company estimates that it is possible that the balance of UTPs could decrease in the next twelve months as a result of the effective settlement of these audits, which might involve the payment of additional taxes, the adjustment of certain deferred taxes and/or the recognition of tax benefits. It is also possible that new issues might be raised by tax authorities which might necessitate increases to the balance of UTPs. As the Company is unable to predict the timing of conclusion of these audits, the Company is unable to estimate the amount of changes to the balance of UTPs at this time. 120 MOODY'S 2021 10-K
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NOTE 18 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 are recorded at the carrying amount adjusted for the fair value of an interest rate swap used to hedge the fair value of the note.
The following table summarizes total indebtedness:
December 31, 2021
Principal Fair Value of Unamortized Unamortized Debt Carrying
Amount Interest Rate Swaps(1) (Discount) Premium Issuance Costs Value
Notes Payable:
4.875% 2013 Senior Notes, due
2024 $ 500 $ - $ (1) $ (1) $ 498
5.25% 2014 Senior Notes, due
2044 600 (7) 3 (5) 591
1.75% 2015 Senior Notes, due
2027 568 - - (2) 566
2.625% 2017 Senior Notes, due
2023 500 5 - (1) 504
3.25% 2017 Senior Notes, due
2028 500 8 (3) (2) 503
4.25% 2018 Senior Notes, due
2029 400 - (2) (2) 396
4.875% 2018 Senior Notes, due
2048 400 (7) (6) (4) 383
0.950% 2019 Senior Notes, due
2030 853 - (2) (5) 846
3.75% 2020 Senior Notes, due
2025 700 (9) (1) (4) 686
3.25% 2020 Senior Notes, due
2050 300 - (4) (3) 293
2.55% 2020 Senior Notes, due
2060 500 - (4) (5) 491
2.00% 2021 Senior Notes, due
2031 600 - (8) (5) 587
2.75% 2021 Senior Notes, due
2041 600 - (13) (6) 581
3.10% 2021 Senior Notes, due
2061 500 - (7) (5) 488
Total long-term debt $ 7,521 $ (10) $ (48) $ (50) $ 7,413
December 31, 2020
Fair Value
of Interest
Principal Rate Swaps Unamortized Unamortized Debt Carrying
Amount (1) (Discount) Premium Issuance Costs Value
Notes Payable:
4.50% 2012 Senior Notes, due 2022 $ 500 $ 14 $
(1) $ (1) $ 512
4.875% 2013 Senior Notes, due
2024 500 - (1) (1) 498
5.25% 2014 Senior Notes, due 2044 600 - 3 (5) 598
1.75% 2015 Senior Notes due 2027 612 - - (2) 610
2.625% 2017 Senior Notes, due
2023 500 12 - (2) 510
3.25% 2017 Senior Notes, due 2028 500 31 (4) (3) 524
4.25% 2018 Senior Notes, due 2029 400 - (3) (3) 394
4.875% 2018 Senior Notes, due
2048 400 - (6) (4) 390
0.950% 2019 Senior Notes, due
2030 918 - (3) (6) 909
3.75% 2020 Senior Notes, due 2025 700 (1) (1) (5) 693
3.25% 2020 Senior Notes, due 2050 300 - (4) (3) 293
2.55% 2020 Senior Notes, due 2060 500 - (4) (5) 491
Total long-term debt $ 6,430 $ 56 $ (24) $ (40) $ 6,422
(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.
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Credit Facility
On December 17, 2021, the Company entered into a five-year senior, unsecured
revolving credit facility with the capacity to borrow up to $1.25 billion, which
expires December 2026. The 2021 Facility replaces the Company's $1 billion 2018
Credit Facility that was scheduled to mature in November 2023. Further
information on the key terms of these credit facilities is below.
The following summarizes information relating to the Company's revolving credit
facilities:
December 31, 2021 December 31, 2020
Issue Date Capacity Maturity Drawn Undrawn Drawn Undrawn
November 13, 2023
2018 Credit Facility November 14, 2018 $ 1,000 (Terminated in 2021) $ - $ - $ - $ 1,000
2021 Credit Facility December 17, 2021 $ 1,250 December 17, 2026 $ - $ 1,250 $ - $ -
2018 Credit Facility
Interest on borrowings under the 2018 Credit Facility ranged from 0 BPS to 22.5
BPS per annum for Alternate Base Rate loans (as defined in the 2018 Facility
agreement) or payable at rates based on the London InterBank Offered Rate
("LIBOR") plus a premium that ranged from 80.5 BPS to 122.5 BPS depending on the
Company's index debt ratings, as set forth in the 2018 Facility agreement. The
Company also paid quarterly facility fees, regardless of borrowing activity
under the facility. The quarterly fees for the 2018 Facility ranged from 7 BPS
of the facility amount to 15 BPS, depending on the Company's index debt ratings.
The 2018 Facility contained certain customary covenants including a financial
covenant that required the Company to maintain a total debt to EBITDA ratio of
(i) not more than 4 to 1 at the end of any fiscal quarter or (ii) not more than
4.5 to 1 as of the end of the first three consecutive quarters immediately
following any acquisition with consideration in excess of $500 million, subject
to certain conditions as set forth in the 2018 Facility agreement.
2021 Credit Facility
Interest on borrowings under the 2021 Credit Facility is payable at rates that are based on an adjusted term SOFR Rate plus a premium that can range from 80.5 basis points to 122.5 basis points, depending on the Company's index debt ratings, as set forth in the 2021 Facility Agreement. The Company also has the option to choose other rates, such as those based on adjusted Daily Simple SOFR or an alternate base rate as set forth in the 2021 Facility Agreement. The Company also pays quarterly facility fees, regardless of borrowing activity under the Facility. The quarterly fees for the 2021 Facility can range from 7 basis points of the 2021 Credit Facility amount to 15 basis points, depending on the Company's index debt ratings. The facility fees for the 2021 Credit Facility are subject to sustainability-based pricing adjustments based on the Company's annual performance with respect to certain spending with vendors who have committed to and publicly announced the setting of science-based targets to reduce greenhouse gas emissions. The 2021 Facility contains a financial covenant that requires the Company to maintain a total debt to EBITDA Ratio of (i) not more than 4 to 1 at the end of any fiscal quarter or (ii) not more than 4.5 to 1 as of the end of the first three consecutive quarters immediately following any acquisition with consideration in excess of $500 million, subject to certain conditions as set forth in the 2021 Facility.
Commercial Paper
On August 3, 2016, the Company entered into a private placement commercial paper program under which the Company may issue CP notes up to a maximum amount of $1.0 billion. Borrowings under the CP Program are backstopped by the 2021 Facility. Amounts under the CP Program may be re-borrowed. The maturity of the CP Notes will vary, but may not exceed 397 days from the date of issue. The CP Notes are sold at a discount from par, or alternatively, sold at par and bear interest at rates that will vary based upon market conditions. The rates of interest will depend on whether the CP Notes will be a fixed or floating rate. The interest on a floating rate may be based on the following: (a) certificate of deposit rate; (b) commercial paper rate; (c) the federal funds rate; (d) the LIBOR; (e) prime rate; (f)Treasury rate; or (g) such other base rate as may be specified in a supplement to the private placement agreement. The CP Program contains certain events of default including, among other things: non-payment of principal, interest or fees; entrance into any form of moratorium; and bankruptcy and insolvency events, subject in certain instances to cure periods. As of December 31, 2021, the Company has no CP borrowings outstanding.
Notes Payable
The Company may prepay certain of its senior notes, in whole or in part, but may incur a Make-Whole Amount penalty.
During 2021, the Company issued the 2021 Senior Notes due 2031, the 2021 Senior Notes due 2041, and the 2021 Senior Notes due 2061. The key terms of these debt issuances are set forth in the table above. Additionally, in 2021, the Company fully repaid $500 million of the 2012 Senior Notes due 2022 (along with a Make-Whole Amount of approximately $13 million). The Company also recognized in interest expense, net, an $8 million benefit relating to carrying value adjustments pursuant to the early termination of interest rate swaps designated as fair value hedges that were associated with the 2012 Senior Notes due 2022.
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At December 31, 2021, the Company was in compliance with all covenants contained within all of the debt agreements. All of the debt agreements contain cross default provisions which state that default under one of the aforementioned debt instruments could in turn permit lenders under other debt instruments to declare borrowings outstanding under those instruments to be immediately due and payable. As of December 31, 2021, there were no such cross defaults.
The repayment schedule for the Company's borrowings is as follows:
2013 Senior 2014 Senior 2015 Senior 2017 Senior 2017 Senior 2018 Senior 2018 Senior 2019 Senior 2020 Senior 2020 Senior 2020 Senior 2021 Senior 2021 Senior 2021 Senior Year Ending
Notes due Notes due Notes due Notes due Notes due Notes due Notes due Notes due Notes due Notes due Notes due Notes due Notes due Notes due
December 31, 2024 2044 2027 2023 2028 2029 2048 2030 2025 2050 2060 2031 2041 2061 Total
2022 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - 2023 - - - 500 - - - - - - - - - - $ 500 2024 500 - - - - - - - - - - - - - $ 500 2025 - - - - - - - - 700 - - - - - $ 700 2026 - - - - - - - - - - - - - - $ - Thereafter - 600 568 - 500 400 400 853 - 300 500 600 600 500 5,821 Total $ 500 $ 600 $ 568 $ 500 $ 500 $ 400 $ 400 $ 853 $ 700 $ 300 $ 500 $ 600 $ 600 $ 500 $ 7,521 Interest expense, net
The following table summarizes the components of interest as presented in the consolidated statements of operations:
Year Ended December 31,
2021 2020 2019
Expense on borrowings $ (185) $ (163) $ (176)
Expense on UTPs and other tax related liabilities(1) 21 (34) (28)
Net periodic pension costs-interest component (16) (19) (22)
Income 9 11 17
Capitalized - - 1
Total $ (171) $ (205) $ (208)
Interest paid (2) $ 162 $ 132 $ 167
(1)The amount for the year ended December 31, 2021 includes a $45 million benefit relating to the reversal of tax-related interest accruals pursuant to the resolution of tax matters.
(2)Interest paid includes net settlements on interest rate swaps more fully discussed in Note 7.
The fair value and carrying value of the Company's debt as of December 31, 2021 and 2020 are as follows:
December 31, 2021 December 31, 2020
Estimated Fair Estimated Fair
Carrying Amount Value Carrying Amount Value
4.50% 2012 Senior Notes, due 2022 $ - $ - $ 512 $ 530
4.875% 2013 Senior Notes, due
2024 498 538 498 562
5.25% 2014 Senior Notes, due 2044 591 805 598 828
1.75% 2015 Senior Notes, due 2027 566 607 610 674
2.625% 2017 Senior Notes, due
2023 504 509 510 522
3.25% 2017 Senior Notes, due 2028 503 539 524 561
4.25% 2018 Senior Notes, due 2029 396 451 394 480
4.875% 2018 Senior Notes, due
2048 383 526 390 544
0.950% 2019 Senior Notes, due
2030 846 866 909 974
3.75% 2020 Senior Notes, due 2025 686 750 693 785
3.25% 2020 Senior Notes, due 2050 293 311 293 329
2.55% 2020 Senior Notes, due 2060 491 432 491 467
2.00% 2021 Senior Notes, due 2031 587 581 - -
2.75% 2021 Senior Notes, due 2041 581 579 - -
3.10% 2021 Senior Notes, due 2061 488 488 - -
Total $ 7,413 $ 7,982 $ 6,422 $ 7,256
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The fair value of the Company's debt is estimated based on quoted market prices for similar instruments. Accordingly, the inputs used to estimate the fair value of the Company's long-term debt are classified as Level 2 inputs within the fair value hierarchy. NOTE 19 CAPITAL STOCK Authorized Capital Stock The total number of shares of all classes of stock that the Company has authority to issue under its Restated Certificate of Incorporation is 1.02 billion shares with a par value of $0.01, of which 1.0 billion are shares of common stock, 10.0 million are shares of preferred stock and 10.0 million are shares of series common stock. The preferred stock and series common stock can be issued with varying terms, as determined by the Board.
Share Repurchase Program
The Company implemented a systematic share repurchase program in the third quarter of 2005 through an SEC Rule 10b5-1 program. Moody's may also purchase opportunistically when conditions warrant. As a result, Moody's share repurchase activity will continue to vary from quarter to quarter. The table below summarizes the Company's remaining authority under its share repurchase program as of December 31, 2021: Date Authorized Amount Authorized Remaining Authority February 9, 2021 $ 1,000 $ 1,000 December 16, 2019 $ 1,000 $ 81 Total Remaining Authority at December 31, 2021 $ 1,081
Additionally, on February 7, 2022, the Board of Directors approved an additional $750 million of share repurchase authority.
During 2021, Moody's repurchased 2.2 million shares of its common stock under its share repurchase program and issued a net 0.8 million shares under employee stock-based compensation plans. The net amount includes shares withheld for employee payroll taxes.
Dividends
The Company's cash dividends were:
Dividends Per Share
Year ended December 31,
2021 2020 2019
Declared Paid Declared Paid Declared Paid
First quarter $ 0.62 $ 0.62 $ 0.56 $ 0.56 $ 0.50 $ 0.50
Second quarter 0.62 0.62 0.56 0.56 0.50 0.50
Third quarter 0.62 0.62 0.56 0.56 0.50 0.50
Fourth quarter 0.62 0.62 0.56 0.56 0.50 0.50
Total $ 2.48 $ 2.48 $ 2.24 $ 2.24 $ 2.00 $ 2.00
On February 7, 2022, the Board approved the declaration of a quarterly dividend
of $0.70 per share of Moody's common stock, payable on March 18, 2022 to
shareholders of record at the close of business on February 25, 2022. The
continued payment of dividends at the rate noted above, or at all, is subject to
the discretion of the Board.
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NOTE 20 LEASE COMMITMENTS
The Company has operating leases, substantially all of which relate to the lease of office space. The Company's leases classified as finance leases are not material to the consolidated financial statements. Certain of the Company's leases include options to renew, with renewal terms that can extend the lease from one to 20 years at the Company's discretion.
The following table presents the components of the Company's lease cost:
Year Ended December 31,
2021 2020 2019
Operating lease cost $ 98 $ 96 $ 97
Sublease income (6) (5) (2)
Variable lease cost 19 19 17
Total lease cost $ 111 $ 110 $ 112
The following tables present other information related to the Company's
operating leases:
Year Ended December 31,
2021 2020 2019Cash paid for amounts included in the measurement of operating lease liabilities
$ 113 $ 108 $ 106
Right-of-use assets obtained in exchange for new
operating lease liabilities $ 137 $ 36 $ 41
Year Ended December 31,
2021 2020 2019
Weighted-average remaining lease term (in years) 5.6 6.0 6.8
Weighted-average discount rate applied to operating leases
3.1 % 3.6 % 3.6 %
The following table presents a maturity analysis of the future minimum lease
payments included within the Company's operating lease liabilities at December
31, 2021:
Year Ending December 31, Operating Leases
2022 $ 121
2023 118
2024 109
2025 93
2026 74
Thereafter 95
Total lease payments (undiscounted) 610
Less: Interest 50
Present value of lease liabilities: $ 560
Lease liabilities - current $ 105
Lease liabilities - noncurrent $ 455
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NOTE 21 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 theU.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 17 to the 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 toSEC rules and other pending matters as it may determine to be appropriate. In view of the inherent difficulty of assessing the potential outcome of legal proceedings, governmental, regulatory and legislative investigations and inquiries, claims and litigation and similar matters and contingencies, particularly when the claimants seek large or indeterminate damages or assert novel legal theories or the matters involve a large number of parties, the Company often cannot predict what the eventual outcome of the pending matters will be or the timing of any resolution of such matters. The Company also may be unable to predict the impact (if any) that any such matters may have on how its business is conducted, on its competitive position or on its financial position, results of operations or cash flows. As the process to resolve any pending matters progresses, management will continue to review the latest information available and assess its ability to predict the outcome of such matters and the effects, if any, on its operations and financial condition and to accrue for and disclose such matters as and when required. However, because such matters are inherently unpredictable and unfavorable developments or resolutions can occur, the ultimate outcome of such matters, including the amount of any loss, may differ from those estimates.
NOTE 22 SEGMENT INFORMATION
The Company is organized into two operating segments: MIS and MA and accordingly, the Company reports in two reportable segments: MIS and MA.
The MIS segment consists of five LOBs. The CFG, SFG, FIG and PPIF LOBs generate revenue principally from fees for the assignment and ongoing monitoring of credit ratings on debt obligations and the entities that issue such obligations in markets worldwide. The MIS Other LOB primarily consists of financial instruments pricing services in theAsia-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 two LOBs - RD&A and ERS. 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 2019 actual revenue which comprises a "Baseline Pool" that will remain fixed over time. In subsequent periods, incremental overhead costs (or reductions thereof) will be allocated to each segment based on the prevailing shares of total revenue represented by each segment. "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. 126 MOODY'S 2021 10-K
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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 3 for further details on the components of the
Company's revenue.
Year Ended December 31,
2021 2020
MIS MA Eliminations Consolidated MIS MA Eliminations Consolidated
Revenue $ 3,977 $ 2,413 $ (172) $ 6,218 $ 3,440 $ 2,086 $ (155) $ 5,371
Operating, SG&A 1,503 1,786 (172) 3,117 1,387 1,472 (155) 2,704
Adjusted Operating Income 2,474 627 - 3,101 2,053 614 - 2,667
Depreciation and
amortization 72 185 - 257 70 150 - 220
Restructuring (1) 1 - - 19 31 - 50
Loss pursuant to the
divestiture of MAKS - - - - - 9 - 9
Operating Income $ 2,844 $ 2,388
Year Ended December 31, 2019
MIS MA Eliminations Consolidated
Revenue $ 3,009 $ 1,963 $ (143) $ 4,829
Operating, SG&A 1,264 1,417 (143) 2,538
Adjusted Operating Income 1,745 546 - 2,291
Depreciation and amortization 71 129 - 200
Restructuring 31 29 - 60
Acquisition-Related Expenses - 3 - 3
Loss pursuant to the divestiture of MAKS - 14 - 14
Captive insurance company settlement 10 6 - 16
Operating income $ 1,998
The cumulative restructuring charges related to the 2018 Restructuring Program
for the MIS and MA reportable segments are $60 million and $43 million,
respectively. The cumulative restructuring charges related to the 2020
Restructuring Program for the MIS and MA reportable segments were $21 million
and $15 million, respectively. The cumulative restructuring charge for the MA
reportable segment related to the 2020 MA Strategic Reorganization Restructuring
Program is $20 million. The restructuring programs are more fully discussed in
Note 11.
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CONSOLIDATED REVENUE AND LONG-LIVED ASSETS INFORMATION BY GEOGRAPHIC AREA
Year Ended December 31,
2021 2020 2019
Revenue:
U.S. $ 3,416 $ 2,955 $ 2,544
Non-U.S.:
EMEA 1,866 1,545 1,446
Asia-Pacific 596 571 551
Americas 340 300 288
Total Non-U.S. 2,802 2,416 2,285
Total $ 6,218 $ 5,371 $ 4,829
Long-lived assets at December 31:
U.S. $ 4,449 $ 2,162 $ 1,290
Non-U.S. 4,802 4,889 4,678
Total $ 9,251 $ 7,051 $ 5,968
NOTE 23 VALUATION AND QUALIFYING ACCOUNTS
Accounts receivable allowances represent estimates for uncollectible accounts.
The valuation allowance on deferred tax assets relates to foreign net operating
tax losses for which realization is uncertain. Below is a summary of activity:
Adoption of New
Expected Credit
Balance at Losses
Beginning of the Accounting Charged to costs Balance at End
Year Ended December 31, Year Standard and expenses Deductions (1) of the Year
2021
Allowances for credit losses $ (34) $ - $ (13) $ 15 $ (32)
Deferred tax assets-valuation
allowance $ (15) $ - $ (4) $ 1 $ (18)
2020
Allowances for credit losses $ (20) $ (2) $ (26) $ 14 $ (34)
Deferred tax assets-valuation
allowance $ (9) $ - $ (6) $ - $ (15)
2019
Allowances for credit losses $ (20) $ - $ (10) $ 10 $ (20)
Deferred tax assets-valuation
allowance $ (5) $ - $ (4) $ - $ (9)
(1)Reflects write-off of uncollectible accounts receivable or expiration of foreign net operating tax losses.
NOTE 24 OTHER NON-OPERATING INCOME, NET
The following table summarizes the components of other non-operating income, net as presented in the consolidated statements of operations:
Year Ended December 31,
2021 2020 2019
FX (loss) gain $ (1) $ 2 $ (18)
Purchase price hedge loss(1) (13) - -
Net periodic pension costs-other components(2) 9 13 18
Income from investments in non-consolidated
affiliates(3) 60 6 13
Other 27 25 7
Total $ 82 $ 46 $ 20
(1)Reflects a loss on a forward contract to hedge a portion of the RMS British pound-denominated purchase price.
(2)The amount for the year ended December 31, 2021 includes an $8 million loss related to a settlement of pension obligations.
(3)The amount for the year ended December 31, 2021 includes a $36 million
non-cash gain relating to the exchange of Moody's minority investment in
VisibleRisk (accounted for under the equity method) for shares of
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NOTE 25 SUBSEQUENT EVENT
On February 7, 2022, the Board approved the declaration of a quarterly dividend of $0.70 per share for Moody's common stock, payable March 18, 2022 to shareholders of record at the close of business on February 25, 2022.
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