Edgar Filing: MOODYS CORP /DE/

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-14037

Moody’s Corporation

(Exact name of registrant as specified in its charter)


Delaware		13-3998945
(State of Incorporation)		(I.R.S. Employer Identification No.)

7 World Trade Center at 250 Greenwich Street, New York, N.Y.		10007
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code:

(212) 553-0300

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months, or for such shorter period that the registrant was required to submit such files. Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:


Title of Each Class		Shares Outstanding at March 31, 2019
Common Stock, par value $0.01 per share		189.6 million

MOODY’S CORPORATION

INDEX TO FORM 10-Q


		Page(s)
	Glossary of Terms and Abbreviations		3-9

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements		10
	Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2019 and 2018		10
	Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2019 and 2018		11
	Consolidated Balance Sheets (Unaudited) at March 31, 2019 and December 31, 2018		12
	Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2019 and 2018		13
	Consolidated Statements of Shareholders’ Equity (Unaudited) for the Three Months Ended March 31, 2019 and 2018		14-15
	Notes to Condensed Consolidated Financial Statements (Unaudited)		16-43
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		44
	The Company		44
	Critical Accounting Estimates		44-45
	Reportable Segments		45
	Results of Operations		46-52
	Liquidity and Capital Resources		52-57
	Recently Issued Accounting Standards		57
	Contingencies		57
	Regulation		57-58
	Forward-Looking Statements		58-59
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		59
Item 4.	Controls and Procedures		60

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		61
Item 1A.	Risk Factors		61
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		61
Item 5.	Other Information		61
Item 6.	Exhibits		62

SIGNATURES			63
Exhibits Filed Herewith
10.1	Amendment to the Amended and Restated 2001 Moody’s Corporation Key Employees’ Stock Incentive Plan (as amended, December 18, 2017)
31.1	Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.DEF	XBRL Definitions Linkbase Document
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

GLOSSARY OF TERMS AND ABBREVIATIONS

The following terms, abbreviations and acronyms are used to identify frequently used terms in this report:


TERM		DEFINITION

Acquisition-Related Amortization		Amortization of definite-lived intangible assets acquired by the Company from all business combination transactions

Acquisition-Related Expenses		Consists of expenses incurred to complete and integrate the acquisition of Bureau van Dijk for which the integration will be a multi-year effort

Adjusted Diluted EPS		Diluted EPS excluding the impact of certain items as detailed in the section entitled “Non-GAAP Financial Measures”

Adjusted Net Income		Net Income excluding the impact of certain items as detailed in the section entitled “Non-GAAP Financial Measures”

Adjusted Operating Income		Operating income excluding depreciation and amortization

Adjusted Operating Margin		Adjusted Operating Income divided by revenue

Americas		Represents countries within North and South America, excluding the U.S.

AOCI		Accumulated other comprehensive income (loss); a separate component of shareholders’ equity (deficit)

ASC		The FASB Accounting Standards Codification; the sole source of authoritative GAAP as of July 1, 2009 except for rules and interpretive releases of the SEC, which are also sources of authoritative GAAP for SEC registrants

Asia-Pacific		Represents Australia and countries in Asia including but not limited to: China, India, Indonesia, Japan, Korea, Malaysia, Singapore, Sri Lanka and Thailand

ASR		Accelerated Share Repurchase

ASU		The FASB Accounting Standards Update to the ASC. It also provides background information for accounting guidance and the bases for conclusions on the changes in the ASC. ASUs are not considered authoritative until codified into the ASC

Board		The board of directors of the Company

BPS		Basis points

Brexit		The withdrawal of the United Kingdom from the European Union

Bureau van Dijk		Bureau van Dijk Electronic Publishing, B.V.; a global provider of business intelligence and company information; acquired by the Company on August 10, 2017 via the acquisition of Yellow Maple I B.V., an indirect parent of Bureau van Dijk

CECL		Current expected credit losses

CFG		Corporate finance group; an LOB of MIS

CLO		Collateralized loan obligation


TERM		DEFINITION

CMBS		Commercial mortgage-backed securities; an asset class within SFG

Common Stock		The Company’s common stock

Company		Moody’s Corporation and its subsidiaries; MCO; Moody’s

Content		A reporting unit within the MA segment that offers subscription based research, data and analytical products, including credit ratings produced by MIS, credit research, quantitative credit scores and other analytical tools, economic research and forecasts, business intelligence and company information products, and commercial real estate data and analytical tools

CP		Commercial Paper

CP Program		A program entered into on August 3, 2016 allowing the Company to privately place CP up to a maximum of $1 billion for which the maturity may not exceed 397 days from the date of issue and which is backstopped by the 2018 Facility

CRAs		Credit rating agencies

D&A		Depreciation and amortization

DBPPs		Defined benefit pension plans

EMEA		Represents countries within Europe, the Middle East and Africa

EPS		Earnings per share

ERS		Enterprise Risk Solutions; an LOB within MA, which offers risk management software solutions as well as related risk management advisory engagements services

ESG		Environmental, Social, and Governance

ESMA		European Securities and Markets Authority

ETR		Effective tax rate

EU		European Union

EUR		Euros

EURIBOR		The Euro Interbank Offered Rate

Excess Tax Benefits		The difference between the tax benefit realized at exercise of an option or delivery of a restricted share and the tax benefit recorded at the time the option or restricted share is expensed under GAAP

Exchange Act		The Securities Exchange Act of 1934, as amended

External Revenue		Revenue excluding any intersegment amounts


TERM		DEFINITION

FASB		Financial Accounting Standards Board

FIG		Financial institutions group; an LOB of MIS

Financial Reform Act		Dodd-Frank Wall Street Reform and Consumer Protection Act

Free Cash Flow		Net cash provided by operating activities less cash paid for capital additions

FSTC		Financial Services Training and Certifications; now referred to as MALS

FX		Foreign exchange

GAAP		U.S. Generally Accepted Accounting Principles

GBP		British pounds

ICRA		ICRA Limited; a leading provider of credit ratings and research in India, for which the Company owns approximately 52%

IRS		Internal Revenue Service

IT		Information technology

KIS		Korea Investors Service, Inc.; a leading Korean rating agency and consolidated subsidiary of the Company

KIS Pricing		Korea Investors Service Pricing, Inc.; a leading Korean provider of fixed income securities pricing and consolidated subsidiary of the Company

KIS Research		Korea Investors Service Research; a Korean provider of financial research and consolidated subsidiary of the Company

Korea		Republic of South Korea

LIBOR		London Interbank Offered Rate

LOB		Line of business

M&A		Mergers and acquisitions

MA		Moody’s Analytics – a reportable segment of MCO; provides a wide range of products and services that support financial analysis and risk management activities of institutional participants in global financial markets; consists of three LOBs – RD&A, ERS and PS

MAKS		Moody’s Analytics Knowledge Services; formerly known as Copal Amba; provides offshore research and analytic services to the global financial and corporate sectors; part of the PS LOB and a reporting unit within the MA reportable segment

MALS		Moody’s Analytics Learning Solutions; a reporting unit within the MA segment that includes on-line and classroom-based training services as well as credentialing and certification services; formerly known as FSTC

MCO		Moody’s; Moody’s Corporation and its subsidiaries; the Company


TERM		DEFINITION

MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations

MIS		Moody’s Investors Service – a reportable segment of MCO; consists of five LOBs – SFG, CFG, FIG, PPIF and MIS Other

MIS Other		Consists of non-ratings revenue from ICRA, KIS Pricing and KIS Research. These businesses are components of MIS; MIS Other is an LOB of MIS

Moody’s		Moody’s Corporation and its subsidiaries; MCO; the Company

Net Income		Net income attributable to Moody’s Corporation, which excludes net income from consolidated noncontrolling interests belonging to the minority interest holder

New Lease Accounting Standard		Updates to the ASC pursuant to ASU No. 2016-02, “Leases (ASC Topic 842)”. This new accounting guidance requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses and cash flows depend on classification as either a finance or operating lease

New Revenue Accounting Standard		Updates to the ASC pursuant to ASU No. 2014-09, “Revenue from Contracts with Customers (ASC Topic 606)”. This new accounting guidance significantly changes the accounting framework under U.S. GAAP relating to revenue recognition and to the accounting for the deferral of incremental costs of obtaining or fulfilling a contract with a customer

NM		Percentage change is not meaningful

Non-GAAP		A financial measure not in accordance with GAAP; these measures, when read in conjunction with the Company’s reported results, can provide useful supplemental information for investors analyzing period-to-period comparisons of the Company’s performance, facilitate comparisons to competitors’ operating results and to provide greater transparency to investors of supplemental information used by management in its financial and operational decision making

NRSRO		Nationally Recognized Statistical Rating Organization, which is a credit rating agency registered with the SEC.

OCI		Other comprehensive income (loss); includes gains and losses on cash flow and net investment hedges, unrealized gains and losses on available for sale securities (in periods prior to January 1, 2018), certain gains and losses relating to pension and other retirement benefit obligations and foreign currency translation adjustments

Omega Performance		A leading provider of online credit training, acquired by the Company in August 2018

Operating segment		Term defined in the ASC relating to segment reporting; the ASC defines an operating segment as a component of a business entity that has each of the three following characteristics: i) the component engages in business activities from which it may recognize revenue and incur expenses; ii) the operating results of the component are regularly reviewed by the entity’s chief operating decision maker; and iii) discrete financial information about the component is available

Other Retirement Plans		The U.S. retirement healthcare and U.S. retirement life insurance plans

PPIF		Public, project and infrastructure finance; an LOB of MIS

Profit Participation Plan		Defined contribution profit participation plan that covers substantially all U.S. employees of the Company


TERM		DEFINITION

PS		Professional Services, an LOB within MA consisting of MAKS and MALS that provides offshore analytical and research services as well as learning solutions and certification programs

RD&A		Research, Data and Analytics; an LOB within MA that offers subscription based research, data and analytical products, including credit ratings produced by MIS, credit research, quantitative credit scores and other analytical tools, economic research and forecasts, business intelligence and company information products, and commercial real estate data and analytical tools

Reform Act		Credit Rating Agency Reform Act of 2006

REIT		Real Estate Investment Trust

Reis, Inc. (Reis)		A leading provider of U.S. commercial real estate (CRE) data; acquired by the Company in October 2018

Relationship Revenue		For MIS, represents recurring monitoring fees of a rated debt obligation and/or entities that issue such obligations, as well as revenue from programs such as commercial paper, medium-term notes and shelf registrations. For MIS Other represents subscription-based revenue. For MA, represents subscription-based revenue and software maintenance revenue

Reporting unit		The level at which Moody’s evaluates its goodwill for impairment under U.S. GAAP; defined as an operating segment or one level below an operating segment

RMBS		Residential mortgage-backed securities; an asset class within SFG

ROU Asset		Assets recorded pursuant to the New Lease Accounting Standard which represent the Company’s right to use an underlying asset for the term of a lease

SaaS		Software-as-a-Service

SEC		U.S. Securities and Exchange Commission

Securities Act		Securities Act of 1933, as amended

SFG		Structured finance group; an LOB of MIS

SG&A		Selling, general and administrative expenses

Tax Act		The “Tax Cuts and Jobs Act” enacted into U.S. law on December 22, 2017, which significantly amends the tax code in the U.S.

Total Debt		All indebtedness of the Company as reflected on the consolidated balance sheets

Transaction Revenue		For MIS, represents the initial rating of a new debt issuance as well as other one-time fees. For MIS Other, represents revenue from professional services as well as data services, research and analytical engagements. For MA, represents perpetual software license fees and revenue from software implementation services, risk management advisory projects, training and certification services, and research and analytical engagements

U.K.		United Kingdom


TERM		DEFINITION

U.S.		United States

USD		U.S. dollar

UTPs		Uncertain tax positions

Vigeo Eiris		A global leader in ESG research, data and assessments, acquired by the Company on April 11, 2019.

2010 Indenture		Supplemental indenture and related agreements dated August 19, 2010, relating to the 2010 Senior Notes

2010 Senior Notes		Principal amount of $500 million, 5.50% senior unsecured notes due in September 2020 pursuant to the 2010 Indenture

2012 Indenture		Supplemental indenture and related agreements dated August 18, 2012, relating to the 2012 Senior Notes

2012 Senior Notes		Principal amount of $500 million, 4.50% senior unsecured notes due in September 2022 pursuant to the 2012 Indenture

2013 Indenture		Supplemental indenture and related agreements dated August 12, 2013, relating to the 2013 Senior Notes

2013 Senior Notes		Principal amount of the $500 million, 4.875% senior unsecured notes due in February 2024 pursuant to the 2013 Indenture

2014 Indenture		Supplemental indenture and related agreements dated July 16, 2014, relating to the 2014 Senior Notes

2014 Senior Notes (5-Year)		Principal amount of $450 million, 2.75% senior unsecured notes due in July 2019 pursuant to the 2014 Indenture; repaid in 2019

2014 Senior Notes (30-Year)		Principal amount of $600 million, 5.25% senior unsecured notes due in July 2044 pursuant to the 2014 Indenture

2015 Facility		Five-year unsecured revolving credit facility, with capacity to borrow up to $1 billion; backstops CP issued under the CP Program

2015 Indenture		Supplemental indenture and related agreements dated March 9, 2015, relating to the 2015 Senior Notes

2015 Senior Notes		Principal amount of €500 million, 1.75% senior unsecured notes issued March 9, 2015 pursuant to the 2015 Indenture ; repaid in 2018

2017 Floating Rate Senior Notes		Principal amount of $300 million, floating rate senior unsecured notes due in September 2018 pursuant to the 2017 Indenture

2017 Indenture		Collectively the Supplemental indenture and related agreements dated March 2, 2017, relating to the 2017 Floating Rate Senior Notes and 2017 Notes Due 2023 and 2028, and the supplemental indenture and related agreements dated June 12, 2017, relating to the 2017 Notes Due 2023 and 2028

2017 Senior Notes Due 2023		Principal amount of $500 million, 2.625% senior unsecured notes due January 15, 2023 pursuant to the 2017 Indenture

2017 Senior Notes Due 2028		Principal amount of $500 million, 3.25% senior unsecured notes due January 15, 2028 pursuant to the 2017 Indenture


TERM		DEFINITION

2017 Senior Notes Due 2021		Principal amount of $500 million, 2.75% senior unsecured notes due in December 2021

2018 Facility		Five-year unsecured revolving credit facility, with capacity to borrow up to $1 billion; replaced the 2015 Facility; backstops CP issued under the CP Program

2018 Senior Notes		Principal amount of $300 million, 3.25% senior unsecured notes due June 7, 2021

2018 Senior Notes (10-year)		Principal amount of $400 million, 4.25% senior unsecured notes due February 1, 2029

2018 Senior Notes (30-year)		Principal amount of $400 million, 4.875% senior unsecured notes December 17, 2048

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MOODY’S CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Amounts in millions, except per share data)


	Three Months Ended March 31,
	2019			2018
Revenue	$	1,142.1		$	1,126.7

Expenses
Operating		341.7			314.9
Selling, general and administrative		281.5			271.1
Restructuring		5.5			—
Depreciation and amortization		50.3			49.1
Acquisition-Related Expenses		1.4			0.8


Total expenses		680.4			635.9


Operating income		461.7			490.8

Non-operating (expense) income, net
Interest expense, net		(52.5	)		(50.7	)
Other non-operating income, net		2.3			1.0


Non-operating expense, net		(50.2	)		(49.7	)


Income before provision for income taxes		411.5			441.1
Provision for income taxes		37.9			64.3


Net income		373.6			376.8
Less: Net income attributable to noncontrolling interests		0.7			3.9

Net income attributable to Moody’s	$	372.9		$	372.9


Earnings per share
Basic	$	1.96		$	1.95

Diluted	$	1.93		$	1.92


Weighted average shares outstanding
Basic		190.4			191.4

Diluted		192.8			194.5

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 March 31,
	2019									2018
	Pre-tax amounts			Tax amounts			After-tax amounts			Pre-tax amounts			Tax amounts			After-tax amounts
Net Income							$	373.6								$	376.8


Other Comprehensive Income (Loss):
Foreign Currency Adjustments:
Foreign currency translation adjustments, net	$	(26.7	)	$	—			(26.7	)	$	136.1		$	—			136.1
Net gains (losses) on net investment hedges		30.4			(6.9	)		23.5			(14.5	)		3.6			(10.9	)
Cash Flow Hedges:
Net realized and unrealized gains on cash flow hedges		—			—			—			1.9			(0.4	)		1.5
Reclassification of gains included in net income		—			—			—			(0.1	)		—			(0.1	)
Pension and Other Retirement Benefits:
Amortization of actuarial losses and prior service costs included in net income		0.8			(0.2	)		0.6			1.4			(0.4	)		1.0
Net actuarial gains and prior service costs		1.1			(0.3	)		0.8			—			—			—

Total Other Comprehensive (Loss) Income	$	5.6		$	(7.4	)	$	(1.8	)	$	124.8		$	2.8		$	127.6

Comprehensive Income								371.8									504.4
Less: comprehensive income attributable to noncontrolling interests								8.2									8.9

Comprehensive Income Attributable to Moody’s							$	363.6								$	495.5

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)


	March 31, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	1,196.6		$	1,685.0
Short-term investments		114.0			132.5
Accounts receivable, net of allowances of $46.0 in 2019 and $43.5 in 2018		1,301.2			1,287.1
Other current assets		286.6			282.3

Total current assets		2,898.4			3,386.9
Property and equipment, net of accumulated depreciation of $834.9 in 2019 and $790.2 in 2018		318.7			320.4
Operating lease right-of-use assets		508.1			—
Goodwill		3,762.5			3,781.3
Intangible assets, net		1,530.4			1,566.1
Deferred tax assets, net		178.8			197.2
Other assets		321.2			274.3

Total assets	$	9,518.1		$	9,526.2

LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	537.1		$	695.2
Current portion of operating lease liabilities		87.4			—
Commercial paper		318.8			—
Current portion of long-term debt		—			449.9
Deferred revenue		1,062.3			953.4

Total current liabilities		2,005.6			2,098.5
Non-current portion of deferred revenue		120.9			122.3
Long-term debt		5,228.6			5,226.1
Deferred tax liabilities, net		353.4			351.7
Uncertain tax positions		474.5			494.6
Operating lease liabilities		523.5			—
Other liabilities		486.6			576.5

Total liabilities		9,193.1			8,869.7

Contingencies (Note 19)		—			—
Shareholders’ equity:
Preferred stock, par value $.01 per share; 10,000,000 shares authorized; no shares issued and outstanding		—			—
Series common stock, par value $.01 per share; 10,000,000 shares authorized; no shares issued and outstanding		—			—
Common stock, par value $.01 per share; 1,000,000,000 shares authorized; 342,902,272 shares issued at March 31, 2019 and December 31, 2018, respectively.		3.4			3.4
Capital surplus		435.7			600.9
Retained earnings		8,893.6			8,594.4
Treasury stock, at cost; 153,299,621 and 151,598,695 shares of common stock at March 31, 2019 and December 31, 2018, respectively		(8,754.0	)		(8,312.5	)
Accumulated other comprehensive loss		(455.5	)		(426.3	)

Total Moody’s shareholders’ equity		123.2			459.9
Noncontrolling interests		201.8			196.6

Total shareholders’ equity		325.0			656.5

Total liabilities, noncontrolling interests and shareholders’ equity	$	9,518.1		$	9,526.2

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)


	Three Months Ended March 31,
	2019			2018
Cash flows from operating activities
Net income	$	373.6		$	376.8
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization		50.3			49.1
Stock-based compensation		35.7			35.1
Deferred income taxes		13.8			(4.2	)
Changes in assets and liabilities:
Accounts receivable		(8.5	)		(29.9	)
Other current assets		(5.9	)		47.8
Other assets		(13.5	)		(14.5	)
Accounts payable and accrued liabilities		(179.5	)		(224.1	)
Restructuring		(2.5	)		(0.1	)
Deferred revenue		103.9			167.7
Unrecognized tax benefits and other non-current tax liabilities		(21.9	)		(17.9	)
Other liabilities		21.6			5.7

Net cash provided by operating activities		367.1			391.5

Cash flows from investing activities
Capital additions		(20.0	)		(15.0	)
Purchases of investments		(37.8	)		(50.3	)
Sales and maturities of investments		50.6			41.1
Cash received upon disposal of a subsidiary, net of cash transferred to purchaser		—			5.7

Net cash used in investing activities		(7.2	)		(18.5	)

Cash flows from financing activities
Repayment of notes		(450.0	)		—
Issuance of commercial paper		402.8			219.6
Repayment of commercial paper		(85.0	)		(259.6	)
Proceeds from stock-based compensation plans		14.2			28.5
Repurchase of shares related to stock-based compensation		(50.6	)		(42.0	)
Treasury shares		(448.2	)		(43.4	)
Cash paid for ASR contract relating to shares retained by counterparty until final settlement		(125.3	)		—
Dividends		(94.4	)		(84.1	)
Dividends to noncontrolling interests		—			(1.1	)
Payment for noncontrolling interest		(12.3	)		—
Debt issuance costs, extinguishment costs and related fees		—			(0.2	)

Net cash used in financing activities		(848.8	)		(182.3	)

Effect of exchange rate changes on cash and cash equivalents		0.5			15.1

(Decrease) increase in cash and cash equivalents		(488.4	)		205.8
Cash and cash equivalents, beginning of period		1,685.0			1,071.5

Cash and cash equivalents, end of period	$	1,196.6		$	1,277.3

The accompanying notes are an integral part of the condensed consolidated financial statements

MOODY’S CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)

(Amounts in millions)


	Shareholders of Moody’s Corporation
	Common Stock				Capital Surplus			Retained Earnings			Treasury Stock						Accumulated Other Comprehensive Loss			Total Moody’s Shareholders’ (Deficit) Equity			Non-Controlling Interests			Total Shareholders’ (Deficit) Equity
	Shares		Amount		Capital Surplus			Retained Earnings			Shares			Amount			Accumulated Other Comprehensive Loss			Total Moody’s Shareholders’ (Deficit) Equity			Non-Controlling Interests			Total Shareholders’ (Deficit) Equity
Balance at December 31, 2017		342.9	$	3.4	$	528.6		$	7,465.4			(151.9	)	$	(8,152.9	)	$	(172.2	)	$	(327.7	)	$	212.8		$	(114.9	)

Net income									372.9												372.9			3.9			376.8
Dividends ($0.44 per share)									(83.7	)											(83.7	)		(1.4	)		(85.1	)
Adoption of New Revenue Accounting Standard									156.1												156.1						156.1
Adoption of ASU 2016-01 relating to financial instruments									2.3									(2.3	)		—						—
Stock-based compensation						35.2															35.2						35.2
Shares issued for stock-based compensation plans at average cost, net						(57.2	)					1.2			24.9						(32.3	)					(32.3	)
Treasury shares repurchased												(0.3	)		(43.4	)					(43.4	)					(43.4	)
Currency translation adjustment and net gain on net investment hedges (net of tax of $3.6 million)																		120.2			120.2			5.0			125.2
Amortization of prior service costs and actuarial losses, (net of tax of $0.4 million)																		1.0			1.0						1.0
Net realized gain on cash flow hedges (net of tax of $0.4 million)																		1.4			1.4						1.4

Balance at March 31, 2018		342.9	$	3.4	$	506.6		$	7,913.0			(151.0	)	$	(8,171.4	)	$	(51.9	)	$	199.7		$	220.3		$	420.0

The accompanying notes are an integral part of the condensed consolidated financial statements.

MOODY’S CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)

(Amounts in millions)


	Shareholders of Moody’s Corporation
	Common Stock				Capital Surplus			Retained Earnings			Treasury Stock						Accumulated Other Comprehensive Loss			Total Moody’s Shareholders’ (Deficit) Equity			Non-Controlling Interests			Total Shareholders’ (Deficit) Equity
	Shares		Amount		Capital Surplus			Retained Earnings			Shares			Amount			Accumulated Other Comprehensive Loss			Total Moody’s Shareholders’ (Deficit) Equity			Non-Controlling Interests			Total Shareholders’ (Deficit) Equity
Balance at December 31, 2018		342.9	$	3.4	$	600.9		$	8,594.4			(151.6	)	$	(8,312.5	)	$	(426.3	)	$	459.9		$	196.6		$	656.5

Net income									372.9												372.9			0.7			373.6
Dividends ($0.50 per share)									(93.5	)											(93.5	)		(0.2	)		(93.7	)
Adoption of ASU 2018-02 (See Note 1)									19.8									(19.8	)		—						—
Stock-based compensation						35.8															35.8						35.8
Shares issued for stock-based compensation plans at average cost, net						(66.3	)					1.0			6.7						(59.6	)					(59.6	)
Purchase of noncontrolling interest						(9.4	)														(9.4	)		(2.9	)		(12.3	)
Treasury shares repurchased												(2.7	)		(448.2	)					(448.2	)					(448.2	)
Accelerated Share Repurchase pending final settlement						(125.3	)														(125.3	)					(125.3	)
Currency translation adjustment and net gain on net investment hedges (net of tax of $6.9 million)																		(10.8	)		(10.8	)		7.6			(3.2	)
Net actuarial gains and prior service cost (net of tax of $0.3 million)																		0.8			0.8						0.8
Amortization of prior service costs and actuarial losses, (net of tax of $0.2 million)																		0.6			0.6						0.6

Balance at March 31, 2019		342.9	$	3.4	$	435.7		$	8,893.6			(153.3	)	$	(8,754.0	)	$	(455.5	)	$	123.2		$	201.8		$	325.0

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 provider of (i) credit ratings; (ii) credit, capital markets and economic research, data and analytical tools; (iii) software solutions that support financial risk management activities; (iv) quantitatively derived credit scores; (v) learning solutions and certification services; (vi) offshore financial research and analytical services; and (vii) company information and business intelligence products. Moody’s reports in two reportable segments: MIS and MA.

MIS, the credit rating agency, publishes credit ratings 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 as well as 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 provides financial intelligence and analytical tools to assist businesses in making decisions. MA’s portfolio of solutions consists of specialized research, data, software, and professional services, which are assembled to support the financial analysis and risk management activities of institutional customers worldwide.

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 2018 annual report on Form 10-K filed with the SEC on February 22, 2019. 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, 2019, the Company adopted ASU No. 2016-02, “Leases (Topic 842)” and has elected to apply the provisions of the New Lease Accounting Standard on the date of adoption with adjustments to the assets and liabilities on its opening balance sheet, with no cumulative-effect adjustment to the opening balance of retained earnings required. Accordingly, the Company will not restate prior year comparative periods for the impact of the New Lease Accounting Standard. The New Lease Accounting Standard requires lessees to recognize an ROU Asset and lease liability for all leases with terms of more than 12 months. The Company has elected the package of practical expedients permitted under the transition guidance within the New Lease Accounting Standard, which permits the Company not to reassess the following for any expired or existing contracts: i) whether any contracts contain leases; ii) lease classification (i.e. operating lease or finance/capital lease); and iii) initial direct costs.

The adoption of the New Lease Accounting Standard resulted in the recognition of an ROU Asset and lease liabilities of approximately $518 million and $622 million, respectively, at January 1, 2019, consisting primarily of operating leases relating to office space. Pursuant to this transition adjustment, the Company also recognized approximately $150 million and approximately $125 million in additional deferred tax assets and liabilities, respectively. Compared to previous guidance, the New Lease Accounting Standard does not significantly change the method by which a lessee should recognize, measure and present expenses and cash flows arising from a lease. Refer to Note 2 for a more fulsome description of the Company’s accounting policy relating to the New Lease Accounting Standard, which includes a discussion relating to the pattern of operating lease expense recognition (both prior to and subsequent to an impairment of a ROU Asset).

In the first quarter of 2019, the Company adopted ASU No. 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. Under current GAAP, adjustments to deferred tax assets and liabilities related to a change in tax laws or rates are included in income from continuing operations, even in situations where the related items were originally recognized in OCI (commonly referred to as a “stranded tax effect”). The provisions of this ASU permit the reclassification of the stranded tax effect related to the Tax Act from AOCI to retained earnings. In the first quarter of 2019, the Company reclassified approximately $20 million of tax benefits from AOCI to retained earnings relating to the aforementioned stranded tax effect of the Tax Act.

On January 1, 2019, the Company adopted ASU No. 2018-16, “Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes”. The amendments in this ASU permit the use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under ASC 815, in addition to the currently permissible benchmark interest rates. This ASU provides the Company the ability to utilize the OIS rate based on SOFR as the benchmark interest rate on certain hedges of interest rate risk. The adoption of this ASU had no impact on the Company’s financial statements upon adoption.

Reclassification of Previously Reported Revenue by LOB

There were certain organizational/product realignments in both MIS and MA in the first quarter of 2019. Accordingly, in MIS, revenue from REITs, which was previously classified in the SFG LOB, is now classified in the CFG LOB. In MA, revenue relating to the Bureau van Dijk FACT product (a credit assessment and origination solution), which was previously classified in RD&A, is now classified in the ERS LOB. Accordingly, 2018 revenue by LOB was reclassified to conform with this new presentation, as follows:


MIS	As previously reported		Reclassification			As Reclassified
CFG
Q1	$	377.7	$	11.9		$	389.6
Q2		377.6		13.4			391.0
Q3		296.1		11.2			307.3
Q4		282.7		8.6			291.3

Full year 2018	$	1,334.1	$	45.1		$	1,379.2

SFG
Q1	$	129.7	$	(11.9	)	$	117.8
Q2		141.6		(13.4	)		128.2
Q3		125.4		(11.2	)		114.2
Q4		129.8		(8.6	)		121.2

Full year 2018	$	526.5	$	(45.1	)	$	481.4


MA	As previously reported		Reclassification			As Reclassified
RD&A
Q1	$	269.2	$	(2.1	)	$	267.1
Q2		279.9		(4.0	)		275.9
Q3		282.6		(2.3	)		280.3
Q4		302.4		(5.3	)		297.1

Full year 2018	$	1,134.1	$	(13.7	)	$	1,120.4

ERS
Q1	$	100.1	$	2.1		$	102.2
Q2		105.5		4.0			109.5
Q3		113.0		2.3			115.3
Q4		118.8		5.3			124.1

Full year 2018	$	437.4	$	13.7		$	451.1

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

On January 1, 2019, the Company adopted the New Lease Accounting Standard as more fully discussed in Note 1. Accordingly, the Company revised its lease accounting policy to reflect the provisions of the new standard, which is discussed below. All other significant accounting policies described in the Form 10-K for the year ended December 31, 2018 remain unchanged. Additionally, refer to Note 18 for additional disclosures relating to the Company’s lease obligations.

Leases

The Company has operating leases, of which substantially all relate to the lease of office space. The Company’s leases which are classified as finance leases are not material to the condensed consolidated financial statements.

The Company determines if an arrangement meets the definition of a lease at contract inception. The Company recognizes in its consolidated balance sheet a lease liability and an ROU Asset for all leases with a lease term greater than 12 months. In determining the length of the lease term, the Company utilizes judgment in assessing the likelihood of whether it is reasonably certain that it will exercise an option to extend or early-terminate a lease, if such options are provided in the lease agreement.

ROU Assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU Assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As substantially all of the Company’s leases do not provide an implicit interest rate, the Company uses its estimated secured incremental borrowing rates at the lease commencement date in determining the present value of lease payments. These secured incremental borrowing rates are attributable to the currency in which the lease is denominated.

At commencement, the Company’s initial measurement of the ROU Asset is calculated as the present value of the remaining lease payments (i.e., lease liability), with additive adjustments reflecting: initial direct costs (e.g., broker commissions) and prepaid lease payments (if any); and reduced by any lease incentives provided by the lessor if: (i) received before lease commencement or (ii) receipt of the lease incentive is contingent upon future events for which the occurrence is both probable and within the Company’s control.

Lease expense for minimum operating lease payments is recognized on a straight-line basis over the lease term. This straight-line lease expense represents a single lease cost which is comprised of both an interest accretion component relating to the lease liability and amortization of the ROU Assets. The Company records this single lease cost in operating and SG&A expenses. However, in situations where an operating lease ROU Asset has been impaired, the subsequent amortization of the ROU Asset is then recorded on a straight-line basis over the remaining lease term and is combined with accretion expense on the lease liability to result in single operating lease cost (which subsequent to impairment will no longer follow a straight-line recognition pattern).

The Company has lease agreements which include lease and non-lease components. For the Company’s office space leases, the lease components (e.g., fixed rent payments) and non-lease components (e.g., fixed common-area maintenance costs) are combined and accounted for as a single lease component.

Variable lease payments (e.g. variable common-area-maintenance costs) are only included in the initial measurement of the lease liability to the extent those payments depend on an index or a rate. Variable lease payments not included in the lease liability are recognized in net income in the period in which the obligation for those payments is incurred.

NOTE 3. REVENUES

Revenue by Category

The following table presents the Company’s revenues disaggregated by LOB:


	Three Months Ended March 31,
	2019			2018
MIS:
Corporate finance (CFG) ⁽¹⁾
Investment-grade	$	97.4		$	87.2
High-yield		57.3			57.9
Bank loans		72.6			110.1
Other accounts ⁽²⁾		128.1			134.4

Total CFG		355.4			389.6

Structured finance (SFG) ⁽¹⁾
Asset-backed securities		23.2			28.2
RMBS		23.5			24.3
CMBS		17.7			21.3
Structured credit		35.2			43.4
Other accounts		1.1			0.6

Total SFG		100.7			117.8

Financial institutions (FIG)
Banking		79.6			77.0
Insurance		29.0			28.3
Managed investments		4.0			5.7
Other accounts		3.2			3.3

Total FIG		115.8			114.3

Public, project and infrastructure finance (PPIF)
Public finance / sovereign		46.2			46.9
Project and infrastructure		46.5			46.3

Total PPIF		92.7			93.2

Total ratings revenue		664.6			714.9

MIS Other		5.5			5.0

Total external revenue		670.1			719.9

Intersegment royalty		32.3			29.8

Total MIS		702.4			749.7

MA:
Research, data and analytics (RD&A) ⁽³⁾		307.7			267.1
Enterprise risk solutions (ERS) ⁽³⁾		121.9			102.2
Professional services (PS)		42.4			37.5

Total external revenue		472.0			406.8

Intersegment revenue		2.4			5.0

Total MA		474.4			411.8

Eliminations		(34.7	)		(34.8	)

Total MCO	$	1,142.1		$	1,126.7

⁽¹⁾

Pursuant to certain organizational realignments in the first quarter of 2019, MIS now reports revenue from REITs, which was previously classified in the SFG LOB, as a component of the CFG LOB. The amounts reclassified were not material and prior year revenue by LOB has been reclassified to conform to this new presentation.

⁽²⁾	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.

⁽³⁾

Pursuant to organizational/product realignments in the first quarter of 2019, revenue relating to the Bureau van Dijk FACT product, a credit assessment and origination software solution, is now reported in the ERS LOB. This revenue was previously reported in the RD&A LOB. Prior year revenue by LOB has been reclassified to conform to this new presentation, and the amounts reclassified were not material.

The following table presents the Company’s revenues disaggregated by LOB and geographic area:


	Three Months Ended March 31, 2019
	U.S.		Non-U.S.		Total
MIS:
Corporate finance (CFG) ⁽¹⁾	$	242.6	$	112.8	$	355.4
Structured finance (SFG) ⁽¹⁾		62.2		38.5		100.7
Financial institutions (FIG)		46.0		69.8		115.8
Public, project and infrastructure finance (PPIF)		60.2		32.5		92.7

Total ratings revenue		411.0		253.6		664.6

MIS Other		0.2		5.3		5.5

Total MIS		411.2		258.9		670.1

MA:
Research, data and analytics (RD&A) ⁽²⁾		134.8		172.9		307.7
Enterprise risk solutions (ERS) ⁽²⁾		48.4		73.5		121.9
Professional services (PS)		17.7		24.7		42.4

Total MA		200.9		271.1		472.0

Total MCO	$	612.1	$	530.0	$	1,142.1


	Three Months Ended March 31, 2018
	U.S.		Non-U.S.		Total
MIS:
Corporate finance (CFG) ⁽¹⁾	$	257.3	$	132.3	$	389.6
Structured finance (SFG) ⁽¹⁾		74.0		43.8		117.8
Financial institutions (FIG)		48.5		65.8		114.3
Public, project and infrastructure finance (PPIF)		53.4		39.8		93.2

Total ratings revenue		433.2		281.7		714.9

MIS Other		0.2		4.8		5.0

Total MIS		433.4		286.5		719.9

MA:
Research, data and analytics (RD&A) ⁽²⁾		112.6		154.5		267.1
Enterprise risk solutions (ERS) ⁽²⁾		38.5		63.7		102.2
Professional services (PS)		13.2		24.3		37.5

Total MA		164.3		242.5		406.8

Total MCO	$	597.7	$	529.0	$	1,126.7

⁽¹⁾

⁽²⁾

The following table presents the Company’s reportable segment revenues disaggregated by segment and geographic region:


	Three Months Ended March 31,
	2019		2018
MIS:
U.S.	$	411.2	$	433.4
Non-U.S.
EMEA		148.5		181.1
Asia-Pacific		78.9		72.6
Americas		31.5		32.8

Total Non-U.S.		258.9		286.5

Total MIS		670.1		719.9

MA:
U.S.		200.9		164.3
Non-U.S.
EMEA		184.1		166.2
Asia-Pacific		53.3		47.6
Americas		33.7		28.7

Total Non-U.S.		271.1		242.5

Total MA		472.0		406.8

Total MCO	$	1,142.1	$	1,126.7

The tables below summarize the split between transaction and relationship 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 relationship 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 outsourcing engagements and relationship revenue represents subscription-based revenues. In the MA segment, relationship 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, training and certification services, and outsourced research and analytical engagements.


	Three Months Ended March 31,
	2019									2018
	Transaction			Relationship			Total			Transaction			Relationship			Total
Corporate Finance	$	249.5		$	105.9		$	355.4		$	283.4		$	106.2		$	389.6
		70	%		30	%		100	%		73	%		27	%		100	%
Structured Finance	$	57.3		$	43.4		$	100.7		$	74.6		$	43.2		$	117.8
		57	%		43	%		100	%		63	%		37	%		100	%
Financial Institutions	$	47.9		$	67.9		$	115.8		$	50.0		$	64.3		$	114.3
		41	%		59	%		100	%		44	%		56	%		100	%
Public, Project and Infrastructure Finance	$	54.7		$	38.0		$	92.7		$	54.4		$	38.8		$	93.2
		59	%		41	%		100	%		58	%		42	%		100	%
MIS Other	$	0.5		$	5.0		$	5.5		$	0.6		$	4.4		$	5.0
		9	%		91	%		100	%		12	%		88	%		100	%
Total MIS	$	409.9		$	260.2		$	670.1		$	463.0		$	256.9		$	719.9
		61	%		39	%		100	%		64	%		36	%		100	%
Moody’s Analytics	$	71.5	⁽¹⁾	$	400.5		$	472.0		$	60.8	⁽¹⁾	$	346.0		$	406.8
		15	%		85	%		100	%		15	%		85	%		100	%
Total Moody’s Corporation	$	481.4		$	660.7		$	1,142.1		$	523.8		$	602.9		$	1,126.7
		42	%		58	%		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 New Revenue Accounting Standard (refer to the following table).

The following table presents the timing of revenue recognition:


	Three Months Ended March 31, 2019
	MIS		MA		Total
Revenue recognized at a point in time	$	409.9	$	30.4	$	440.3
Revenue recognized over time		260.2		441.6		701.8

Total	$	670.1	$	472.0	$	1,142.1


	Three Months Ended March 31, 2018
	MIS		MA		Total
Revenue recognized at a point in time	$	463.0	$	15.5	$	478.5
Revenue recognized over time		256.9		391.3		648.2

Total	$	719.9	$	406.8	$	1,126.7

Unbilled receivables, Deferred revenue and Remaining performance obligations

Unbilled receivables

At March 31, 2019 and December 31, 2018, accounts receivable included $364.9 million and $311.8 million, respectively, of unbilled receivables 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 March 31, 2019 and December 31, 2018, accounts receivable included $53.3 million and $59.5 million, respectively, of unbilled receivables 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 months ended March 31, 2019 are as follows:

Three Months Ended March 31, 2019

MIS

Total

Balance at January 1, 2019

325.4

750.3

1,075.7

Changes in deferred revenue

Revenue recognized that was included in the deferred revenue balance at the beginning of the period

(92.8

)

(306.7

)

(399.5

)

Increases due to amounts billable excluding amounts recognized as revenue during the period

155.2

346.7

501.9

Effect of exchange rate changes

0.5

4.6

5.1

Total changes in deferred revenue

62.9

44.6

107.5

Balance at March 31, 2019

388.3

794.9

1,183.2

Deferred revenue - current portion

271.6

790.7

1,062.3

Deferred revenue - noncurrent portion

116.7

4.2

120.9

Significant changes in the deferred revenue balances during the three months ended March 31, 2018 are as follows:


	Three Months Ended March 31, 2018
	MIS			MA			Total
Balance at January 1, 2018 (after New Revenue Accounting Standard transition adjustment)	$	334.7		$	611.6		$	946.3

Changes in deferred revenue
Revenue recognized that was included in the deferred revenue balance at the beginning of the period		(93.4	)		(252.0	)		(267.3	)
Increases due to amounts billable excluding amounts recognized as revenue during the period		154.9			357.9			434.7
Effect of exchange rate changes		1.3			11.5			12.8

Total changes in deferred revenue		62.8			117.4			180.2

Balance at March 31, 2018	$	397.5		$	729.0		$	1,126.5

Deferred revenue - current portion	$	273.4		$	725.3		$	998.7
Deferred revenue - noncurrent portion	$	124.1		$	3.7		$	127.8

The increase in deferred revenue during both the three months ended March 31, 2019 and 2018 is primarily due to the significant portion of contract renewals that occur during the first quarter within both segments.

Remaining performance obligations

The following tables include the expected recognition period for the remaining performance obligations for each reportable segment as of March 31, 2019:

MIS

Total

Less than 1 year

1 - 5 years

6 - 10 Years

11 - 15 years

16-20 years

Over 20 Years

$151.2

$23.5

$70.2

$41.5

$6.5

$4.1

$5.4

The balances in the MIS table above 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. 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 table above for unsatisfied performance obligations relating to contracts with an original expected length of one year or less.


MA
Total	Less than 1 Year	1 - 2 Years	Over 2 Years
$2,053.3	$1,334.0	$491.0	$228.3

The balances in the MA table above include both amounts recorded as deferred revenue on the balance sheet as of March 31, 2019 as well as amounts not yet invoiced to customers as of March 31, 2019 largely reflecting future revenue related to signed multi-year arrangements for hosted and installed subscription-based products.

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 March 31,
	2019		2018
Stock-based compensation expense	$	35.7	$	35.1
Tax benefit	$	7.8	$	7.2

During the first three months of 2019, the Company granted 0.2 million employee stock options, which had a weighted average grant date fair value of $43.10 per share based on the Black-Scholes option-pricing model. The Company also granted 0.8 million shares of restricted stock in the first three months of 2019, which had a weighted average grant date fair value of $173.58 per share. Both the employee stock options and restricted stock generally vest ratably over a four-year period. Additionally, the Company granted 0.1 million shares of performance-based awards whereby the number of shares that ultimately vest is based on the achievement of certain non-market based performance metrics of the Company over a three-year period. The weighted average grant date fair value of these awards was $167.82 per share.

The following weighted average assumptions were used in determining the fair value for options granted in 2019:


Expected dividend yield		1.15	%
Expected stock volatility		23.62	%
Risk-free interest rate		2.60	%
Expected holding period		6.2 years
Grant date fair value	$	43.10

Unrecognized stock-based compensation expense at March 31, 2019 was $11.4 million and $239.2 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 2.7 years, respectively. Additionally, there was $40.8 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 2.2 years.

The following table summarize information relating to stock option exercises and restricted stock vesting:


	Three Months Ended
	March 31,
	2019		2018
Exercise of stock options:
Proceeds from stock option exercises	$	11.9	$	26.6
Aggregate intrinsic value	$	35.6	$	61.9
Tax benefit realized upon exercise	$	8.5	$	15.0
Number of shares exercised		0.3		0.5
Vesting of restricted stock:
Fair value of shares vested	$	146.5	$	146.7
Tax benefit realized upon vesting	$	33.6	$	33.9
Number of shares vested		0.8		0.9
Vesting of performance-based restricted stock:
Fair value of shares vested	$	47.5	$	23.0
Tax benefit realized upon vesting	$	11.5	$	5.5
Number of shares vested		0.3		0.1

NOTE 5. INCOME TAXES

Moody’s effective tax rate was 9.2% and 14.6% for the three months ended March 31, 2019 and 2018, respectively. The decrease in the ETR was primarily due to favorable IRS Regulations issued in the first quarter of 2019 and lower non-U.S. taxes on certain software development. The Company’s quarterly tax expense differs from the tax computed by applying its estimated annual effective tax rate to this quarter’s pre-tax earnings due to Excess Tax Benefits from stock compensation of $26.6 million and net reductions to tax positions of $37.3 million.

The Company classifies interest related to UTPs in interest expense, net in its consolidated statements of operations. Penalties, if incurred, would be recognized in other non-operating (expense) income, net. The Company had a decrease in its UTPs of $20.2 million ($20.2 million, net of federal tax) during the first quarter of 2019.

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 2015 through 2017 remain open to examination. The Company’s New York State tax returns for 2011 through 2014 are currently under examination and the Company’s New York City tax return for 2014 is currently under examination. The Company’s U.K. tax return for 2012 is currently under examination and its returns for 2013 through 2017 remain open to 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:


	Three Months Ended
	March 31,
	2019		2018
Income taxes paid	$	36.9	$	44.2

NOTE 6. WEIGHTED AVERAGE SHARES OUTSTANDING

Below is a reconciliation of basic to diluted shares outstanding:


	Three Months Ended
	March 31,
	2019		2018
Basic		190.4		191.4
Dilutive effect of shares issuable under stock-based compensation plans		2.4		3.1

Diluted		192.8		194.5

Anti-dilutive options to purchase common shares and restricted stock as well as contingently issuable restricted stock which are excluded from the table above		0.4		0.7

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 March 31, 2019 and 2018.

NOTE 7. ACCELERATED SHARE REPURCHASE PROGRAM

On February 20, 2019, the Company entered into an ASR agreement with a financial institution counterparty to repurchase $500 million of its outstanding common stock. The Company paid $500 million to the counterparty and received an initial delivery of 2.2 million shares of its common stock. Final settlement of the ASR agreement was completed on April 26, 2019 and the Company received delivery of an additional 0.6 million shares of the Company’s common stock.

In total, the Company repurchased 2.8 million shares of the Company’s common stock during the term of the ASR Agreement, based on the volume-weighted average price (net of discount) of $180.33/share over the duration of the program. The initial share repurchase and final share settlement were recorded as a reduction to shareholders’ equity.

NOTE 8. CASH EQUIVALENTS AND INVESTMENTS

The table below provides additional information on the Company’s cash equivalents and investments:


	As of March 31, 2019
			Gross Unrealized Gains				Balance sheet location
	Cost		Gross Unrealized Gains		Fair Value		Cash and cash equivalents		Short-term investments		Other assets
Certificates of deposit and money market deposit accounts ⁽¹⁾	$	551.0	$	—	$	551.0	$	432.4	$	110.9	$	7.7
Open-ended mutual funds	$	15.6	$	2.1	$	17.7	$	—	$	3.1	$	14.6

	As of December 31, 2018
			Gross Unrealized Gains				Balance sheet location
	Cost		Gross Unrealized Gains		Fair Value		Cash and cash equivalents		Short-term investments		Other assets
Money market mutual funds	$	15.2	$	—	$	15.2	$	15.2	$	—	$	—
Certificates of deposit and money market deposit accounts ⁽¹⁾	$	1,022.4	$	—	$	1,022.4	$	904.3	$	115.8	$	2.3
Open-ended mutual funds	$	29.5	$	3.8	$	33.3	$	—	$	16.7	$	16.6

⁽¹⁾

Consists of time deposits and money market deposit accounts. The remaining contractual maturities for the certificates of deposits classified as short-term investments were one to 12 months at both March 31, 2019 and December 31, 2018. The remaining contractual maturities for the certificates of deposits classified in other assets are 13 to 32 months at March 31, 2019 and 14 to 36 months at December 31, 2018. Time deposits with a maturity of less than 90 days at time of purchase are classified as cash and cash equivalents.

NOTE 9. ACQUISITIONS

Vigeo Eiris

On April 12, 2019, the Company acquired a majority stake in Vigeo Eiris, a global leader in Environmental, Social and Governance (ESG) research, data and assessments. The acquisition furthers Moody’s objective of promoting global standards for ESG for use by market participants. The aggregate purchase price was not material and the near term impact to the Company’s operations and cash flows is not expected to be material. Vigeo Eiris will operate in the MIS reportable segment and its revenue will be reported in the MIS Other LOB.

NOTE 10. 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. 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:

Hedged Item

Nature of Swap

Notional Amount

Floating Interest Rate

As of
March 31,
2019

As of
December 31,
2018

2010 Senior Notes due 2020

Pay Floating/Receive Fixed

500.0

500.0

3-month USD LIBOR

2012 Senior Notes due 2022

Pay Floating/Receive Fixed

330.0

330.0

3-month USD LIBOR

2017 Senior Notes due 2021

Pay Floating/Receive Fixed

500.0

500.0

3-month USD LIBOR

2017 Senior Notes due 2023

Pay Floating/Receive Fixed

250.0

—

3-month USD LIBOR

Total

1,580.0

1,330.0

Refer to Note 17 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 statement of operations of the Company’s interest rate swaps designated as fair value hedges:


		Amount of Income (Expense) Recognized in the Statements of Operations
Total amounts of financial statement line item presented in the statements of operations in which the effects of fair value hedges are recorded		Three Months Ended March 31,
		2019			2018
Interest expense, net		$	(52.5	)	$	(50.7	)

Descriptions	Location on Consolidated Statements of Operations
Net interest settlements and accruals on interest rate swaps	Interest expense, net	$	(0.2	)	$	(0.1	)
Fair value changes on interest rate swaps	Interest expense, net	$	10.8		$	(9.2	)
Fair value changes on hedged debt	Interest expense, net	$	(10.8	)	$	9.2

Net investment hedges

The Company has designated €500 million of the 2015 Senior Notes Due 2027 as a net investment hedge 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. This hedge is designated as an accounting hedge under the applicable sections of ASC Topic 815 and will end upon the repayment of the notes in 2027, unless terminated early at the discretion of the Company.

The Company has also entered 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:


	Pay				Receive
Nature of Swap	Notional Amount		Weighted Average Interest Rate		Notional Amount		Weighted Average Interest Rate
Pay Fixed/Receive Fixed	€	663.6		1.51%	$	750.0		4.13%
Pay Floating/Receive Floating		931.2		Based on 3-month EURIBOR		1,080.0		Based on 3-month USD LIBOR

Total	€	1,594.8			$	1,830.0

These hedges were designated as net investment hedges under ASC Topic 815 and the purpose of these hedges is to mitigate FX exposure related to a portion of the Company’s euro net investments in certain foreign subsidiaries against changes in euro/USD exchange rates. These hedges will expire and be settled in 2021, 2022, 2023, and 2024 for €422.5 million, €287.7 million, €441.9 million and €442.6 million of the total notional amount, respectively, unless terminated early at the discretion of the Company.

The following table provides information on the gains/(losses) on the Company’s net investment and cash flow hedges:


	Amount of Gain/ (Loss) Recognized in AOCI on Derivative, net of Tax						Amount of Gain/(Loss) Reclassified from AOCI into Income, net of Tax					Gain/(Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)
Derivative and Non-Derivative Instruments in Net Investment Hedging Relationships	Three Months Ended March 31,						Three Months Ended March 31,					Three Months Ended March 31,
	2019			2018			2019			2018		2019 ⁽²⁾		2018
Cross currency swaps	$	15.2		$	—			—			—		8.3		—
Long-term debt		8.3	⁽¹⁾		(10.9	)		—			—		—		—

Total net investment hedges	$	23.5		$	(10.9	)	$	—		$	—	$	8.3	$	—


Derivatives in Cash Flow Hedging Relationships
Cross currency swap	$	—		$	1.5		$	0.1		$	0.1	$	—	$	—
Interest rate contracts		—			—			(0.1	)		—		—		—

Total cash flow hedges	$	—		$	1.5		$	—		$	0.1	$	—	$	—

Total	$	23.5		$	(9.4	)	$	—		$	0.1	$	8.3	$	—

⁽¹⁾	Due to the Company’s adoption of ASU 2018-02 during the first quarter of 2019, $2.5 million related to the tax effect of this net investment hedge was reclassified to retained earnings. Refer to Note 1 for further details.

⁽²⁾

Effective with the adoption of ASU 2017-12, the Company has elected to assess the effectiveness of its net investment hedges based on changes in spot exchange rates. Accordingly, amounts recognized directly into Net Income during the first quarter of 2019 related to its cross-currency swaps represent net periodic interest settlements and accruals, which are recognized in interest expense, net.

The cumulative amount of net investment hedge and cash flow hedge gains (losses) remaining in AOCI is as follows:


	Cumulative Gains/(Losses), net of tax
	March 31, 2019			December 31, 2018
Net investment hedges
Cross currency swaps	$	27.5		$	12.3
FX forwards		23.5			23.5
Long-term debt		2.7			(3.1	)

Total net investment hedges	$	53.7		$	32.7

Cash flow hedges
Interest rate contracts	$	(2.3	)	$	(2.4	)
Cross currency swap		2.4			2.5

Total cash flow hedges		0.1			0.1

Total net gain in AOCI	$	53.8		$	32.8

Derivatives not designated as accounting hedges:

Foreign exchange forwards

The Company also enters into foreign exchange forwards to mitigate the change in fair value on certain assets and liabilities denominated in currencies other than a subsidiary’s functional currency. These forward contracts are not designated as accounting hedges under the applicable sections of Topic 815 of the ASC. Accordingly, changes in the fair value of these contracts are recognized immediately in other non-operating (expense) income, net in the Company’s consolidated statements of operations along with the FX gain or loss recognized on the assets and liabilities denominated in a currency other than the subsidiary’s functional currency. These contracts have expiration dates at various times through May 2019.

The following table summarizes the notional amounts of the Company’s outstanding foreign exchange forwards:


	March 31, 2019				December 31, 2018
	Sell		Buy		Sell		Buy
Notional amount of currency pair:
Contracts to sell USD for GBP	$	492.5	£	371.0	$	310.3	£	241.2
Contracts to sell USD for Japanese Yen	$	14.4	¥	1,600.0	$	14.3	¥	1,600.0
Contracts to sell USD for Canadian dollars	$	87.4	C$	115.0	$	99.0	C$	130.0
Contracts to sell USD for Singapore dollars	$	35.7	S$	48.0	$	—	S$	—
Contracts to sell USD for Euros	$	68.6	€	60.0	$	212.8	€	184.6

NOTE: € = Euro, £ = British pound, $ = U.S. dollar, ¥ = Japanese Yen, C$ = Canadian dollar, S$= Singapore dollars

The following table summarizes the impact to the consolidated statements of operations relating to the net gain/(loss) on the Company’s derivatives which are not designated as hedging instruments:


		Three Months Ended March 31,
Derivatives Not Designated as Accounting Hedges	Location on Statements of Operations	2019		2018
Foreign exchange forwards	Other non-operating (expense) income, net	$	1.4	$	(52.3	)

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

March 31, 2019

December 31, 2018

Assets:

Derivatives designated as accounting hedges:

Cross-currency swaps designated as net investment hedges

Other assets

36.7

19.4

Interest rate swaps designated as fair value hedges

Other assets

15.3

7.5

Total derivatives designated as accounting hedges

52.0

26.9

Derivatives not designated as accounting hedges:

FX forwards on certain assets and liabilities

Other current assets

0.3

1.4

Total assets

52.3

28.3

Liabilities:

Derivatives designated as accounting hedges:

Cross-currency swaps designated as net investment hedges

Other liabilities

—

2.9

Interest rate swaps designated as fair value hedges

Other liabilities

2.3

5.3

Total derivatives designated as accounting hedges

2.3

8.2

Non-derivative instrument designated as accounting hedge

Long-term debt designated as net investment hedge

Long-term debt

561.4

571.6

Derivatives not designated as accounting hedges:

FX forwards on certain assets and liabilities

Accounts payable and
accrued liabilities

10.9

8.2

Total liabilities

574.6

588.0

NOTE 11. GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS

The following table summarizes the activity in goodwill for the periods indicated:


	Three Months Ended March 31, 2019
	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	$	257.8		$	—	$	257.8		$	3,535.7		$	(12.2	)	$	3,523.5		$	3,793.5		$	(12.2	)	$	3,781.3
Foreign currency translation adjustments		9.4			—		9.4			(28.2	)		—			(28.2	)		(18.8	)		—			(18.8	)

Ending balance	$	267.2		$	—	$	267.2		$	3,507.5		$	(12.2	)	$	3,495.3		$	3,774.7		$	(12.2	)	$	3,762.5


	Year ended December 31, 2018
	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	$	285.2		$	—	$	285.2		$	3,480.2		$	(12.2	)	$	3,468.0		$	3,765.4		$	(12.2	)	$	3,753.2
Additions/ adjustments		—			—		—			211.5			—			211.5			211.5			—			211.5
Foreign currency translation adjustments		(27.4	)		—		(27.4	)		(156.0	)		—			(156.0	)		(183.4	)		—			(183.4	)

Ending balance	$	257.8		$	—	$	257.8		$	3,535.7		$	(12.2	)	$	3,523.5		$	3,793.5		$	(12.2	)	$	3,781.3

The 2018 additions/adjustments for the MA segment in the table above primarily relate to the acquisitions of Reis and Omega Performance.

Acquired intangible assets and related amortization consisted of:


	March 31, 2019			December 31, 2018
Customer relationships	$	1,360.7		$	1,367.5
Accumulated amortization		(230.2	)		(214.2	)

Net customer relationships		1,130.5			1,153.3


Trade secrets		29.9			29.8
Accumulated amortization		(28.3	)		(28.2	)

Net trade secrets		1.6			1.6


Software/product technology		349.2			353.3
Accumulated amortization		(107.7	)		(101.8	)

Net software/product technology		241.5			251.5


Trade names		155.9			155.1
Accumulated amortization		(36.5	)		(34.1	)

Net trade names		119.4			121.0


Other ⁽¹⁾		70.8			70.4
Accumulated amortization		(33.4	)		(31.7	)

Net other		37.4			38.7


Total acquired intangible assets, net	$	1,530.4		$	1,566.1

⁽¹⁾	Other intangible assets primarily consist of databases, covenants not to compete, and acquired ratings methodologies and models.

Amortization expense relating to acquired intangible assets is as follows:


	Three Months Ended March 31,
	2019		2018
Amortization expense	$	26.4	$	25.7

Estimated future amortization expense for acquired intangible assets subject to amortization is as follows:


Year Ending December 31,
2019 (after March 31)	$	71.0
2020		100.5
2021		100.3
2022		100.3
2023		97.3
Thereafter		1,061.0

Total estimated future amortization	$	1,530.4

NOTE 12 RESTRUCTURING

On October 26, 2018, the chief executive officer of Moody’s approved a restructuring program (the “2018 Restructuring Program”) that the Company estimates will result in annualized savings of approximately $40 to $50 million per year, a portion of which will benefit 2019. The 2018 Restructuring Program is estimated to result in total pre-tax charges of $70 to $80 million. The Program is expected to be substantially completed by June 30, 2019. The 2018 Restructuring Program includes relocation of certain functions from high-cost to lower-cost jurisdictions, a reduction of staff, including from recent acquisitions and pursuant to a review of the business criticality of certain positions, and the rationalization and exit of certain real estate leases due to consolidation of various business activities. The exit from certain leased office space began in the fourth quarter of 2018 and will entail approximately $35 to $40 million of the charges to either terminate or sublease the affected real estate leases. The 2018 Restructuring Program is also anticipated to represent approximately $35 to $40 million of personnel-related restructuring charges, an amount that includes severance and related costs primarily determined under the Company’s existing severance plans. Cash outlays associated with the employee termination cost component of the 2018 Restructuring Program are anticipated to be approximately $35 to $40 million, the majority of which will be paid in 2019.

Total expenses included in the accompanying consolidated statements of operations relating to the 2018 Restructuring Program are as follows:


	Three Months Ended March 31,
	2019		2018
2018 Restructuring Program	$	5.5	$	—

Changes to the restructuring liability during the first three months of 2019 were as follows:


	Employee Termination Costs			Contract Termination Costs			Total Restructuring Liability
Balance as of December 31, 2018	$	29.9		$	12.4		$	42.3
2018 Restructuring Program:
Adoption of New Lease Accounting Standard		—			(10.9	)⁽¹⁾		(10.9	)⁽¹⁾
Cost incurred and adjustments		1.8			2.2	⁽²⁾		4.0	⁽²⁾
Cash payments and adjustments		(5.9	)		(0.7	)		(6.6	)

Balance as of March 31, 2019	$	25.8		$	3.0		$	28.8

2018 Restructuring Program:

Cumulative expense incurred to date	$	34.6		$	19.6

⁽¹⁾	Upon the adoption of the New Lease Accounting Standard, the Company recorded a reclassification of $10.9 million of liabilities for costs associated with certain real estate leases which were exited in previous years, as a reduction of the ROU Asset capitalized upon adoption.

⁽²⁾	Excludes $1.5 million of non-cash acceleration of amortization of leasehold improvements relating to the rationalization and exit of certain real estate leases.

As of March 31, 2019, the majority of the remaining $28.8 million restructuring liability is expected to be paid out during the next 12 months.

NOTE 13. FAIR VALUE

The table below presents information about items that are carried at fair value at March 31, 2019 and December 31, 2018:


	Fair Value Measurement as of March 31, 2019
Description	Balance		Level 1		Level 2
Assets:
Derivatives ⁽¹⁾	$	52.3	$	—	$	52.3
Mutual funds		17.7		17.7		—

Total	$	70.0	$	17.7	$	52.3

Liabilities:
Derivatives ⁽¹⁾	$	13.2	$	—	$	13.2

Total	$	13.2	$	—	$	13.2


	Fair Value Measurement as of December 31, 2018
Description	Balance		Level 1		Level 2
Assets:
Derivatives ⁽¹⁾	$	28.3	$	—	$	28.3
Money market mutual funds		15.2		15.2		—
Mutual funds		33.3		33.3		—

Total	$	76.8	$	48.5	$	28.3

Liabilities:
Derivatives ⁽¹⁾	$	16.4	$	—	$	16.4

Total	$	16.4	$	—	$	16.4

⁽¹⁾	Represents FX forwards on certain assets and liabilities as well as interest rate swaps and cross-currency swaps as more fully described in Note 10 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, fixed maturity plans, 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.

NOTE 14 OTHER BALANCE SHEET AND STATEMENT OF OPERATIONS INFORMATION

The following tables contain additional detail related to certain balance sheet captions:


	March 31,		December 31,
	2019		2018
Other current assets:
Prepaid taxes	$	103.8	$	100.1
Prepaid expenses		104.4		102.0
Capitalized costs to obtain and fulfill sales contracts		76.4		77.2
Other		2.0		3.0

Total other current assets	$	286.6	$	282.3


	March 31,		December 31,
	2019		2018
Other assets:
Investments in non-consolidated affiliates	$	111.6	$	104.6
Deposits for real-estate leases		13.7		13.5
Indemnification assets related to acquisitions		16.2		16.1
Mutual funds and fixed deposits		22.3		18.9
Costs to obtain sales contracts		86.1		78.0
Other		71.3		43.2

Total other assets	$	321.2	$	274.3


	March 31,		December 31,
	2019		2018
Accounts payable and accrued liabilities:
Salaries and benefits	$	132.3	$	112.5
Incentive compensation		51.0		154.5
Customer credits, advanced payments and advanced billings		22.9		20.4
Self-insurance reserves		9.3		10.6
Dividends		4.0		6.5
Professional service fees		58.1		47.7
Interest accrued on debt		36.4		70.5
Accounts payable		19.5		30.1
Income taxes		65.4		71.4
Pension and other retirement employee benefits		6.4		6.4
Accrued royalties		14.0		25.1
Foreign exchange forwards on certain assets and liabilities		10.9		8.2
Restructuring liability		25.6		35.5
Other		81.3		95.8

Total accounts payable and accrued liabilities	$	537.1	$	695.2


	March 31,		December 31,
	2019		2018
Other liabilities:
Pension and other retirement employee benefits	$	256.5	$	249.2
Deferred rent - non-current portion ⁽¹⁾		—		94.3
Interest accrued on UTPs		74.9		69.6
Other tax matters		1.3		1.3
Income tax liability - non-current portion ⁽²⁾		125.3		125.3
Interest rate swaps		2.3		5.3
Restructuring liability		3.2		6.8
Other		23.1		24.7

Total other liabilities	$	486.6	$	576.5

⁽¹⁾	Pursuant to the adoption of the New Lease Accounting Standard, deferred rent relating to operating leases was reclassified to operating lease ROU Asset.

⁽²⁾	Primarily reflects the transition tax pursuant to the Tax Act, which was enacted into law in December 2018.

Other Non-Operating Income (Expense):

The following table summarizes the components of other non-operating income (expense):


	Three Months Ended March 31,
	2019			2018
FX loss	$	(6.2	)	$	(5.9	)
Net periodic pension costs - other component		4.5			2.3
Income from investments in non-consolidated affiliates		1.2			1.3
Other		2.8			3.3

Total	$	2.3		$	1.0

NOTE 15. COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table provides details about the reclassifications out of AOCI:


	Three Months Ended March 31,						Location in the consolidated statements of operations
	2019			2018			Location in the consolidated statements of operations
Gains (losses) on cash flow hedges
Cross-currency swap	$	(0.1	)	$	0.1			Other non-operating income (expense), net
Interest rate contract		0.1			—			Interest expense, net

Total before income taxes		—			0.1
Income tax effect of item above		—			—			Provision for income taxes

Total net gains (losses) on cash flow hedges		—			0.1

Pension and other retirement benefits
Amortization of actuarial losses and prior service costs included in net income		(0.5	)		(0.9	)		Operating expense
Amortization of actuarial losses and prior service costs included in net income		(0.3	)		(0.5	)		SG&A expense

Total before income taxes		(0.8	)		(1.4	)
Income tax effect of item above		0.2			0.4			Provision for income taxes

Total pension and other retirement benefits		(0.6	)		(1.0	)

Total (losses) gains included in Net Income attributable to reclassifications out of AOCI	$	(0.6	)	$	(0.9	)

The following table shows changes in AOCI by component (net of tax):

Three Months Ended March 31, 2019

Pension
and Other
Retirement
Benefits

Gains /
(Losses) on
Cash Flow
Hedges

Foreign
Currency
Translation
Adjustments

Net Gains /
(Losses) on
Net
Investment
Hedges

Total

Balance December 31, 2018

(53.1

)

0.1

(406.0

)

32.7

(426.3

)

Other comprehensive income/(loss) before reclassifications

0.8

—

(34.3

)

23.5

(10.0

)

Amounts reclassified from AOCI

0.6

—

0.6

Adoption of ASU 2018-02 (See Note 1)

(17.3

)

—

(2.5

)

(19.8

)

Other comprehensive income/(loss)

(15.9

)

—

(34.3

)

21.0

(29.2

)

Balance March 31, 2019

(69.0

)

0.1

(440.3

)

53.7

(455.5

)


	Three Months Ended March 31, 2018
	Pension and Other Retirement Benefits			Gains / (Losses) on Cash Flow Hedges			Foreign Currency Translation Adjustments			Net Losses on Net Investment Hedges			Gains on Available for Sale Securities			Total
Balance December 31, 2017	$	(61.5	)	$	0.9		$	(112.6	)	$	(1.3	)	$	2.3		$	(172.2	)
Adoption of ASU 2016-01 relating to financial instruments		—			—			—			—			(2.3	)		(2.3	)
Other comprehensive income/(loss) before reclassifications		—			1.5			131.1			(10.9	)		—			121.7
Amounts reclassified from AOCI		1.0			(0.1	)		—			—			—			0.9

Other comprehensive income/(loss)		1.0			1.4			131.1			(10.9	)		(2.3	)		120.3

Balance March 31, 2018	$	(60.5	)	$	2.3		$	18.5		$	(12.2	)	$	—		$	(51.9	)

NOTE 16. PENSION AND OTHER RETIREMENT BENEFITS

Moody’s maintains funded and unfunded noncontributory Defined Benefit Pension Plans. The U.S. plans 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 plan are immaterial.

Effective January 1, 2008, the Company no longer offers DBPPs to U.S. employees hired or rehired on or after January 1, 2008. New U.S. employees will instead receive a retirement contribution of similar benefit value under the Company’s Profit Participation Plan. Current participants of the Company’s DBPPs continue to accrue benefits based on existing plan formulas.

The components of net periodic benefit expense related to the Retirement Plans are as follows:

Three Months Ended March 31,

Pension Plans

Other Retirement Plans

2019

2018

2019

2018

Components of net periodic expense

Service cost

4.3

4.8

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company