filings.toolsItem 1. Financial Statements
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Item 1. Financial Statements
MOODY’S CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in millions, except per share data)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Revenue | $ | 1,526 | $ | 1,356 | $ | 4,679 | $ | 4,081 | |||||||||||||||
| Expenses | |||||||||||||||||||||||
| Operating | 394 | 364 | 1,152 | 1,066 | |||||||||||||||||||
| Selling, general and administrative | 395 | 271 | 1,015 | 879 | |||||||||||||||||||
| Depreciation and amortization | 61 | 56 | 180 | 163 | |||||||||||||||||||
| Restructuring | — | 23 | 2 | 20 | |||||||||||||||||||
| Loss pursuant to the divestiture of MAKS | — | — | — | 9 | |||||||||||||||||||
| Total expenses | 850 | 714 | 2,349 | 2,137 | |||||||||||||||||||
| Operating income | 676 | 642 | 2,330 | 1,944 | |||||||||||||||||||
| Non-operating (expense) income, net | |||||||||||||||||||||||
| Interest expense, net | (53) | (53) | (109) | (153) | |||||||||||||||||||
| Other non-operating (expense) income, net | (4) | 10 | 18 | 38 | |||||||||||||||||||
| Total non-operating (expense) income, net | (57) | (43) | (91) | (115) | |||||||||||||||||||
| Income before provision for income taxes | 619 | 599 | 2,239 | 1,829 | |||||||||||||||||||
| Provision for income taxes | 145 | 132 | 452 | 366 | |||||||||||||||||||
| Net income | 474 | 467 | 1,787 | 1,463 | |||||||||||||||||||
| Less: Net income (loss) attributable to noncontrolling interests | — | — | — | (1) | |||||||||||||||||||
| Net income attributable to Moody's | $ | 474 | $ | 467 | $ | 1,787 | $ | 1,464 | |||||||||||||||
| Earnings per share attributable to Moody's common shareholders | |||||||||||||||||||||||
| Basic | $ | 2.55 | $ | 2.49 | $ | 9.58 | $ | 7.80 | |||||||||||||||
| Diluted | $ | 2.53 | $ | 2.47 | $ | 9.51 | $ | 7.73 | |||||||||||||||
| Weighted average number of shares outstanding | |||||||||||||||||||||||
| Basic | 186.0 | 187.8 | 186.6 | 187.6 | |||||||||||||||||||
| Diluted | 187.3 | 189.3 | 188.0 | 189.3 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
MOODY’S CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Amounts in millions)
| Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||
| Pre-tax amounts | Tax amounts | After-tax amounts | Pre-tax amounts | Tax amounts | After-tax amounts | ||||||||||||||||||||||||||||||
| Net Income | $ | 474 | $ | 467 | |||||||||||||||||||||||||||||||
| Other Comprehensive Income (Loss): | |||||||||||||||||||||||||||||||||||
| Foreign Currency Adjustments: | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments, net | $ | (124) | $ | 5 | (119) | $ | 204 | $ | (17) | 187 | |||||||||||||||||||||||||
| Net gains (losses) on net investment hedges | 99 | (26) | 73 | (191) | 48 | (143) | |||||||||||||||||||||||||||||
| Cash Flow Hedges: | |||||||||||||||||||||||||||||||||||
| Reclassification of losses included in net income | 1 | — | 1 | — | — | — | |||||||||||||||||||||||||||||
| Pension and Other Retirement Benefits: | |||||||||||||||||||||||||||||||||||
| Amortization of actuarial losses/prior service costs and settlement charge included in net income | 3 | (1) | 2 | 2 | — | 2 | |||||||||||||||||||||||||||||
| Net actuarial gains (losses) and prior service costs | 4 | (1) | 3 | (9) | 2 | (7) | |||||||||||||||||||||||||||||
| Total other comprehensive income (loss) | $ | (17) | $ | (23) | $ | (40) | $ | 6 | $ | 33 | $ | 39 | |||||||||||||||||||||||
| Comprehensive income | 434 | 506 | |||||||||||||||||||||||||||||||||
| Less: comprehensive (loss) income attributable to noncontrolling interests | (3) | 1 | |||||||||||||||||||||||||||||||||
| Comprehensive Income Attributable to Moody's | $ | 437 | $ | 505 |
| Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||
| Pre-tax amounts | Tax amounts | After-tax amounts | Pre-tax amounts | Tax amounts | After-tax amounts | ||||||||||||||||||||||||||||||
| Net Income | $ | 1,787 | $ | 1,463 | |||||||||||||||||||||||||||||||
| Other Comprehensive Income (Loss): | |||||||||||||||||||||||||||||||||||
| Foreign Currency Adjustments: | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments, net | $ | (234) | $ | 9 | (225) | $ | 107 | $ | (11) | 96 | |||||||||||||||||||||||||
| Net gains (losses) on net investment hedges | 233 | (56) | 177 | (169) | 42 | (127) | |||||||||||||||||||||||||||||
| Net investment hedges - reclassification of gains included in net income | (2) | 1 | (1) | — | — | — | |||||||||||||||||||||||||||||
| Cash Flow Hedges: | |||||||||||||||||||||||||||||||||||
| Net losses on cash flow hedges | — | — | — | (68) | 18 | (50) | |||||||||||||||||||||||||||||
| Reclassification of losses included in net income | 2 | — | 2 | 1 | — | 1 | |||||||||||||||||||||||||||||
| Pension and Other Retirement Benefits: | |||||||||||||||||||||||||||||||||||
| Amortization of actuarial losses/prior service costs and settlement charge included in net income | 16 | (4) | 12 | 5 | (1) | 4 | |||||||||||||||||||||||||||||
| Net actuarial gains (losses) and prior service costs | 4 | (1) | 3 | (1) | — | (1) | |||||||||||||||||||||||||||||
| Total other comprehensive income (loss) | $ | 19 | $ | (51) | $ | (32) | $ | (125) | $ | 48 | $ | (77) | |||||||||||||||||||||||
| Comprehensive income | 1,755 | 1,386 | |||||||||||||||||||||||||||||||||
| Less: comprehensive income (loss) attributable to noncontrolling interests | (2) | (12) | |||||||||||||||||||||||||||||||||
| Comprehensive Income Attributable to Moody's | $ | 1,757 | $ | 1,398 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
MOODY’S CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in millions, except share and per share data)
| September 30, 2021 | December 31, 2020 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 2,239 | $ | 2,597 | |||||||
| Short-term investments | 104 | 99 | |||||||||
| Accounts receivable, net of allowance for credit losses of $35 in 2021 and $34 in 2020 | 1,589 | 1,430 | |||||||||
| Other current assets | 323 | 383 | |||||||||
| Total current assets | 4,255 | 4,509 | |||||||||
| Property and equipment, net of accumulated depreciation of $988 in 2021 and $928 in 2020 | 301 | 278 | |||||||||
| Operating lease right-of-use assets | 451 | 393 | |||||||||
| Goodwill | 5,898 | 4,556 | |||||||||
| Intangible assets, net | 2,510 | 1,824 | |||||||||
| Deferred tax assets, net | 363 | 334 | |||||||||
| Other assets | 636 | 515 | |||||||||
| Total assets | $ | 14,414 | $ | 12,409 | |||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued liabilities | $ | 1,084 | $ | 1,039 | |||||||
| Current portion of operating lease liabilities | 103 | 94 | |||||||||
| Current portion of long-term debt | 507 | — | |||||||||
| Deferred revenue | 1,099 | 1,089 | |||||||||
| Total current liabilities | 2,793 | 2,222 | |||||||||
| Non-current portion of deferred revenue | 87 | 98 | |||||||||
| Long-term debt | 6,969 | 6,422 | |||||||||
| Deferred tax liabilities, net | 564 | 404 | |||||||||
| Uncertain tax positions | 492 | 483 | |||||||||
| Operating lease liabilities | 470 | 427 | |||||||||
| Other liabilities | 420 | 590 | |||||||||
| Total liabilities | 11,795 | 10,646 | |||||||||
| Contingencies (Note 18) | |||||||||||
| Shareholders' equity: | |||||||||||
| Preferred stock, par value $0.01 per share; 10,000,000 shares authorized; no shares issued and outstanding | — | — | |||||||||
| Series common stock, par value $0.01 per share; 10,000,000 shares authorized; no shares issued and outstanding | — | — | |||||||||
| Common stock, par value $0.01 per share; 1,000,000,000 shares authorized; 342,902,272 shares issued at September 30, 2021 and December 31, 2020, respectively. | 3 | 3 | |||||||||
| Capital surplus | 832 | 735 | |||||||||
| Retained earnings | 12,451 | 11,011 | |||||||||
| Treasury stock, at cost; 157,002,502 and 155,808,563 shares of common stock at September 30, 2021 and December 31, 2020 | (10,394) | (9,748) | |||||||||
| Accumulated other comprehensive loss | (462) | (432) | |||||||||
| Total Moody's shareholders' equity | 2,430 | 1,569 | |||||||||
| Noncontrolling interests | 189 | 194 | |||||||||
| Total shareholders' equity | 2,619 | 1,763 | |||||||||
| Total liabilities, noncontrolling interests and shareholders' equity | $ | 14,414 | $ | 12,409 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
MOODY’S CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in millions)
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net income | $ | 1,787 | $ | 1,463 | |||||||
| Reconciliation of net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 180 | 163 | |||||||||
| Stock-based compensation | 127 | 110 | |||||||||
| Deferred income taxes | (79) | (1) | |||||||||
| ROU Asset impairment & other non-cash restructuring/impairment charges | — | 23 | |||||||||
| Loss pursuant to the divestiture of MAKS | — | 9 | |||||||||
| Settlement of treasury rate lock | — | (68) | |||||||||
| Prepayment penalty relating to early redemption of debt | — | 24 | |||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable | (137) | 73 | |||||||||
| Other current assets | 64 | (8) | |||||||||
| Other assets | (7) | (89) | |||||||||
| Accounts payable and accrued liabilities | (20) | (28) | |||||||||
| Deferred revenue | (75) | (171) | |||||||||
| Unrecognized tax benefits and other non-current tax liabilities | (79) | (9) | |||||||||
| Other liabilities | (55) | (3) | |||||||||
| Net cash provided by operating activities | 1,706 | 1,488 | |||||||||
| Cash flows from investing activities | |||||||||||
| Capital additions | (77) | (83) | |||||||||
| Purchases of investments | (137) | (130) | |||||||||
| Sales and maturities of investments | 102 | 57 | |||||||||
| Cash paid for acquisitions, net of cash acquired | (2,026) | (699) | |||||||||
| Receipts from settlements of net investment hedges | 26 | 2 | |||||||||
| Payments for settlements of net investment hedges | (49) | — | |||||||||
| Net cash used in investing activities | (2,161) | (853) | |||||||||
| Cash flows from financing activities | |||||||||||
| Issuance of notes | 1,178 | 1,491 | |||||||||
| Repayment of notes | — | (800) | |||||||||
| Issuance of commercial paper | — | 789 | |||||||||
| Repayment of commercial paper | — | (792) | |||||||||
| Proceeds from stock-based compensation plans | 30 | 41 | |||||||||
| Repurchase of shares related to stock-based compensation | (82) | (101) | |||||||||
| Treasury shares | (628) | (253) | |||||||||
| Dividends | (347) | (315) | |||||||||
| Debt issuance costs, extinguishment costs and related fees | (13) | (39) | |||||||||
| Dividends to noncontrolling interest | (3) | (1) | |||||||||
| Payment to acquire noncontrolling interests | — | (17) | |||||||||
| Net cash provided by financing activities | 135 | 3 | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (38) | 22 | |||||||||
| (Decrease) increase in cash and cash equivalents | (358) | 660 | |||||||||
| Cash and cash equivalents, beginning of period | 2,597 | 1,832 | |||||||||
| Cash and cash equivalents, end of period | $ | 2,239 | $ | 2,492 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
MOODY’S CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
(Amounts in millions, except per share data)
| Shareholders of Moody's Corporation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Capital Surplus | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total Moody's Shareholders' Equity | Non- Controlling Interests | Total Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | 342.9 | $ | 3 | $ | 651 | $ | 10,442 | (155.2) | $ | (9,513) | $ | (542) | $ | 1,041 | $ | 191 | $ | 1,232 | |||||||||||||||||||||||||||||||||||||||||
| Net income | 467 | 467 | — | 467 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends ($0.56 per share) | (105) | (105) | (1) | (106) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 38 | 38 | 38 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for stock-based compensation plans at average cost, net | 10 | 0.1 | 8 | 18 | 18 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment, net of net investment hedge activity (net of tax of $31 million) | 43 | 43 | 1 | 44 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net actuarial gains and prior service costs (net of tax of $2 million) | (7) | (7) | (7) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of prior service costs and actuarial losses | 2 | 2 | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2020 | 342.9 | $ | 3 | $ | 699 | $ | 10,804 | (155.1) | $ | (9,505) | $ | (504) | $ | 1,497 | $ | 191 | $ | 1,688 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
MOODY'S CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
(Amounts in millions, except per share data)
| Shareholders of Moody's Corporation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Capital Surplus | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total Moody's Shareholders' Equity | Non- Controlling Interests | Total Shareholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | 342.9 | $ | 3 | $ | 642 | $ | 9,656 | (155.2) | $ | (9,250) | $ | (439) | $ | 612 | $ | 219 | $ | 831 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 1,464 | 1,464 | — | 1,464 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends ($1.68 per share) | (314) | (314) | (1) | (315) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adoption of Credit Losses Accounting Standard | (2) | (2) | (2) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 110 | 110 | 110 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for stock-based compensation plans at average cost, net | (51) | 1.2 | (2) | (53) | (53) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of noncontrolling interest | (2) | (2) | (15) | (17) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Treasury shares repurchased | (1.1) | (253) | (253) | (253) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment, net of net investment hedge activity (net of tax of $31 million) | (19) | (19) | (12) | (31) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net actuarial losses and prior service costs | (1) | (1) | (1) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of prior service costs and actuarial losses (net of tax of $1 million) | 4 | 4 | 4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized gain on cash flow hedges (net of tax of $18 million) | (49) | (49) | (49) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2020 | 342.9 | $ | 3 | $ | 699 | $ | 10,804 | (155.1) | $ | (9,505) | $ | (504) | $ | 1,497 | $ | 191 | $ | 1,688 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
MOODY'S CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
(Amounts in millions, except per share data)
| Shareholders of Moody's Corporation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Capital Surplus | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total Moody's Shareholders' Equity | Non- Controlling Interests | Total Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | 342.9 | $ | 3 | $ | 784 | $ | 12,094 | (156.7) | $ | (10,270) | $ | (425) | $ | 2,186 | $ | 194 | $ | 2,380 | |||||||||||||||||||||||||||||||||||||||||
| Net income | 474 | 474 | — | 474 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends ($0.62 per share) | (117) | (117) | (2) | (119) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 41 | 41 | 41 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for stock-based compensation plans at average cost, net | 7 | — | 1 | 8 | 8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Treasury shares repurchased | (0.3) | (125) | (125) | (125) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment, net of net investment hedge activity (net of tax of $21 million) | (43) | (43) | (3) | (46) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net actuarial gains and prior service costs (net of tax of $1 million) | 3 | 3 | 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of prior service costs/actuarial losses and settlement charge (net of tax of $1 million) | 2 | 2 | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net realized gain on cash flow hedges | 1 | 1 | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | 342.9 | $ | 3 | $ | 832 | $ | 12,451 | (157.0) | $ | (10,394) | $ | (462) | $ | 2,430 | $ | 189 | $ | 2,619 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
MOODY'S CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY UNAUDITED)
(Amounts in millions, except per share data)
| Shareholders of Moody's Corporation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Capital Surplus | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total Moody's Shareholders' Equity | Non- Controlling Interests | Total Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 342.9 | $ | 3 | $ | 735 | $ | 11,011 | (155.8) | $ | (9,748) | $ | (432) | $ | 1,569 | $ | 194 | $ | 1,763 | |||||||||||||||||||||||||||||||||||||||||
| Net income | 1,787 | 1,787 | — | 1,787 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends ($1.86 per share) | (347) | (347) | (3) | (350) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 127 | 127 | 127 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for stock-based compensation plans at average cost, net | (30) | 0.7 | (18) | (48) | (48) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Treasury shares repurchased | (1.9) | (628) | (628) | (628) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment, net of net investment hedge activity (net of tax of $46 million) | (47) | (47) | (2) | (49) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net actuarial gains and prior service costs (net of tax of 1 million) | 3 | 3 | 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of prior service costs/actuarial losses and settlement charge (net of tax of $4 million) | 12 | 12 | 12 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized gain on cash flow hedges | 2 | 2 | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | 342.9 | $ | 3 | $ | 832 | $ | 12,451 | (157.0) | $ | (10,394) | $ | (462) | $ | 2,430 | $ | 189 | $ | 2,619 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
MOODY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(tabular dollar and share amounts in millions, except per share data)
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Moody’s is a global integrated risk assessment firm that empowers organizations and investors to make better decisions. Moody’s reports in two reportable segments: MIS and MA.
MIS publishes credit ratings and provides assessment services on a wide range of debt obligations and the entities that issue such obligations in markets worldwide. Revenue is primarily derived from the originators and issuers of such transactions who use MIS ratings in the distribution of their debt issues to investors. Additionally, MIS earns revenue from certain non-ratings-related operations which consist primarily of financial instrument pricing services in the Asia-Pacific region, revenue from providing ESG research, data and assessments and revenue from ICRA’s non-ratings operations. The revenue from these operations is included in the MIS Other LOB and is not material to the results of the MIS segment.
MA is a global provider of data and analytic solutions which help companies make better and faster decisions. MA’s analytic models, industry insights, software tools and proprietary data assets allow companies to inform and perform many critical business activities with trust and confidence. MA’s approach to aggregating, broadening and deepening available data, research, analytic tools and software solutions fosters a more integrated and efficient delivery to MA's customers resulting in better decisions around risks and opportunities.
These interim financial statements have been prepared in accordance with the instructions to Form 10-Q and should be read in conjunction with the Company’s consolidated financial statements and related notes in the Company’s 2020 annual report on Form 10-K filed with the SEC on February 22, 2021. The results of interim periods are not necessarily indicative of results for the full year or any subsequent period. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
Certain reclassifications have been made to prior period amounts to conform to the current presentation.
Adoption of New Accounting Standards
On January 1, 2021, the Company adopted ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825 Financial Instruments.” This ASU clarifies and improves guidance related to the recently issued standards updates on credit losses, hedging, and recognition and measurement of financial instruments. The Company adopted this ASU prospectively and it did not have a material impact on the Company's current financial statements.
On January 1, 2021, the Company adopted ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." This ASU simplifies the accounting for income taxes by eliminating certain exceptions to the general principles in Topic 740, Income Taxes, and clarifies certain aspects of the existing guidance to promote consistency among reporting entities. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company adopted this ASU prospectively and it did not have a material impact on the Company's current financial statements.
Recently Issued Accounting Standards
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. ASU No. 2020-04 provides temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. Both ASU's were effective upon issuance, and the Company may elect to apply the amendments prospectively through December 31, 2022 as the transition from LIBOR is completed.
In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers" ("ASU No. 2021-08"). ASU No. 2021-08 will require companies to apply the definition of a performance obligation under ASC Topic 606 to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business combination. Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU No. 2021-08 will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. ASU No. 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its financial statements.
COVID-19
The COVID-19 pandemic has not had a material adverse impact on the Company's reported results to date and is currently not expected to have a material adverse impact on its near-term outlook. However, Moody's is unable to predict the longer-term impact that the pandemic may have on its business, future results of operations, financial position or cash flows due to numerous uncertainties.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pursuant to a strategic reorganization in the MA operating segment which was completed in the second quarter of 2021, the Company realigned its MA reporting units used in assessing goodwill for impairment as of June 30, 2021. Accordingly, the Company revised its accounting policy for goodwill to reflect the change in MA's reporting units, which is discussed below. All other significant accounting policies described in the Form 10-K for the year ended December 31, 2020 remain unchanged. This reorganization did not result in a change to the Company's reportable segments.
Goodwill
Moody’s evaluates its goodwill for impairment at the reporting unit level, defined as an operating segment (i.e., MIS and MA), or one level below an operating segment (i.e., a component of an operating segment), annually as 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, reporting unit realignments or if there are indicators of potential impairment. For the reporting units where the Company is consistently able to conclude that no impairment exists using only a qualitative approach, the Company’s accounting policy is to perform the second step of the aforementioned goodwill impairment assessment at least once every three years. Goodwill is assigned to a reporting unit at the date when an acquisition is integrated into one of the established reporting units, and is based on which reporting unit is expected to benefit from the synergies of the acquisition.
Prior to the second quarter of 2021, MA's reporting unit structure consisted of five reporting units (Content, ERS, MALS, Bureau van Dijk and Reis). Pursuant to a strategic reorganization in the MA segment which was completed in the second quarter of 2021, MA's reporting unit structure has been reorganized into two reporting units. MA’s two new reporting units generally consist of: i) businesses offering data and data-driven analytical solutions; and ii) risk-management software, workflow and CRE solutions.
The Company performed qualitative assessments of the reporting units impacted by the reorganization immediately before and after the reorganization became effective. These qualitative assessments resulted in the Company determining that it was not more likely than not that the fair value of any reporting unit was less than its carrying amount.
The Company performed a quantitative assessment on the new reporting units as of July 31, 2021, the date of the Company’s annual goodwill impairment assessment. This quantitative assessment provided new baseline valuations under the new reporting unit structure and did not result in any impairment of goodwill.
NOTE 3. REVENUES
Revenue by Category
The following table presents the Company’s revenues disaggregated by LOB:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| MIS: | |||||||||||||||||||||||
| Corporate finance (CFG) | |||||||||||||||||||||||
| Investment-grade | $ | 105 | $ | 141 | $ | 341 | $ | 576 | |||||||||||||||
| High-yield | 82 | 101 | 347 | 275 | |||||||||||||||||||
| Bank loans | 145 | 73 | 482 | 205 | |||||||||||||||||||
| Other accounts (1) | 156 | 146 | 473 | 430 | |||||||||||||||||||
| Total CFG | 488 | 461 | 1,643 | 1,486 | |||||||||||||||||||
| Financial institutions (FIG) | |||||||||||||||||||||||
| Banking | 105 | 95 | 315 | 269 | |||||||||||||||||||
| Insurance | 38 | 31 | 114 | 105 | |||||||||||||||||||
| Managed investments | 8 | 6 | 29 | 20 | |||||||||||||||||||
| Other accounts | 2 | 2 | 7 | 7 | |||||||||||||||||||
| Total FIG | 153 | 134 | 465 | 401 | |||||||||||||||||||
| Public, project and infrastructure finance (PPIF) | |||||||||||||||||||||||
| Public finance / sovereign | 61 | 71 | 191 | 192 | |||||||||||||||||||
| Project and infrastructure | 69 | 62 | 212 | 183 | |||||||||||||||||||
| Total PPIF | 130 | 133 | 403 | 375 | |||||||||||||||||||
| Structured finance (SFG) | |||||||||||||||||||||||
| Asset-backed securities | 29 | 25 | 88 | 70 | |||||||||||||||||||
| RMBS | 31 | 24 | 89 | 74 | |||||||||||||||||||
| CMBS | 26 | 15 | 73 | 45 | |||||||||||||||||||
| Structured credit | 57 | 24 | 148 | 74 | |||||||||||||||||||
| Other accounts | — | — | 1 | 2 | |||||||||||||||||||
| Total SFG | 143 | 88 | 399 | 265 | |||||||||||||||||||
| Total ratings revenue | 914 | 816 | 2,910 | 2,527 | |||||||||||||||||||
| MIS Other | 11 | 9 | 31 | 30 | |||||||||||||||||||
| Total external revenue | 925 | 825 | 2,941 | 2,557 | |||||||||||||||||||
| Intersegment revenue | 42 | 38 | 124 | 110 | |||||||||||||||||||
| Total MIS | 967 | 863 | 3,065 | 2,667 | |||||||||||||||||||
| MA: | |||||||||||||||||||||||
| Research, data and analytics (RD&A) | 445 | 386 | 1,299 | 1,110 | |||||||||||||||||||
| Enterprise risk solutions (ERS) | 156 | 145 | 439 | 414 | |||||||||||||||||||
| Total external revenue | 601 | 531 | 1,738 | 1,524 | |||||||||||||||||||
| Intersegment revenue | 2 | 1 | 6 | 5 | |||||||||||||||||||
| Total MA | 603 | 532 | 1,744 | 1,529 | |||||||||||||||||||
| Eliminations | (44) | (39) | (130) | (115) | |||||||||||||||||||
| Total MCO | $ | 1,526 | $ | 1,356 | $ | 4,679 | $ | 4,081 |
(1) Other includes: recurring monitoring fees of a rated debt obligation and/or entities that issue such obligations as well as fees from programs such as commercial paper, medium term notes, and ICRA corporate finance revenue.
The following table presents the Company’s revenues disaggregated by LOB and geographic area:
| Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||
| U.S. | Non-U.S | Total | U.S. | Non-U.S | Total | ||||||||||||||||||||||||||||||
| MIS: | |||||||||||||||||||||||||||||||||||
| Corporate finance | $ | 334 | $ | 154 | $ | 488 | $ | 311 | $ | 150 | $ | 461 | |||||||||||||||||||||||
| Financial institutions | 71 | 82 | 153 | 59 | 75 | 134 | |||||||||||||||||||||||||||||
| Public, project and infrastructure finance | 76 | 54 | 130 | 82 | 51 | 133 | |||||||||||||||||||||||||||||
| Structured finance | 98 | 45 | 143 | 54 | 34 | 88 | |||||||||||||||||||||||||||||
| Total ratings revenue | 579 | 335 | 914 | 506 | 310 | 816 | |||||||||||||||||||||||||||||
| MIS Other | 1 | 10 | 11 | — | 9 | 9 | |||||||||||||||||||||||||||||
| Total MIS | 580 | 345 | 925 | 506 | 319 | 825 | |||||||||||||||||||||||||||||
| MA: | |||||||||||||||||||||||||||||||||||
| Research, data and analytics | 203 | 242 | 445 | 167 | 219 | 386 | |||||||||||||||||||||||||||||
| Enterprise risk solutions | 61 | 95 | 156 | 56 | 89 | 145 | |||||||||||||||||||||||||||||
| Total MA | 264 | 337 | 601 | 223 | 308 | 531 | |||||||||||||||||||||||||||||
| Total MCO | $ | 844 | $ | 682 | $ | 1,526 | $ | 729 | $ | 627 | $ | 1,356 | |||||||||||||||||||||||
| Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||
| U.S. | Non-U.S | Total | U.S. | Non-U.S | Total | ||||||||||||||||||||||||||||||
| MIS: | |||||||||||||||||||||||||||||||||||
| Corporate finance | $ | 1,093 | $ | 550 | $ | 1,643 | $ | 1,038 | $ | 448 | $ | 1,486 | |||||||||||||||||||||||
| Financial institutions | 226 | 239 | 465 | 189 | 212 | 401 | |||||||||||||||||||||||||||||
| Public, project and infrastructure finance | 233 | 170 | 403 | 237 | 138 | 375 | |||||||||||||||||||||||||||||
| Structured finance | 254 | 145 | 399 | 160 | 105 | 265 | |||||||||||||||||||||||||||||
| Total ratings revenue | 1,806 | 1,104 | 2,910 | 1,624 | 903 | 2,527 | |||||||||||||||||||||||||||||
| MIS Other | 3 | 28 | 31 | 1 | 29 | 30 | |||||||||||||||||||||||||||||
| Total MIS | 1,809 | 1,132 | 2,941 | 1,625 | 932 | 2,557 | |||||||||||||||||||||||||||||
| MA: | |||||||||||||||||||||||||||||||||||
| Research, data and analytics | 576 | 723 | 1,299 | 492 | 618 | 1,110 | |||||||||||||||||||||||||||||
| Enterprise risk solutions | 175 | 264 | 439 | 163 | 251 | 414 | |||||||||||||||||||||||||||||
| Total MA | 751 | 987 | 1,738 | 655 | 869 | 1,524 | |||||||||||||||||||||||||||||
| Total MCO | $ | 2,560 | $ | 2,119 | $ | 4,679 | $ | 2,280 | $ | 1,801 | $ | 4,081 |
The following table presents the Company’s reportable segment revenues disaggregated by segment and geographic region:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| MIS: | |||||||||||||||||||||||
| U.S. | $ | 580 | $ | 506 | $ | 1,809 | $ | 1,625 | |||||||||||||||
| Non-U.S.: | |||||||||||||||||||||||
| EMEA | 211 | 188 | 707 | 542 | |||||||||||||||||||
| Asia-Pacific | 90 | 99 | 287 | 270 | |||||||||||||||||||
| Americas | 44 | 32 | 138 | 120 | |||||||||||||||||||
| Total Non-U.S. | 345 | 319 | 1,132 | 932 | |||||||||||||||||||
| Total MIS | 925 | 825 | 2,941 | 2,557 | |||||||||||||||||||
| MA: | |||||||||||||||||||||||
| U.S. | 264 | 223 | 751 | 655 | |||||||||||||||||||
| Non-U.S.: | |||||||||||||||||||||||
| EMEA | 228 | 213 | 691 | 595 | |||||||||||||||||||
| Asia-Pacific | 59 | 57 | 173 | 166 | |||||||||||||||||||
| Americas | 50 | 38 | 123 | 108 | |||||||||||||||||||
| Total Non-U.S. | 337 | 308 | 987 | 869 | |||||||||||||||||||
| Total MA | 601 | 531 | 1,738 | 1,524 | |||||||||||||||||||
| Total MCO | $ | 1,526 | $ | 1,356 | $ | 4,679 | $ | 4,081 |
The following tables summarize the split between transaction and recurring revenue. In the MIS segment, excluding MIS Other, transaction revenue represents the initial rating of a new debt issuance as well as other one-time fees while recurring revenue represents the recurring monitoring fees of a rated debt obligation and/or entities that issue such obligations, as well as revenue from programs such as commercial paper, medium-term notes and shelf registrations. In MIS Other, transaction revenue represents revenue from professional services and recurring revenue represents subscription-based revenues. In the MA segment, recurring revenue represents subscription-based revenues and software maintenance revenue. Transaction revenue in MA represents perpetual software license fees and revenue from software implementation services, risk management advisory projects, and training and certification services.
| Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||||||||||||||
| Transaction | Recurring | Total | Transaction | Recurring | Total | ||||||||||||||||||||||||||||||
| Corporate Finance | $ | 366 | $ | 122 | $ | 488 | $ | 347 | $ | 114 | $ | 461 | |||||||||||||||||||||||
| 75 | % | 25 | % | 100 | % | 75 | % | 25 | % | 100 | % | ||||||||||||||||||||||||
| Financial Institutions | $ | 83 | $ | 70 | $ | 153 | $ | 67 | $ | 67 | $ | 134 | |||||||||||||||||||||||
| 54 | % | 46 | % | 100 | % | 50 | % | 50 | % | 100 | % | ||||||||||||||||||||||||
| Public, Project and Infrastructure Finance | $ | 88 | $ | 42 | $ | 130 | $ | 92 | $ | 41 | $ | 133 | |||||||||||||||||||||||
| 68 | % | 32 | % | 100 | % | 69 | % | 31 | % | 100 | % | ||||||||||||||||||||||||
| Structured Finance | $ | 93 | $ | 50 | $ | 143 | $ | 41 | $ | 47 | $ | 88 | |||||||||||||||||||||||
| 65 | % | 35 | % | 100 | % | 47 | % | 53 | % | 100 | % | ||||||||||||||||||||||||
| MIS Other | $ | 1 | $ | 10 | $ | 11 | $ | 1 | $ | 8 | $ | 9 | |||||||||||||||||||||||
| 9 | % | 91 | % | 100 | % | 11 | % | 89 | % | 100 | % | ||||||||||||||||||||||||
| Total MIS | $ | 631 | $ | 294 | $ | 925 | $ | 548 | $ | 277 | $ | 825 | |||||||||||||||||||||||
| 68 | % | 32 | % | 100 | % | 66 | % | 34 | % | 100 | % | ||||||||||||||||||||||||
| Research, data and analytics | $ | 21 | $ | 424 | $ | 445 | $ | 19 | $ | 367 | $ | 386 | |||||||||||||||||||||||
| 5 | % | 95 | % | 100 | % | 5 | % | 95 | % | 100 | % | ||||||||||||||||||||||||
| Enterprise risk solutions | $ | 15 | $ | 141 | $ | 156 | $ | 32 | $ | 113 | $ | 145 | |||||||||||||||||||||||
| 10 | % | 90 | % | 100 | % | 22 | % | 78 | % | 100 | % | ||||||||||||||||||||||||
| Total MA | $ | 36 | (1) | $ | 565 | $ | 601 | $ | 51 | $ | 480 | $ | 531 | ||||||||||||||||||||||
| 6 | % | 94 | % | 100 | % | 10 | % | 90 | % | 100 | % | ||||||||||||||||||||||||
| Total Moody's Corporation | $ | 667 | $ | 859 | $ | 1,526 | $ | 599 | $ | 757 | $ | 1,356 | |||||||||||||||||||||||
| 44 | % | 56 | % | 100 | % | 44 | % | 56 | % | 100 | % | ||||||||||||||||||||||||
| Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||||||||||||||
| Transaction | Recurring | Total | Transaction | Recurring | Total | ||||||||||||||||||||||||||||||
| Corporate Finance | $ | 1,280 | $ | 363 | $ | 1,643 | $ | 1,142 | $ | 344 | $ | 1,486 | |||||||||||||||||||||||
| 78 | % | 22 | % | 100 | % | 77 | % | 23 | % | 100 | % | ||||||||||||||||||||||||
| Financial Institutions | $ | 252 | $ | 213 | $ | 465 | $ | 203 | $ | 198 | $ | 401 | |||||||||||||||||||||||
| 54 | % | 46 | % | 100 | % | 51 | % | 49 | % | 100 | % | ||||||||||||||||||||||||
| Public, Project and Infrastructure Finance | $ | 276 | $ | 127 | $ | 403 | $ | 257 | $ | 118 | $ | 375 | |||||||||||||||||||||||
| 68 | % | 32 | % | 100 | % | 69 | % | 31 | % | 100 | % | ||||||||||||||||||||||||
| Structured Finance | $ | 251 | $ | 148 | $ | 399 | $ | 126 | $ | 139 | $ | 265 | |||||||||||||||||||||||
| 63 | % | 37 | % | 100 | % | 48 | % | 52 | % | 100 | % | ||||||||||||||||||||||||
| MIS Other | $ | 3 | $ | 28 | $ | 31 | $ | 3 | $ | 27 | $ | 30 | |||||||||||||||||||||||
| 10 | % | 90 | % | 100 | % | 10 | % | 90 | % | 100 | % | ||||||||||||||||||||||||
| Total MIS | $ | 2,062 | $ | 879 | $ | 2,941 | $ | 1,731 | $ | 826 | $ | 2,557 | |||||||||||||||||||||||
| 70 | % | 30 | % | 100 | % | 68 | % | 32 | % | 100 | % | ||||||||||||||||||||||||
| Research, data and analytics | $ | 63 | $ | 1,236 | $ | 1,299 | $ | 53 | $ | 1,057 | $ | 1,110 | |||||||||||||||||||||||
| 5 | % | 95 | % | 100 | % | 5 | % | 95 | % | 100 | % | ||||||||||||||||||||||||
| Enterprise risk solutions | $ | 54 | $ | 385 | $ | 439 | $ | 90 | $ | 324 | $ | 414 | |||||||||||||||||||||||
| 12 | % | 88 | % | 100 | % | 22 | % | 78 | % | 100 | % | ||||||||||||||||||||||||
| Total MA | $ | 117 | (1) | $ | 1,621 | $ | 1,738 | $ | 143 | $ | 1,381 | $ | 1,524 | ||||||||||||||||||||||
| 7 | % | 93 | % | 100 | % | 9 | % | 91 | % | 100 | % | ||||||||||||||||||||||||
| Total Moody's Corporation | $ | 2,179 | $ | 2,500 | $ | 4,679 | $ | 1,874 | $ | 2,207 | $ | 4,081 | |||||||||||||||||||||||
| 47 | % | 53 | % | 100 | % | 46 | % | 54 | % | 100 | % |
(1) Revenue from software implementation services and risk management advisory projects, while classified by management as transactional revenue, is recognized over time under the Revenue Accounting Standard (please also refer to the following table).
The following table presents the timing of revenue recognition:
| Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| MIS | MA | Total | MIS | MA | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue recognized at a point in time | $ | 631 | $ | 29 | $ | 660 | $ | 2,062 | $ | 78 | $ | 2,140 | |||||||||||||||||||||||||||||||||||||||||
| Revenue recognized over time | 294 | 572 | 866 | 879 | 1,660 | 2,539 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 925 | $ | 601 | $ | 1,526 | $ | 2,941 | $ | 1,738 | $ | 4,679 |
| Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||
| MIS | MA | Total | MIS | MA | Total | ||||||||||||||||||||||||||||||
| Revenue recognized at a point in time | $ | 548 | $ | 30 | $ | 578 | $ | 1,731 | $ | 89 | $ | 1,820 | |||||||||||||||||||||||
| Revenue recognized over time | 277 | 501 | 778 | 826 | 1,435 | 2,261 | |||||||||||||||||||||||||||||
| Total | $ | 825 | $ | 531 | $ | 1,356 | $ | 2,557 | $ | 1,524 | $ | 4,081 |
Unbilled receivables, deferred revenue and remaining performance obligations
Unbilled receivables
At September 30, 2021 and December 31, 2020, accounts receivable, net included $425 million and $361 million, respectively, of unbilled receivables, net related to the MIS segment. Certain MIS arrangements contain contractual terms whereby the customers are billed in arrears for annual monitoring services, requiring revenue to be accrued as an unbilled receivable as such services are provided.
In addition, for certain MA arrangements, the timing of when the Company has the unconditional right to consideration and recognizes revenue occurs prior to invoicing the customer. Consequently, at September 30, 2021 and December 31, 2020, accounts receivable, net included $128 million and $98 million, respectively, of unbilled receivables, net related to the MA segment.
Deferred revenue
The Company recognizes deferred revenue when a contract requires a customer to pay consideration to the Company in advance of when revenue related to that contract is recognized. This deferred revenue is relieved when the Company satisfies the related performance obligation and revenue is recognized.
Significant changes in the deferred revenue balances during the three and nine months ended September 30, 2021 and 2020 are as follows:
| Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||
| MIS | MA | Total | MIS | MA | Total | ||||||||||||||||||||||||||||||
| Balance at June 30, | $ | 368 | $ | 867 | $ | 1,235 | $ | 365 | $ | 740 | $ | 1,105 | |||||||||||||||||||||||
| Changes in deferred revenue | |||||||||||||||||||||||||||||||||||
| Revenue recognized that was included in the deferred revenue balance at the beginning of the period | (118) | (484) | (602) | (118) | (347) | (465) | |||||||||||||||||||||||||||||
| Increases due to amounts billable excluding amounts recognized as revenue during the period | 85 | 393 | 478 | 83 | 273 | 356 | |||||||||||||||||||||||||||||
| Increases due to acquisitions during the period | — | 89 | 89 | — | — | — | |||||||||||||||||||||||||||||
| Effect of exchange rate changes | (2) | (12) | (14) | 5 | 19 | 24 | |||||||||||||||||||||||||||||
| Total changes in deferred revenue | (35) | (14) | (49) | (30) | (55) | (85) | |||||||||||||||||||||||||||||
| Balance at September 30, | $ | 333 | $ | 853 | $ | 1,186 | $ | 335 | $ | 685 | $ | 1,020 | |||||||||||||||||||||||
| Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||
| MIS | MA | Total | MIS | MA | Total | ||||||||||||||||||||||||||||||
| Balance at December 31, | $ | 313 | $ | 874 | $ | 1,187 | $ | 322 | $ | 840 | $ | 1,162 | |||||||||||||||||||||||
| Changes in deferred revenue | |||||||||||||||||||||||||||||||||||
| Revenue recognized that was included in the deferred revenue balance at the beginning of the period | (200) | (814) | (1,014) | (207) | (781) | (988) | |||||||||||||||||||||||||||||
| Increases due to amounts billable excluding amounts recognized as revenue during the period | 224 | 713 | 937 | 219 | 607 | 826 | |||||||||||||||||||||||||||||
| Increases due to acquisitions during the period | — | 93 | 93 | — | 20 | 20 | |||||||||||||||||||||||||||||
| Effect of exchange rate changes | (4) | (13) | (17) | 1 | (1) | — | |||||||||||||||||||||||||||||
| Total changes in deferred revenue | 20 | (21) | (1) | 13 | (155) | (142) | |||||||||||||||||||||||||||||
| Balance at September 30, | $ | 333 | $ | 853 | $ | 1,186 | $ | 335 | $ | 685 | $ | 1,020 | |||||||||||||||||||||||
| Deferred revenue - current | $ | 247 | $ | 852 | $ | 1,099 | $ | 237 | $ | 681 | 918 | ||||||||||||||||||||||||
| Deferred revenue - non-current | $ | 86 | $ | 1 | $ | 87 | $ | 98 | $ | 4 | 102 |
For the MIS segment, the changes in the deferred revenue balance during the three and nine months ended September 30, 2021 were primarily related to the significant portion of contract renewals that occur during the first quarter of each year and are generally recognized over a one-year period.
For the MA segment, the decrease in deferred revenue for the three months ended September 30, 2021 was primarily due to the recognition of annual subscription and maintenance billings from December 2020 and January 2021. For the nine months ended September 30, 2021, the decrease in the deferred revenue balance is attributable to recognition of revenues related to the aforementioned December 2020 billings being partially offset by the impact of the high concentration of January 2021 billings.
Remaining performance obligations
Remaining performance obligations in the MIS segment largely reflect deferred revenue related to monitoring fees for certain structured finance products, primarily CMBS, where the issuers can elect to pay the monitoring fees for the life of the security in advance. As of September 30, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $120 million. The Company expects to recognize into revenue approximately 20% of this balance within one year, approximately 50% of this balance between one to five years and the remaining amount thereafter. With respect to the remaining performance obligations for the MIS segment, the Company has applied a practical expedient set forth in ASC Topic 606 permitting the omission from the amounts stated above relating to unsatisfied performance obligations for contracts with an original expected length of one year or less.
Remaining performance obligations in the MA segment include both amounts recorded as deferred revenue on the balance sheet as of September 30, 2021 as well as amounts not yet invoiced to customers as of September 30, 2021, largely reflecting future revenue related to signed multi-year arrangements for hosted and installed subscription-based products. As of September 30, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $2.7 billion. The Company expects to recognize into revenue approximately 65% of this balance within one year, approximately 25% of this balance between one to two years and the remaining amount thereafter.
NOTE 4. STOCK-BASED COMPENSATION
Presented below is a summary of the stock-based compensation cost and associated tax benefit included in the accompanying consolidated statements of operations:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Stock-based compensation cost | $ | 41 | $ | 38 | $ | 127 | $ | 110 | |||||||||||||||
| Tax benefit | $ | 8 | $ | 8 | $ | 29 | $ | 22 |
On September 15, 2021, the Company acquired RMS, which is discussed in more detail in Note 8. As part of the acquisition, certain RMS employees' unvested equity awards (employee stock options and restricted stock) with an acquisition-date fair value of $32 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 8). The remaining portion of the replacement awards of $27 million, which is associated with a future service requirement, will be recognized as compensation expense over the remaining vesting period. Moody's has reserved 1.2 million shares of the Company's common stock for issuance under the acquired RMS equity compensation plans.
During the first nine months of 2021, the Company granted 0.2 million employee stock options (including RMS replacement option awards), which had a weighted average grant date fair value of $113.91 per share. The Company also granted 0.6 million shares of restricted stock in the first nine months of 2021 (including RMS replacement restricted stock awards), which had a weighted average grant date fair value of $286.08 per share. Both the employee stock options and restricted stock generally vest ratably over four years. Additionally, the Company granted 0.1 million shares of performance-based awards whereby the number of shares that ultimately vest are based on the achievement of certain non-market-based performance metrics of the Company over three years. The weighted average grant date fair value of these awards was $269.88 per share.
The following weighted average assumptions were used in determining the fair value using the Black-Scholes option-pricing model for options granted in 2021 (excluding the aforementioned RMS replacement awards):
| Expected dividend yield | 0.89 | % | |||
| Expected stock volatility | 28 | % | |||
| Risk-free interest rate | 0.81 % | ||||
| Expected holding period | 5.6 years |
Due to the RMS replacement option awards being heavily in-the-money at the acquisition date, the Company utilized a binomial valuation approach to determine the fair value of the options, which approximated the intrinsic value of the replaced awards at the acquisition date.
Unrecognized stock-based compensation expense at September 30, 2021 was $25 million and $211 million for stock options and unvested restricted stock, respectively, which is expected to be recognized over a weighted average period of 2.3 years and 2.5 years, respectively. Additionally, there was $35 million of unrecognized stock-based compensation expense relating to the aforementioned non-market-based performance-based awards, which is expected to be recognized over a weighted average period of 2.0 years.
The following tables summarize information relating to stock option exercises and restricted stock vesting:
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Exercise of stock options: | |||||||||||
| Proceeds from stock option exercises | $ | 20 | $ | 32 | |||||||
| Aggregate intrinsic value | $ | 44 | $ | 102 | |||||||
| Tax benefit realized upon exercise | $ | 11 | $ | 24 | |||||||
| Number of shares exercised | 0.2 | 0.5 | |||||||||
| Vesting of restricted stock: | |||||||||||
| Fair value of shares vested | $ | 193 | $ | 195 | |||||||
| Tax benefit realized upon vesting | $ | 45 | $ | 45 | |||||||
| Number of shares vested | 0.7 | 0.8 | |||||||||
| Vesting of performance-based restricted stock: | |||||||||||
| Fair value of shares vested | $ | 28 | $ | 70 | |||||||
| Tax benefit realized upon vesting | $ | 7 | $ | 17 | |||||||
| Number of shares vested | 0.1 | 0.3 |
NOTE 5. INCOME TAXES
Moody’s effective tax rate was 23.4% and 22.0% for the three months ended September 30, 2021 and 2020, respectively and 20.2% and 20.0% for the nine months ended September 30, 2021 and 2020. The Company’s year-to-date tax expense differs from the tax computed by applying its estimated annual effective tax rate to the year-to-date pre-tax earnings primarily due to Excess Tax Benefits from stock-based compensation of $29 million and net reductions in UTPs of $66 million related to a settlement and a lapse of a statute of limitations.
The Company classifies interest related to UTPs in interest expense, net in its consolidated statements of operations. Penalties, if incurred, would be recognized in other non-operating (expense) income, net. The Company had an increase in its UTPs of $85 million ($84 million net of federal tax) during the third quarter of 2021 and an increase in its UTPs of $9 million ($17 million, net of federal tax) during the first nine months of 2021. The increase in both periods included UTPs assumed in the acquisition of RMS. The increase in the year-to-date period was partially offset by a tax settlement and a statute of limitation lapse in the first quarter of 2021. The Company also reversed $40 million in accrued interest in connection with these matters in the first quarter of 2021.
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 2017 and 2018 are currently under examination and 2019 through 2020 remain open to examination. The Company’s New York State tax returns for 2017 through 2018 are currently under examination and New York City tax returns for 2014 through 2017 are currently under examination.
For ongoing audits, it is possible the balance of UTPs could decrease in the next twelve months as a result of the settlement of these audits, which might involve the payment of additional taxes, the adjustment of certain deferred taxes and/or the recognition of tax benefits. It is also possible that new issues might be raised by tax authorities which could necessitate increases to the balance of UTPs. As the Company is unable to predict the timing or outcome of these audits, it is therefore unable to estimate the amount of changes to the balance of UTPs at this time. However, the Company believes that it has adequately provided for its financial exposure relating to all open tax years by tax jurisdiction in accordance with the applicable provisions of Topic 740 of the ASC regarding UTPs.
The following table shows the amount the Company paid for income taxes:
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Income taxes paid | $ | 501 | $ | 374 |
NOTE 6. WEIGHTED AVERAGE SHARES OUTSTANDING
Below is a reconciliation of basic to diluted shares outstanding:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Basic | 186.0 | 187.8 | 186.6 | 187.6 | |||||||||||||||||||
| Dilutive effect of shares issuable under stock-based compensation plans | 1.3 | 1.5 | 1.4 | 1.7 | |||||||||||||||||||
| Diluted | 187.3 | 189.3 | 188.0 | 189.3 | |||||||||||||||||||
| Anti-dilutive options to purchase common shares and restricted stock as well as contingently issuable restricted stock which are excluded from the table above | 0.1 | 0.3 | 0.2 | 0.3 |
The calculation of diluted EPS requires certain assumptions regarding the use of both cash proceeds and assumed proceeds that would be received upon the exercise of stock options and vesting of restricted stock outstanding as of September 30, 2021 and 2020.
NOTE 7. CASH EQUIVALENTS AND INVESTMENTS
The table below provides additional information on the Company’s cash equivalents and investments:
| As of September 30, 2021 | |||||||||||||||||||||||||||||||||||
| Balance sheet location | |||||||||||||||||||||||||||||||||||
| Cost | Gains/(Losses) | Fair Value | Cash and cash equivalents | Short-term investments | Other assets | ||||||||||||||||||||||||||||||
| Certificates of deposit and money market deposit accounts (1) | $ | 1,004 | $ | — | $ | 1,004 | $ | 891 | $ | 104 | $ | 9 | |||||||||||||||||||||||
| Mutual funds | $ | 50 | $ | 8 | $ | 58 | $ | — | $ | — | $ | 58 | |||||||||||||||||||||||
| As of December 31, 2020 | |||||||||||||||||||||||||||||||||||
| Balance sheet location | |||||||||||||||||||||||||||||||||||
| Cost | Gains/(Losses) | Fair Value | Cash and cash equivalents | Short-term investments | Other assets | ||||||||||||||||||||||||||||||
| Certificates of deposit and money market deposit accounts (1) | $ | 1,430 | $ | — | $ | 1,430 | $ | 1,325 | $ | 99 | $ | 6 | |||||||||||||||||||||||
| Mutual funds | $ | 54 | $ | 6 | $ | 60 | $ | — | $ | — | $ | 60 |
(1) Consists of time deposits and money market deposit accounts. The remaining contractual maturities for the certificates of deposits classified as short-term investments were one month to 12 months at both September 30, 2021 and December 31, 2020. The remaining contractual maturities for the certificates of deposits classified in other assets are 13 months to 24 months at September 30, 2021 and 13 months to 23 months at December 31, 2020. Time deposits with a maturity of less than 90 days at time of purchase are classified as cash and cash equivalents.
In addition, the Company invested in Corporate-Owned Life Insurance (COLI) in the first quarter of 2020. As of September 30, 2021 and December 31, 2020, the contract value of the COLI was $35 million and $17 million, respectively.
NOTE 8. ACQUISITIONS
The business combinations described below are accounted for using the acquisition method of accounting whereby assets acquired and liabilities assumed were recognized at fair value on the date of the transaction. Any excess of the purchase price over the fair value of the assets acquired and liabilities assumed was recorded to goodwill. Goodwill typically results through expected synergies from combining operations of an acquiree and an acquirer, anticipated new customer acquisition and products, as well as from intangible assets that do not qualify for separate recognition.
RMS
On September 15, 2021, the Company acquired 100% of RMS, a global provider of climate and natural disaster risk modeling and analytics. The cash payment was funded with new debt financing and a combination of U.S. and offshore cash on hand. The acquisition will expand Moody’s insurance data and analytics business and accelerate the development of the Company’s global integrated risk capabilities to address the next generation of risk assessment.
The table below details the total consideration relating to the acquisition:
| Cash paid at closing | $ | 1,931 | |||
| Replacement equity compensation awards | 5 | ||||
| Total consideration | $ | 1,936 |
Shown below is the preliminary purchase price allocation, which summarizes the fair value of the assets and liabilities assumed, at the date of acquisition:
| Cash | $ | 60 | |||||||||
| Accounts receivable | 38 | ||||||||||
| Other current assets | 11 | ||||||||||
| Property and equipment, net | 13 | ||||||||||
| Operating lease right-of-use assets | 64 | ||||||||||
| Intangible assets: | |||||||||||
| Customer relationships (23 year useful life) | 523 | ||||||||||
| Product technology (7 year useful life) | 212 | ||||||||||
| Trade name (9 year useful life) | 49 | ||||||||||
| Total intangible assets (18 year weighted average useful life) | 784 | ||||||||||
| Goodwill | 1,389 | ||||||||||
| Deferred tax assets, net | 46 | ||||||||||
| Other assets | 92 | ||||||||||
| Liabilities: | |||||||||||
| Accounts payable and accrued liabilities | (101) | ||||||||||
| Deferred revenue | (89) | ||||||||||
| Operating lease liabilities | (68) | ||||||||||
| Deferred tax liabilities, net | (213) | ||||||||||
| Uncertain tax positions | (90) | ||||||||||
| Total liabilities | (561) | ||||||||||
| Net assets acquired | $ | 1,936 |
The Company has performed a preliminary valuation analysis of the fair market value of assets and liabilities of the RMS business. The final purchase price allocation will be determined when the Company has completed and fully reviewed all information necessary to finalize the fair value of the acquired assets and liabilities, including deferred revenue. The final allocation could differ materially from the preliminary allocation. The final allocation may include changes in allocations to acquired intangible assets (including estimated useful lives of these assets) as well as goodwill and other changes to assets and liabilities including reserves for UTPs and deferred tax liabilities.
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 $1,299 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 $88 million related to uncertain tax positions assumed in the transaction, for which the Company expects to be indemnified by the sellers in the event of an unfavorable outcome.
Transaction costs
Transaction costs directly related to the RMS acquisition were $22 million and were recorded in SG&A expenses in the statement of operations.
Supplementary Unaudited Pro Forma Information
Supplemental information on an unaudited pro forma basis is presented below for the nine months ended September 30, 2021 and 2020 as if the acquisition of RMS occurred on January 1, 2020. The pro forma financial information is presented for comparative purposes only, based on certain estimates and assumptions, which the Company believes to be reasonable but not necessarily indicative of future results of operations or the results that would have been reported if the acquisition had been completed at January 1, 2020. The unaudited pro forma information includes amortization of acquired intangible assets, based on the preliminary purchase price allocation and an estimate of useful lives reflected above, and incremental financing costs resulting from the acquisition, net of income tax, which was estimated using the weighted average statutory tax rates in effect in the jurisdiction for which the pro forma adjustment relates.
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Pro forma Revenue | $ | 4,910 | $ | 4,300 | |||||||
| Pro forma Net Income attributable to Moody's | $ | 1,807 | $ | 1,342 |
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 U.S. GAAP from IFRS as issued by the IASB and have been translated to USD at rates in effect for the periods presented. The RMS amounts in the pro forma results include an addition to revenue of approximately $3 million and a reduction to revenue of approximately $21 million relating to a fair value adjustment to deferred revenue required as part of acquisition accounting for the nine months ended September 30, 2021 and 2020, respectively.
The following acquisitions occurred prior to the third quarter 2021 and the Company has not presented pro forma combined results for these acquisitions because the impact on previously reported statements of operations would not have been material. Additionally, the near term impact to the Company’s operations and cash flows is not material.
Cortera
On March 19, 2021, the Company acquired 100% of Cortera, a provider of North American credit data and workflow solutions.
The table below details the total consideration relating to the acquisition:
| Cash paid at closing | $ | 138 | ||||||
| Additional consideration paid to sellers in 2021 (1) | 1 | |||||||
| Total consideration | $ | 139 |
(1) Represents additional consideration paid to the sellers following finalization of customary post-closing completion adjustments.
Shown below is the preliminary purchase price allocation, which summarizes the fair value of the assets and liabilities assumed, at the date of acquisition:
| Current assets | $ | 7 | |||||||||
| Intangible assets: | |||||||||||
| Database (10 year useful life) | $ | 38 | |||||||||
| Customer relationships (18 year useful life) | 9 | ||||||||||
| Product technology (8 year useful life) | 9 | ||||||||||
| Trade name (5 year useful life) | 1 | ||||||||||
| Total intangible assets (11 year weighted average useful life) | 57 | ||||||||||
| Goodwill(1) | 79 | ||||||||||
| Deferred tax assets(1) | 16 | ||||||||||
| Other assets | 2 | ||||||||||
| Liabilities: | |||||||||||
| Accounts payable and accrued liabilities | $ | (1) | |||||||||
| Deferred revenue | (4) | ||||||||||
| Deferred tax liabilities | (15) | ||||||||||
| Other liabilities | (2) | ||||||||||
| Total liabilities | (22) | ||||||||||
| Net assets acquired | $ | 139 |
(1) During the third quarter of 2021, the Company received further information, that existed as of the acquisition date, with respect to Cortera’s deferred taxes. Accordingly, the Company recorded a measurement period adjustment of $16 million to its preliminary estimate for deferred tax assets.
The Company has performed a preliminary valuation analysis of the fair market value of assets and liabilities of the Cortera business. The final purchase price allocation will be determined when the Company has completed and fully reviewed the detailed valuations. The final allocation could differ materially from the preliminary allocation. The final allocation may include changes in allocations to acquired intangible assets as well as goodwill and other changes to assets and liabilities including reserves for UTPs and deferred tax liabilities. The estimated useful lives of acquired intangibles assets are also preliminary.
Current assets in the table above include acquired cash of $4 million and accounts receivable of approximately $2 million.
Goodwill
The goodwill recognized as a result of this acquisition includes, among other things, the value of combining the complementary risk assessment products of the Company and Cortera, which is expected to extend the Company’s reach to new and evolving market segments as well as cost savings synergies, expected new customer acquisitions and products.
Goodwill, which has been assigned to the MA segment, is not deductible for tax purposes.
Transaction costs
Transaction costs directly related to the Cortera acquisition were not material.
RDC
On February 13, 2020, the Company acquired 100% of RDC, a provider of anti-money laundering and know-your-customer data and due diligence services.
The table below details the total consideration relating to the acquisition:
| Cash paid at closing | $ | 700 | ||||||
| Additional consideration paid to sellers in 2020 (1) | 2 | |||||||
| Total consideration | $ | 702 |
(1) Represents additional consideration paid to the sellers following finalization of customary post-closing completion adjustments.
Shown below is the purchase price allocation, which summarizes the fair value of the assets and liabilities assumed, at the date of acquisition:
| Current assets | $ | 24 | |||||||||
| Intangible assets: | |||||||||||
| Customer relationships (25 year useful life) | $ | 174 | |||||||||
| Database (10 year useful life) | 86 | ||||||||||
| Product technology (4 year useful life) | 17 | ||||||||||
| Trade name (3 year useful life) | 3 | ||||||||||
| Total intangible assets (19 year weighted average life) | 280 | ||||||||||
| Goodwill | 494 | ||||||||||
| Other assets | 2 | ||||||||||
| Liabilities: | |||||||||||
| Accounts payable and accrued liabilities | $ | (5) | |||||||||
| Deferred revenue | (20) | ||||||||||
| Deferred tax liabilities | (71) | ||||||||||
| Other liabilities | (2) | ||||||||||
| Total liabilities | (98) | ||||||||||
| Net assets acquired | $ | 702 |
Current assets in the table above include acquired cash of $6 million and accounts receivable of approximately $14 million.
Goodwill
The goodwill recognized as a result of this acquisition includes, among other things, the value of combining the complementary product portfolios of the Company and RDC, which is expected to extend the Company’s reach to new and evolving market segments as well as cost savings synergies, expected new customer acquisitions and products.
Goodwill, which has been assigned to the MA segment, is not deductible for tax purposes.
Transaction costs
Transaction costs directly related to the RDC acquisition were not material.
NOTE 9. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company is exposed to global market risks, including risks from changes in FX rates and changes in interest rates. Accordingly, the Company uses derivatives in certain instances to manage the aforementioned financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for speculative purposes.
Derivatives and non-derivative instruments designated as accounting hedges:
Fair Value Hedges
Interest Rate Swaps
The Company has entered into interest rate swaps to convert the fixed interest rate on certain of its long-term debt to a floating interest rate based on the 3-month LIBOR and 6-month LIBOR. The purpose of these hedges is to mitigate the risk associated with changes in the fair value of the long-term debt, thus the Company has designated these swaps as fair value hedges. The fair value of the swaps is adjusted quarterly with a corresponding adjustment to the carrying value of the debt. The changes in the fair value of the swaps and the underlying hedged item generally offset and the net cash settlements on the swaps are recorded each period within interest expense, net in the Company’s consolidated statements of operations.
The following table summarizes the Company’s interest rate swaps designated as fair value hedges:
| Notional Amount | ||||||||||||||||||||||||||
| Hedged Item | Nature of Swap | As of September 30, 2021 | As of December 31, 2020 | Floating Interest Rate | ||||||||||||||||||||||
| 2012 Senior Notes due 2022 | Pay Floating/Receive Fixed | $ | 330 | $ | 330 | 3-month USD LIBOR | ||||||||||||||||||||
| 2017 Senior Notes due 2023 | Pay Floating/Receive Fixed | $ | 250 | $ | 250 | 3-month USD LIBOR | ||||||||||||||||||||
| 2017 Senior Notes due 2028 | Pay Floating/Receive Fixed | $ | 500 | $ | 500 | 3-month USD LIBOR | ||||||||||||||||||||
| 2020 Senior Notes due 2025 | Pay Floating/Receive Fixed | $ | 300 | $ | 300 | 6-month USD LIBOR | ||||||||||||||||||||
| 2014 Senior Notes due 2044 | Pay Floating/Receive Fixed | $ | 300 | $ | — | 3-month USD LIBOR | ||||||||||||||||||||
| 2018 Senior Notes due 2048 | Pay Floating/Receive Fixed | $ | 300 | $ | — | 3-month USD LIBOR | ||||||||||||||||||||
| Total | $ | 1,980 | $ | 1,380 |
Refer to Note 16 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/(loss) recognized in the consolidated statements of operations | |||||||||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||
| Interest expense, net | $ | (53) | $ | (53) | $ | (109) | $ | (153) | ||||||||||||||||||||||||
| Descriptions | Location on Consolidated Statements of Operations | |||||||||||||||||||||||||||||||
| Net interest settlements and accruals on interest rate swaps | Interest expense, net | $ | 6 | $ | 6 | $ | 17 | $ | 14 | |||||||||||||||||||||||
| Fair value changes on interest rate swaps | Interest expense, net | $ | (16) | $ | (7) | $ | (40) | $ | 53 | |||||||||||||||||||||||
| Fair value changes on hedged debt | Interest expense, net | $ | 16 | $ | 7 | $ | 40 | $ | (53) |
Net investment hedges
Debt designated as net investment hedges
The Company has designated €500 million of the 2015 Senior Notes Due 2027 and €750 million of the 2019 Senior Notes due 2030 as net investment hedges to mitigate FX exposure related to a portion of the Company’s euro net investment in certain foreign subsidiaries against changes in euro/USD exchange rates. These hedges are designated as accounting hedges under the applicable sections of ASC Topic 815 and will end upon the repayment of the notes in 2027 and 2030, respectively, unless terminated early at the discretion of the Company.
Cross currency swaps designated as net investment hedges
The Company enters into cross-currency swaps to mitigate FX exposure related to a portion of the Company’s euro net investment in certain foreign subsidiaries against changes in euro/USD exchange rates. The following table provides information on the cross-currency swaps designated as net investment hedges under ASC Topic 815:
| September 30, 2021 | ||||||||||||||||||||||||||
| Pay | Receive | |||||||||||||||||||||||||
| Nature of Swap | Notional Amount | Weighted Average Interest Rate | Notional Amount | Weighted Average Interest Rate | ||||||||||||||||||||||
| Pay Fixed/Receive Fixed | € | 1,060 | 2.15% | $ | 1,220 | 4.45% | ||||||||||||||||||||
| Pay Floating/Receive Floating | 1,466 | Based on 3-month EURIBOR | 1,680 | Based on 3-month USD LIBOR | ||||||||||||||||||||||
| Total | € | 2,526 | $ | 2,900 |
| December 31, 2020 | ||||||||||||||||||||||||||
| Pay | Receive | |||||||||||||||||||||||||
| Nature of Swap | Notional Amount | Weighted Average Interest Rate | Notional Amount | Weighted Average Interest Rate | ||||||||||||||||||||||
| Pay Fixed/Receive Fixed | € | 1,079 | 1.43% | $ | 1,220 | 3.96% | ||||||||||||||||||||
| Pay Floating/Receive Floating | 959 | Based on 3-month EURIBOR | 1,080 | Based on 3-month USD LIBOR | ||||||||||||||||||||||
| Total | € | 2,038 | $ | 2,300 |
As of September 30, 2021 these hedges will expire and the notional amounts will be settled as follows unless terminated early at the discretion of the Company:
| Years Ending December 31, | ||||||||
| 2022 | € | 438 | ||||||
| 2023 | € | 442 | ||||||
| 2024 | € | 443 | ||||||
| 2026 | € | 450 | ||||||
| 2027 | € | 246 | ||||||
| 2028 | € | 507 | ||||||
| Total | € | 2,526 |
Forward contracts designated as net investment hedges
The Company also entered into forward contracts to mitigate FX exposure related to a portion of the Company’s euro net investment in certain foreign subsidiaries against changes in euro/USD and GBP/euro exchange rates. The following table summarizes the notional amounts of the Company's outstanding forward contracts that were designated as net investment hedges:
| Notional amount of net investment hedges | September 30, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||
| Sell | Buy | Sell | Buy | |||||||||||||||||||||||||||||||||||||||||
| Contract to sell EUR for USD | € | — | $ | — | € | 524 | $ | 627 | ||||||||||||||||||||||||||||||||||||
| Contract to sell GBP for EUR | £ | — | € | — | £ | 134 | € | 148 |
These forward contracts expired in August 2021.
Cash Flow Hedges
Interest Rate Forward Contracts
In January 2020, the Company entered into $300 million notional amount treasury rate locks with an average locked-in U.S. 30-year Treasury rate of 2.0103%, which were designated as cash flow hedges and used to manage the Company’s interest rate risk during the period prior to an anticipated issuance of 30-year debt. The treasury lock interest rate forward contracts matured on April 30, 2020, resulting in a cumulative loss of $68 million, which was recognized in AOCL. The loss on the Treasury rate lock will be reclassified from AOCL to earnings in the same period that the hedged transaction (i.e. interest payments on the 3.25% 2020 Senior Notes, due 2050) impacts earnings.
The following tables provide information on the gains/(losses) on the Company’s net investment and cash flow hedges:
| Derivative and Non-Derivative Instruments in Net Investment Hedging Relationships | Amount of Gain/(Loss) Recognized in AOCL on Derivative, net of Tax | Amount of Gain/(Loss) Reclassified from AOCL into Income, net of Tax | Gain/(Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) | |||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, | Three Months Ended September 30, | Three Months Ended September 30, | ||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||||
| FX forward contracts | $ | 2 | $ | 1 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||
| Cross currency swaps | 44 | (98) | — | — | 8 | 10 | ||||||||||||||||||||||||||||||||
| Long-term debt | 26 | (46) | — | — | — | — | ||||||||||||||||||||||||||||||||
| Total net investment hedges | $ | 72 | $ | (143) | $ | — | $ | — | $ | 8 | $ | 10 | ||||||||||||||||||||||||||
| Derivatives in Cash Flow Hedging Relationships | ||||||||||||||||||||||||||||||||||||||
| Interest rate contracts | 1 | (1) | (1) | (1) | — | — | ||||||||||||||||||||||||||||||||
| Total cash flow hedges | 1 | (1) | (1) | (1) | — | — | ||||||||||||||||||||||||||||||||
| Total | $ | 73 | $ | (144) | $ | (1) | $ | (1) | $ | 8 | $ | 10 |
| Derivative and Non-Derivative Instruments in Net Investment Hedging Relationships | Amount of Gain/(Loss) Recognized in AOCL on Derivative, net of Tax | Amount of Gain/(Loss) Reclassified from AOCL into Income, net of Tax | Gain/(Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) | |||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, | Nine Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||||
| FX forward contracts | $ | 18 | $ | 1 | $ | 1 | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||
| Cross currency swaps | 98 | (81) | — | — | 27 | 40 | ||||||||||||||||||||||||||||||||
| Long-term debt | 61 | (47) | — | — | — | — | ||||||||||||||||||||||||||||||||
| Total net investment hedges | $ | 177 | $ | (127) | $ | 1 | $ | — | $ | 27 | $ | 40 | ||||||||||||||||||||||||||
| Derivatives in Cash Flow Hedging Relationships | ||||||||||||||||||||||||||||||||||||||
| Interest rate contracts | — | (51) | (2) | (2) | — | — | ||||||||||||||||||||||||||||||||
| Total cash flow hedges | — | (51) | (2) | (2) | — | — | ||||||||||||||||||||||||||||||||
| Total | $ | 177 | $ | (178) | $ | (1) | $ | (2) | $ | 27 | $ | 40 |
The cumulative amount of net investment hedge and cash flow hedge gains (losses) remaining in AOCL is as follows:
| Cumulative Gains/(Losses), net of tax | |||||||||||
| September 30, 2021 | December 31, 2020 | ||||||||||
| Net investment hedges | |||||||||||
| Cross currency swaps | $ | (26) | $ | (124) | |||||||
| FX forwards | 29 | 12 | |||||||||
| Long-term debt | (47) | (108) | |||||||||
| Total net investment hedges | $ | (44) | $ | (220) | |||||||
| Cash flow hedges | |||||||||||
| Interest rate contracts | $ | (49) | $ | (51) | |||||||
| Cross currency swaps | 2 | 2 | |||||||||
| Total cash flow hedges | (47) | (49) | |||||||||
| Total net loss in AOCL | $ | (91) | $ | (269) |
Derivatives not designated as accounting hedges:
Foreign exchange forwards
The Company also enters into foreign exchange forward contracts to mitigate the change in fair value on certain assets and liabilities denominated in currencies other than a subsidiary’s functional currency. These forward contracts are not designated as accounting hedges under the applicable sections of Topic 815 of the ASC. Accordingly, changes in the fair value of these contracts are recognized immediately in other non-operating income, net in the Company’s consolidated statements of operations along with the FX gain or loss recognized on the assets and liabilities denominated in a currency other than the subsidiary’s functional currency. These contracts have expiration dates at various times through January 2022.
The following table summarizes the notional amounts of the Company’s outstanding foreign exchange forwards:
| September 30, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||
| Notional amount of currency pair: | Sell | Buy | Sell | Buy | |||||||||||||||||||||||||
| Contracts to sell USD for GBP | $ | 190 | £ | 138 | $ | 295 | £ | 222 | |||||||||||||||||||||
| Contracts to sell USD for Japanese yen | $ | 18 | ¥ | 2,000 | $ | 15 | ¥ | 1,600 | |||||||||||||||||||||
| Contracts to sell USD for Canadian dollars | $ | 120 | C$ | 150 | $ | 107 | C$ | 140 | |||||||||||||||||||||
| Contracts to sell USD for Singapore dollars | $ | 66 | S$ | 90 | $ | 59 | S$ | 79 | |||||||||||||||||||||
| Contracts to sell USD for euros | $ | 282 | € | 240 | $ | 447 | € | 376 | |||||||||||||||||||||
| Contracts to sell Euros for GBP | € | — | £ | — | € | 135 | £ | 121 | |||||||||||||||||||||
| Contracts to sell USD for Russian ruble | $ | 13 | ₽ | 1,000 | $ | 13 | ₽ | 1,000 | |||||||||||||||||||||
| Contracts to sell USD for Indian rupee | $ | 18 | ₹ | 1,350 | $ | 18 | ₹ | 1,350 |
NOTE: € = euro, £ = British pound, $ = U.S. dollar, ¥ = Japanese yen, C$ = Canadian dollar, S$= Singapore dollars, ₽= Russian ruble, ₹= Indian rupee
The following table summarizes the impact to the consolidated statements of operations relating to the net losses on the Company’s derivatives which are not designated as hedging instruments:
| Derivatives not designated as accounting hedges | Location on Consolidated Statements of Operations | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||
| Foreign exchange forwards | Other non-operating income, net | $ | (18) | $ | 36 | $ | (25) | $ | 1 | |||||||||||||||||||||||||||||
| Foreign exchange forwards relating to RMS acquisition(1) | Other non-operating income, net | $ | (13) | $ | — | $ | (13) | $ | — |
(1) The Company entered into a forward contract to sell $1,675 million for €1,200 to hedge a portion of the GBP denominated RMS purchase price. The contract was terminated on September 14, 2021 and resulted in a $13 million loss.
The table below shows the classification between assets and liabilities on the Company’s consolidated balance sheets for the fair value of the derivative instrument as well as the carrying value of its non-derivative debt instruments designated and qualifying as net investment hedges:
| Derivative and Non-Derivative Instruments | ||||||||||||||||||||
| Balance Sheet Location | September 30, 2021 | December 31, 2020 | ||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Derivatives designated as accounting hedges: | ||||||||||||||||||||
| Cross-currency swaps designated as net investment hedges | Other current assets | $ | 2 | $ | — | |||||||||||||||
| Cross-currency swaps designated as net investment hedges | Other assets | 26 | — | |||||||||||||||||
| Interest rate swaps designated as fair value hedges | Other current assets | 8 | — | |||||||||||||||||
| Interest rate swaps designated as fair value hedges | Other assets | 23 | 57 | |||||||||||||||||
| Total derivatives designated as accounting hedges | 59 | 57 | ||||||||||||||||||
| Derivatives not designated as accounting hedges: | ||||||||||||||||||||
| FX forwards on certain assets and liabilities | Other current assets | — | 31 | |||||||||||||||||
| Total assets | $ | 59 | $ | 88 | ||||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Derivatives designated as accounting hedges: | ||||||||||||||||||||
| FX forwards designated as net investment hedges | Accounts payable and accrued liabilities | $ | — | $ | 16 | |||||||||||||||
| Cross-currency swaps designated as net investment hedges | Accounts payable and accrued liabilities | 7 | 23 | |||||||||||||||||
| Cross-currency swaps designated as net investment hedges | Other liabilities | 32 | 144 | |||||||||||||||||
| Interest rate swaps designated as fair value hedges | Other liabilities | 14 | 1 | |||||||||||||||||
| Total derivatives designated as accounting hedges | 53 | 184 | ||||||||||||||||||
| Non-derivatives designated as accounting hedges: | ||||||||||||||||||||
| Long-term debt designated as net investment hedge | Long-term debt | 1,448 | 1,530 | |||||||||||||||||
| Derivatives not designated as accounting hedges: | ||||||||||||||||||||
| FX forwards on certain assets and liabilities | Accounts payable and accrued liabilities | 10 | 2 | |||||||||||||||||
| Total liabilities | $ | 1,511 | $ | 1,716 |
NOTE 10. GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS
The following table summarizes the activity in goodwill for the periods indicated:
| Nine Months Ended September 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| MIS | MA | Consolidated | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross goodwill | Accumulated impairment charge | Net goodwill | Gross goodwill | Accumulated impairment charge | Net goodwill | Gross goodwill | Accumulated impairment charge | Net goodwill | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of year | $ | 311 | $ | — | $ | 311 | $ | 4,257 | $ | (12) | $ | 4,245 | $ | 4,568 | $ | (12) | $ | 4,556 | |||||||||||||||||||||||||||||||||||
| Additions/ adjustments (1) | 90 | — | 90 | 1,388 | — | 1,388 | 1,478 | — | 1,478 | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | (5) | — | (5) | (131) | — | (131) | (136) | — | (136) | ||||||||||||||||||||||||||||||||||||||||||||
| Ending balance | $ | 396 | $ | — | $ | 396 | $ | 5,514 | $ | (12) | $ | 5,502 | $ | 5,910 | $ | (12) | $ | 5,898 |
| Year Ended December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| MIS | MA | Consolidated | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross goodwill | Accumulated impairment charge | Net goodwill | Gross goodwill | Accumulated impairment charge | Net goodwill | Gross goodwill | Accumulated impairment charge | Net goodwill | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of year | $ | 315 | $ | — | $ | 315 | $ | 3,419 | $ | (12) | $ | 3,407 | $ | 3,734 | $ | (12) | $ | 3,722 | |||||||||||||||||||||||||||||||||||
| Additions/ adjustments (2) | (2) | — | (2) | 628 | — | 628 | 626 | — | 626 | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | (2) | — | (2) | 210 | — | 210 | 208 | — | 208 | ||||||||||||||||||||||||||||||||||||||||||||
| Ending balance | $ | 311 | $ | — | $ | 311 | $ | 4,257 | $ | (12) | $ | 4,245 | $ | 4,568 | $ | (12) | $ | 4,556 |
(1) The 2021 additions/adjustments for the MA segment in the table above primarily relate to the acquisition of Cortera and RMS. The 2021 additions/adjustments for the MIS segment relate to certain revenue synergies from the RMS acquisition that are expected to benefit the ESG solutions group within the MIS Other LOB.
(2) The 2020 additions/adjustments for the MA segment in the table above relate to the acquisitions of RDC, AM, ZMFS, and Catylist.
Acquired intangible assets and related amortization consisted of:
| September 30, 2021 | December 31, 2020 | ||||||||||
| Customer relationships | $ | 2,108 | $ | 1,623 | |||||||
| Accumulated amortization | (360) | (313) | |||||||||
| Net customer relationships | 1,748 | 1,310 | |||||||||
| Software/product technology | 654 | 441 | |||||||||
| Accumulated amortization | (203) | (177) | |||||||||
| Net software/product technology | 451 | 264 | |||||||||
| Database | 180 | 144 | |||||||||
| Accumulated amortization | (42) | (29) | |||||||||
| Net database | 138 | 115 | |||||||||
| Trade names | 207 | 161 | |||||||||
| Accumulated amortization | (44) | (38) | |||||||||
| Net trade names | 163 | 123 | |||||||||
| Other (1) | 54 | 55 | |||||||||
| Accumulated amortization | (44) | (43) | |||||||||
| Net other | 10 | 12 | |||||||||
| Total acquired intangible assets, net | $ | 2,510 | $ | 1,824 |
(1) Other intangible assets primarily consist of trade secrets, covenants not to compete, and acquired ratings methodologies and models.
Amortization expense relating to acquired intangible assets is as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Amortization expense | $ | 37 | $ | 31 | $ | 108 | $ | 90 |
Estimated future amortization expense for acquired intangible assets subject to amortization is as follows:
| Year Ending December 31, | ||||||||
| 2021 (After September 30,) | $ | 49 | ||||||
| 2022 | 194 | |||||||
| 2023 | 191 | |||||||
| 2024 | 187 | |||||||
| 2025 | 182 | |||||||
| Thereafter | 1,707 | |||||||
| Total estimated future amortization | $ | 2,510 |
Matters concerning the ICRA reporting unit
ICRA has reported various matters relating to: (i) an adjudication order and fine imposed by the Securities and Exchange Board of India (SEBI) in connection with credit ratings assigned to one of ICRA’s customers and the customer’s subsidiaries, which are being appealed by ICRA; (ii) an increase in the original fine, which also is being appealed by ICRA; (iii) the completion of internal examinations regarding various anonymous complaints; and (iv) actions taken by ICRA’s board based on the examinations’ findings. As of the date of this quarterly report on Form 10-Q, the Company is unable to estimate the financial impact, if any, that may result from a potential unfavorable conclusion of these matters or any other ICRA inquiry. An unfavorable resolution of such matters may negatively impact ICRA’s future operating results, which could result in an impairment of goodwill and amortizable intangible assets in future quarters.
NOTE 11. RESTRUCTURING
On July 29, 2020, the chief executive officer of Moody’s approved a restructuring program (the “2020 Real Estate Rationalization Restructuring Program”) primarily in response to the COVID-19 pandemic which revolves around the rationalization and exit of certain real estate leases. The exit from certain leased office space began in the third quarter of 2020 and was substantially completed at December 31, 2020. The 2020 Restructuring Program primarily reflects non-cash charges related to the impairment of operating lease right-of-use assets and leasehold improvements. The 2020 Restructuring Program is expected to result in an estimated annualized savings of approximately $5 to $6 million a year.
On December 22, 2020, the chief executive officer of Moody’s approved a restructuring program (the “2020 MA Strategic Reorganization Restructuring Program”) that the Company estimates will result in annualized savings of $20 million per year. This program relates to a strategic reorganization in the MA reportable segment consisting of severance and related costs primarily determined under the Company’s existing severance plans. The 2020 MA Strategic Reorganization Restructuring Program resulted in a total of $20 million in pre-tax charges and was substantially complete at June 30, 2021. Cash outlays associated with this program are expected to be $20 million, which will be paid through 2022.
Total expense included in the accompanying consolidated statements of operations relating to the aforementioned restructuring program is below:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| 2018 Restructuring Program | $ | — | $ | — | $ | — | $ | (3) | |||||||||||||||
| 2020 Real Estate Rationalization Restructuring Program | — | 23 | — | 23 | |||||||||||||||||||
| 2020 MA Strategic Reorganization Restructuring Program | — | — | 2 | — | |||||||||||||||||||
| Total Restructuring | $ | — | $ | 23 | $ | 2 | $ | 20 |
Changes to the restructuring liability for the aforementioned restructuring program during the first nine months of 2021 were as follows:
| Employee Termination Costs | |||||||||||||||||
| Balance as of December 31, 2020 | $ | 18 | |||||||||||||||
| 2020 MA Strategic Reorganization Restructuring Program: | |||||||||||||||||
| Cost incurred and adjustments | 2 | ||||||||||||||||
| Cash payments and adjustments | (12) | ||||||||||||||||
| Balance as of September 30, 2021 | $ | 8 | |||||||||||||||
| Cumulative expense incurred to date | |||||||||||||||||
| 2020 Real Estate Rationalization Restructuring Program | $ | 36 | |||||||||||||||
| 2020 MA Strategic Reorganization Restructuring Program | $ | 20 |
NOTE 12. FAIR VALUE
The table below presents information about items that are carried at fair value at September 30, 2021 and December 31, 2020:
| Fair value Measurement as of September 30, 2021 | |||||||||||||||||
| Description | Balance | Level 1 | Level 2 | ||||||||||||||
| Assets: | |||||||||||||||||
| Derivatives (1) | $ | 59 | $ | — | $ | 59 | |||||||||||
| Mutual funds | 58 | 58 | — | ||||||||||||||
| Total | $ | 117 | $ | 58 | $ | 59 | |||||||||||
| Liabilities: | |||||||||||||||||
| Derivatives (1) | $ | 63 | $ | — | $ | 63 | |||||||||||
| Total | $ | 63 | $ | — | $ | 63 |
| Fair value Measurement as of December 31, 2020 | |||||||||||||||||
| Description | Balance | Level 1 | Level 2 | ||||||||||||||
| Assets: | |||||||||||||||||
| Derivatives (1) | $ | 88 | $ | — | $ | 88 | |||||||||||
| Mutual funds | 60 | 60 | — | ||||||||||||||
| Total | $ | 148 | $ | 60 | $ | 88 | |||||||||||
| Liabilities: | |||||||||||||||||
| Derivatives (1) | $ | 186 | $ | — | $ | 186 | |||||||||||
| Total | $ | 186 | $ | — | $ | 186 |
(1) Represents FX forward contracts, interest rate swaps and cross-currency swaps as more fully described in Note 9 to the condensed consolidated financial statements.
The following are descriptions of the methodologies utilized by the Company to estimate the fair value of its derivative contracts, mutual funds and money market mutual funds:
Derivatives:
In determining the fair value of the derivative contracts in the table above, the Company utilizes industry standard valuation models. Where applicable, these models project future cash flows and discount the future amounts to a present value using spot rates, forward points, currency volatilities, interest rates as well as the risk of non-performance of the Company and the counterparties with whom it has derivative contracts. The Company established strict counterparty credit guidelines and only enters into transactions with financial institutions that adhere to these guidelines. Accordingly, the risk of counterparty default is deemed to be minimal.
Mutual funds and money market mutual funds:
The mutual funds in the table above are deemed to be equity securities with readily determinable fair values with changes in the fair value recognized through net income under ASC Topic 321. The fair value of these instruments is determined using Level 1 inputs as defined in the ASC Topic 820.
NOTE 13. OTHER BALANCE SHEET AND STATEMENTS OF OPERATIONS INFORMATION
The following tables contain additional detail related to certain balance sheet captions:
| September 30, 2021 | December 31, 2020 | ||||||||||
| Other current assets: | |||||||||||
| Prepaid taxes | $ | 81 | $ | 94 | |||||||
| Prepaid expenses | 98 | 91 | |||||||||
| Capitalized costs to obtain and fulfill sales contracts | 89 | 93 | |||||||||
| Foreign exchange forwards on certain assets and liabilities | — | 31 | |||||||||
| Derivative instruments designated as accounting hedges | 10 | — | |||||||||
| Other | 45 | 74 | |||||||||
| Total other current assets | $ | 323 | $ | 383 | |||||||
| Other assets: | |||||||||||
| Investments in non-consolidated affiliates | $ | 149 | $ | 135 | |||||||
| Deposits for real-estate leases | 15 | 19 | |||||||||
| Indemnification assets related to acquisitions | 103 | 15 | |||||||||
| Mutual funds and fixed deposits | 67 | 66 | |||||||||
| Company owned life insurance (at contract value) | 35 | 17 | |||||||||
| Costs to obtain sales contracts | 137 | 134 | |||||||||
| Derivative instruments designated as accounting hedges | 49 | 57 | |||||||||
| Pension and other retirement employee benefits | 19 | 21 | |||||||||
| Other | 62 | 51 | |||||||||
| Total other assets | $ | 636 | $ | 515 | |||||||
| Accounts payable and accrued liabilities: | |||||||||||
| Salaries and benefits | $ | 196 | $ | 197 | |||||||
| Incentive compensation | 248 | 226 | |||||||||
| Customer credits, advanced payments and advanced billings | 96 | 42 | |||||||||
| Dividends | 5 | 11 | |||||||||
| Professional service fees | 68 | 53 | |||||||||
| Interest accrued on debt | 46 | 82 | |||||||||
| Accounts payable | 30 | 39 | |||||||||
| Income taxes | 201 | 128 | |||||||||
| Pension and other retirement employee benefits | 46 | 45 | |||||||||
| Accrued royalties | 19 | 19 | |||||||||
| Foreign exchange forwards on certain assets and liabilities | 10 | 2 | |||||||||
| Restructuring liability | 8 | 18 | |||||||||
| Derivative instruments designated as accounting hedges | 7 | 39 | |||||||||
| Other | 104 | 138 | |||||||||
| Total accounts payable and accrued liabilities | $ | 1,084 | $ | 1,039 | |||||||
| September 30, 2021 | December 31, 2020 | ||||||||||
| Other liabilities: | |||||||||||
| Pension and other retirement employee benefits | $ | 204 | $ | 244 | |||||||
| Interest accrued on UTPs | 82 | 113 | |||||||||
| MAKS indemnification provisions | 33 | 33 | |||||||||
| Income tax liability - non-current portion | 18 | 18 | |||||||||
| Derivative instruments designated as accounting hedges | 46 | 145 | |||||||||
| Other | 37 | 37 | |||||||||
| Total other liabilities | $ | 420 | $ | 590 |
Loss pursuant to the Divestiture of MAKS:
The $9 million loss during the nine months ended September 30, 2020 relates to customary post-closing completion adjustments pursuant to the fourth quarter 2019 divestiture of MAKS.
Other Non-Operating Income (Expense):
The following table summarizes the components of other non-operating income (expense):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| FX gain (loss) | $ | (2) | $ | 2 | $ | (2) | $ | 7 | |||||||||||||||
| Purchase price hedge loss(1) | (13) | — | (13) | — | |||||||||||||||||||
| Net periodic pension costs - other components | 4 | 3 | 5 | 10 | |||||||||||||||||||
| Income from investments in non-consolidated affiliates | 6 | 4 | 15 | 4 | |||||||||||||||||||
| Other | 1 | 1 | 13 | 17 | |||||||||||||||||||
| Total | $ | (4) | $ | 10 | $ | 18 | $ | 38 | |||||||||||||||
| (1) The amounts for the three and nine months ended September 30, 2021 represent a loss on a forward contract used to hedge a portion of the GBP denominated RMS purchase price. |
NOTE 14. COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table provides details about the reclassifications out of AOCL:
| Three Months Ended September 30, | Location in the consolidated statements of operations | ||||||||||||||||
| Losses on cash flow hedges | 2021 | 2020 | |||||||||||||||
| Interest rate contract | $ | (1) | $ | — | Other non-operating income, net | ||||||||||||
| Income tax effect of item above | — | — | Provision for income taxes | ||||||||||||||
| Total net losses on cash flow hedges | (1) | — | |||||||||||||||
| Pension and other retirement benefits | |||||||||||||||||
| Amortization of actuarial losses and prior service costs included in net income | (2) | (2) | Other non-operating income, net | ||||||||||||||
| Settlement charge | (1) | — | Other non-operating income, net | ||||||||||||||
| Total before income taxes | (3) | (2) | |||||||||||||||
| Income tax effect of items above | 1 | — | Provision for income taxes | ||||||||||||||
| Total pension and other retirement benefits | (2) | (2) | |||||||||||||||
| Total net losses included in Net Income attributable to reclassifications out of AOCL | $ | (3) | $ | (2) |
| Nine Months Ended September 30, | Location in the consolidated statements of operations | ||||||||||||||||
| Losses on cash flow hedges | 2021 | 2020 | |||||||||||||||
| Interest rate contract | $ | (2) | $ | (1) | Other non-operating income, net | ||||||||||||
| Income tax effect of item above | — | — | Provision for income taxes | ||||||||||||||
| Total net losses on cash flow hedges | (2) | (1) | |||||||||||||||
| Gains on net investment hedges | |||||||||||||||||
| FX forwards | 2 | — | Other non-operating income, net | ||||||||||||||
| 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 losses and prior service costs included in net income | (8) | (5) | Other non-operating income, net | ||||||||||||||
| Settlement charge | (8) | — | Other non-operating income, net | ||||||||||||||
| Total before income taxes | (16) | (5) | |||||||||||||||
| Income tax effect of items above | 4 | 1 | Provision for income taxes | ||||||||||||||
| Total pension and other retirement benefits | (12) | (4) | |||||||||||||||
| Total net losses included in Net Income attributable to reclassifications out of AOCL | $ | (13) | $ | (5) |
The following tables show changes in AOCL by component (net of tax):
| Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||||||||||||||
| Gains/(Losses) | Pension and Other Retirement Benefits | Cash Flow Hedges | Foreign Currency Translation Adjustments | Net Investment Hedges | Total | Pension and Other Retirement Benefits | Cash Flow Hedges | Foreign Currency Translation Adjustments | Net Investment Hedges | Total | |||||||||||||||||||||||||
| Balance June 30, | $ | (108) | $ | (48) | $ | (152) | $ | (117) | $ | (425) | $ | (84) | $ | (49) | $ | (479) | $ | 70 | $ | (542) | |||||||||||||||
| Other comprehensive income/(loss) before reclassifications | 3 | — | (116) | 73 | (40) | (7) | — | 186 | (143) | 36 | |||||||||||||||||||||||||
| Amounts reclassified from AOCL | 2 | 1 | — | — | 3 | 2 | — | — | — | 2 | |||||||||||||||||||||||||
| Other comprehensive income/(loss) | 5 | 1 | (116) | 73 | (37) | (5) | — | 186 | (143) | 38 | |||||||||||||||||||||||||
| Balance September 30, | $ | (103) | $ | (47) | $ | (268) | $ | (44) | $ | (462) | $ | (89) | $ | (49) | $ | (293) | $ | (73) | $ | (504) |
| Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||||||||||||||
| Gains/(Losses) | Pension and Other Retirement Benefits | Cash Flow Hedges | Foreign Currency Translation Adjustments | Net Investment Hedges | Total | Pension and Other Retirement Benefits | Cash Flow Hedges | Foreign Currency Translation Adjustments | Net Investment Hedges | Total | |||||||||||||||||||||||||
| Balance December 31, | $ | (118) | $ | (49) | $ | (45) | $ | (220) | $ | (432) | $ | (92) | $ | — | $ | (401) | $ | 54 | $ | (439) | |||||||||||||||
| Other comprehensive income/(loss) before reclassifications | 3 | — | (223) | 177 | (43) | (1) | (50) | 108 | (127) | (70) | |||||||||||||||||||||||||
| Amounts reclassified from AOCL | 12 | 2 | — | (1) | 13 | 4 | 1 | — | — | 5 | |||||||||||||||||||||||||
| Other comprehensive income/(loss) | 15 | 2 | (223) | 176 | (30) | 3 | (49) | 108 | (127) | (65) | |||||||||||||||||||||||||
| Balance September 30, | $ | (103) | $ | (47) | $ | (268) | $ | (44) | $ | (462) | $ | (89) | $ | (49) | $ | (293) | $ | (73) | $ | (504) |
NOTE 15. PENSION AND OTHER RETIREMENT BENEFITS
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 for its employees or final average pay for selected executives. The Company also provides certain healthcare and life insurance benefits for retired U.S. employees. The retirement healthcare plans are contributory; 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.” The non-U.S. defined benefit pension plans are immaterial.
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 formulas.
The components of net periodic benefit expense related to the Retirement Plans and Other Retirement Plans are as follows:
| Three Months Ended September 30, | |||||||||||||||||||||||
| Pension Plans | Other Retirement Plans | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Components of net periodic expense | |||||||||||||||||||||||
| Service cost | $ | 4 | $ | 5 | $ | 1 | $ | — | |||||||||||||||
| Interest cost | 4 | 4 | — | 1 | |||||||||||||||||||
| Expected return on plan assets | (7) | (5) | — | — | |||||||||||||||||||
| Amortization of net actuarial loss from earlier periods | 3 | 2 | — | — | |||||||||||||||||||
| Loss on settlement of pension obligation | 1 | — | — | — | |||||||||||||||||||
| Net periodic expense | $ | 5 | $ | 6 | $ | 1 | $ | 1 |
| Nine Months Ended September 30, | |||||||||||||||||||||||
| Pension Plans | Other Retirement Plans | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Components of net periodic expense | |||||||||||||||||||||||
| Service cost | $ | 14 | $ | 13 | $ | 3 | $ | 2 | |||||||||||||||
| Interest cost | 11 | 13 | 1 | 1 | |||||||||||||||||||
| Expected return on plan assets | (20) | (15) | — | — | |||||||||||||||||||
| Amortization of net actuarial loss from earlier periods | 8 | 5 | — | — | |||||||||||||||||||
| Loss on settlement of pension obligation | 8 | — | — | — | |||||||||||||||||||
| Net periodic expense | $ | 21 | $ | 16 | $ | 4 | $ | 3 |
The Company made contributions of $46 million related to its unfunded U.S. DBPPs during the nine months ended September 30, 2021. Anticipated contributions for the remainder of 2021 are not expected to be material.
NOTE 16. INDEBTEDNESS
The Company’s debt is recorded at its carrying amount, which represents the issuance amount plus or minus any issuance premium or discount, except for certain debt as depicted in the table below, which are recorded at the carrying amount adjusted for the fair value of an interest rate swap used to hedge the fair value of the note.
The following table summarizes total indebtedness:
| September 30, 2021 | |||||||||||||||||||||||||||||
| Notes Payable: | Principal Amount | Fair Value of Interest Rate Swaps (1) | Unamortized (Discount) Premium | Unamortized Debt Issuance Costs | Carrying Value | ||||||||||||||||||||||||
| 4.50% 2012 Senior Notes, due 2022 | $ | 500 | $ | 7 | $ | — | $ | — | $ | 507 | |||||||||||||||||||
| 4.875% 2013 Senior Notes, due 2024 | 500 | (5) | (1) | (1) | 493 | ||||||||||||||||||||||||
| 5.25% 2014 Senior Notes, due 2044 | 600 | (4) | 3 | (5) | 594 | ||||||||||||||||||||||||
| 1.75% 2015 Senior Notes, due 2027 | 579 | — | — | (2) | 577 | ||||||||||||||||||||||||
| 2.625% 2017 Senior Notes, due 2023 | 500 | 8 | — | (1) | 507 | ||||||||||||||||||||||||
| 3.25% 2017 Senior Notes, due 2028 | 500 | 15 | (3) | (3) | 509 | ||||||||||||||||||||||||
| 4.25% 2018 Senior Notes, due 2029 | 400 | — | (2) | (2) | 396 | ||||||||||||||||||||||||
| 4.875% 2018 Senior Notes, due 2048 | 400 | — | (6) | (4) | 390 | ||||||||||||||||||||||||
| 0.950% 2019 Senior Notes, due 2030 | 869 | — | (2) | (5) | 862 | ||||||||||||||||||||||||
| 3.75% 2020 Senior Notes, due 2025 | 700 | (5) | (1) | (4) | 690 | ||||||||||||||||||||||||
| 3.25% 2020 Senior Notes, due 2050 | 300 | — | (4) | (3) | 293 | ||||||||||||||||||||||||
| 2.55% 2020 Senior Notes, due 2060 | 500 | — | (4) | (5) | 491 | ||||||||||||||||||||||||
| 2.00% 2021 Senior Note, due 2031 | 600 | — | (8) | (5) | 587 | ||||||||||||||||||||||||
| 2.75% 2021 Senior Note, due 2041 | 600 | — | (14) | (6) | 580 | ||||||||||||||||||||||||
| Total debt | $ | 7,548 | $ | 16 | $ | (42) | $ | (46) | $ | 7,476 | |||||||||||||||||||
| Current portion | (507) | ||||||||||||||||||||||||||||
| Total long-term debt | $ | 6,969 |
| December 31, 2020 | |||||||||||||||||||||||||||||
| Notes Payable: | Principal Amount | Fair Value of Interest Rate Swaps (1) | Unamortized (Discount) Premium | Unamortized Debt Issuance Costs | Carrying Value | ||||||||||||||||||||||||
| 4.50% 2012 Senior Notes, due 2022 | $ | 500 | $ | 14 | $ | (1) | $ | (1) | $ | 512 | |||||||||||||||||||
| 4.875% 2013 Senior Notes, due 2024 | 500 | — | (1) | (1) | 498 | ||||||||||||||||||||||||
| 5.25% 2014 Senior Notes, due 2044 | 600 | — | 3 | (5) | 598 | ||||||||||||||||||||||||
| 1.75% 2015 Senior Notes, due 2027 | 612 | — | — | (2) | 610 | ||||||||||||||||||||||||
| 2.625% 2017 Senior Notes, due 2023 | 500 | 12 | — | (2) | 510 | ||||||||||||||||||||||||
| 3.25% 2017 Senior Notes, due 2028 | 500 | 31 | (4) | (3) | 524 | ||||||||||||||||||||||||
| 4.25% 2018 Senior Notes, due 2029 | 400 | — | (3) | (3) | 394 | ||||||||||||||||||||||||
| 4.875% 2018 Senior Notes, due 2048 | 400 | — | (6) | (4) | 390 | ||||||||||||||||||||||||
| 0.950% 2019 Senior Notes, due 2030 | 918 | — | (3) | (6) | 909 | ||||||||||||||||||||||||
| 3.75% 2020 Senior Notes, due 2025 | 700 | (1) | (1) | (5) | 693 | ||||||||||||||||||||||||
| 3.25% 2020 Senior Notes, due 2050 | 300 | — | (4) | (3) | 293 | ||||||||||||||||||||||||
| 2.55% 2020 Senior Notes, due 2060 | 500 | — | (4) | (5) | 491 | ||||||||||||||||||||||||
| Total long-term debt | $ | 6,430 | $ | 56 | $ | (24) | $ | (40) | $ | 6,422 |
(1) The fair value of interest rate swaps in the table above represents the cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged debt.
Notes Payable
In the third quarter of 2021, the Company issued the 2021 Senior Notes, due 2031 and the 2021 Senior Notes due 2041. The key terms of these debt issuances are set forth in the table above.
At September 30, 2021, the Company was in compliance with all covenants contained within all of the debt agreements. All the debt agreements contain cross default provisions which state that default under one of the aforementioned debt instruments could in turn permit lenders under other debt instruments to declare borrowings outstanding under those instruments to be immediately due and payable. As of September 30, 2021, there were no such cross defaults.
The repayment schedule for the Company’s borrowings is as follows:
| Year Ending December 31, | 2012 Senior Notes due 2022 | 2013 Senior Notes due 2024 | 2014 Senior Notes due 2044 | 2015 Senior Notes due 2027 | 2017 Senior Notes due 2023 | 2017 Senior Notes due 2028 | 2018 Senior Notes due 2029 | 2018 Senior Notes due 2048 | 2019 Senior Notes due 2030 | 2020 Senior Notes due 2025 | 2020 Senior Notes due 2050 | 2020 Senior Notes due 2060 | 2021 Senior Notes due 2031 | 2021 Senior Notes due 2041 | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2021 (After September 30,) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 500 | — | — | — | — | — | — | — | — | — | — | — | — | — | $ | 500 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | — | — | — | — | 500 | — | — | — | — | — | — | — | — | — | $ | 500 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | — | 500 | — | — | — | — | — | — | — | — | — | — | — | — | $ | 500 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | — | — | — | — | — | — | — | — | — | 700 | — | — | — | — | $ | 700 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Thereafter | — | — | 600 | 579 | — | 500 | 400 | 400 | 869 | — | 300 | 500 | 600 | 600 | $ | 5,348 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 500 | $ | 500 | $ | 600 | $ | 579 | $ | 500 | $ | 500 | $ | 400 | $ | 400 | $ | 869 | $ | 700 | $ | 300 | $ | 500 | $ | 600 | $ | 600 | $ | 7,548 |
Interest expense, net
The following table summarizes the components of interest as presented in the consolidated statements of operations and the cash paid for interest:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Income | $ | 3 | $ | 2 | $ | 7 | $ | 9 | |||||||||||||||
| Expense on borrowings | (47) | (42) | (129) | (121) | |||||||||||||||||||
| Income (expense) on UTPs and other tax related liabilities(2) | (5) | (9) | 25 | (27) | |||||||||||||||||||
| Net periodic pension costs - interest component | (4) | (4) | (12) | (14) | |||||||||||||||||||
| Interest expense, net | $ | (53) | $ | (53) | $ | (109) | $ | (153) | |||||||||||||||
| Interest paid(1) | $ | 53 | $ | 47 | $ | 139 | $ | 119 |
(1) Interest paid includes net settlements on interest rate swaps more fully discussed in Note 9.
(2) Income (expense) on UTPs and other tax related liabilities for the nine months ended September 30, 2021 includes a $40 million benefit relating to the reversal of tax-related interest accruals pursuant to the resolution of tax matters.
The fair value and carrying value of the Company’s debt as of September 30, 2021 and December 31, 2020 are as follows:
| September 30, 2021 | December 31, 2020 | ||||||||||||||||||||||
| Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | ||||||||||||||||||||
| 4.50% 2012 Senior Notes, due 2022 | $ | 507 | $ | 515 | $ | 512 | $ | 530 | |||||||||||||||
| 4.875% 2013 Senior Notes, due 2024 | 493 | 545 | 498 | 562 | |||||||||||||||||||
| 5.25% 2014 Senior Notes, due 2044 | 594 | 808 | 598 | 828 | |||||||||||||||||||
| 1.75% 2015 Senior Notes, due 2027 | 577 | 629 | 610 | 674 | |||||||||||||||||||
| 2.625% 2017 Senior Notes, due 2023 | 507 | 514 | 510 | 522 | |||||||||||||||||||
| 3.25% 2017 Senior Notes, due 2028 | 509 | 544 | 524 | 561 | |||||||||||||||||||
| 4.25% 2018 Senior Notes, due 2029 | 396 | 460 | 394 | 480 | |||||||||||||||||||
| 4.875% 2018 Senior Notes, due 2048 | 390 | 526 | 390 | 544 | |||||||||||||||||||
| 0.950% 2019 Senior Notes, due 2030 | 862 | 898 | 909 | 974 | |||||||||||||||||||
| 3.75% 2020 Senior Notes, due 2025 | 690 | 761 | 693 | 785 | |||||||||||||||||||
| 3.25% 2020 Senior Notes, due 2050 | 293 | 309 | 293 | 329 | |||||||||||||||||||
| 2.55% 2020 Senior Notes, due 2060 | 491 | 437 | 491 | 467 | |||||||||||||||||||
| 2.00% 2021 Senior Note, due 2031 | 587 | 588 | — | — | |||||||||||||||||||
| 2.75% 2021 Senior Note, due 2041 | 580 | 584 | — | — | |||||||||||||||||||
| Total | $ | 7,476 | $ | 8,118 | $ | 6,422 | $ | 7,256 |
The fair value of the Company’s long-term debt is estimated based on quoted market prices for similar instruments. Accordingly, the inputs used to estimate the fair value of the Company’s long-term debt are classified as Level 2 inputs within the fair value hierarchy.
NOTE 17. LEASES
The Company has operating leases, substantially all of which relate to the lease of office space. The Company’s leases which are classified as finance leases are not material to the consolidated financial statements. Certain of the Company’s leases include options to renew, with renewal terms that can extend the lease term from one year to 20 years at the Company’s discretion.
The following table presents the components of the Company’s lease cost:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Operating lease cost | $ | 24 | $ | 24 | $ | 71 | $ | 72 | |||||||||||||||
| Sublease income | (2) | (1) | (4) | (3) | |||||||||||||||||||
| Variable lease cost | 5 | 4 | 15 | 14 | |||||||||||||||||||
| Total lease cost | $ | 27 | $ | 27 | $ | 82 | $ | 83 |
The following tables present other information related to the Company’s operating leases:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | 27 | $ | 27 | $ | 83 | $ | 80 | |||||||||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 117 | $ | 7 | $ | 123 | $ | 26 |
| September 30, 2021 | September 30, 2020 | |||||||||||||
| Weighted-average remaining lease term | 5.9 years | 6.3 years | ||||||||||||
| Weighted-average discount rate applied to operating leases | 3.1 | % | 3.6 | % |
The following table presents a maturity analysis of the future minimum lease payments included within the Company’s operating lease liabilities at September 30, 2021:
| Year Ending December 31, | Operating Leases | |||||||
| 2021 (After September 30) | $ | 30 | ||||||
| 2022 | 119 | |||||||
| 2023 | 115 | |||||||
| 2024 | 105 | |||||||
| 2025 | 90 | |||||||
| After 2025 | 167 | |||||||
| Total lease payments (undiscounted) | 626 | |||||||
| Less: Interest | 53 | |||||||
| Present value of lease liabilities: | $ | 573 | ||||||
| Lease liabilities - current | $ | 103 | ||||||
| Lease liabilities - noncurrent | $ | 470 |
NOTE 18. CONTINGENCIES
Given the nature of the Company's activities, Moody’s and its subsidiaries are subject to legal and tax proceedings, governmental, regulatory and legislative investigations, subpoenas and other inquiries, and claims and litigation by governmental and private parties that are based on ratings assigned by MIS or that are otherwise incidental to the Company’s business. Moody’s and MIS also are subject to periodic reviews, inspections, examinations and investigations by regulators in the U.S. and other jurisdictions, any of which may result in claims, legal proceedings, assessments, fines, penalties or restrictions on business activities. Moody’s also is subject to ongoing tax audits as addressed in Note 5 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 19. SEGMENT INFORMATION
The Company is organized into two operating segments: MIS and MA and accordingly, the Company reports in two reportable segments: MIS and MA.
The MIS segment consists of five LOBs. The CFG, FIG, PPIF and SFG LOBs generate revenue principally from fees for the assignment and ongoing monitoring of credit ratings on debt obligations and the entities that issue such obligations in markets worldwide. The MIS Other LOB primarily consists of financial instruments pricing services in the Asia-Pacific region, ICRA non-ratings revenue and revenue from providing ESG research, data and assessments.
The MA segment develops a wide range of products and services that support the risk management activities of institutional participants in global financial markets. The MA segment consists of two LOBs - RD&A and ERS.
Revenue for MIS and expenses for MA include intersegment fees charged to MA for the rights to use and distribute content, data and products developed by MIS. Additionally, revenue for MA and expenses for MIS include an intersegment fee charged to MIS from MA for certain MA products and services utilized in MIS’s ratings process. These intersegment fees are generally based on the market value of the products and services being transferred between the segments.
Overhead expenses include costs such as rent and occupancy, information technology and support staff such as finance, human resources and legal. Such costs and corporate expenses that exclusively benefit one segment are fully charged to that segment.
For overhead costs and corporate expenses that benefit both segments, costs are allocated to each segment based on the segment’s share of full-year 2019 actual revenue which comprises a “Baseline Pool” that will remain fixed over time. In subsequent periods, incremental overhead costs (or reductions thereof) will be allocated to each segment based on the prevailing shares of total revenue represented by each segment.
“Eliminations” in the following table represent intersegment revenue/expense. Moody’s does not report the Company’s assets by reportable segment, as this metric is not used by the chief operating decision maker to allocate resources to the segments. Consequently, it is not practical to show assets by reportable segment.
Financial Information by Segment
The table below shows revenue, operating income 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.
| Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
| MIS | MA | Eliminations | Consolidated | MIS | MA | Eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 967 | $ | 603 | $ | (44) | $ | 1,526 | $ | 863 | $ | 532 | $ | (39) | $ | 1,356 | |||||||||||||||||||||||||||||||
| Total Expenses | 404 | 490 | (44) | 850 | 339 | 414 | (39) | 714 | |||||||||||||||||||||||||||||||||||||||
| Operating income | 563 | 113 | — | 676 | 524 | 118 | — | 642 | |||||||||||||||||||||||||||||||||||||||
| Add: | |||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 17 | 44 | — | 61 | 17 | 39 | — | 56 | |||||||||||||||||||||||||||||||||||||||
| Restructuring | — | — | — | — | 13 | 10 | — | 23 | |||||||||||||||||||||||||||||||||||||||
| Adjusted Operating Income | $ | 580 | $ | 157 | $ | — | $ | 737 | $ | 554 | $ | 167 | $ | — | $ | 721 |
| Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
| MIS | MA | Eliminations | Consolidated | MIS | MA | Eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 3,065 | $ | 1,744 | $ | (130) | $ | 4,679 | $ | 2,667 | $ | 1,529 | $ | (115) | $ | 4,081 | |||||||||||||||||||||||||||||||
| Total Expenses | 1,132 | 1,347 | (130) | 2,349 | 1,051 | 1,201 | (115) | 2,137 | |||||||||||||||||||||||||||||||||||||||
| Operating income | 1,933 | 397 | — | 2,330 | 1,616 | 328 | — | 1,944 | |||||||||||||||||||||||||||||||||||||||
| Add: | |||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 53 | 127 | — | 180 | 52 | 111 | — | 163 | |||||||||||||||||||||||||||||||||||||||
| Restructuring | — | 2 | — | 2 | 12 | 8 | — | 20 | |||||||||||||||||||||||||||||||||||||||
| Loss pursuant to the divestiture of MAKS | — | — | — | — | — | 9 | — | 9 | |||||||||||||||||||||||||||||||||||||||
| Adjusted Operating Income | $ | 1,986 | $ | 526 | $ | — | $ | 2,512 | $ | 1,680 | $ | 456 | $ | — | $ | 2,136 |
Consolidated Revenue Information by Geographic Area
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| United States | $ | 844 | $ | 729 | $ | 2,560 | $ | 2,280 | |||||||||||||||
| Non-U.S.: | |||||||||||||||||||||||
| EMEA | 439 | 401 | 1,398 | 1,137 | |||||||||||||||||||
| Asia-Pacific | 149 | 156 | 460 | 436 | |||||||||||||||||||
| Americas | 94 | 70 | 261 | 228 | |||||||||||||||||||
| Total Non-U.S. | 682 | 627 | 2,119 | 1,801 | |||||||||||||||||||
| Total | $ | 1,526 | $ | 1,356 | $ | 4,679 | $ | 4,081 |
NOTE 20. SUBSEQUENT EVENTS
On October 26, 2021, the Board approved the declaration of a quarterly dividend of $0.62 per share of Moody’s common stock, payable on December 14, 2021 to shareholders of record at the close of business on November 23, 2021.
On October 13, 2021, Moody's completed a minority investment in BitSight, a cybersecurity ratings company. The consideration transferred by Moody's for this investment comprised $250 million in cash and the contribution of Moody's minority interest in VisibleRisk, a cybersecurity risk ratings joint venture. Moody's expects to recognize an approximate $30 to $40 million non-cash gain in the fourth quarter of 2021 relating to the exchange of its minority investment in VisibleRisk for shares of BitSight.
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