filings.toolsItem 8. FINANCIAL STATEMENTS
294K characters. Original on sec.gov · Markdown
Item 8. FINANCIAL STATEMENTS
Index to Financial Statements
Schedules are omitted as not required or inapplicable or because the required information is provided in the consolidated financial statements, including the notes thereto.
MOODY'S 2023 10-K 67
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Moody’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 the SEC 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 December 31, 2023 based on criteria established in the Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on the assessment performed, management has concluded that Moody’s maintained effective internal control over financial reporting as of December 31, 2023.
The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their accompanying report which expresses an unqualified opinion on the effectiveness of Moody's internal control over financial reporting as of December 31, 2023.
/s/ ROBERT FAUBER
Robert Fauber
President and Chief Executive Officer
/s/ CAROLINE SULLIVAN
Caroline Sullivan
Interim Chief Financial Officer, Chief Accounting Officer and Corporate Controller
February 14, 2024
68 MOODY'S 2023 10-K
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Moody’s Corporation:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Moody's Corporation and subsidiaries (the Company) as December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
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 the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities 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.
MOODY'S 2023 10-K 69
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates 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 a critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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 $196 million as of December 31, 2023. 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 laws 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:
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evaluating the Company’s interpretation of tax laws and judgments about the administrative practices of tax authorities
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inspecting settlement documents with applicable taxing authorities
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assessing the expiration of statutes of limitations
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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/ KPMG LLP
We have served as the Company’s auditor since 2008.
New York, New York
February 14, 2024
70 MOODY'S 2023 10-K
MOODY’S CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in millions, except per share data)
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Revenue | $ | 5,916 | $ | 5,468 | $ | 6,218 | |||||||||||
| Expenses | |||||||||||||||||
| Operating | 1,687 | 1,613 | 1,637 | ||||||||||||||
| Selling, general and administrative | 1,632 | 1,527 | 1,480 | ||||||||||||||
| Depreciation and amortization | 373 | 331 | 257 | ||||||||||||||
| Restructuring | 87 | 114 | — | ||||||||||||||
| Total expenses | 3,779 | 3,585 | 3,374 | ||||||||||||||
| Operating income | 2,137 | 1,883 | 2,844 | ||||||||||||||
| Non-operating (expense) income, net | |||||||||||||||||
| Interest expense, net | (251) | (231) | (171) | ||||||||||||||
| Other non-operating income, net | 49 | 38 | 82 | ||||||||||||||
| Gain on extinguishment of debt | — | 70 | — | ||||||||||||||
| Non-operating (expense) income, net | (202) | (123) | (89) | ||||||||||||||
| Income before provision for income taxes | 1,935 | 1,760 | 2,755 | ||||||||||||||
| Provision for income taxes | 327 | 386 | 541 | ||||||||||||||
| Net income | 1,608 | 1,374 | 2,214 | ||||||||||||||
| Less: Net income attributable to noncontrolling interests | 1 | — | — | ||||||||||||||
| Net income attributable to Moody’s | $ | 1,607 | $ | 1,374 | $ | 2,214 | |||||||||||
| Earnings per share | |||||||||||||||||
| Basic | $ | 8.77 | $ | 7.47 | $ | 11.88 | |||||||||||
| Diluted | $ | 8.73 | $ | 7.44 | $ | 11.78 | |||||||||||
| Weighted average shares outstanding | |||||||||||||||||
| Basic | 183.2 | 183.9 | 186.4 | ||||||||||||||
| Diluted | 184.0 | 184.7 | 187.9 |
The accompanying notes are an integral part of the consolidated financial statements.
MOODY'S 2023 10-K 71
MOODY’S CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in millions)
| Year Ended December 31, 2023 | Year Ended December 31, 2022 | Year Ended December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Pre-tax amounts | Tax amounts | After-tax amounts | Pre-tax amounts | Tax amounts | After-tax amounts | Pre-tax amounts | Tax amounts | After-tax amounts | |||||||||||||||||||||||||||||||||||||||||||||
| Net Income | $ | 1,608 | $ | 1,374 | $ | 2,214 | |||||||||||||||||||||||||||||||||||||||||||||||
| Other Comprehensive Income (Loss): | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign Currency Adjustments: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments, net | $ | 213 | $ | (1) | $ | 212 | $ | (439) | $ | 2 | $ | (437) | $ | (303) | $ | 11 | $ | (292) | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments - reclassification of losses included in net income | — | — | — | 20 | — | 20 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Net gains (losses) on net investment hedges | (177) | 45 | (132) | 219 | (55) | 164 | 319 | (77) | 242 | ||||||||||||||||||||||||||||||||||||||||||||
| Net investment hedges - reclassification of gains included in net income | — | — | — | — | — | — | (2) | 1 | (1) | ||||||||||||||||||||||||||||||||||||||||||||
| Cash Flow Hedges: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of losses included in net income | 2 | (1) | 1 | 2 | — | 2 | 2 | — | 2 | ||||||||||||||||||||||||||||||||||||||||||||
| Pension and Other Retirement Benefits: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of actuarial gains/losses, prior service credits/costs, and settlement gain/charge included in net income | (3) | — | (3) | 3 | (1) | 2 | 19 | (5) | 14 | ||||||||||||||||||||||||||||||||||||||||||||
| Net actuarial gains (losses) | (8) | 2 | (6) | (1) | 1 | — | 73 | (18) | 55 | ||||||||||||||||||||||||||||||||||||||||||||
| Total Other Comprehensive Income (Loss) | $ | 27 | $ | 45 | $ | 72 | $ | (196) | $ | (53) | $ | (249) | $ | 108 | $ | (88) | $ | 20 | |||||||||||||||||||||||||||||||||||
| Comprehensive Income | 1,680 | 1,125 | 2,234 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Less: comprehensive loss attributable to noncontrolling interests | (4) | (16) | (2) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive Income Attributable to Moody’s | $ | 1,684 | $ | 1,141 | $ | 2,236 |
The accompanying notes are an integral part of the consolidated financial statements.
72 MOODY'S 2023 10-K
MOODY’S CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in millions, except share and per share data)
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 2,130 | $ | 1,769 | |||||||
| Short-term investments | 63 | 90 | |||||||||
| Accounts receivable, net of allowances for credit losses of $35 in 2023 and $40 in 2022 | 1,659 | 1,652 | |||||||||
| Other current assets | 489 | 583 | |||||||||
| Total current assets | 4,341 | 4,094 | |||||||||
| Property and equipment, net of accumulated depreciation of $1,272 in 2023 and $1,123 in 2022 | 603 | 502 | |||||||||
| Operating lease right-of-use assets | 277 | 346 | |||||||||
| Goodwill | 5,956 | 5,839 | |||||||||
| Intangible assets, net | 2,049 | 2,210 | |||||||||
| Deferred tax assets, net | 258 | 266 | |||||||||
| Other assets | 1,138 | 1,092 | |||||||||
| Total assets | $ | 14,622 | $ | 14,349 | |||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued liabilities | $ | 1,076 | $ | 1,011 | |||||||
| Current portion of operating lease liabilities | 108 | 106 | |||||||||
| Deferred revenue | 1,316 | 1,258 | |||||||||
| Total current liabilities | 2,500 | 2,375 | |||||||||
| Non-current portion of deferred revenue | 65 | 75 | |||||||||
| Long-term debt | 7,001 | 7,389 | |||||||||
| Deferred tax liabilities, net | 402 | 457 | |||||||||
| Uncertain tax positions | 196 | 322 | |||||||||
| Operating lease liabilities | 306 | 368 | |||||||||
| Other liabilities | 676 | 674 | |||||||||
| Total liabilities | 11,146 | 11,660 | |||||||||
| 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 $.01 per share; 10,000,000 shares authorized; no shares issued and outstanding | — | — | |||||||||
| Common stock, par value $.01 per share; 1,000,000,000 shares authorized; 342,902,272 shares issued at December 31, 2023 and December 31, 2022, respectively. | 3 | 3 | |||||||||
| Capital surplus | 1,228 | 1,054 | |||||||||
| Retained earnings | 14,659 | 13,618 | |||||||||
| Treasury stock, at cost; 160,430,754 and 159,702,362 shares of common stock at December 31, 2023 and December 31, 2022, respectively | (12,005) | (11,513) | |||||||||
| Accumulated other comprehensive loss | (567) | (643) | |||||||||
| Total Moody’s shareholders’ equity | 3,318 | 2,519 | |||||||||
| Noncontrolling interests | 158 | 170 | |||||||||
| Total shareholders’ equity | 3,476 | 2,689 | |||||||||
| Total liabilities and shareholders’ equity | $ | 14,622 | $ | 14,349 |
The accompanying notes are an integral part of the consolidated financial statements.
MOODY'S 2023 10-K 73
MOODY’S CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in millions)
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Cash flows from operating activities | |||||||||||||||||
| Net income | $ | 1,608 | $ | 1,374 | $ | 2,214 | |||||||||||
| Reconciliation of net income to net cash provided by operating activities: | |||||||||||||||||
| Depreciation and amortization | 373 | 331 | 257 | ||||||||||||||
| Stock-based compensation | 193 | 169 | 175 | ||||||||||||||
| Deferred income taxes | (38) | 48 | (218) | ||||||||||||||
| Provision for credit losses on accounts receivable | 22 | 25 | 13 | ||||||||||||||
| ROU Asset impairment & other non-cash restructuring/impairment charges | 35 | 29 | — | ||||||||||||||
| FX translation losses reclassified to net income | — | 20 | — | ||||||||||||||
| (Gain)/loss on extinguishment of debt | — | (70) | 13 | ||||||||||||||
| Gain on sale/non-cash exchange of investments in non-consolidated affiliates | (4) | — | (36) | ||||||||||||||
| Changes in assets and liabilities: | |||||||||||||||||
| Accounts receivable | (12) | 9 | (270) | ||||||||||||||
| Other current assets | 119 | (223) | (12) | ||||||||||||||
| Other assets | (69) | (48) | (26) | ||||||||||||||
| Lease obligations | (26) | (19) | (11) | ||||||||||||||
| Accounts payable and accrued liabilities | 76 | (161) | 80 | ||||||||||||||
| Deferred revenue | 24 | 20 | 65 | ||||||||||||||
| Unrecognized tax positions and other non-current tax liabilities | (129) | (33) | (184) | ||||||||||||||
| Other liabilities | (21) | 3 | (55) | ||||||||||||||
| Net cash provided by operating activities | 2,151 | 1,474 | 2,005 | ||||||||||||||
| Cash flows from investing activities | |||||||||||||||||
| Capital additions | (271) | (283) | (139) | ||||||||||||||
| Purchases of investments | (143) | (246) | (171) | ||||||||||||||
| Sales and maturities of investments | 162 | 216 | 145 | ||||||||||||||
| Purchases of investments in non-consolidated affiliates | (5) | (74) | (266) | ||||||||||||||
| Sales of investments in non-consolidated affiliates | 13 | 2 | 2 | ||||||||||||||
| Cash paid for acquisitions, net of cash acquired | (3) | (97) | (2,179) | ||||||||||||||
| Receipts from settlements of net investment hedges | — | 220 | 37 | ||||||||||||||
| Payments for settlements of net investment hedges | — | — | (48) | ||||||||||||||
| Net cash used in investing activities | (247) | (262) | (2,619) | ||||||||||||||
| Cash flows from financing activities | |||||||||||||||||
| Issuance of notes | — | 988 | 1,672 | ||||||||||||||
| Repayment of notes | (500) | (626) | (500) | ||||||||||||||
| Proceeds from stock-based compensation plans | 50 | 26 | 38 | ||||||||||||||
| Repurchase of shares related to stock-based compensation | (71) | (87) | (83) | ||||||||||||||
| Treasury shares | (490) | (983) | (750) | ||||||||||||||
| Dividends | (564) | (515) | (463) | ||||||||||||||
| Dividends to noncontrolling interests | (9) | (1) | (5) | ||||||||||||||
| Debt issuance costs, extinguishment costs and related fees | — | (10) | (31) | ||||||||||||||
| Net cash used in financing activities | (1,584) | (1,208) | (122) | ||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | 41 | (46) | (50) | ||||||||||||||
| Increase (decrease) in cash and cash equivalents | 361 | (42) | (786) | ||||||||||||||
| Cash and cash equivalents, beginning of period | 1,769 | 1,811 | 2,597 | ||||||||||||||
| Cash and cash equivalents, end of period | $ | 2,130 | $ | 1,769 | $ | 1,811 |
The accompanying notes are an integral part of the consolidated financial statements.
74 MOODY'S 2023 10-K
MOODY’S CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Amounts in millions, except per share data)
| Shareholders of Moody’s Corporation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | Accumulated Other Comprehensive Loss | Total Moody’s Shareholders’ Equity | Non- Controlling Interests | Total Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Capital Surplus | Retained Earnings | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 (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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of losses on cash flow hedges | 2 | 2 | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 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.
MOODY'S 2023 10-K 75
MOODY’S CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY continued
(Amounts in millions, except per share data)
| Shareholders of Moody’s Corporation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | Accumulated Other Comprehensive Loss | Total Moody’s Shareholders’ Equity | Non- Controlling Interests | Total Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Capital Surplus | Retained Earnings | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 342.9 | $ | 3 | $ | 885 | $ | 12,762 | (157.3) | $ | (10,513) | $ | (410) | $ | 2,727 | $ | 189 | $ | 2,916 | |||||||||||||||||||||||||||||||||||||||||
| Net income | 1,374 | 1,374 | — | 1,374 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends ($2.80 per share) | (518) | (518) | (3) | (521) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 169 | 169 | 169 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for stock-based compensation plans at average cost, net | (32) | 0.6 | (29) | (61) | (61) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued as consideration to acquire kompany(1) | 35 | 0.1 | 9 | 44 | 44 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Treasury shares repurchased | (3) | (3.1) | (980) | (983) | (983) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment, net of net investment hedge activity (net of tax of $53 million) | (237) | (237) | (16) | (253) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of prior service costs and actuarial losses (net of tax of $1 million) | 2 | 2 | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of losses on cash flow hedges | 2 | 2 | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 342.9 | $ | 3 | $ | 1,054 | $ | 13,618 | (159.7) | $ | (11,513) | $ | (643) | $ | 2,519 | $ | 170 | $ | 2,689 |
The accompanying notes are an integral part of the consolidated financial statements.
(1) Represents a non-cash investing activity relating to the issuance of common stock to fund a portion of the purchase price for kompany.
76 MOODY'S 2023 10-K
MOODY’S CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY continued
(Amounts in millions, except per share data)
| Shareholders of Moody’s Corporation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | Accumulated Other Comprehensive Loss | Total Moody’s Shareholders’ Equity | Non- Controlling Interests | Total Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Capital Surplus | Retained Earnings | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 342.9 | $ | 3 | $ | 1,054 | $ | 13,618 | (159.7) | $ | (11,513) | $ | (643) | $ | 2,519 | $ | 170 | $ | 2,689 | |||||||||||||||||||||||||||||||||||||||||
| Net income | 1,607 | 1,607 | 1 | 1,608 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends ($3.08 per share) | (566) | (566) | (9) | (575) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 193 | 193 | 193 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for stock-based compensation plans at average cost, net | (19) | 0.8 | — | (19) | (19) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Treasury shares repurchased, inclusive of excise tax | — | (1.5) | (492) | (492) | (492) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment, net of net investment hedge activity (net of tax of $44 million) | 84 | 84 | (4) | 80 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net actuarial losses (net of tax of $2 million) | (6) | (6) | (6) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of prior service credits/ actuarial gains and settlement gain | (3) | (3) | (3) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of losses on cash flow hedges (net of tax of $1 million) | 1 | 1 | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | 342.9 | $ | 3 | $ | 1,228 | $ | 14,659 | (160.4) | $ | (12,005) | $ | (567) | $ | 3,318 | $ | 158 | $ | 3,476 |
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 provider of integrated perspectives on risk that empowers organizations and investors to make better decisions. Moody’s reports in two reportable segments: MA and MIS.
MA is a global provider of: i) data and information; ii) research and insights; and iii) decision solutions, which help companies make better and faster decisions. MA leverages its industry expertise across multiple risks such as credit, market, financial crime, supply chain, catastrophe and climate to deliver integrated risk assessment solutions that enable business leaders to identify, measure and manage the implications of interrelated risks and opportunities.
MIS publishes credit ratings and provides assessment services on a wide range of debt obligations, programs and facilities, and the entities that issue such obligations in markets worldwide, including various corporate, financial institution and governmental obligations, and structured finance securities.
Certain reclassifications have been made to prior period amounts to conform to the current presentation.
Adoption of New Accounting Standards in 2023
In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform - Scope,” which clarified the scope and application of the original guidance, ASU No. 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU No. 2020-04"), issued in March 2020 (codified into ASC Topic 848 "Reference Rate Reform"). ASU No. 2020-04 provides temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. In December 2022, the FASB issued ASU 2022-06, "Reference Rate Reform—Deferral of the Sunset Date of Topic 848," which deferred the sunset date of Topic 848 to December 31, 2024. These ASU's were effective upon issuance and the amendments may be applied prospectively through December 31, 2024 as the transition from LIBOR is completed.
During the first quarter of 2023, the Company modified the contractual terms of certain of its interest rate swaps designated as fair value hedges and cross-currency swaps designated as net investment hedges. These modifications replaced the previous LIBOR/EURIBOR-based reference rates included in the swap agreements to SOFR/ESTR-based rates. Pursuant to the modification of the contractual terms of these instruments, the Company utilized the optional expedients set forth in ASC Topic 848 relating to derivative instruments used in hedging relationships. The aggregate notional amounts of these swaps is disclosed in Note 7.
Reclassification of Previously Reported Revenue by LOB
In the second quarter of 2023, the Company expanded its disaggregation of revenue disclosures for MA's Decision Solutions LOB to enhance insight and transparency into this business. In conjunction with this new presentation, the Company reclassified certain immaterial revenue relating to structured finance solutions from the Decision Solutions LOB to the Research & Insights LOB.
Prior year revenue by LOB disclosures have been reclassified to conform to this new presentation, which is disclosed in Note 3.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include those of Moody’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 Topic 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 ASC Topic 810 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 ASC Topic 810. 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 and money market funds 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
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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 MA's SaaS-based solutions as well as the Company’s financial, website and other systems. Such costs generally consist of employee compensation, direct costs for third-party license fees and professional services provided by third parties, 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 (e.g., hosted 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 consolidated 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 consolidated 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 consolidated balance sheets consistent with the location of prepayment of fees for the hosting element (i.e., within other current assets or other assets).
Goodwill and Other Acquired Intangible Assets
Moody’s evaluates its goodwill for impairment at the reporting unit level, defined as an operating segment (i.e., MA and MIS), or one level below an operating segment (i.e., a component of an operating segment), annually as of July 31 or more frequently if impairment indicators arise in accordance with ASC Topic 350.
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.
For purposes of assessing the recoverability of goodwill, the Company has four reporting units: 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 and two within the Company’s ratings business (one for the ICRA business and one that encompasses all of Moody’s other ratings operations).
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.
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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 consolidated balance sheets 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 ASC Topic 815 are recorded in the consolidated statements of operations in the period in which they occur. Cash flows from derivatives are recognized in the consolidated statements of cash flows in a manner consistent with the recognition of the underlying hedged item.
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 geography.
Sales, usage-based, value added and other taxes are excluded from revenues.
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. 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, except for those installed subscriptions where the software license and PCS performance obligations were determined to be incapable of being distinct from each other in accordance with ASC 606-10-25-19 and ASC 606-10-25-20. In such instances, revenue is recognized over time.
For implementation services and other service projects 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 over time as the services are performed.
Products and services offered within the MA segment are sold either stand-alone or together in various combinations. In instances where an arrangement contains multiple performance obligations, the Company accounts for the individual performance obligations separately if they are considered distinct. Revenue is generally allocated to all performance obligations based upon the relative SSP at contract inception. 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.
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.
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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.
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.
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 royalty costs within the MA segment 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.
In addition, 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.
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 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, 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 sheets 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
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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.
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 to SEC 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 to SEC rules and other pending matters as it may determine to be appropriate.
In view of the inherent difficulty of assessing the potential outcome of legal proceedings, governmental, regulatory and legislative investigations and inquiries, claims and litigation and similar matters and contingencies, particularly when the claimants seek large or indeterminate damages or assert novel legal theories or the matters involve a large number of parties, the Company often cannot predict what the eventual outcome of the pending matters will be or the timing of any resolution of such matters. The Company also may be unable to predict the impact (if any) that any such matters may have on how its business is conducted, on its competitive position or on its financial position, results of operations or cash flows. As the process to resolve any pending matters progresses, management will continue to review the latest information available and assess its ability to predict the outcome of such matters and the effects, if any, on its operations and financial condition and to accrue for and disclose such matters as and when required. However, because such matters are inherently unpredictable and unfavorable developments or resolutions can occur, the ultimate outcome of such matters, including the amount of any loss, may differ from those estimates.
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 and professional fees. SG&A expenses are charged to income as incurred.
Foreign Currency Translation
For all operations outside the U.S. where the Company has designated the local currency as the functional currency, assets and liabilities are translated into U.S. dollars using end of year exchange rates, and revenue and expenses are translated using
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average exchange rates for the year. For these foreign operations, currency translation adjustments are recorded to other comprehensive income.
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 AOCI(L) proportionately in accordance with the percentage of ownership interest of the non-controlling shareholder. Additionally, the Company reclassifies the income tax effects from AOCI(L) at such time as the earnings or loss of the related activity are recognized in earnings.
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.
On December 22, 2017, the Tax Act was signed into law, resulting in all previously undistributed foreign earnings being subject to U.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 Topic 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.
For cash and cash equivalents, short-term investments and derivatives, the Company manages its credit exposure by limiting the amount of counterparty risk with any particular financial institution; limits are assigned to each counterparty based on perceived quality of credit and are monitored daily. Cash equivalents are held among various money market deposit accounts, money market
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funds, and certificates of deposits as of December 31, 2023 and 2022. Short-term investments primarily consist of certificates of deposit as of December 31, 2023 and 2022. Derivatives primarily consist of foreign exchange forwards or swap contracts (interest rate swaps and cross-currency swaps) as of December 31, 2023 and 2022. For trade receivables, no customer accounted for 10% or more of accounts receivable at December 31, 2023 or 2022.
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
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" ("ASU No. 2023-07"), which expands segment disclosure requirements for public entities. ASU No. 2023-07 will require entities to disclose significant segment expenses by reportable segment if they are regularly provided to the CODM and included in each reported measure of segment profit or loss. In addition, this ASU permits entities to disclose more than one measure of segment profit or loss used by the CODM. Additionally, disclosure of the CODM’s title and position will be required on an annual basis, as well as an explanation of how the CODM uses the reported measure(s). Furthermore, all existing annual disclosures about segment profit or loss and assets must be provided on an interim basis in addition to disclosure of significant segment expenses and other segment items. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" ("ASU No. 2023-09"), which is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU No. 2023-09 require entities to disclose additional income tax information, primarily related to greater disaggregation of the entity's ETR reconciliation and income taxes paid by jurisdiction disclosures. This ASU is effective for annual periods beginning after December 15, 2024, and should be applied on a prospective basis; however, retrospective application is permitted. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures.
84 MOODY'S 2023 10-K
NOTE 3 REVENUES
Revenue by Category
The following table presents the Company’s revenues disaggregated by LOB:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| MA: | |||||||||||||||||
| Decision Solutions (DS) | |||||||||||||||||
| Banking | $ | 521 | $ | 481 | $ | 474 | |||||||||||
| Insurance | 550 | 504 | 245 | ||||||||||||||
| KYC | 312 | 260 | 217 | ||||||||||||||
| Total DS | 1,383 | 1,245 | 936 | ||||||||||||||
| Research and Insights (R&I) | 884 | 812 | 772 | ||||||||||||||
| Data and Information (D&I) | 789 | 712 | 698 | ||||||||||||||
| Total external revenue | 3,056 | 2,769 | 2,406 | ||||||||||||||
| Intersegment revenue | 13 | 8 | 7 | ||||||||||||||
| Total MA | 3,069 | 2,777 | 2,413 | ||||||||||||||
| MIS: | |||||||||||||||||
| Corporate finance (CFG) | |||||||||||||||||
| Investment-grade | 335 | 294 | 439 | ||||||||||||||
| High-yield | 150 | 108 | 411 | ||||||||||||||
| Bank loans | 292 | 275 | 606 | ||||||||||||||
| Other accounts (1) | 627 | 592 | 631 | ||||||||||||||
| Total CFG | 1,404 | 1,269 | 2,087 | ||||||||||||||
| Structured finance (SFG) | |||||||||||||||||
| Asset-backed securities | 121 | 116 | 118 | ||||||||||||||
| RMBS | 92 | 106 | 123 | ||||||||||||||
| CMBS | 60 | 98 | 102 | ||||||||||||||
| Structured credit | 129 | 140 | 215 | ||||||||||||||
| Other accounts (SFG) | 3 | 2 | 2 | ||||||||||||||
| Total SFG | 405 | 462 | 560 | ||||||||||||||
| Financial institutions (FIG) | |||||||||||||||||
| Banking | 378 | 337 | 411 | ||||||||||||||
| Insurance | 123 | 113 | 145 | ||||||||||||||
| Managed investments | 32 | 28 | 36 | ||||||||||||||
| Other accounts (FIG) | 12 | 13 | 10 | ||||||||||||||
| Total FIG | 545 | 491 | 602 | ||||||||||||||
| Public, project and infrastructure finance (PPIF) | |||||||||||||||||
| Public finance / sovereign | 205 | 197 | 244 | ||||||||||||||
| Project and infrastructure | 271 | 234 | 277 | ||||||||||||||
| Total PPIF | 476 | 431 | 521 | ||||||||||||||
| Total ratings revenue | 2,830 | 2,653 | 3,770 | ||||||||||||||
| MIS Other | 30 | 46 | 42 | ||||||||||||||
| Total external revenue | 2,860 | 2,699 | 3,812 | ||||||||||||||
| Intersegment royalty | 186 | 174 | 165 | ||||||||||||||
| Total MIS | 3,046 | 2,873 | 3,977 | ||||||||||||||
| Eliminations | (199) | (182) | (172) | ||||||||||||||
| Total MCO | $ | 5,916 | $ | 5,468 | $ | 6,218 |
(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.
MOODY'S 2023 10-K 85
The following table presents the Company’s revenues disaggregated by LOB and geographic area:
| Year Ended December 31, 2023 | Year Ended December 31, 2022 | Year Ended December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. | Non-U.S. | Total | U.S. | Non-U.S. | Total | U.S. | Non-U.S. | Total | |||||||||||||||||||||||||||||||||||||||||||||
| MA: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Decision Solutions | $ | 577 | $ | 806 | $ | 1,383 | $ | 519 | $ | 726 | $ | 1,245 | $ | 387 | $ | 549 | $ | 936 | |||||||||||||||||||||||||||||||||||
| Research and Insights | 490 | 394 | 884 | 470 | 342 | 812 | 426 | 346 | 772 | ||||||||||||||||||||||||||||||||||||||||||||
| Data and Information | 281 | 508 | 789 | 250 | 462 | 712 | 226 | 472 | 698 | ||||||||||||||||||||||||||||||||||||||||||||
| Total MA | 1,348 | 1,708 | 3,056 | 1,239 | 1,530 | 2,769 | 1,039 | 1,367 | 2,406 | ||||||||||||||||||||||||||||||||||||||||||||
| MIS: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate finance | 952 | 452 | 1,404 | 832 | 437 | 1,269 | 1,384 | 703 | 2,087 | ||||||||||||||||||||||||||||||||||||||||||||
| Structured finance | 252 | 153 | 405 | 308 | 154 | 462 | 364 | 196 | 560 | ||||||||||||||||||||||||||||||||||||||||||||
| Financial institutions | 253 | 292 | 545 | 223 | 268 | 491 | 289 | 313 | 602 | ||||||||||||||||||||||||||||||||||||||||||||
| Public, project and infrastructure finance | 292 | 184 | 476 | 266 | 165 | 431 | 304 | 217 | 521 | ||||||||||||||||||||||||||||||||||||||||||||
| Total ratings revenue | 1,749 | 1,081 | 2,830 | 1,629 | 1,024 | 2,653 | 2,341 | 1,429 | 3,770 | ||||||||||||||||||||||||||||||||||||||||||||
| MIS Other | 1 | 29 | 30 | 5 | 41 | 46 | 3 | 39 | 42 | ||||||||||||||||||||||||||||||||||||||||||||
| Total MIS | 1,750 | 1,110 | 2,860 | 1,634 | 1,065 | 2,699 | 2,344 | 1,468 | 3,812 | ||||||||||||||||||||||||||||||||||||||||||||
| Total MCO | $ | 3,098 | $ | 2,818 | $ | 5,916 | $ | 2,873 | $ | 2,595 | $ | 5,468 | $ | 3,383 | $ | 2,835 | $ | 6,218 |
The following table presents the Company's reportable segment revenues disaggregated by segment and geographic region:
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| MA: | ||||||||||||||||||||
| U.S. | $ | 1,348 | $ | 1,239 | $ | 1,039 | ||||||||||||||
| Non-U.S.: | ||||||||||||||||||||
| EMEA | 1,169 | 1,034 | 955 | |||||||||||||||||
| Asia-Pacific | 306 | 285 | 246 | |||||||||||||||||
| Americas | 233 | 211 | 166 | |||||||||||||||||
| Total Non-U.S. | 1,708 | 1,530 | 1,367 | |||||||||||||||||
| Total MA | 3,056 | 2,769 | 2,406 | |||||||||||||||||
| MIS: | ||||||||||||||||||||
| U.S. | 1,750 | 1,634 | 2,344 | |||||||||||||||||
| Non-U.S.: | ||||||||||||||||||||
| EMEA | 679 | 648 | 930 | |||||||||||||||||
| Asia-Pacific | 271 | 271 | 357 | |||||||||||||||||
| Americas | 160 | 146 | 181 | |||||||||||||||||
| Total Non-U.S. | 1,110 | 1,065 | 1,468 | |||||||||||||||||
| Total MIS | 2,860 | 2,699 | 3,812 | |||||||||||||||||
| Total MCO | $ | 5,916 | $ | 5,468 | $ | 6,218 |
86 MOODY'S 2023 10-K
The following table summarizes the split between transaction and recurring revenue:
| Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transaction | Recurring | Total | Transaction | Recurring | Total | Transaction | Recurring | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Decision Solutions | $ | 169 | $ | 1,214 | $ | 1,383 | $ | 153 | $ | 1,092 | $ | 1,245 | $ | 147 | $ | 789 | $ | 936 | ||||||||||||||||||||||||||||||||||||||
| 12 | % | 88 | % | 100 | % | 12 | % | 88 | % | 100 | % | 16 | % | 84 | % | 100 | % | |||||||||||||||||||||||||||||||||||||||
| Research and Insights | $ | 16 | $ | 868 | $ | 884 | $ | 17 | $ | 795 | $ | 812 | $ | 19 | $ | 753 | $ | 772 | ||||||||||||||||||||||||||||||||||||||
| 2 | % | 98 | % | 100 | % | 2 | % | 98 | % | 100 | % | 2 | % | 98 | % | 100 | % | |||||||||||||||||||||||||||||||||||||||
| Data and Information | $ | 3 | $ | 786 | $ | 789 | $ | — | $ | 712 | $ | 712 | $ | 4 | $ | 694 | $ | 698 | ||||||||||||||||||||||||||||||||||||||
| — | % | 100 | % | 100 | % | — | % | 100 | % | 100 | % | 1 | % | 99 | % | 100 | % | |||||||||||||||||||||||||||||||||||||||
| Total MA | $ | 188 | (1) | $ | 2,868 | $ | 3,056 | $ | 170 | $ | 2,599 | $ | 2,769 | $ | 170 | $ | 2,236 | $ | 2,406 | |||||||||||||||||||||||||||||||||||||
| 6 | % | 94 | % | 100 | % | 6 | % | 94 | % | 100 | % | 7 | % | 93 | % | 100 | % | |||||||||||||||||||||||||||||||||||||||
| Corporate Finance | $ | 887 | $ | 517 | $ | 1,404 | $ | 772 | $ | 497 | $ | 1,269 | $ | 1,600 | $ | 487 | $ | 2,087 | ||||||||||||||||||||||||||||||||||||||
| 63 | % | 37 | % | 100 | % | 61 | % | 39 | % | 100 | % | 77 | % | 23 | % | 100 | % | |||||||||||||||||||||||||||||||||||||||
| Structured Finance | $ | 190 | $ | 215 | $ | 405 | $ | 262 | $ | 200 | $ | 462 | $ | 362 | $ | 198 | $ | 560 | ||||||||||||||||||||||||||||||||||||||
| 47 | % | 53 | % | 100 | % | 57 | % | 43 | % | 100 | % | 65 | % | 35 | % | 100 | % | |||||||||||||||||||||||||||||||||||||||
| Financial Institutions | $ | 254 | $ | 291 | $ | 545 | $ | 211 | $ | 280 | $ | 491 | $ | 320 | $ | 282 | $ | 602 | ||||||||||||||||||||||||||||||||||||||
| 47 | % | 53 | % | 100 | % | 43 | % | 57 | % | 100 | % | 53 | % | 47 | % | 100 | % | |||||||||||||||||||||||||||||||||||||||
| Public, Project and Infrastructure Finance | $ | 301 | $ | 175 | $ | 476 | $ | 263 | $ | 168 | $ | 431 | $ | 354 | $ | 167 | $ | 521 | ||||||||||||||||||||||||||||||||||||||
| 63 | % | 37 | % | 100 | % | 61 | % | 39 | % | 100 | % | 68 | % | 32 | % | 100 | % | |||||||||||||||||||||||||||||||||||||||
| MIS Other | $ | 6 | $ | 24 | $ | 30 | $ | 4 | $ | 42 | $ | 46 | $ | 4 | $ | 38 | $ | 42 | ||||||||||||||||||||||||||||||||||||||
| 20 | % | 80 | % | 100 | % | 9 | % | 91 | % | 100 | % | 10 | % | 90 | % | 100 | % | |||||||||||||||||||||||||||||||||||||||
| Total MIS | $ | 1,638 | $ | 1,222 | $ | 2,860 | $ | 1,512 | $ | 1,187 | $ | 2,699 | $ | 2,640 | $ | 1,172 | $ | 3,812 | ||||||||||||||||||||||||||||||||||||||
| 57 | % | 43 | % | 100 | % | 56 | % | 44 | % | 100 | % | 69 | % | 31 | % | 100 | % | |||||||||||||||||||||||||||||||||||||||
| Total Moody’s Corporation | $ | 1,826 | $ | 4,090 | $ | 5,916 | $ | 1,682 | $ | 3,786 | $ | 5,468 | $ | 2,810 | $ | 3,408 | $ | 6,218 | ||||||||||||||||||||||||||||||||||||||
| 31 | % | 69 | % | 100 | % | 31 | % | 69 | % | 100 | % | 45 | % | 55 | % | 100 | % |
(1) Revenue from software implementation services and risk management advisory projects, while classified by management as transactional revenue, is recognized over time under U.S. GAAP (please also refer to the following table).
The following table presents the timing of revenue recognition:
| Year Ended December 31, 2023 | Year Ended December 31, 2022 | Year Ended December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| MA | MIS | Total | MA | MIS | Total | MA | MIS | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue recognized at a point in time | $ | 102 | $ | 1,638 | $ | 1,740 | $ | 97 | $ | 1,512 | $ | 1,609 | $ | 101 | $ | 2,640 | $ | 2,741 | |||||||||||||||||||||||||||||||||||||||||
| Revenue recognized over time | 2,954 | 1,222 | 4,176 | 2,672 | 1,187 | 3,859 | 2,305 | 1,172 | 3,477 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 3,056 | $ | 2,860 | $ | 5,916 | $ | 2,769 | $ | 2,699 | $ | 5,468 | $ | 2,406 | $ | 3,812 | $ | 6,218 |
MOODY'S 2023 10-K 87
Unbilled Receivables, Deferred Revenue and Remaining Performance Obligations
Unbilled receivables
For certain MA arrangements, the timing of when the Company has the unconditional right to consideration and recognizes revenue occurs prior to invoicing the customer. In addition, certain MIS arrangements contain contractual terms whereby the customers are billed in arrears for annual monitoring services, requiring revenue to be accrued as an unbilled receivable as such services are provided.
The following table presents the Company's unbilled receivables, which are included within accounts receivable, net, at December 31, 2023 and December 31, 2022:
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||
| MA | MIS | MA | MIS | ||||||||||||||||||||
| Unbilled Receivables | $ | 119 | $ | 415 | $ | 148 | $ | 385 |
Deferred revenue
The Company recognizes deferred revenue when a contract requires a customer to pay consideration to the Company in advance of when revenue related to that contract is recognized. This deferred revenue is relieved when the Company satisfies the related performance obligation and revenue is recognized.
Significant changes in the deferred revenue balances during the year ended December 31, 2023 are as follows:
| Year Ended December 31, 2023 | |||||||||||||||||
| MA | MIS | Total | |||||||||||||||
| Balance at December 31, 2022 | $ | 1,055 | $ | 278 | $ | 1,333 | |||||||||||
| Changes in deferred revenue | |||||||||||||||||
| Revenue recognized that was included in the deferred revenue balance at the beginning of the period | (980) | (211) | (1,191) | ||||||||||||||
| Increases due to amounts billable excluding amounts recognized as revenue during the period | 1,015 | 200 | 1,215 | ||||||||||||||
| Effect of exchange rate changes | 21 | 3 | 24 | ||||||||||||||
| Total changes in deferred revenue | 56 | (8) | 48 | ||||||||||||||
| Balance at December 31, 2023 | $ | 1,111 | $ | 270 | $ | 1,381 | |||||||||||
| Deferred revenue - current | $ | 1,109 | $ | 207 | $ | 1,316 | |||||||||||
| Deferred revenue - noncurrent | $ | 2 | $ | 63 | $ | 65 |
Significant changes in the deferred revenue balances during the year ended December 31, 2022 are as follows:
| Year Ended December 31, 2022 | |||||||||||||||||
| MA | MIS | Total | |||||||||||||||
| Balance at December 31, 2021 | $ | 1,039 | $ | 296 | $ | 1,335 | |||||||||||
| Changes in deferred revenue | |||||||||||||||||
| Revenue recognized that was included in the deferred revenue balance at the beginning of the period | (996) | (210) | (1,206) | ||||||||||||||
| Increases due to amounts billable excluding amounts recognized as revenue during the period | 1,018 | 202 | 1,220 | ||||||||||||||
| Increases due to acquisitions during the period | 1 | — | 1 | ||||||||||||||
| Effect of exchange rate changes | (7) | (10) | (17) | ||||||||||||||
| Total changes in deferred revenue | 16 | (18) | (2) | ||||||||||||||
| Balance at December 31, 2022 | $ | 1,055 | $ | 278 | $ | 1,333 | |||||||||||
| Deferred revenue - current | $ | 1,053 | $ | 205 | $ | 1,258 | |||||||||||
| Deferred revenue - noncurrent | $ | 2 | $ | 73 | $ | 75 |
88 MOODY'S 2023 10-K
Significant changes in the deferred revenue balances during the year ended December 31, 2021 are as follows:
| Year Ended December 31, 2021 | |||||||||||||||||
| MA | MIS | Total | |||||||||||||||
| Balance at December 31, 2020 | $ | 874 | $ | 313 | $ | 1,187 | |||||||||||
| Changes in deferred revenue | |||||||||||||||||
| Revenue recognized that was included in the deferred revenue balance at the beginning of the period | (810) | (220) | (1,030) | ||||||||||||||
| Increases due to amounts billable excluding amounts recognized as revenue during the period | 884 | 207 | 1,091 | ||||||||||||||
| Increases due to acquisitions during the period | 94 | — | 94 | ||||||||||||||
| Effect of exchange rate changes | (3) | (4) | (7) | ||||||||||||||
| Total changes in deferred revenue | 165 | (17) | 148 | ||||||||||||||
| Balance at December 31, 2021 | $ | 1,039 | $ | 296 | $ | 1,335 | |||||||||||
| Deferred revenue—current | $ | 1,035 | $ | 214 | $ | 1,249 | |||||||||||
| Deferred revenue—noncurrent | $ | 4 | $ | 82 | $ | 86 |
For the MA segment, for the year ended December 31, 2021, the increase in the deferred revenue balance was primarily due to acquisitions and organic growth.
Remaining performance obligations
Remaining performance obligations in the MA segment include both amounts recorded as deferred revenue on the consolidated balance sheet as of December 31, 2023 as well as amounts not yet invoiced to customers as of December 31, 2023, largely reflecting future revenue related to signed multi-year arrangements for hosted and installed subscription-based products. As of December 31, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $3.6 billion. The Company expects to recognize into revenue approximately 60% of this balance within one year, approximately 25% of this balance between one to two years and the remaining amount thereafter.
Remaining performance obligations in the MIS segment largely reflect deferred revenue related to monitoring fees for certain structured finance products, primarily CMBS, where the issuers can elect to pay the monitoring fees for the life of the security in advance. As of December 31, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $91 million. The Company expects to recognize into revenue approximately 25% of this balance within one year, approximately 50% of this balance between one to five years and the remaining amount thereafter. With respect to the remaining performance obligations for the MIS segment, the Company has applied 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.
Costs to Obtain or Fulfill a Contract with a Customer
MA Costs to Obtain a Contract with a Customer
| As of December 31, | |||||||||||||||||
| 2023 | 2022 | ||||||||||||||||
| Capitalized costs to obtain sales contracts | $ | 268 | $ | 232 |
| Year ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Amortization of capitalized costs to obtain sales contracts | $ | 102 | $ | 80 | $ | 60 |
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.
MOODY'S 2023 10-K 89
MA and MIS Costs to Fulfill a Contract with a Customer
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| MA | MIS | Total | MA | MIS | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Capitalized costs to fulfill sales contracts | $ | 35 | $ | 9 | $ | 44 | $ | 33 | $ | 12 | $ | 45 |
| Year Ended December 31, 2023 | Year Ended December 31, 2022 | Year Ended December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| MA | MIS | Total | MA | MIS | Total | MA | MIS | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Amortization of capitalized costs to fulfill sales contracts | $ | 70 | $ | 44 | $ | 114 | $ | 69 | $ | 54 | $ | 123 | $ | 76 | $ | 48 | $ | 124 |
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, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Basic | 183.2 | 183.9 | 186.4 | ||||||||||||||
| Dilutive effect of shares issuable under stock-based compensation plans | 0.8 | 0.8 | 1.5 | ||||||||||||||
| Diluted | 184.0 | 184.7 | 187.9 | ||||||||||||||
| Antidilutive options to purchase common shares and restricted stock as well as contingently issuable restricted stock which are excluded from the table above | 0.5 | 0.5 | 0.2 |
The calculation of basic shares outstanding is based on the weighted average number of shares of common stock outstanding during the reporting period. The calculation of diluted EPS requires certain assumptions regarding the use of both cash proceeds and assumed proceeds that would be received upon the exercise of stock options and vesting of restricted stock outstanding as of December 31, 2023, 2022 and 2021.
NOTE 5 ACCELERATED SHARE REPURCHASE PROGRAM
On March 1, 2022, the Company entered into an ASR agreement with a financial institution counterparty to repurchase $500 million of its outstanding common stock. The Company paid $500 million to the counterparty and received an initial delivery of 1.2 million shares of its common stock. Final settlement of the ASR agreement was completed in April 2022 and the Company received delivery of an additional 0.3 million shares of the Company’s common stock.
In total, the Company repurchased 1.5 million shares of the Company’s common stock during the term of the ASR Agreement, based on the volume-weighted average price (net of discount) of $324.20/share over the duration of the program. The initial share repurchase and final share settlement were recorded as a reduction to shareholders’ equity.
90 MOODY'S 2023 10-K
NOTE 6 CASH EQUIVALENTS AND INVESTMENTS
The tables below provide additional information on the Company’s cash equivalents and investments:
| As of December 31, 2023 | |||||||||||||||||||||||||||||||||||
| Cost | Gross Unrealized Gains | Fair Value | Consolidated Balance Sheet location | ||||||||||||||||||||||||||||||||
| Cash and cash equivalents | Short-term investments | Other assets | |||||||||||||||||||||||||||||||||
| Certificates of deposit and money market deposit accounts/funds (1) | $ | 1,178 | $ | — | $ | 1,178 | $ | 1,112 | $ | 63 | $ | 3 | |||||||||||||||||||||||
| Mutual funds | $ | 91 | $ | 6 | $ | 97 | $ | — | $ | — | $ | 97 |
| As of December 31, 2022 | |||||||||||||||||||||||||||||||||||
| Cost | Gross Unrealized Gains | Fair Value | Consolidated Balance Sheet location | ||||||||||||||||||||||||||||||||
| Cash and cash equivalents | Short-term investments | Other assets | |||||||||||||||||||||||||||||||||
| Certificates of deposit and money market deposit accounts (1) | $ | 914 | $ | — | $ | 914 | $ | 808 | $ | 90 | $ | 16 | |||||||||||||||||||||||
| Mutual funds | $ | 71 | $ | — | $ | 71 | $ | — | $ | — | $ | 71 |
(1) Consists of time deposits, money market deposit accounts and money market funds. The remaining contractual maturities for the certificates of deposits classified as short-term investments are one month to 12 months at both December 31, 2023 and December 31, 2022. The remaining contractual maturities for the certificates of deposits classified in other assets are 14 months at December 31, 2023 and 13 months to 24 months at December 31, 2022. Time deposits with a maturity of less than 90 days at time of purchase are classified as cash and cash equivalents.
In addition, the Company is invested in COLI. As of December 31, 2023 and December 31, 2022, the contract value of the COLI was $47 million and $40 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:
Fair Value Hedges
Interest Rate Swaps
The Company has entered into interest rate swaps to convert the fixed interest rate on certain of its long-term debt to a floating interest rate based on the SOFR. The purpose of these hedges is to mitigate the risk associated with changes in the fair value of the long-term debt, thus the Company has designated these swaps as fair value hedges. The fair value of the swaps is adjusted quarterly with a corresponding adjustment to the carrying value of the debt. The changes in the fair value of the swaps and the underlying hedged item generally offset and the net cash settlements on the swaps are recorded each period within interest expense, net in the Company’s consolidated statements of operations.
The following table summarizes the Company’s interest rate swaps designated as fair value hedges:
| Nature of Swap | As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||||
| Hedged Item | Notional Amount | Floating Interest Rate (1) | Notional Amount | Floating Interest Rate | ||||||||||||||||||||||||||||
| 2017 Senior Notes due 2028 | Pay Floating/Receive Fixed | $ | 500 | SOFR | $ | 500 | 3-month LIBOR | |||||||||||||||||||||||||
| 2020 Senior Notes due 2025 | Pay Floating/Receive Fixed | 300 | SOFR | 300 | 6-month LIBOR | |||||||||||||||||||||||||||
| 2014 Senior Notes due 2044 | Pay Floating/Receive Fixed | 300 | SOFR | 300 | 3-month LIBOR | |||||||||||||||||||||||||||
| 2018 Senior Notes due 2048 | Pay Floating/Receive Fixed | 300 | SOFR | 300 | 3-month LIBOR | |||||||||||||||||||||||||||
| 2018 Senior Notes due 2029 | Pay Floating/Receive Fixed | 400 | SOFR | 400 | SOFR | |||||||||||||||||||||||||||
| 2022 Senior Notes due 2052 | Pay Floating/Receive Fixed | 500 | SOFR | 500 | SOFR | |||||||||||||||||||||||||||
| 2022 Senior Notes due 2032 | Pay Floating/Receive Fixed | 250 | SOFR | 250 | SOFR | |||||||||||||||||||||||||||
| Total | $ | 2,550 | $ | 2,550 |
(1) Contractual terms of instruments using the 3-month or 6-month LIBOR at December 31, 2022 were modified to the SOFR reference rate in the first quarter of 2023.
MOODY'S 2023 10-K 91
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.
The following table summarizes the impact to the statements of operations of the Company’s interest rate swaps designated as fair value hedges:
| Total amounts of financial statement line item presented in the statements of operations in which the effects of fair value hedges are recorded | Amount of Income (Expense) Recognized in the Consolidated Statements of Operations | |||||||||||||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||||||||
| Interest expense, net | $ | (251) | $ | (231) | $ | (171) | ||||||||||||||||||||
| Descriptions | Location on Consolidated Statements of Operations | |||||||||||||||||||||||||
| Net interest settlements and accruals on interest rate swaps | Interest expense, net | $ | (89) | $ | (8) | $ | 23 | |||||||||||||||||||
| Fair value changes on interest rate swaps | Interest expense, net | $ | 56 | $ | (228) | $ | (60) | |||||||||||||||||||
| Fair value changes on hedged debt | Interest expense, net | $ | (56) | $ | 228 | $ | 60 |
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, 2023 | ||||||||||||||||||||||||||
| Pay | Receive | |||||||||||||||||||||||||
| Nature of Swap | Notional Amount | Weighted Average Interest Rate | Notional Amount | Weighted Average Interest Rate | ||||||||||||||||||||||
| Pay Fixed/Receive Fixed | € | 765 | 3.67% | $ | 800 | 5.25% | ||||||||||||||||||||
| Pay Floating/Receive Floating | 2,138 | Based on ESTR | 2,250 | Based on SOFR | ||||||||||||||||||||||
| Total | € | 2,903 | $ | 3,050 |
| December 31, 2022 | ||||||||||||||||||||||||||
| Pay | Receive | |||||||||||||||||||||||||
| Nature of Swap | Notional Amount | Weighted Average Interest Rate | Notional Amount | Weighted Average Interest Rate | ||||||||||||||||||||||
| Pay Fixed/Receive Fixed | € | 765 | 3.67% | $ | 800 | 5.25% | ||||||||||||||||||||
| Pay Floating/Receive Floating | 450 | Based on 3-month EURIBOR | 500 | Based on 3-month USD LIBOR | ||||||||||||||||||||||
| Pay Floating/Receive Floating | 1,688 | Based on ESTR | 1,750 | Based on SOFR | ||||||||||||||||||||||
| Total | € | 2,903 | $ | 3,050 |
92 MOODY'S 2023 10-K
As of December 31, 2023, 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, | Notional Amount (Pay) | Notional Amount (Receive) | ||||||||||||
| 2026 | € | 450 | $ | 500 | ||||||||||
| 2027 | 531 | 550 | ||||||||||||
| 2028 | 588 | 600 | ||||||||||||
| 2029 | 373 | 400 | ||||||||||||
| 2031 | 481 | 500 | ||||||||||||
| 2032 | 480 | 500 | ||||||||||||
| Total | € | 2,903 | $ | 3,050 |
The following table provides information on the gains/(losses) on the Company’s net investment and cash flow hedges:
| Amount of Gain/(Loss) Recognized in AOCL on Derivative, net of Tax | Amount of Gain/(Loss) Reclassified from AOCL into Income, net of tax | Gain/(Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative and Non-Derivative Instruments in Net Investment Hedging Relationships | Year Ended December 31, | Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||||||||
| FX forward contracts | $ | — | $ | — | $ | 18 | $ | — | $ | — | $ | 1 | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||
| Cross currency swaps | (97) | 99 | 143 | — | — | — | 54 | 56 | 35 | ||||||||||||||||||||||||||||||||||||||||||||
| Long-term debt | (35) | 65 | 81 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Total net investment hedges | $ | (132) | $ | 164 | $ | 242 | $ | — | $ | — | $ | 1 | $ | 54 | $ | 56 | $ | 35 | |||||||||||||||||||||||||||||||||||
| Derivatives in Cash Flow Hedging Relationships | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cross currency swaps | $ | — | $ | — | $ | — | $ | 1 | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||
| Interest rate contracts | — | — | — | (2) | (2) | (2) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Total cash flow hedges | $ | — | $ | — | $ | — | $ | (1) | $ | (2) | $ | (2) | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||
| Total | $ | (132) | $ | 164 | $ | 242 | $ | (1) | $ | (2) | $ | (1) | $ | 54 | $ | 56 | $ | 35 |
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, 2023 | December 31, 2022 | ||||||||||
| Net investment hedges | |||||||||||
| Cross currency swaps | $ | 21 | $ | 118 | |||||||
| FX forwards | 29 | 29 | |||||||||
| Long-term debt | 3 | 38 | |||||||||
| Total net investment hedges | 53 | 185 | |||||||||
| Cash flow hedges | |||||||||||
| Interest rate contracts | (45) | (47) | |||||||||
| Cross-currency swaps | 1 | 2 | |||||||||
| Total cash flow hedges | (44) | (45) | |||||||||
| Total net gain in AOCL | $ | 9 | $ | 140 |
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 ASC Topic 815. Accordingly, changes in the fair value of these contracts are recognized immediately in other non-operating income, net in the Company’s consolidated statements of operations along with the FX gain or loss recognized on the assets and liabilities denominated in a currency other than the subsidiary’s functional currency. These contracts have expiration dates at various times through August 2024.
MOODY'S 2023 10-K 93
The following table summarizes the notional amounts of the Company’s outstanding foreign exchange forwards:
| December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||
| Notional Amount of Currency Pair: | Sell | Buy | Sell | Buy | |||||||||||||||||||||||||
| Contracts to sell USD for GBP | $ | 513 | £ | 407 | $ | 170 | £ | 146 | |||||||||||||||||||||
| Contracts to sell USD for Japanese yen | $ | 14 | ¥ | 2,000 | $ | 24 | ¥ | 3,500 | |||||||||||||||||||||
| Contracts to sell USD for Canadian dollars | $ | 147 | C$ | 200 | $ | 87 | C$ | 120 | |||||||||||||||||||||
| Contracts to sell USD for Singapore dollars | $ | 50 | S$ | 67 | $ | 50 | S$ | 70 | |||||||||||||||||||||
| Contracts to sell USD for euros | $ | 60 | € | 55 | $ | 116 | € | 115 | |||||||||||||||||||||
| Contracts to sell USD for Indian rupee | $ | 23 | ₹ | 1,900 | $ | 19 | ₹ | 1,600 | |||||||||||||||||||||
| Contracts to sell euros for USD | € | — | $ | — | € | 85 | $ | 89 | |||||||||||||||||||||
| Contracts to sell USD for AUD | $ | 5 | A$ | 8 | $ | — | A$ | — | |||||||||||||||||||||
| Contracts to sell Canadian dollars for USD | C$ | 25 | $ | 19 | C$ | — | $ | — |
NOTE: € = euro, £ = British pound, S$ = Singapore dollar, $ = U.S. dollar, ¥ = Japanese yen, C$ = Canadian dollar, ₹= Indian rupee, A$ = Australian dollar
Total Return Swaps
Beginning in the second quarter of 2023, the Company entered into total return swaps to mitigate market-driven changes in the value of certain liabilities associated with the Company's deferred compensation plans. The notional amount of the total return swaps as of December 31, 2023 was $58 million.
The following table summarizes the impact to the consolidated statements of operations relating to the net gains and (losses) on the Company’s derivatives which are not designated as hedging instruments:
| Year Ended December 31, | ||||||||||||||||||||||||||
| Derivatives Not Designated as Accounting Hedges | Consolidated Statements of Operations Location | 2023 | 2022 | 2021 | ||||||||||||||||||||||
| FX forwards | Other non-operating income, net | $ | 15 | $ | (72) | $ | (27) | |||||||||||||||||||
| Foreign exchange forwards relating to RMS acquisition (1) | Other non-operating income, net | $ | — | $ | — | $ | (13) | |||||||||||||||||||
| Total return swaps | Operating expense | $ | 2 | $ | — | $ | — | |||||||||||||||||||
| Total return swaps | SG&A expense | $ | 1 | $ | — | $ | — |
(1) The Company entered into forward contracts to sell $1,675 million for £1,200 million 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.
94 MOODY'S 2023 10-K
The table below shows the classification between assets and liabilities on the Company’s consolidated balance sheets for the fair value of the 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 | |||||||||||||||||
| Consolidated Balance Sheet Location | December 31, 2023 | December 31, 2022 | |||||||||||||||
| Assets: | |||||||||||||||||
| Derivatives designated as accounting hedges: | |||||||||||||||||
| Cross-currency swaps designated as net investment hedges | Other assets | $ | 3 | $ | 27 | ||||||||||||
| Derivatives not designated as accounting hedges: | |||||||||||||||||
| FX forwards on certain assets and liabilities | Other current assets | 13 | 19 | ||||||||||||||
| Total assets | $ | 16 | $ | 46 | |||||||||||||
| Liabilities: | |||||||||||||||||
| Derivatives designated as accounting hedges: | |||||||||||||||||
| Cross-currency swaps designated as net investment hedges | Other liabilities | $ | 183 | $ | 78 | ||||||||||||
| Interest rate swaps designated as fair value hedges | Other liabilities | 183 | 239 | ||||||||||||||
| Total derivatives designated as accounting hedges | 366 | 317 | |||||||||||||||
| Non-derivative instruments designated as accounting hedge: | |||||||||||||||||
| Long-term debt designated as net investment hedge | Long-term debt | 1,381 | 1,334 | ||||||||||||||
| Derivatives not designated as accounting hedges: | |||||||||||||||||
| FX forwards on certain assets and liabilities | Accounts payable and accrued liabilities | — | 2 | ||||||||||||||
| Total liabilities | $ | 1,747 | $ | 1,653 |
NOTE 8 PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of:
| December 31, | |||||||||||||||||
| 2023 | 2022 | ||||||||||||||||
| Office and computer equipment (3 - 10 year estimated useful life) | $ | 354 | $ | 339 | |||||||||||||
| Office furniture and fixtures (3 - 10 year estimated useful life) | 57 | 54 | |||||||||||||||
| Internal-use computer software (1 - 10 year estimated useful life) | 1,232 | 995 | |||||||||||||||
| Leasehold improvements and building (1 - 20 year estimated useful life) | 232 | 237 | |||||||||||||||
| Total property and equipment, at cost | 1,875 | 1,625 | |||||||||||||||
| Less: accumulated depreciation and amortization | (1,272) | (1,123) | |||||||||||||||
| Total property and equipment, net | $ | 603 | $ | 502 |
The increase in internal-use computer software in the table above primarily relates to capitalized software development costs pursuant to MA's strategic shift to SaaS-based solutions. Depreciation and amortization expense related to the above assets for the years ended December 31, 2023, 2022, and 2021 was $175 million, $131 million, and $99 million, respectively, of which $121 million, $79 million, and $54 million, respectively, related to amortization of internal-use computer software.
On a weighted-average basis, Moody's internal-use computer software has an estimated useful life of approximately 4.5 years.
NOTE 9 ACQUISITION
The material business combination described below is accounted for using the acquisition method of accounting whereby assets acquired and liabilities assumed were recognized at fair value on the date of the transaction. Any excess of the purchase price over the fair value of the assets acquired and liabilities assumed was recorded to goodwill. Goodwill typically results through expected synergies from combining operations of an acquiree and an acquirer, anticipated new customer acquisition and products, as well as from intangible assets that do not qualify for separate recognition.
RMS
MOODY'S 2023 10-K 95
On September 15, 2021, the Company acquired 100% of RMS, a global provider of climate and natural disaster risk modeling and analytics. The cash payment was funded with new debt financing and a combination of U.S. and offshore cash on hand. The acquisition expands Moody’s insurance data and analytics business and accelerates 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 purchase price allocation, which summarizes the fair value of the assets and liabilities assumed, at the date of acquisition:
| Cash | $ | 55 | |||||||||
| Accounts receivable | 38 | ||||||||||
| Other current assets | 12 | ||||||||||
| 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) | 779 | ||||||||||
| Goodwill | 1,357 | ||||||||||
| Deferred tax assets, net | 50 | ||||||||||
| Other assets | 99 | ||||||||||
| Liabilities: | |||||||||||
| Accounts payable and accrued liabilities | $ | (96) | |||||||||
| Deferred revenue | (89) | ||||||||||
| Operating lease liabilities | (68) | ||||||||||
| Deferred tax liabilities, net | (214) | ||||||||||
| Uncertain tax positions | (71) | ||||||||||
| Other liabilities | (2) | ||||||||||
| Total liabilities | (540) | ||||||||||
| Net assets acquired | $ | 1,927 |
Goodwill
The goodwill recognized as a result of this acquisition includes, among other things, the value of combining the complementary product portfolios of Moody's and RMS, which is expected to extend the Company's reach into new market segments. The goodwill also includes the combined company's ability to accelerate technology innovations into new product adjacencies (leveraging RMS's team of data scientists, modelers and software engineers) as well as combining RMS's products with Moody’s core data and analytics offerings to provide holistic integrated risk solutions.
Goodwill, of which $1,267 million and $90 million has been assigned to the MA and MIS segments, respectively, is not deductible for tax purposes. The amount of goodwill allocated to the MIS segment relates to the integration of certain of RMS's models/processes into the Company's ESG solutions offerings.
Other assets in the table above includes an indemnification asset of $95 million related to 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 consolidated statement of operations for the year ended December 31, 2021.
96 MOODY'S 2023 10-K
Supplementary Unaudited Pro Forma Information
Supplemental information on an unaudited pro forma basis is presented below for the twelve months ended December 31, 2021 as if the acquisition of RMS occurred on January 1, 2021. 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, 2021. The unaudited pro forma information includes amortization of acquired intangible assets, based on the 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.
| Unaudited | Year Ended December 31, 2021 | ||||
| Pro forma Revenue | $ | 6,463 | |||
| Pro forma Net Income attributable to Moody's | $ | 2,244 |
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 to 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 relating to a fair value adjustment to deferred revenue required as part of acquisition accounting for the year ended December 31, 2021.
NOTE 10 GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS
The following tables summarize the activity in goodwill:
| Year Ended December 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| MA | MIS | Consolidated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross goodwill | Accumulated impairment charge | Net goodwill | Gross goodwill | Accumulated impairment charge | Net goodwill | Gross goodwill | Accumulated impairment charge | Net goodwill | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of year | $ | 5,474 | $ | (12) | $ | 5,462 | $ | 377 | $ | — | $ | 377 | $ | 5,851 | $ | (12) | $ | 5,839 | ||||||||||||||||||||||||||||||||||||||
| Additions/ adjustments (1) | 90 | — | 90 | (87) | — | (87) | 3 | — | 3 | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | 117 | — | 117 | (3) | — | (3) | 114 | — | 114 | |||||||||||||||||||||||||||||||||||||||||||||||
| Ending Balance | $ | 5,681 | $ | (12) | $ | 5,669 | $ | 287 | $ | — | $ | 287 | $ | 5,968 | $ | (12) | $ | 5,956 |
| Year Ended December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| MA | MIS | Consolidated | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross goodwill | Accumulated impairment charge | Net goodwill | Gross goodwill | Accumulated impairment charge | Net goodwill | Gross goodwill | Accumulated impairment charge | Net goodwill | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of year | $ | 5,615 | $ | (12) | $ | 5,603 | $ | 396 | $ | — | $ | 396 | $ | 6,011 | $ | (12) | $ | 5,999 | |||||||||||||||||||||||||||||||||||
| Additions/ adjustments (2) | 88 | — | 88 | 4 | — | 4 | 92 | — | 92 | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | (229) | — | (229) | (23) | — | (23) | (252) | — | (252) | ||||||||||||||||||||||||||||||||||||||||||||
| Ending balance | $ | 5,474 | $ | (12) | $ | 5,462 | $ | 377 | $ | — | $ | 377 | $ | 5,851 | $ | (12) | $ | 5,839 |
(1)The 2023 additions/adjustments primarily relate to a reallocation of goodwill pursuant to a realignment of certain components of the Company's ESG business in the first quarter of 2023.
(2)The 2022 additions/adjustments for the MA segment in the table above primarily relate to the acquisition of kompany in the first quarter of 2022, partially offset by RMS measurement period adjustments in the third quarter of 2022.
MOODY'S 2023 10-K 97
Acquired intangible assets and related accumulated amortization consisted of:
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Customer relationships | $ | 2,065 | $ | 2,024 | |||||||
| Accumulated amortization | (556) | (453) | |||||||||
| Net customer relationships | 1,509 | 1,571 | |||||||||
| Software/product technology | 674 | 661 | |||||||||
| Accumulated amortization | (364) | (283) | |||||||||
| Net software/product technology | 310 | 378 | |||||||||
| Database | 179 | 178 | |||||||||
| Accumulated amortization | (82) | (64) | |||||||||
| Net database | 97 | 114 | |||||||||
| Trade names | 199 | 197 | |||||||||
| Accumulated amortization | (72) | (58) | |||||||||
| Net trade names | 127 | 139 | |||||||||
| Other (1) | 52 | 52 | |||||||||
| Accumulated amortization | (46) | (44) | |||||||||
| Net other | 6 | 8 | |||||||||
| Total | $ | 2,049 | $ | 2,210 |
(1)Other intangible assets primarily consist of trade secrets, covenants not to compete, and acquired ratings methodologies and models.
Amortization expense relating to acquired intangible assets is as follows:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Amortization expense | $ | 198 | $ | 200 | $ | 158 |
Estimated future annual amortization expense for intangible assets subject to amortization is as follows:
| Year Ending December 31, | ||||||||
| 2024 | $ | 193 | ||||||
| 2025 | 190 | |||||||
| 2026 | 186 | |||||||
| 2027 | 170 | |||||||
| 2028 | 158 | |||||||
| Thereafter | 1,152 | |||||||
| Total estimated future amortization | $ | 2,049 |
NOTE 11 RESTRUCTURING
On June 30, 2022, the chief executive officer of Moody’s approved the 2022 - 2023 Geolocation Restructuring Program. The Company estimates that the program will result in annualized savings of $145 million to $165 million per year. This program relates to the Company's post-COVID-19 geolocation strategy and other strategic initiatives and includes the rationalization and exit of certain leased office spaces and a reduction in staff, including the relocation of certain job functions. Cumulative charges related to this program are shown in the table below. The savings generated from the 2022 - 2023 Geolocation Restructuring Program are expected to strengthen the Company's operating margin, with a portion being deployed to support strategic investments, including the Company's workplace of the future program and employee retention initiatives. The 2022 - 2023 Geolocation Restructuring Program is substantially complete as of December 31, 2023. Cash outlays associated with this program, which primarily relate to personnel-related costs, are expected to be $130 million to $140 million, substantially all of which are expected to be paid by the end of 2024.
98 MOODY'S 2023 10-K
Total expenses included in the accompanying consolidated statements of operations relating to the Company's 2022 - 2023 Geolocation Restructuring Program are as follows (table excludes immaterial adjustments relating to the finalization of prior programs in previous years):
| Year ended December 31, | Cumulative expense incurred | ||||||||||||||||||||||
| 2022 - 2023 Geolocation Restructuring Program | 2023 | 2022 | |||||||||||||||||||||
| Employee Termination Costs (1) | $ | 51 | $ | 85 | $ | 136 | |||||||||||||||||
| Real Estate Related Costs (2) | 36 | 27 | 63 | ||||||||||||||||||||
| Other Costs (3) | — | 1 | 1 | ||||||||||||||||||||
| Total Restructuring | $ | 87 | $ | 113 | $ | 200 |
(1)Amount in the year ended December 31, 2023 includes severance costs, while amount in the year ended December 31, 2022 includes both severance costs and expense related to the modification of equity awards.
(2)For the year ended December 31, 2023, primarily includes ROU Asset impairment charges. For the year ended December 31, 2022, primarily includes ROU Asset and leasehold improvement impairment charges and the non-cash acceleration of amortization of abandoned ROU Assets and leasehold improvements. The fair value of the impaired assets in both periods was determined by utilizing the present value of the estimated future cash flows attributable to the assets. The fair value of those assets subsequent to the impairment for the year ended December 31, 2023 was $4 million and was categorized as Level 3 within the ASC Topic 820 fair value hierarchy. The fair value of those assets subsequent to the impairment for the year ended December 31, 2022 was $0.
(3)Primarily includes professional service fees related to execution of the restructuring program.
Changes to the restructuring liability were as follows:
| 2023 | 2022 | ||||||||||||||||
| Balance as of January 1 | $ | 65 | $ | 4 | |||||||||||||
| 2020 MA Strategic Reorganization Restructuring Program: | |||||||||||||||||
| Cost incurred and adjustments | — | (1) | |||||||||||||||
| Cash payments | (1) | (2) | |||||||||||||||
| 2022 - 2023 Geolocation Restructuring Program: | |||||||||||||||||
| Cost incurred and adjustments | 51 | 86 | |||||||||||||||
| Cash payments and adjustments | (79) | (22) | |||||||||||||||
| Balance as of December 31 (1) | $ | 36 | $ | 65 |
(1)Restructuring liability is primarily comprised of employee termination costs, with an immaterial amount of real estate-related and other costs. Amounts related to the year ended December 31, 2021 are not considered material for disclosure.
As of December 31, 2023, substantially all of the remaining $36 million restructuring liability is expected to be paid out in 2024.
NOTE 12 FAIR VALUE
The tables below present information about items that are carried at fair value at December 31, 2023 and 2022:
| Fair value Measurement as of December 31, 2023 | |||||||||||||||||||||||
| Description | Balance | Level 1 | Level 2 | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Derivatives (1) | $ | 16 | $ | — | $ | 16 | |||||||||||||||||
| Money market funds/mutual funds | 107 | 107 | — | ||||||||||||||||||||
| Total | $ | 123 | $ | 107 | $ | 16 | |||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Derivatives (1) | $ | 366 | $ | — | $ | 366 | |||||||||||||||||
| Total | $ | 366 | $ | — | $ | 366 |
MOODY'S 2023 10-K 99
| Fair Value Measurement as of December 31, 2022 | |||||||||||||||||||||||
| Description | Balance | Level 1 | Level 2 | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Derivatives (1) | $ | 46 | $ | — | $ | 46 | |||||||||||||||||
| Mutual funds | 71 | 71 | — | ||||||||||||||||||||
| Total | $ | 117 | $ | 71 | $ | 46 | |||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Derivatives (1) | $ | 319 | $ | — | $ | 319 | |||||||||||||||||
| Total | $ | 319 | $ | — | $ | 319 |
(1)Represents fair value of certain derivative contracts as more fully described in Note 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 money market funds 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.
Money market funds and mutual funds:
The money market funds and mutual funds in the table above are deemed to be equity securities with readily determinable fair values with changes in 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.
100 MOODY'S 2023 10-K
NOTE 13. OTHER BALANCE SHEET INFORMATION
The following tables contain additional detail related to certain balance sheet captions:
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Other current assets: | |||||||||||
| Prepaid taxes | $ | 115 | $ | 235 | |||||||
| Prepaid expenses | 133 | 119 | |||||||||
| Capitalized costs to obtain and fulfill sales contracts | 116 | 106 | |||||||||
| Foreign exchange forwards on certain assets and liabilities | 13 | 19 | |||||||||
| Interest receivable on interest rate and cross currency swaps | 79 | 74 | |||||||||
| Other | 33 | 30 | |||||||||
| Total other current assets | $ | 489 | $ | 583 |
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Other assets: | |||||||||||
| Investments in non-consolidated affiliates | $ | 521 | $ | 517 | |||||||
| Deposits for real-estate leases | 16 | 15 | |||||||||
| Indemnification assets related to acquisitions | 111 | 110 | |||||||||
| Mutual funds, certificates of deposit and money market deposit accounts/funds | 100 | 87 | |||||||||
| Company owned life insurance (at contract value) | 47 | 40 | |||||||||
| Costs to obtain sales contracts | 196 | 171 | |||||||||
| Derivative instruments designated as accounting hedges | 3 | 27 | |||||||||
| Pension and other retirement employee benefits | 41 | 40 | |||||||||
| Other | 103 | 85 | |||||||||
| Total other assets | $ | 1,138 | $ | 1,092 |
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Accounts payable and accrued liabilities: | |||||||||||
| Salaries and benefits | $ | 130 | $ | 104 | |||||||
| Incentive compensation | 345 | 276 | |||||||||
| Customer credits, advanced payments and advanced billings | 105 | 102 | |||||||||
| Dividends | 7 | 6 | |||||||||
| Professional service fees | 46 | 49 | |||||||||
| Interest accrued on debt | 83 | 92 | |||||||||
| Accounts payable | 23 | 52 | |||||||||
| Income taxes | 108 | 86 | |||||||||
| Pension and other retirement employee benefits | 15 | 7 | |||||||||
| Accrued royalties | 24 | 23 | |||||||||
| Foreign exchange forwards on certain assets and liabilities | — | 2 | |||||||||
| Restructuring liability | 35 | 65 | |||||||||
| Interest payable on interest rate and cross currency swaps | 67 | 52 | |||||||||
| Other | 88 | 95 | |||||||||
| Total accounts payable and accrued liabilities | $ | 1,076 | $ | 1,011 |
MOODY'S 2023 10-K 101
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Other liabilities: | |||||||||||
| Pension and other retirement employee benefits | $ | 190 | $ | 189 | |||||||
| Interest accrued on UTPs | 36 | 47 | |||||||||
| MAKS indemnification provisions | 19 | 23 | |||||||||
| Income tax liability – non-current portion | 15 | 48 | |||||||||
| Derivative instruments designated as accounting hedges | 366 | 317 | |||||||||
| Restructuring liability – non-current portion | 1 | — | |||||||||
| Other | 49 | 50 | |||||||||
| Total other liabilities | $ | 676 | $ | 674 |
Investments in non-consolidated affiliates:
The following table provides additional detail regarding Moody's investments in non-consolidated affiliates, as included in other assets in the consolidated balance sheets:
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Equity method investments (1) | $ | 186 | $ | 187 | |||||||
| Investments measured using the measurement alternative (2) | 327 | 325 | |||||||||
| Other | 8 | 5 | |||||||||
| Total investments in non-consolidated affiliates | $ | 521 | $ | 517 |
(1)Equity securities in which the Company has significant influence over the investee but does not have a controlling financial interest in accordance with ASC Topic 323.
(2)Equity securities without readily determinable fair value for which the Company has elected to apply the measurement alternative in accordance with ASC Topic 321, 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 in BitSight.
Refer to Note 24 for disclosure on earnings from non-consolidated affiliates, which are included within other non-operating income, net.
102 MOODY'S 2023 10-K
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 Statements of Operations | ||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||
| Losses on currency translation adjustments | |||||||||||||||||||||||
| Foreign currency translation adjustments - reclassification of losses included in net income | $ | — | $ | (20) | $ | — | Other non-operating income, net | ||||||||||||||||
| Total losses on currency translation adjustments | — | (20) | — | ||||||||||||||||||||
| Losses on cash flow hedges | |||||||||||||||||||||||
| Cross-currency swap | 1 | 1 | — | Other non-operating income, net | |||||||||||||||||||
| Interest rate contract | (3) | (3) | (2) | Other non-operating income, net | |||||||||||||||||||
| Total before income taxes | (2) | (2) | (2) | ||||||||||||||||||||
| Income tax effect of item above | 1 | — | — | Provision for income taxes | |||||||||||||||||||
| Total net losses on cash flow hedges | (1) | (2) | (2) | ||||||||||||||||||||
| Gains on net investment hedges | |||||||||||||||||||||||
| FX forwards | — | — | 2 | Other non-operating income, net | |||||||||||||||||||
| Total before income taxes | — | — | 2 | ||||||||||||||||||||
| Income tax effect of item above | — | — | (1) | Provision for income taxes | |||||||||||||||||||
| Total net gains on net investment hedges | — | — | 1 | ||||||||||||||||||||
| Pension and other retirement benefits | |||||||||||||||||||||||
| Amortization of actuarial gains (losses), prior service credits (costs), and settlement gain (charge) included in net income | 2 | (3) | (11) | Other non-operating income, net | |||||||||||||||||||
| Settlement credit (charge) | 1 | — | (8) | Other non-operating income, net | |||||||||||||||||||
| Total before income taxes | 3 | (3) | (19) | ||||||||||||||||||||
| Income tax effect of item above | — | 1 | 5 | Provision for income taxes | |||||||||||||||||||
| Total pension and other retirement benefits | 3 | (2) | (14) | ||||||||||||||||||||
| Total net gains (losses) included in Net Income attributable to reclassifications out of AOCL | $ | 2 | $ | (24) | $ | (15) |
The following tables show changes in AOCL by component (net of tax):
| Year Ended December 31, 2023 | |||||||||||||||||||||||||||||||||||
| Pension and Other Retirement Benefits | Gains/(Losses) on Cash Flow Hedges | Foreign Currency Translation Adjustments | Net Investment Hedges | Total | |||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | (47) | $ | (45) | $ | (736) | $ | 185 | $ | (643) | |||||||||||||||||||||||||
| Other comprehensive income/(loss) before reclassifications | (6) | — | 216 | (132) | 78 | ||||||||||||||||||||||||||||||
| Amounts reclassified from AOCL | (3) | 1 | — | — | (2) | ||||||||||||||||||||||||||||||
| Other comprehensive income/(loss) | (9) | 1 | 216 | (132) | 76 | ||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | (56) | $ | (44) | $ | (520) | $ | 53 | $ | (567) |
MOODY'S 2023 10-K 103
| Year Ended December 31, 2022 | |||||||||||||||||||||||||||||||||||
| Pension and Other Retirement Benefits | Gains/(Losses) on Cash Flow Hedges | Foreign Currency Translation Adjustments | Net Investment Hedges | Total | |||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | (49) | $ | (47) | $ | (335) | $ | 21 | $ | (410) | |||||||||||||||||||||||||
| Other comprehensive income/(loss) before reclassifications | — | — | (421) | 164 | (257) | ||||||||||||||||||||||||||||||
| Amounts reclassified from AOCL | 2 | 2 | 20 | — | 24 | ||||||||||||||||||||||||||||||
| Other comprehensive income/(loss) | 2 | 2 | (401) | 164 | (233) | ||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | (47) | $ | (45) | $ | (736) | $ | 185 | $ | (643) |
| Year Ended December 31, 2021 | |||||||||||||||||||||||||||||||||||
| Pension and Other Retirement Benefits | Gains/(Losses) on Cash Flow Hedges | Foreign Currency Translation Adjustments | Net Investment Hedges | Total | |||||||||||||||||||||||||||||||
| Balance at 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 at December 31, 2021 | $ | (49) | $ | (47) | $ | (335) | $ | 21 | $ | (410) |
NOTE 15 PENSION AND OTHER RETIREMENT BENEFITS
U.S. Plans
Moody’s maintains funded and unfunded noncontributory 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.
104 MOODY'S 2023 10-K
The 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 | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Change in benefit obligation: | |||||||||||||||||||||||
| Benefit obligation, beginning of the period | $ | (462) | $ | (570) | $ | (39) | $ | (48) | |||||||||||||||
| Service cost | (11) | (14) | (3) | (4) | |||||||||||||||||||
| Interest cost | (22) | (15) | (2) | (1) | |||||||||||||||||||
| Plan participants’ contributions | — | — | (1) | (1) | |||||||||||||||||||
| Benefits paid | 30 | 20 | 2 | 2 | |||||||||||||||||||
| Actuarial (loss) gain | (4) | 1 | 2 | — | |||||||||||||||||||
| Assumption changes | (15) | 116 | (1) | 13 | |||||||||||||||||||
| Benefit obligation, end of the period | $ | (484) | $ | (462) | $ | (42) | $ | (39) | |||||||||||||||
| Change in plan assets: | |||||||||||||||||||||||
| Fair value of plan assets, beginning of the period | $ | 420 | $ | 544 | $ | — | $ | — | |||||||||||||||
| Actual return on plan assets | 48 | (111) | — | — | |||||||||||||||||||
| Benefits paid | (30) | (20) | (2) | (2) | |||||||||||||||||||
| Employer contributions | 11 | 7 | 1 | 1 | |||||||||||||||||||
| Plan participants’ contributions | — | — | 1 | 1 | |||||||||||||||||||
| Fair value of plan assets, end of the period | $ | 449 | $ | 420 | $ | — | $ | — | |||||||||||||||
| Funded status of the plans | $ | (35) | $ | (42) | $ | (42) | $ | (39) | |||||||||||||||
| Amounts recorded on the consolidated balance sheets: | |||||||||||||||||||||||
| Pension and retirement benefits asset – non current | $ | 40 | $ | 39 | $ | — | $ | — | |||||||||||||||
| Pension and retirement benefits liability – current | (13) | (5) | (2) | (2) | |||||||||||||||||||
| Pension and retirement benefits liability – non current | (62) | (76) | (40) | (37) | |||||||||||||||||||
| Net amount recognized | $ | (35) | $ | (42) | $ | (42) | $ | (39) | |||||||||||||||
| Accumulated benefit obligation, end of the period | $ | (453) | $ | (432) |
The net increase in the pension benefit obligation from assumption changes and actuarial losses in 2023 primarily resulted from decreases to the discount rates as well as an increase to the annuity conversion rate. The net decrease in the pension benefit obligation from assumption changes and actuarial gains in 2022 primarily resulted from increases to discount rates, partially offset by an increase to the annuity conversion rate.
The following information is for those pension plans with an accumulated benefit obligation in excess of plan assets:
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Aggregate projected benefit obligation | $ | 75 | $ | 82 | |||||||
| Aggregate accumulated benefit obligation | $ | 67 | $ | 72 | |||||||
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 | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net actuarial gains (losses) | $ | (82) | $ | (77) | $ | 10 | $ | 9 | |||||||||||||||
| Net prior service credits | 1 | 2 | — | — | |||||||||||||||||||
| Total recognized in AOCL – pre-tax | $ | (81) | $ | (75) | $ | 10 | $ | 9 |
MOODY'S 2023 10-K 105
Net periodic pension (income) expenses recognized for the Retirement Plans are as follows for the years ended December 31:
| Pension Plans | Other Retirement Plans | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||
| Components of net periodic expense | |||||||||||||||||||||||||||||||||||
| Service cost | $ | 11 | $ | 14 | $ | 19 | $ | 3 | $ | 4 | $ | 4 | |||||||||||||||||||||||
| Interest cost | 22 | 15 | 14 | 2 | 1 | 1 | |||||||||||||||||||||||||||||
| Expected return on plan assets | (32) | (26) | (27) | — | — | — | |||||||||||||||||||||||||||||
| Amortization of net actuarial (gains) losses and prior service credits from earlier periods | (1) | 3 | 11 | (1) | — | 1 | |||||||||||||||||||||||||||||
| (Gain) loss on settlement of pension obligations | (2) | — | 8 | — | — | — | |||||||||||||||||||||||||||||
| Net periodic (income) expense | $ | (2) | $ | 6 | $ | 25 | $ | 4 | $ | 5 | $ | 6 |
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 | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||
| Amortization of net actuarial (gains) losses and prior service credit | $ | (1) | $ | 3 | $ | 11 | $ | (1) | $ | — | $ | 1 | |||||||||||||||||||||||
| Settlement (gain) loss | (2) | — | 8 | — | — | — | |||||||||||||||||||||||||||||
| Net actuarial (loss)/gain arising during the period | (3) | (19) | 65 | 1 | 13 | 4 | |||||||||||||||||||||||||||||
| Total recognized in OCI – pre-tax | $ | (6) | $ | (16) | $ | 84 | $ | — | $ | 13 | $ | 5 |
ADDITIONAL INFORMATION:
Assumptions—Retirement Plans
Weighted-average assumptions used to determine benefit obligations at December 31:
| Pension Plans | Other Retirement Plans | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Discount rate | 4.73 | % | 4.93 | % | 4.75 | % | 4.90 | % | |||||||||||||||
| Rate of compensation increase | 3.60 | % | 3.63 | % | — | — |
Weighted-average assumptions used to determine net periodic benefit expense for years ended December 31:
| Pension Plans | Other Retirement Plans | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||
| Discount rate | 4.93 | % | 2.60 | % | 2.24 | % | 4.90 | % | 2.65 | % | 2.30 | % | |||||||||||||||||||||||
| Expected return on plan assets | 6.55 | % | 5.05 | % | 5.45 | % | — | — | — | ||||||||||||||||||||||||||
| Rate of compensation increase | 3.63 | % | 3.63 | % | 3.62 | % | — | — | — | ||||||||||||||||||||||||||
| 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 2023, the expected rate of return used in calculating the net periodic benefit costs was 6.55%. For 2024, the Company’s expected rate of return assumption is 6.10% to reflect the Company’s current view of long-term capital market outlook.
106 MOODY'S 2023 10-K
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 to 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 35% (range of 23% to 46%) in equity securities, 61% (range of 44% to 77%) 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 across U.S. and non-U.S. stocks of small, medium and large capitalization. The plan’s fixed income investments are diversified principally across U.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, 2023 and 2022 are as follows:
| Fair Value Measurement as of December 31, 2023 | |||||||||||||||||||||||||||||
| Asset Category | Balance | Level 1 | Level 2 | Measured using NAV practical expedient (1) | % of total assets | ||||||||||||||||||||||||
| Cash and cash equivalents | $ | 5 | $ | — | $ | 5 | $ | — | 1 | % | |||||||||||||||||||
| Common/collective trust funds—equity securities | |||||||||||||||||||||||||||||
| U.S. large-cap | 106 | — | 106 | — | 24 | % | |||||||||||||||||||||||
| U.S. small and mid-cap | 21 | — | 21 | — | 5 | % | |||||||||||||||||||||||
| Emerging markets | 20 | — | 20 | — | 4 | % | |||||||||||||||||||||||
| Total equity investments | 147 | — | 147 | — | 33 | % | |||||||||||||||||||||||
| Emerging markets bond fund | 29 | — | — | 29 | 6 | % | |||||||||||||||||||||||
| Common/collective trust funds and corporate bonds—fixed income securities | |||||||||||||||||||||||||||||
| Intermediate-term investment grade U.S. government/ corporate bonds | 60 | — | 60 | — | 13 | % | |||||||||||||||||||||||
| Mutual funds | |||||||||||||||||||||||||||||
| Long duration corporate bonds | 144 | — | 144 | — | 32 | % | |||||||||||||||||||||||
| U.S. Treasury Inflation-Protected Securities (TIPs) | 25 | 25 | — | — | 6 | % | |||||||||||||||||||||||
| Private investment fund—high yield securities | 14 | — | — | 14 | 3 | % | |||||||||||||||||||||||
| Total fixed-income investments | 272 | 25 | 204 | 43 | 60 | % | |||||||||||||||||||||||
| Other investment—private real estate fund | 25 | — | — | 25 | 5 | % | |||||||||||||||||||||||
| Total Assets | $ | 449 | $ | 25 | $ | 356 | $ | 68 | 100 | % |
MOODY'S 2023 10-K 107
| Fair Value Measurement as of December 31, 2022 | |||||||||||||||||||||||||||||
| Asset Category | Balance | Level 1 | Level 2 | Measured using NAV practical expedient (1) | % of total assets | ||||||||||||||||||||||||
| Cash and cash equivalents | $ | 5 | $ | — | $ | 5 | $ | — | 1 | % | |||||||||||||||||||
| Common/collective trust funds—equity securities | |||||||||||||||||||||||||||||
| U.S. large-cap | 96 | — | 96 | — | 23 | % | |||||||||||||||||||||||
| U.S. small and mid-cap | 17 | — | 17 | — | 4 | % | |||||||||||||||||||||||
| Emerging markets | 19 | — | 19 | — | 5 | % | |||||||||||||||||||||||
| Total equity investments | 132 | — | 132 | — | 31 | % | |||||||||||||||||||||||
| Emerging markets bond fund | 26 | — | — | 26 | 6 | % | |||||||||||||||||||||||
| Common/collective trust funds and corporate bonds—fixed income securities | |||||||||||||||||||||||||||||
| Intermediate-term investment grade U.S. government/ corporate bonds | 54 | — | 54 | — | 13 | % | |||||||||||||||||||||||
| Mutual funds | |||||||||||||||||||||||||||||
| Long duration corporate bonds | 126 | — | 126 | — | 30 | % | |||||||||||||||||||||||
| U.S. Treasury Inflation-Protected Securities (TIPs) | 24 | 24 | — | — | 6 | % | |||||||||||||||||||||||
| Convertible securities | 14 | 14 | — | — | 3 | % | |||||||||||||||||||||||
| Private investment fund—high yield securities | 12 | — | — | 12 | 3 | % | |||||||||||||||||||||||
| Total fixed-income investments | 256 | 38 | 180 | 38 | 61 | % | |||||||||||||||||||||||
| Other investment—private real estate debt fund | 27 | — | — | 27 | 6 | % | |||||||||||||||||||||||
| Total Assets | $ | 420 | $ | 38 | $ | 317 | $ | 65 | 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 and private mutual 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 fund, minus its liabilities, and then divided by the number of shares outstanding. Common/collective trust funds and the private mutual fund 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 U.S. funded pension plan, all of Moody’s Retirement Plans are unfunded and therefore have no plan assets.
Cash Flows
The Company did not contribute to its U.S. funded pension plan during the years ended December 31, 2023 and 2022. The Company made payments of $11 million and $7 million related to its U.S. unfunded pension plan obligations during the years ended December 31, 2023 and 2022, respectively. The Company currently does not anticipate making a contribution to its funded pension plan in 2024, and anticipates making payments of $13 million related to its unfunded U.S. pension plans and immaterial payments related to its other Retirement Plans during the year ended December 31, 2024.
108 MOODY'S 2023 10-K
Estimated Future Benefits Payable
Estimated future benefits payments for the Retirement Plans are as follows as of the year ended December 31, 2023:
| Year Ending December 31, | Pension Plans | Other Retirement Plans | ||||||||||||
| 2024 | $ | 28 | $ | 2 | ||||||||||
| 2025 | 25 | 2 | ||||||||||||
| 2026 | 28 | 2 | ||||||||||||
| 2027 | 30 | 2 | ||||||||||||
| 2028 | 30 | 3 | ||||||||||||
| 2029 - 2033 | 167 | 18 |
Defined Contribution Plans
Moody’s has a Profit Participation Plan covering substantially all U.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’s U.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 the U.S., which is unfunded and provides for employee deferral of compensation and Company matching contributions related to compensation in excess of the IRS limitations on benefits and contributions under qualified retirement plans. Total expenses associated with U.S. defined contribution plans were $71 million, $35 million and $54 million in the years ended December 31, 2023, 2022 and 2021, 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, 2023, 2022, and 2021, 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. The Moody’s Stock Fund held approximately 315,400 and 329,300 shares of Moody’s common stock at December 31, 2023 and 2022, respectively.
Non-U.S. Plans
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, 2023, 2022, and 2021 were $42 million, $37 million, and $32 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. In April 2023, stockholders approved an amendment to the 2001 Plan increasing the number of shares of Common Stock authorized for issuance by 4.0 million. This results in the 2001 Plan, which is shareholder approved, now permitting for the grant of up to 54.6 million shares, of which not more than 10.7 million shares are available for grants of awards other than stock options. 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 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.
MOODY'S 2023 10-K 109
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 post-acquisition service requirements, 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, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Stock-based compensation expense | $ | 193 | $ | 169 | $ | 175 | ||||||||||||||
| Tax benefit | $ | 45 | $ | 41 | $ | 42 |
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 on U.S. government zero coupon bonds with maturities similar to the expected holding period. The expected holding period is 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 for the year ended December 31, 2021):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Expected dividend yield | 1.04 | % | 0.86 | % | 0.89 | % | |||||||||||
| Expected stock volatility | 29 | % | 27 | % | 28 | % | |||||||||||
| Risk-free interest rate | 4.19 | % | 1.91 | % | 0.82 | % | |||||||||||
| Expected holding period (in years) | 5.8 | 5.6 | 5.6 | ||||||||||||||
Due to the RMS replacement option awards being heavily in-the-money at the acquisition date, the Company utilized a binomial valuation approach in 2021 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 the RMS replacement option awards for the year ended December 31, 2021):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Weighted average grant date fair value per share | $ | 94.71 | $ | 84.00 | $ | 121.14 |
A summary of option activity as of December 31, 2023 and changes during the year then ended is presented below:
| Options | Shares | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | ||||||||||||||||||||||
| Outstanding, December 31, 2022 | 1.0 | $ | 181.35 | |||||||||||||||||||||||
| Granted | 0.1 | $ | 295.42 | |||||||||||||||||||||||
| Exercised | (0.3) | $ | 116.05 | |||||||||||||||||||||||
| Outstanding, December 31, 2023 | 0.8 | $ | 212.29 | 5.0 years | $ | 147 | ||||||||||||||||||||
| Vested and expected to vest, December 31, 2023 | 0.8 | $ | 212.11 | 5.0 years | $ | 147 | ||||||||||||||||||||
| Exercisable, December 31, 2023 | 0.6 | $ | 176.07 | 3.8 years | $ | 123 |
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, 2023 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, 2023. This amount varies based on the fair value of Moody’s stock. As of December 31, 2023, there was $9 million of total unrecognized compensation expense related to options. The expense is expected to be recognized over a weighted average period of 1.9 years.
110 MOODY'S 2023 10-K
The following table summarizes information relating to stock option exercises:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Proceeds from stock option exercises | $ | 32 | $ | 8 | $ | 24 | |||||||||||
| Aggregate intrinsic value | $ | 58 | $ | 9 | $ | 55 | |||||||||||
| Tax benefit realized upon exercise | $ | 14 | $ | 2 | $ | 13 |
A summary of nonvested restricted stock activity for the year ended December 31, 2023 is presented below:
| Nonvested Restricted Stock | Shares | Weighted Average Grant Date Fair Value Per Share | ||||||||||||
| Balance, December 31, 2022 | 1.3 | $ | 288.47 | |||||||||||
| Granted | 0.7 | $ | 296.05 | |||||||||||
| Vested | (0.6) | $ | 269.38 | |||||||||||
| Forfeited | (0.1) | $ | 290.39 | |||||||||||
| Balance, December 31, 2023 | 1.3 | $ | 300.39 |
As of December 31, 2023, there was $219 million of total unrecognized compensation expense related to nonvested restricted stock. The expense is expected to be recognized over a weighted average period of 2.4 years.
The following table summarizes information relating to the vesting of restricted stock awards:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Fair value of shares vested | $ | 164 | $ | 180 | $ | 194 | |||||||||||
| Tax benefit realized upon vesting | $ | 40 | $ | 42 | $ | 46 |
A summary of performance-based restricted stock activity for the year ended December 31, 2023 is presented below:
| Performance-based restricted stock | Shares | Weighted Average Grant Date Fair Value Per Share | ||||||||||||
| Balance, December 31, 2022 | 0.3 | $ | 303.80 | |||||||||||
| Granted | 0.1 | $ | 286.14 | |||||||||||
| Vested | (0.1) | $ | 273.81 | |||||||||||
| Balance, December 31, 2023 | 0.3 | $ | 308.12 |
The following table summarizes information relating to the vesting of the Company’s performance-based restricted stock awards:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Fair value of shares vested | $ | 24 | $ | 50 | $ | 28 | |||||||||||
| Tax benefit realized upon vesting | $ | 3 | $ | 7 | $ | 7 |
As of December 31, 2023, there was $24 million of total unrecognized compensation expense related to this plan. The expense is expected to be recognized over a weighted average period of 2.0 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 the New York Stock Exchange on the last trading day of each month. This discount was 5% in 2023, 2022, and 2021 resulting in the ESPP qualifying for non-compensatory status under ASC Topic 718. Accordingly, no compensation expense was recognized for the ESPP in 2023, 2022, and 2021. 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 2023 10-K 111
NOTE 17 INCOME TAXES
Components of the Company’s income tax provision are as follows:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 76 | $ | 106 | $ | 404 | |||||||||||
| State and Local | 67 | 17 | 106 | ||||||||||||||
| Non-U.S. | 222 | 215 | 249 | ||||||||||||||
| Total current | 365 | 338 | 759 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | (14) | 57 | (172) | ||||||||||||||
| State and Local | (4) | 10 | (45) | ||||||||||||||
| Non-U.S. | (20) | (19) | (1) | ||||||||||||||
| Total deferred | (38) | 48 | (218) | ||||||||||||||
| Total provision for income taxes | $ | 327 | $ | 386 | $ | 541 |
A reconciliation of the U.S. federal statutory tax rate to the Company’s ETR on income before provision for income taxes is as follows:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| U.S. statutory tax rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| State and local taxes, net of federal tax benefit | 2.5 | % | 0.8 | % | 1.5 | % | |||||||||||
| Foreign operations | 0.4 | % | (0.2) | % | (1.5) | % | |||||||||||
| Release of UTP reserves | (5.7) | % | — | % | — | % | |||||||||||
| Other | (1.3) | % | 0.3 | % | (1.4) | % | |||||||||||
| ETR | 16.9 | % | 21.9 | % | 19.6 | % | |||||||||||
| Income tax paid | $ | 344 | $ | 488 | $ | 932 |
The source of income before provision for income taxes is as follows:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| U.S. | $ | 892 | $ | 804 | $ | 1,563 | |||||||||||
| Non-U.S. | 1,043 | 956 | 1,192 | ||||||||||||||
| Income before provision for income taxes | $ | 1,935 | $ | 1,760 | $ | 2,755 |
112 MOODY'S 2023 10-K
The components of deferred tax assets and liabilities are as follows:
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Deferred tax assets: | |||||||||||
| Account receivable allowances | $ | 9 | $ | 9 | |||||||
| Accumulated depreciation and amortization | 19 | 15 | |||||||||
| Stock-based compensation | 60 | 57 | |||||||||
| Accrued compensation and benefits | 53 | 51 | |||||||||
| Capitalized costs | 25 | 27 | |||||||||
| Operating lease liabilities | 103 | 115 | |||||||||
| Deferred revenue | 200 | 206 | |||||||||
| Net operating loss | 38 | 36 | |||||||||
| Restructuring | 7 | 11 | |||||||||
| Uncertain tax positions | 29 | 68 | |||||||||
| Self-insured related reserves | 6 | 12 | |||||||||
| Other | 13 | 14 | |||||||||
| Total deferred tax assets | 562 | 621 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Accumulated depreciation and amortization of intangible assets and capitalized software | (551) | (593) | |||||||||
| ROU Assets | (67) | (82) | |||||||||
| Capital gains | (20) | (29) | |||||||||
| Self-insured related income | (6) | (12) | |||||||||
| Revenue Accounting Standard - ASC Topic 606 | (4) | (5) | |||||||||
| Deferred tax on unremitted foreign earnings | (14) | (13) | |||||||||
| Gain on net investment hedges - OCI | (5) | (48) | |||||||||
| Other | (15) | (9) | |||||||||
| Total deferred tax liabilities | (682) | (791) | |||||||||
| Net deferred tax liabilities | (120) | (170) | |||||||||
| Valuation allowance | (24) | (21) | |||||||||
| Total net deferred tax liabilities | $ | (144) | $ | (191) |
On December 22, 2017, the Tax Act was signed into law, which resulted in significant changes to U.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%. Accordingly, the Company determined the transition tax to be $236 million, with the remaining balance due of $15 million as of December 31, 2023.
As a result of the Tax Act, all previously net undistributed foreign earnings have now been subject to U.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, 2023 includes benefits from the favorable resolution of certain U.S. and non-U.S. UTPs of $120 million, excess tax benefits from stock compensation of $15 million, and other net decreases to tax positions of $13 million.
The Company had valuation allowances of $24 million and $21 million at December 31, 2023 and 2022, respectively, related to foreign net operating losses for which realization is uncertain.
As of December 31, 2023, the Company had $196 million of UTPs of which $93 million represents the amount that, if recognized, would impact the ETR in future periods. The decrease in 2021 through 2023 resulted primarily from the favorable resolution of uncertain tax positions in various U.S. and non U.S. jurisdictions.
MOODY'S 2023 10-K 113
A reconciliation of the beginning and ending amount of UTPs is as follows:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Balance as of January 1 | $ | 322 | $ | 388 | $ | 483 | |||||||||||
| Additions for tax positions related to the current year | 21 | 12 | 102 | ||||||||||||||
| Additions for tax positions of prior years | 3 | 12 | 18 | ||||||||||||||
| Reductions for tax positions of prior years | (17) | (27) | — | ||||||||||||||
| Settlements with taxing authorities | (108) | (30) | (134) | ||||||||||||||
| Lapse of statute of limitations | (25) | (33) | (81) | ||||||||||||||
| Balance as of December 31 | $ | 196 | $ | 322 | $ | 388 |
The Company classifies interest related to UTPs in interest expense in its consolidated statements of operations. Penalties, if incurred, are recognized in other non-operating (expense) income, net. Refer to Note 18 for disclosure of interest (expense) income relating to UTPs and other tax-related liabilities. As of December 31, 2023, 2022 and 2021 the amount of accrued interest recorded in the Company’s consolidated balance sheets related to UTPs was $36 million, $47 million and $59 million, respectively.
Moody’s Corporation and subsidiaries are subject to U.S. federal income tax as well as income tax in various state, local and foreign jurisdictions. The Company’s U.S. federal income tax returns for 2019 through 2020 are currently under examination and 2021 through 2022 remain open to examination. The Company’s New York City tax returns for 2015 through 2020 are currently under examination and years 2021 and 2022 are open for examination. The Company’s U.K. tax returns from 2017 to 2022 remain open to examination.
Given the number of years and nature of matters that remain subject to examination in various tax jurisdictions both in the U.S. and internationally, the Company is unable to estimate a range of possible changes to its UTPs for 2024. 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. However, the Company believes that it has adequately provided for its financial exposure relating to all open tax years, by tax jurisdiction, in accordance with ASC Topic 740.
In August 2022, the U.S. Congress passed the Inflation Reduction Act, which included a corporate minimum tax on book earnings of 15%, an excise tax on corporate share repurchases of 1%, and certain climate change and energy tax credit incentives. The adoption of a corporate minimum tax of 15% did not have a significant impact on Moody’s ETR. The excise tax of 1% on corporate share buybacks is recorded to shareholders' equity and does not have an impact on the Company’s ETR.
During 2023, multiple foreign jurisdictions in which the Company operates have enacted legislation to adopt a minimum tax rate described in the Global Anti-Base Erosion tax model rules (referred to as GloBE or Pillar Two) issued by the OECD. A minimum ETR of 15% would apply to multinational companies with consolidated revenue above €750 million, with an effective date beginning in 2024. Under the GloBE rules, a company would be required to determine a combined ETR for all entities located in a jurisdiction. If the jurisdictional tax rate is less than 15%, an additional tax generally will be due to bring the jurisdictional effective tax rate up to 15%. Through December 31, 2023, the Company continues to assess the impact of the Pillar Two minimum tax requirements for 2024. The analysis of the impact of the new requirements is currently being finalized, although it is not expected to have a material impact upon our results of operations or financial position.
114 MOODY'S 2023 10-K
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 is recorded at the carrying amount adjusted for the fair value of an interest rate swap used to hedge the fair value of the note.
The following table summarizes total indebtedness:
| December 31, 2023 | |||||||||||||||||||||||||||||
| Principal Amount | Fair Value of Interest Rate Swaps**(1)** | Unamortized (Discount) Premium | Unamortized Debt Issuance Costs | Carrying Value | |||||||||||||||||||||||||
| Notes Payable: | |||||||||||||||||||||||||||||
| 5.25% 2014 Senior Notes, due 2044 | $ | 600 | $ | (34) | $ | 3 | $ | (4) | $ | 565 | |||||||||||||||||||
| 1.75% 2015 Senior Notes, due 2027 | 552 | — | — | (1) | 551 | ||||||||||||||||||||||||
| 3.25% 2017 Senior Notes, due 2028 | 500 | (26) | (2) | (2) | 470 | ||||||||||||||||||||||||
| 4.25% 2018 Senior Notes, due 2029 | 400 | (34) | (2) | (2) | 362 | ||||||||||||||||||||||||
| 4.875% 2018 Senior Notes, due 2048 | 400 | (36) | (6) | (3) | 355 | ||||||||||||||||||||||||
| 0.950% 2019 Senior Notes, due 2030 | 829 | — | (2) | (4) | 823 | ||||||||||||||||||||||||
| 3.75% 2020 Senior Notes, due 2025 | 700 | (16) | (1) | (1) | 682 | ||||||||||||||||||||||||
| 3.25% 2020 Senior Notes, due 2050 | 300 | — | (4) | (3) | 293 | ||||||||||||||||||||||||
| 2.55% 2020 Senior Notes, due 2060 | 300 | — | (2) | (3) | 295 | ||||||||||||||||||||||||
| 2.00% 2021 Senior Notes, due 2031 | 600 | — | (6) | (4) | 590 | ||||||||||||||||||||||||
| 2.75% 2021 Senior Notes, due 2041 | 600 | — | (12) | (5) | 583 | ||||||||||||||||||||||||
| 3.10% 2021 Senior Notes, due 2061 | 500 | — | (7) | (5) | 488 | ||||||||||||||||||||||||
| 3.75% 2022 Senior Notes, due 2052 | 500 | (29) | (8) | (5) | 458 | ||||||||||||||||||||||||
| 4.25% 2022 Senior Notes, due 2032 | 500 | (8) | (2) | (4) | 486 | ||||||||||||||||||||||||
| Total long-term debt | $ | 7,281 | $ | (183) | $ | (51) | $ | (46) | $ | 7,001 |
| December 31, 2022 | |||||||||||||||||||||||||||||
| Principal Amount | Fair Value of Interest Rate Swaps (1) | Unamortized (Discount) Premium | Unamortized Debt Issuance Costs | Carrying Value | |||||||||||||||||||||||||
| Notes Payable: | |||||||||||||||||||||||||||||
| 4.875% 2013 Senior Notes, due 2024 | $ | 500 | $ | — | $ | (1) | $ | (1) | $ | 498 | |||||||||||||||||||
| 5.25% 2014 Senior Notes, due 2044 | 600 | (42) | 3 | (4) | 557 | ||||||||||||||||||||||||
| 1.75% 2015 Senior Notes due 2027 | 534 | — | — | (2) | 532 | ||||||||||||||||||||||||
| 3.25% 2017 Senior Notes, due 2028 | 500 | (37) | (3) | (2) | 458 | ||||||||||||||||||||||||
| 4.25% 2018 Senior Notes, due 2029 | 400 | (42) | (2) | (2) | 354 | ||||||||||||||||||||||||
| 4.875% 2018 Senior Notes, due 2048 | 400 | (44) | (6) | (4) | 346 | ||||||||||||||||||||||||
| 0.950% 2019 Senior Notes, due 2030 | 800 | — | (2) | (4) | 794 | ||||||||||||||||||||||||
| 3.75% 2020 Senior Notes, due 2025 | 700 | (27) | (1) | (3) | 669 | ||||||||||||||||||||||||
| 3.25% 2020 Senior Notes, due 2050 | 300 | — | (4) | (3) | 293 | ||||||||||||||||||||||||
| 2.55% 2020 Senior Notes, due 2060 | 300 | — | (2) | (3) | 295 | ||||||||||||||||||||||||
| 2.00% 2021 Senior Notes, due 2031 | 600 | — | (7) | (4) | 589 | ||||||||||||||||||||||||
| 2.75% 2021 Senior Notes, due 2041 | 600 | — | (13) | (5) | 582 | ||||||||||||||||||||||||
| 3.10% 2021 Senior Notes, due 2061 | 500 | — | (7) | (5) | 488 | ||||||||||||||||||||||||
| 3.75% 2022 Senior Note, due 2052 | 500 | (35) | (8) | (5) | 452 | ||||||||||||||||||||||||
| 4.25% 2022 Senior Note, due 2032 | 500 | (12) | (2) | (4) | 482 | ||||||||||||||||||||||||
| Total long-term debt | $ | 7,734 | $ | (239) | $ | (55) | $ | (51) | $ | 7,389 | |||||||||||||||||||
(1)The fair value of interest rate swaps in the tables above represents the cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged debt.
MOODY'S 2023 10-K 115
Credit Facility
The following summarizes information relating to the Company's revolving credit facility:
| December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||
| Issue Date | Capacity | Maturity | Drawn | Undrawn | Drawn | Undrawn | |||||||||||||||||||||||||||||||||||
| 2021 Credit Facility | December 17, 2021 | $ | 1,250 | December 17, 2026 | $ | — | $ | 1,250 | $ | — | $ | 1,250 |
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 SOFR; (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, 2023, 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.
In 2023, the Company fully repaid $500 million of the 2013 Senior Notes due 2024.
At December 31, 2023, 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, 2023, there were no such cross defaults.
The repayment schedule for the Company’s borrowings is as follows:
| Year Ending December 31, | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | $ | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 700 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2027 | 552 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2028 | 500 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Thereafter | 5,529 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 7,281 |
116 MOODY'S 2023 10-K
Interest expense, net
The following table summarizes the components of interest as presented in the consolidated statements of operations and the cash paid for interest:
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Expense on borrowings(1) | $ | (296) | $ | (216) | $ | (185) | ||||||||||||||
| Income (expense) on UTPs and other tax related liabilities(2) | 8 | (13) | 21 | |||||||||||||||||
| Net periodic pension costs - interest component | (26) | (17) | (16) | |||||||||||||||||
| Income | 63 | 15 | 9 | |||||||||||||||||
| Interest expense, net | $ | (251) | $ | (231) | $ | (171) | ||||||||||||||
| Interest paid(3) | $ | 281 | $ | 198 | $ | 162 |
(1) Expense on borrowings includes interest on long-term debt, as well as realized gains/losses related to interest rate swaps and cross currency swaps, which are more fully discussed in Note 7.
(2) The amount for the year ended December 31, 2023 reflects a $22 million reduction of tax-related interest expense primarily related to the resolutions of outstanding tax matters. 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.
(3) 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, 2023 and 2022 are as follows:
| December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | ||||||||||||||||||||
| Long-term debt | $ | 7,001 | $ | 6,402 | $ | 7,389 | $ | 6,564 |
The fair value of the Company’s debt is estimated based on quoted prices in active markets as of the reporting date, which are considered Level 1 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 first implemented a systematic share repurchase program in the third quarter of 2005 through an SEC Rule 10b5-1 program and has maintained its program since. 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, 2023:
| Date Authorized | Amount Authorized | Remaining Authority | ||||||||||||
| February 7, 2022 | $ | 750 | $ | 359 | ||||||||||
During 2023, Moody’s repurchased 1.5 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.
On February 5, 2024, the Board authorized $1 billion of additional share repurchase authority, which will commence after the utilization of the current remaining authority.
MOODY'S 2023 10-K 117
Dividends
The Company’s cash dividends were:
| Dividends Per Share | |||||||||||||||||||||||||||||||||||
| Year ended December 31, | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||||
| Declared | Paid | Declared | Paid | Declared | Paid | ||||||||||||||||||||||||||||||
| First quarter | $ | 0.77 | $ | 0.77 | $ | 0.70 | $ | 0.70 | $ | 0.62 | $ | 0.62 | |||||||||||||||||||||||
| Second quarter | 0.77 | 0.77 | 0.70 | 0.70 | 0.62 | 0.62 | |||||||||||||||||||||||||||||
| Third quarter | 0.77 | 0.77 | 0.70 | 0.70 | 0.62 | 0.62 | |||||||||||||||||||||||||||||
| Fourth quarter | 0.77 | 0.77 | 0.70 | 0.70 | 0.62 | 0.62 | |||||||||||||||||||||||||||||
| Total | $ | 3.08 | $ | 3.08 | $ | 2.80 | $ | 2.80 | $ | 2.48 | $ | 2.48 |
On February 5, 2024, the Board approved the declaration of a quarterly dividend of $0.85 per share of Moody’s common stock, payable on March 15, 2024 to shareholders of record at the close of business on February 23, 2024. The continued payment of dividends at the rate noted above, or at all, is subject to the discretion of the Board.
NOTE 20 LEASES
The Company has operating leases, substantially all of which relate to the lease of office space. The Company's leases which are classified as finance leases are not material to the consolidated financial statements. Certain of the Company's leases include options to renew, with renewal terms that can extend the lease 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, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Operating lease cost | $ | 93 | $ | 102 | $ | 98 | |||||||||||
| Sublease income | (7) | (7) | (6) | ||||||||||||||
| Variable lease cost | 22 | 20 | 19 | ||||||||||||||
| Total lease cost | $ | 108 | $ | 115 | $ | 111 |
During 2023 and 2022, the Company recorded charges of $32 million and $23 million, respectively, related to the exit of certain real estate leases that resulted in ROU Asset impairment. The charges in both years were recorded within restructuring expense in the consolidated statements of operations. Refer to Note 11 for further details.
The following tables present other information related to the Company’s operating leases:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | 119 | $ | 118 | $ | 113 | |||||||||||
| ROU Assets obtained in exchange for new operating lease liabilities | $ | 40 | $ | 35 | $ | 137 |
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | 2021 | |||||||||
| Weighted-average remaining lease term (in years) | 4.4 | 4.9 | 5.6 | ||||||||
| Weighted-average discount rate applied to operating leases | 3.2 | % | 3.1 | % | 3.1 | % |
118 MOODY'S 2023 10-K
The following table presents a maturity analysis of the future minimum lease payments included within the Company’s operating lease liabilities at December 31, 2023:
| Year Ending December 31, | Operating Leases | |||||||
| 2024 | $ | 118 | ||||||
| 2025 | 108 | |||||||
| 2026 | 89 | |||||||
| 2027 | 71 | |||||||
| 2028 | 20 | |||||||
| Thereafter | 36 | |||||||
| Total lease payments (undiscounted) | 442 | |||||||
| Less: Interest | 28 | |||||||
| Present value of lease liabilities: | $ | 414 | ||||||
| Lease liabilities - current | $ | 108 | ||||||
| Lease liabilities - noncurrent | $ | 306 |
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 the U.S. and other jurisdictions, any of which may result in claims, legal proceedings, assessments, fines, penalties or restrictions on business activities. MIS is responding to SEC requests for documents and information in connection with an investigation of MIS’s compliance with record preservation requirements relating to certain business communications sent over electronic messaging channels that have not been approved by MIS. The SEC is conducting similar investigations of the record preservation practices of other NRSROs and other registrants subject to record preservation requirements. 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 to SEC rules and other pending matters as it may determine to be appropriate.
In view of the inherent difficulty of assessing the potential outcome of legal proceedings, governmental, regulatory and legislative investigations and inquiries, claims and litigation and similar matters and contingencies, particularly when the claimants seek large or indeterminate damages or assert novel legal theories or the matters involve a large number of parties, the Company often cannot predict what the eventual outcome of the pending matters will be or the timing of any resolution of such matters. The Company also may be unable to predict the impact (if any) that any such matters may have on how its business is conducted, on its competitive position or on its financial position, results of operations or cash flows. As the process to resolve any pending matters progresses, management will continue to review the latest information available and assess its ability to predict the outcome of such matters and the effects, if any, on its operations and financial condition and to accrue for and disclose such matters as and when required. However, because such matters are inherently unpredictable and unfavorable developments or resolutions can occur, the ultimate outcome of such matters, including the amount of any loss, may differ from those estimates.
NOTE 22 SEGMENT INFORMATION
The Company is organized into two operating segments: MA and MIS and accordingly, the Company reports in two reportable segments: MA and MIS.
The MA segment develops a wide range of products and services that support the risk management activities of institutional participants in global financial markets. The MA segment consists of three LOBs - DS, R&I, and D&I.
The MIS segment consists of five LOBs. The CFG, FIG, PPIF and SFG LOBs generate revenue principally from fees for the assignment and ongoing monitoring of credit ratings on debt obligations and the entities that issue such obligations in markets worldwide. The MIS Other LOB primarily consists of financial instruments pricing services in the Asia-Pacific region, ICRA non-ratings revenue and revenue from providing professional services.
MOODY'S 2023 10-K 119
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. Additionally, 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. These intersegment fees are generally based on the market value of the products and services being transferred between the segments.
Overhead expenses include costs such as rent and occupancy, information technology and support staff such as finance, human resources and legal. Such costs and corporate expenses that exclusively benefit one segment are fully charged to that segment.
For overhead costs and corporate expenses that benefit both segments, costs are allocated to each segment based on the segment’s share of full-year 2018 actual revenue which comprises a “Baseline Pool” established in 2019, which will remain fixed over time. In subsequent periods, incremental overhead costs (or reductions thereof) will be allocated to each segment based on the prevailing shares of total revenue represented by each segment.
“Eliminations” in the following table represent intersegment revenue/expense. Moody’s does not report the Company’s assets by reportable segment, as this metric is not used by the chief operating decision maker to allocate resources to the segments. Consequently, it is not practical to show assets by reportable segment.
Financial Information by Segment
The table below shows revenue and Adjusted Operating Income by reportable segment. Adjusted Operating Income is a financial metric utilized by the Company’s chief operating decision maker to assess the profitability of each reportable segment. Refer to Note 3 for further details on the components of the Company’s revenue.
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| MA | MIS | Eliminations | Consolidated | MA | MIS | Eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||||||
| Total external revenue | $ | 3,056 | $ | 2,860 | $ | — | $ | 5,916 | $ | 2,769 | $ | 2,699 | $ | — | $ | 5,468 | |||||||||||||||||||||||||||||||
| Intersegment revenue | 13 | 186 | (199) | — | 8 | 174 | (182) | — | |||||||||||||||||||||||||||||||||||||||
| Revenue | 3,069 | 3,046 | (199) | 5,916 | 2,777 | 2,873 | (182) | 5,468 | |||||||||||||||||||||||||||||||||||||||
| Operating, SG&A | 2,132 | 1,386 | (199) | 3,319 | 1,937 | 1,385 | (182) | 3,140 | |||||||||||||||||||||||||||||||||||||||
| Adjusted Operating Income | 937 | 1,660 | — | 2,597 | 840 | 1,488 | — | 2,328 | |||||||||||||||||||||||||||||||||||||||
| Add: | |||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 298 | 75 | — | 373 | 250 | 81 | — | 331 | |||||||||||||||||||||||||||||||||||||||
| Restructuring | 59 | 28 | — | 87 | 49 | 65 | — | 114 | |||||||||||||||||||||||||||||||||||||||
| Operating Income | $ | 2,137 | $ | 1,883 |
| Year Ended December 31, 2021 | |||||||||||||||||||||||
| MA | MIS | Eliminations | Consolidated | ||||||||||||||||||||
| Total external revenue | $ | 2,406 | $ | 3,812 | $ | — | $ | 6,218 | |||||||||||||||
| Intersegment revenue | 7 | 165 | (172) | — | |||||||||||||||||||
| Revenue | 2,413 | 3,977 | (172) | 6,218 | |||||||||||||||||||
| Operating, SG&A | 1,786 | 1,503 | (172) | 3,117 | |||||||||||||||||||
| Adjusted Operating Income | 627 | 2,474 | — | 3,101 | |||||||||||||||||||
| Add: | |||||||||||||||||||||||
| Depreciation and amortization | 185 | 72 | — | 257 | |||||||||||||||||||
| Restructuring | 1 | (1) | — | — | |||||||||||||||||||
| Operating income | $ | 2,844 |
The table below shows cumulative restructuring expense incurred through December 31, 2023 by reportable segment.
| MA | MIS | Total | |||||||||||||||
| 2022 - 2023 Geolocation Restructuring Program | $ | 108 | $ | 92 | $ | 200 |
The 2022 - 2023 Geolocation Restructuring program is more fully discussed in Note 11.
120 MOODY'S 2023 10-K
CONSOLIDATED REVENUE AND LONG-LIVED ASSETS INFORMATION BY GEOGRAPHIC AREA
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Revenue: | |||||||||||||||||
| U.S. | $ | 3,098 | $ | 2,873 | $ | 3,383 | |||||||||||
| Non-U.S.: | |||||||||||||||||
| EMEA | 1,848 | 1,682 | 1,885 | ||||||||||||||
| Asia-Pacific | 577 | 556 | 603 | ||||||||||||||
| Americas | 393 | 357 | 347 | ||||||||||||||
| Total Non-U.S. | 2,818 | 2,595 | 2,835 | ||||||||||||||
| Total | $ | 5,916 | $ | 5,468 | $ | 6,218 | |||||||||||
| Long-lived assets at December 31: | |||||||||||||||||
| U.S. | $ | 4,323 | $ | 4,408 | $ | 4,449 | |||||||||||
| Non-U.S. | 4,562 | 4,489 | 4,802 | ||||||||||||||
| Total | $ | 8,885 | $ | 8,897 | $ | 9,251 |
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:
| Year Ended December 31, | Balance at Beginning of the Year | Charged to costs and expenses | Deductions (1) | Balance at End of the Year | ||||||||||||||||||||||
| 2023 | ||||||||||||||||||||||||||
| Allowances for credit losses | $ | (40) | $ | (22) | $ | 27 | $ | (35) | ||||||||||||||||||
| Deferred tax assets—valuation allowance | $ | (21) | $ | (2) | $ | (1) | $ | (24) | ||||||||||||||||||
| 2022 | ||||||||||||||||||||||||||
| Allowances for credit losses | $ | (32) | $ | (25) | $ | 17 | $ | (40) | ||||||||||||||||||
| Deferred tax assets—valuation allowance | $ | (18) | $ | (4) | $ | 1 | $ | (21) | ||||||||||||||||||
| 2021 | ||||||||||||||||||||||||||
| Allowances for credit losses | $ | (34) | $ | (13) | $ | 15 | $ | (32) | ||||||||||||||||||
| Deferred tax assets—valuation allowance | $ | (15) | $ | (4) | $ | 1 | $ | (18) |
(1)Reflects write-off of uncollectible accounts receivable or expiration of foreign net operating tax losses.
MOODY'S 2023 10-K 121
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, | |||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||
| FX loss(1) | $ | (30) | $ | (10) | $ | (1) | |||||||||||||||||
| Purchase price hedge loss(2) | — | — | (13) | ||||||||||||||||||||
| Net periodic pension income - non-service and non-interest cost components | 35 | 24 | 9 | ||||||||||||||||||||
| Income from investments in non-consolidated affiliates(3) | 19 | 17 | 60 | ||||||||||||||||||||
| Gain (loss) on investments | 14 | (14) | 13 | ||||||||||||||||||||
| Other | 11 | 21 | 14 | ||||||||||||||||||||
| Total | $ | 49 | $ | 38 | $ | 82 |
(1) The amount for the year ended December 31, 2023 includes a $23 million loss recorded pursuant to an immaterial out-of-period adjustment relating to the 2022 fiscal year. The amount for the year ended December 31, 2022 includes FX translation losses of $20 million reclassified to earnings resulting from the Company no longer conducting commercial operations in Russia.
(2) The amount for the year ended December 31, 2021 reflects a loss on a forward contract to hedge a portion of the RMS British pound-denominated purchase price.
(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 BitSight, a cybersecurity ratings company.
122 MOODY'S 2023 10-K
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