10-Q 1 d482068d10q.htm 10-Q 10-Q
Table of Contents

 

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 September 30, 2017

Or

 

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

For the transition period from              to             

Commission file number 1-14037

 

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files.    Yes  ☒    No  ☐

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

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐  (Do not check if a smaller reporting company)    Smaller reporting company  

 

Emerging growth company

  ☐                     

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

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

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

 

Title of Each Class

  

Shares Outstanding at September 30, 2017

Common Stock, par value $0.01 per share    191.1 million


Table of Contents

MOODY’S CORPORATION

INDEX TO FORM 10-Q

 

         Page(s)  
  Glossary of Terms and Abbreviations      3-8  
  PART I. FINANCIAL INFORMATION  
Item 1.   Financial Statements   
 

Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September  30, 2017 and 2016

     9  
 

Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Nine Months Ended September 30, 2017 and 2016

     10  
  Consolidated Balance Sheets (Unaudited) at September 30, 2017 and December 31, 2016      11  
  Consolidated Statements of Cash Flows (Unaudited) for the Nine months ended September 30, 2017 and 2016      12  
  Notes to Condensed Consolidated Financial Statements (Unaudited)      13-46  
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   
  The Company      47  
  Critical Accounting Estimates      47  
  Reportable Segments      50  
  Results of Operations      51-64  
  Liquidity and Capital Resources      65-69  
  Recently Issued Accounting Standards      70  
  Contingencies      71  
  Regulation      71-72  
  Forward-Looking Statements      72-73  
Item 4.   Controls and Procedures      73  
  PART II. OTHER INFORMATION   
Item 1.   Legal Proceedings      74  
Item 1A.   Risk Factors      74  
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds      74  
Item 5.   Other Information      74  
Item 6.   Exhibits      75  
SIGNATURES   
Exhibits Filed Herewith   
12   Statement of Computation of Ratios of Earnings to Fixed Charges   
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   


Table of Contents

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 acquired 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 the CCXI Gain, Acquisition-Related Expenses, Acquisition-Related Amortization and the Purchase Price Hedge Gain
Adjusted Net Income    Net Income excluding the impact of the CCXI Gain, Acquisition-Related Expenses, Acquisition-Related Amortization and the Purchase Price Hedge Gain.
Adjusted Operating Income    Operating income excluding depreciation and amortization, Acquisition-Related Expenses and restructuring charges
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’ (deficit) equity
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 countries in Asia including but not limited to: Australia, China, India, Indonesia, Japan, Korea, Malaysia, Singapore, Sri Lanka and Thailand
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
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.
CCXI    China Cheng Xin International Credit Rating Co. Ltd.; China’s first and largest domestic credit rating agency approved by the People’s Bank of China; the Company acquired a 49% interest in 2006; currently Moody’s owns 30% of CCXI.
CCXI Gain    In the first quarter of 2017 CCXI, as part of a strategic business realignment, issued additional capital to its majority shareholder in exchange for a ratings business wholly-owned by the majority shareholder and which has the right to rate a different class of debt instrument in the Chinese market. The capital issuance by CCXI in exchange for this ratings business diluted Moody’s ownership interest in CCXI to 30% of a larger business and resulted in a $59.7 million non-cash, non-taxable gain.

 

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CLO    Collateralized loan obligation
Commission    European Commission
Common Stock    The Company’s common stock
Company    Moody’s Corporation and its subsidiaries; MCO; Moody’s
Copal    Copal Partners; an acquisition completed in November 2011; part of the MA segment; leading provider of research and analytical services to institutional investors
Copal Amba    Operating segment (rebranded as MAKS in 2016) created in January 2014 that consists of all operations from Copal and Amba. Part of the PS LOB within the MA reportable segment. Also a reporting unit.
Council    Council of the European Union
CP    Commercial Paper
CP Notes    Unsecured commercial paper issued under the CP Program
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
CRAs    Credit rating agencies
CSPP    Corporate Sector Purchase Programme; quantitative easing program implemented by the ECB. This program allows the central bank to purchase bonds issued by European companies, as well as provides access to the secondary bond market in which existing corporate bonds trade
D&A    Depreciation and amortization
DBPP    Defined benefit pension plans
Debt/EBITDA    Ratio of Total Debt to EBITDA
EBITDA    Earnings before interest, taxes, depreciation and amortization
ECB    European Central Bank
EMEA    Represents countries within Europe, the Middle East and Africa
EPS    Earnings per share
ERS    The enterprise risk solutions LOB within MA, which offers risk management software products as well as software implementation services and related risk management advisory engagements
ESA    Economics and Structured Analytics; part of the RD&A line of business within MA
ESMA    European Securities and Markets Authority
ETR    Effective tax rate
EU    European Union

EUR

   Euros

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

 

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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; part of the PS LOB and a reporting unit within the MA reportable segment; consists of online and classroom-based training services and CSI Global Education, Inc.

FX

   Foreign exchange

GAAP

   U.S. Generally Accepted Accounting Principles

GBP

   British pounds

GGY

   Gilliland Gold Young; a leading provider of advanced actuarial software for the global insurance industry. The Company acquired GGY on March 1, 2016; part of the ERS LOB and reporting unit within the MA reportable segment

ICRA

   ICRA Limited; a leading provider of credit ratings and research in India. The Company previously held 28.5% equity ownership and in June 2014, increased that ownership stake to just over 50% through the acquisition of additional shares

ICTEAS

   ICRA Techno Analytics; formerly a wholly-owned subsidiary of ICRA; divested by ICRA in the fourth quarter of 2016

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

LIBOR

   London Interbank Offered Rate

LOB

   Line of business

M&A

   Mergers and acquisitions

MA

   Moody’s Analytics – a reportable segment of MCO formed in January 2008 which provides a wide range of products and services that support financial analysis and risk management activities of institutional participants in global financial markets; consists of three LOBs – RD&A, ERS and PS

Make Whole Amount

   The prepayment penalty amount relating to the Series 2007-1 Notes, 2010 Senior Notes, 2012 Senior Notes, 2013 Senior Notes, 2014 Senior Notes (5-year), 2014 Senior Notes (30-year), 2015 Senior Notes, 2017 Senior Notes, 2017 Private Placement Notes Due 2023 and 2017 Private Placement Notes Due 2028 which is a premium based on the excess, if any, of the discounted value of the remaining scheduled payments over the prepaid principal

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

 

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MCO

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

MD&A

   Management’s Discussion and Analysis of Financial Condition and Results of Operations

MIS

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

MIS Other

   Consists of 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

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 provide greater transparency to investors of supplemental information used by management in its financial and operational decision making

NRSRO

   Nationally Recognized Statistical Rating Organization

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, certain gains and losses relating to pension and other retirement benefit obligations and foreign currency translation adjustments

Other Retirement Plan

   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

PS

   Professional Services, an LOB within MA consisting of MAKS and FSTC that provides research and analytical services as well as financial training and certification programs

Purchase Price Hedge

   Foreign currency collar and forward contracts entered by the Company to economically hedge the Bureau van Dijk euro denominated purchase price

Purchase Price Hedge Gain

   Gain on foreign currency collars to economically hedge the Bureau van Dijk euro denominated purchase price

RD&A

   Research, Data and Analytics; an LOB within MA that produces, sells and distributes research, data and related content. Includes products generated by MIS, such as analyses on major debt issuers, industry studies, and commentary on topical credit events. Also includes economic research, data, quantitative risk scores, other analytical tools that are produced within MA and business intelligence and company information products.

Reform Act

   Credit Rating Agency Reform Act of 2006

REIT

   Real Estate Investment Trust

Relationship Revenue

   For MIS represents monitoring 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 license and maintenance revenue

 

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Retirement Plans    Moody’s funded and unfunded pension plans, the healthcare plans and life insurance plans

SCDM

  

SCDM Financial, a leading provider of analytical tools for participants in securitization markets. Moody’s acquired SCDM’s structured finance data and analytics business in February 2017

SEC

   U.S. Securities and Exchange Commission
Securities Act    Securities Act of 1933, as amended
Series 2007-1 Notes    Principal amount of $300 million, 6.06% senior unsecured notes due in September 2017 pursuant to the 2007 Agreement; prepaid in March 2017
Settlement Charge    Charge of $863.8 million recorded in the fourth quarter of 2016 related to an agreement entered into on January 13, 2017 with the U.S. Department of Justice and the attorneys general of 21 U.S states and the District of Columbia to resolve pending and potential civil claims related to the credit ratings that MIS assigned to certain structured finance instruments in the financial crisis era
SFG    Structured finance group; an LOB of MIS
SG&A    Selling, general and administrative expenses
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 software license fees and revenue from risk management advisory projects, training and certification services, and research and analytical engagements
U.K.    United Kingdom
U.S.    United States
USD    U.S. dollar
UTBs    Unrecognized tax benefits
UTPs    Uncertain tax positions
VSOE    Vendor specific objective evidence; as defined in the ASC, evidence of selling price limited to either of the following: the price charged for a deliverable when it is sold separately, or for a deliverable not yet being sold separately, the price established by management having the relevant authority
2007 Agreement    Note purchase agreement dated September 7, 2007, relating to the Series 2007-1 Notes
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

 

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Table of Contents

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 (5-year and 30-year)

2017 Indenture

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

2014 Senior Notes (5-Year)

   Principal amount of $450 million, 2.75% senior unsecured notes due in July 2019

2014 Senior Notes (30-Year)

   Principal amount of $600 million, 5.25% senior unsecured notes due in July 2044

2015 Facility

   Five-year unsecured revolving credit facility, with capacity to borrow up to $1 billion;

2015 Indenture

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

2015 Senior Notes

   Principal amount €500 million, 1.75% senior unsecured notes issued March 9, 2015 and due in March 2027

2017 Bridge Credit Facility

   Bridge Credit Agreement entered into in May 2017 pursuant to the definitive agreement to acquire Bureau van Dijk; this facility was terminated in June 2017 upon issuance of the 2017 Private Placement Notes Due 2023 and the 2017 Private Placement Notes Due 2028

2017 Floating Rate Senior Notes

   Principal amount of $300 million, floating rate senior unsecured notes due in September 2018
2017 Private Placement Notes Due 2023    Principal amount $500 million, 2.625% senior unsecured notes due January 15, 2023
2017 Private Placement Notes Due 2028    Principal amount $500 million, 3.250% senior unsecured notes due January 15, 2028

2017 Senior Notes

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

2017 Term Loan

   $500 million, three-year term loan facility entered into on June 6, 2017 for which the Company drew down $500 million on August 8, 2017 to fund the acquisition of Bureau van Dijk.

 

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Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MOODY’S CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Amounts in millions, except per share data)

 

      Three Months Ended
September 30,
    Nine months ended
September 30,
 
      2017     2016     2017     2016  

Revenue

   $ 1,062.9     $ 917.1     $ 3,038.6     $ 2,662.1  
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

        

Operating

     317.2       253.2       880.4       761.3  

Selling, general and administrative

     247.2       225.3       686.8       683.2  

Restructuring

     —         8.4       —         12.0  

Depreciation and amortization

     43.0       32.7       108.4       93.8  

Acquisition-Related Expenses

     10.1       —         16.7       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     617.5       519.6       1,692.3       1,550.3  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     445.4       397.5       1,346.3       1,111.8  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating (expense) income, net

        

Interest expense, net

     (48.1     (35.4     (135.5     (103.8

Other non-operating (expense) income, net

     (1.4     6.9       (2.5     15.5  

Purchase Price Hedge Gain

     69.9       —         111.1       —    

CCXI Gain

     —         —         59.7       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating income (expense), net

     20.4       (28.5     32.8       (88.3
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before provisions for income taxes

     465.8       369.0       1,379.1       1,023.5  

Provision for income taxes

     146.1       112.4       399.9       322.2  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     319.7       256.6       979.2       701.3  

Less: Net income attributable to noncontrolling interests

     2.4       1.3       4.1       6.1  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Moody’s

   $ 317.3       255.3       975.1       695.2  
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share attributable to Moody’s common shareholders

        

Basic

   $ 1.66       1.33       5.10       3.60  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 1.63       1.31       5.02       3.55  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares outstanding

        

Basic

     191.1       191.7       191.1       193.3  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     194.1       194.3       194.1       196.0  
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividends declared per share attributable to Moody’s common shareholders

   $ 0.38     $ 0.37     $ 0.76     $ 0.74  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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Table of Contents

MOODY’S CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Amounts in millions)

 

     Three Months Ended
September 30, 2017
    Three Months Ended
September 30, 2016
 
     Pre-tax
amounts
    Tax
amounts
    After-tax
amounts
    Pre-tax
amounts
    Tax
amounts
    After-tax
amounts
 

Net Income

       $ 319.7         $ 256.6  
      

 

 

       

 

 

 

Other Comprehensive Income (Loss):

            

Foreign Currency Adjustment:

            

Foreign currency translation adjustments, net

   $ 45.4     $ 6.4       51.8     $ (12.0   $ 2.6       (9.4

Cash Flow Hedges:

            

Net realized and unrealized gain on cash flow hedges

     5.2       (2.0     3.2       5.1       (1.9     3.2  

Reclassification of (gains) included in net income

     (4.2     1.6       (2.6     (1.3     0.4       (0.9

Available for Sale Securities:

            

Net unrealized gains on available for sale securities

     0.5       —         0.5       0.7       —         0.7  

Reclassification of gains included in net income

     (2.2 )   

 

  

 

    (2.2 )      —         —         —    

Pension and Other Retirement Benefits:

            

Amortization of actuarial losses and prior service costs included in net income

     2.1       (0.8 )      1.3       2.4       (0.9     1.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Other Comprehensive Income (Loss)

   $ 46.8     $ 5.2     $ 52.0     $ (5.1   $ 0.2     $ (4.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income

         371.7           251.7  

Less: comprehensive income (loss) attributable to noncontrolling interests

         3.1           (14.8
      

 

 

       

 

 

 

Comprehensive Income Attributable to Moody’s

       $ 368.6         $ 266.5  
      

 

 

       

 

 

 
     Nine Months Ended
September 30, 2017
    Nine Months Ended
September 30, 2016
 
     Pre-tax
amounts
    Tax
amounts
    After-tax
amounts
    Pre-tax
amounts
    Tax
amounts
    After-tax
amounts
 

Net Income

       $ 979.2         $ 701.3  
            

 

 

 

Other Comprehensive Income (Loss):

            

Foreign Currency Adjustment:

            

Foreign currency translation adjustments, net

   $ 94.9     $ 19.5       114.4     $ (9.4   $ 16.6       7.2  

Cash flow hedges:

            

Net realized and unrealized gain on cash flow hedges

     10.0       (3.8     6.2       2.5       (1.0     1.5  

Reclassification of (gains) included in net income

     (11.7     4.9       (6.8     (0.9     0.3       (0.6

Available for sale securities:

            

Net unrealized gains on available for sale securities

     1.6       —         1.6       1.9       —         1.9  

Reclassification of gains included in net income

     (2.2     —         (2.2     —         —         —    

Pension and Other Retirement Benefits:

            

Amortization of actuarial losses and prior service costs included in net income

     6.4       (2.5     3.9       7.3       (2.8     4.5  

Net actuarial gains and prior service costs

     7.9       (3.0     4.9       5.3       (2.0     3.3  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Other Comprehensive Income

   $ 106.9     $ 15.1     $ 122.0     $ 6.7     $ 11.1     $ 17.8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income

         1,101.2           719.1  

Less: comprehensive income (loss) attributable to noncontrolling interests

         19.6           (10.0
      

 

 

       

 

 

 

Comprehensive Income Attributable to Moody’s

       $ 1,081.6         $ 729.1  
      

 

 

       

 

 

 

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

 

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MOODY’S CORPORATION

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Amounts in millions, except share and per share data)

 

     September 30,     December 31,  
     2017     2016  
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 962.8     $ 2,051.5  

Short-term investments

     108.3       173.4  

Accounts receivable, net of allowances of $32.2 in 2017 and $25.7 in 2016

     1,007.3       887.4  

Other current assets

     200.5       140.8  
  

 

 

   

 

 

 

Total current assets

     2,278.9       3,253.1  

Property and equipment, net of accumulated depreciation of $681.9 in 2017 and $595.5 in 2016

     332.1       325.9  

Goodwill

     3,722.1       1,023.6  

Intangible assets, net

     1,633.1       296.4  

Deferred tax assets, net

     170.2       316.1  

Other assets

     168.5       112.2  
  

 

 

   

 

 

 

Total assets

   $ 8,304.9     $ 5,327.3  
  

 

 

   

 

 

 
LIABILITIES AND SHAREHOLDERS’ DEFICIT     

Current liabilities:

    

Accounts payable and accrued liabilities

   $ 577.5     $ 1,444.3  

Commercial paper

     314.8       —    

Current portion of long-term debt

     299.3       300.0  

Deferred revenue

     791.1       683.9  
  

 

 

   

 

 

 

Total current liabilities

     1,982.7       2,428.2  

Non-current portion of deferred revenue

     135.5       134.1  

Long-term debt

     5,107.3       3,063.0  

Deferred tax liabilities, net

     452.6       104.3  

Unrecognized tax benefits

     336.3       199.8  

Other liabilities

     447.3       425.2  
  

 

 

   

 

 

 

Total liabilities

     8,461.7       6,354.6  

Contingencies (Note 15)

     —         —    

Shareholders’ deficit:

    

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 September 30, 2017 and December 31, 2016, respectively.

     3.4       3.4  

Capital surplus

     495.6       477.2  

Retained earnings

     7,513.4       6,688.9  

Treasury stock, at cost; 151,821,294 and 152,208,231 shares of common stock at September 30, 2017 and December 31, 2016, respectively

     (8,123.7     (8,029.6

Accumulated other comprehensive loss

     (257.8     (364.9
  

 

 

   

 

 

 

Total Moody’s shareholders’ deficit

     (369.1     (1,225.0

Noncontrolling interests

     212.3       197.7  
  

 

 

   

 

 

 

Total shareholders’ deficit

     (156.8     (1,027.3
  

 

 

   

 

 

 

Total liabilities and shareholders’ deficit

   $ 8,304.9     $ 5,327.3  
  

 

 

   

 

 

 

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

 

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MOODY’S CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in millions)

 

     Nine months ended  
     September 30,  
     2017     2016  

Cash flows from operating activities

    

Net income

   $ 979.2     $ 701.3  

Reconciliation of net income to net cash provided by operating activities:

    

Depreciation and amortization

     108.4       93.8  

Stock-based compensation expense

     88.9       72.8  

CCXI Gain

     (59.7     —    

Purchase Price Hedge Gain

     (111.1     —    

Deferred income taxes

     161.4       7.1  

Legacy Tax Matters

     —         (1.6

Changes in assets and liabilities:

    

Accounts receivable

     (9.8     (35.6

Other current assets

     (16.2     51.1  

Other assets

     11.4       10.2  

Accounts payable and accrued liabilities

     (834.3     (54.6

Deferred revenue

     (19.3     31.2  

Unrecognized tax benefits and other non-current tax liabilities

     18.4       (1.8

Other liabilities

     25.4       15.1  
  

 

 

   

 

 

 

Net cash provided by operating activities

     342.7       889.0  
  

 

 

   

 

 

 

Cash flows from investing activities

    

Capital additions

     (69.4     (84.8

Purchases of investments

     (124.0     (279.7

Sales and maturities of investments

     183.8       438.7  

Cash paid for acquisitions, net of cash acquired and equity investments

     (3,511.0     (79.1

Receipts from Purchase Price Hedge

     111.1       —    

Receipts from settlement of net investment hedges

     2.1       2.5  
  

 

 

   

 

 

 

Net cash used in investing activities

     (3,407.4     (2.4
  

 

 

   

 

 

 

Cash flows from financing activities

    

Issuance of notes

     2,291.9       —    

Repayments of notes

     (300.0     —    

Issuance of commercial paper

     1,437.5       —    

Repayment of commercial paper

     (1,123.2     —    

Proceeds from stock-based compensation plans

     49.3       72.5  

Repurchase of shares for payroll tax withholdings related to stock-based compensation

     (48.3     (44.0

Cost of treasury shares repurchased

     (163.6     (678.9

Payment of dividends

     (217.8     (214.5

Payment of dividends to noncontrolling interests

     (3.2     (4.6

Payment for noncontrolling interest

     (6.2     (45.4

Debt issuance costs and related fees

     (19.7     (0.1
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     1,896.7       (915.0

Effect of exchange rate changes on cash and cash equivalents

     79.3       17.1  
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (1,088.7     (11.3

Cash and cash equivalents, beginning of the period

     2,051.5       1,757.4  
  

 

 

   

 

 

 

Cash and cash equivalents, end of the period

   $ 962.8     $ 1,746.1  
  

 

 

   

 

 

 

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

 

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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 and related risk management services, (iv) quantitative credit risk measures, financial services training and certification services (v) analytical and research services and (vi) business intelligence and company information products. Moody’s has 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 the distribution of research and 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.

The MA segment develops a wide range of products and services that support financial analysis and risk management activities of institutional participants in global financial markets. Within its RD&A business, MA distributes research and data developed by MIS as part of its ratings process, including in-depth research on major debt issuers, industry studies and commentary on topical credit-related events. The RD&A business also produces economic research and data and analytical tools such as quantitative credit risk scores as well as business intelligence and company information products. Within its ERS business, MA provides software solutions as well as related risk management services. The PS business provides analytical and research services along with financial training and certification programs.

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 2016 annual report on Form 10-K filed with the SEC on February 25, 2017. 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 Standard

In the first quarter of 2017, the Company adopted ASU No. 2016-09 “Improvements to Employee Share-Based Payment Accounting”. As required by ASU 2016-09, Excess Tax Benefits or shortfalls recognized on stock-based compensation expense are reflected in the consolidated statement of operations as a component of the provision for income taxes on a prospective basis. Prior to the adoption of this ASU, Excess Tax Benefits and shortfalls were recorded to capital surplus within shareholders’ deficit. The impact of this adoption was a $7.7 million and $35.6 million benefit to the provision for income taxes for the three and nine months ended September 30, 2017, respectively.

 

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Additionally, in accordance with this ASU, Excess Tax Benefits or shortfalls recognized on stock-based compensation are classified as operating cash flows in the consolidated statement of cash flows, and the Company has applied this provision on a retrospective basis. Under previous accounting guidance, the Excess Tax Benefits or shortfalls were shown as a reduction to operating activity and an increase to financing activity. Furthermore, the Company has elected to continue to estimate the number of stock-based awards expected to vest, rather than accounting for award forfeitures as they occur, to determine the amount of stock-based compensation cost recognized in each period. The impact to the Company’s statement of cash flows for the nine months ended September 30, 2016 relating to the adoption of this provision of the ASU is set forth in the table below:

 

(amounts in millions)    As reported
Nine Months Ended
September 30, 2016
     Adoption
Adjustment
     Nine Months Ended
September 30, 2016
As adjusted
 

Net cash provided by operating activities

   $ 856.6      $ 32.4      $ 889.0  

Net cash used in financing activities

   $ (882.6)      $ (32.4)      $ (915.0)  

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

In accordance with the Company’s early adoption of ASU 2017-04, “Simplifying the Test for Goodwill Impairment (Topic 350)”, the Company has modified its accounting policy regarding long-lived assets, including goodwill and other acquired intangible assets. All other significant accounting policies described in the Form 10-K for the year ended December 31, 2016 remain unchanged. The Company’s revised accounting policy regarding long-lived assets, including goodwill and other acquired intangible assets is disclosed below.

Long-Lived Assets, including Goodwill and Other Acquired Intangible Assets

Moody’s evaluates its goodwill for impairment at the reporting unit level, defined as an operating segment or one level below 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 that, based on the qualitative factors, 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 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 recognize the difference as an impairment charge.

The Company evaluates its reporting units for impairment on an annual basis, or more frequently if there are changes in the reporting structure of the Company due to acquisitions or realignments or if there are indicators of potential impairment. For the reporting units where the Company is consistently able to conclude that an impairment does not exist using only a qualitative approach, the Company’s accounting policy is to perform the second step of the aforementioned goodwill impairment assessment at least once every three years. Goodwill is assigned to a reporting unit at the date when an acquisition is integrated into one of the established reporting units, and is based on which reporting unit is expected to benefit from the synergies of the acquisition.

For purposes of assessing the recoverability of goodwill, the Company has seven primary reporting units at September 30, 2017: two within the Company’s ratings business (one for the ICRA business and one that encompasses all of Moody’s other ratings operations) and five reporting units within MA: RD&A, ERS, FSTC, MAKS and Bureau van Dijk. The RD&A reporting unit encompasses the distribution of investor-oriented research and data developed by MIS as part of its ratings process, in-depth research on major debt issuers, industry studies, economic research and commentary on topical events and credit analytic tools. The ERS reporting unit consists of credit risk management and compliance software that is sold on a license or subscription basis as well as related advisory services for implementation and maintenance. The FSTC reporting unit consists of the portion of the MA business that offers both credit training as well as other professional development training and certification services. The MAKS reporting unit consists of research and analytical services. The Bureau van Dijk reporting unit consists of business intelligence and company information products.

Amortizable intangible assets are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

 

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NOTE 3. STOCK-BASED COMPENSATION

Presented below is a summary of the stock-based compensation cost and associated tax benefit included in the accompanying consolidated statements of operations:

 

     Three Months Ended
September 30,
     Nine months ended
September 30,
 
     2017      2016      2017      2016  

Stock-based compensation cost

   $ 31.8      $ 23.9      $ 88.9      $ 72.8  

Tax benefit

   $ 10.3      $ 7.8      $ 28.8      $ 23.7  

During the first nine months of 2017, the Company granted 0.2 million employee stock options, which had a weighted average grant date fair value of $30.00 per share based on the Black-Scholes option-pricing model. The Company also granted 1.0 million shares of restricted stock in the first nine months of 2017, which had a weighted average grant date fair value of $113.39 per share. Both the employee stock options and restricted stock generally vest ratably over a four-year period. Additionally, the Company granted approximately 0.2 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 a three-year period. The weighted average grant date fair value of these awards was $109.36 per share.

The following weighted average assumptions were used in determining the fair value for options granted in 2017:

 

Expected dividend yield

     1.34

Expected stock volatility

     26.8

Risk-free interest rate

     2.19

Expected holding period

     6.5 years  

Grant date fair value

   $ 30.00  

Unrecognized compensation expense at September 30, 2017 was $8.0 million and $150.1 million for stock options and unvested restricted stock, respectively, which is expected to be recognized over a weighted average period of 1.4 years and 1.6 years, respectively. Additionally, there was $27.7 million of unrecognized compensation expense relating to the aforementioned non-market based performance-based awards, which is expected to be recognized over a weighted average period of 1.1 years.

 

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

 

     Nine months ended  
     September 30,  
Exercise of stock options:    2017      2016  

Proceeds from stock option exercises

   $ 44.0      $ 67.7  

Aggregate intrinsic value

   $ 75.7      $ 67.8  

Tax benefit realized upon exercise

   $ 26.9      $ 23.1  

Number of shares exercised

     1.0        1.4  
     Nine months ended  
     September 30,  
Vesting of restricted stock:    2017      2016  

Fair value of shares vested

   $ 109.1      $ 92.8  

Tax benefit realized upon vesting

   $ 34.6      $ 29.5  

Number of shares vested

     1.0        1.0  
     Nine months ended  
     September 30,  
Vesting of performance-based restricted stock:    2017      2016  

Fair value of shares vested

   $ 19.5      $ 23.6  

Tax benefit realized upon vesting

   $ 6.9      $ 8.4  

Number of shares vested

     0.2        0.2  

NOTE 4. INCOME TAXES

Moody’s effective tax rate was 31.4% and 30.5% for the three months ended September 30, 2017 and 2016, respectively and 29.0% and 31.5% for the nine month periods ended September 30, 2017 and 2016, respectively. The increase for the three months ended September 30, 2017 is primarily due to the tax effects of a purchase price hedge gain and higher tax rates on non-U.S. income, partially offset by Excess Tax Benefits of $7.7 million on stock-based compensation, as further discussed in Note 1 above, which favorably benefited the ETR by approximately 160 BPS. The decrease in the ETR for the nine months ended September 30, 2017 was primarily due to Excess Tax Benefits of $35.6 million on stock-based compensation, as further discussed in Note 1, which favorably benefited the ETR by approximately 260 BPS coupled with the non-taxable CCXI Gain as discussed in Note 11 below.

The Company classifies interest related to UTBs 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 net increase in its UTBs of $122.7 million ($122.6 million net of federal tax) during the third quarter of 2017 and a net increase in its UTBs during the first nine months of 2017 of $136.6 million ($136.9 million net of federal tax). The increase in reserves is primarily due to the recording of UTBs in connection with the Bureau van Dijk acquisition.

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 the years 2011 and 2012 are under examination and its returns for 2013, 2014 and 2015 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, 2014 and 2015 remain open to examination.

 

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For ongoing audits, it is possible the balance of UTBs 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 UTBs. 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 UTBs 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 UTBs.

On March 30, 2016, the FASB issued Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share Based Payment Accounting as more fully discussed in Note 1 to the condensed consolidated financial statements. The new guidance requires all tax effects related to share based payments to be recorded through the income statement. The Company has adopted the new guidance as of the first quarter of 2017 and expects the adoption to result in a reduction in its income tax provision of approximately $40 million, or an approximate 225BPS reduction in the Company’s ETR for the full year of 2017.

In the first quarter of 2017, the Company adopted Accounting Standards Update 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory. Under previous guidance, the tax effects of intra-entity asset transfers (intercompany sales) were deferred until the transferred asset was sold to a third party or otherwise recovered through use. The new guidance eliminates the exception for all intra-entity sales of assets other than inventory. Upon adoption, a cumulative-effect adjustment is recorded in retained earnings as of the beginning of the period of adoption. The net impact upon adoption is a reduction to retained earnings of $4.6 million. The Company does not expect any material impact on its future operations as a result of the adoption of this guidance.

The following table shows the amount the Company paid for income taxes:

 

     Nine months ended  
     September 30,  
     2017      2016  

Income taxes paid*

   $ 194.7      $ 242.8  

 

* The decrease in income taxes paid is primarily due to tax benefits relating to the Settlement Charge

 

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NOTE 5. WEIGHTED AVERAGE SHARES OUTSTANDING

Below is a reconciliation of basic to diluted shares outstanding:

 

     Three Months Ended      Nine months ended  
     September 30,      September 30,  
     2017      2016      2017      2016  

Basic

     191.1        191.7        191.1        193.3  

Dilutive effect of shares issuable under stock-based compensation plans

     3.0        2.6        3.0        2.7  
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

     194.1        194.3        194.1        196.0  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

     0.5        0.5        0.6        0.9  
  

 

 

    

 

 

    

 

 

    

 

 

 

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, 2017 and 2016. The assumed proceeds in 2017 do not include Excess Tax Benefits pursuant to the prospective adoption of ASU 2016-09 in the first quarter of 2017. The assumed proceeds in 2016 include Excess Tax Benefits.

The decrease in the diluted shares outstanding in the nine months ended September 30, 2017 primarily reflects treasury share repurchases under the Company’s Board authorized share repurchase program.

 

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NOTE 6. CASH EQUIVALENTS AND INVESTMENTS

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

 

     As of September 30, 2017  
            Gross
Unrealized
Gains
            Balance sheet location  
     Cost         Fair
Value
     Cash and cash
equivalents
     Short-term
investments
     Other
assets
 

Money market mutual funds

   $ 18.5      $ —        $ 18.5      $ 18.5      $ —        $ —    

Certificates of deposit and money market deposit accounts (1)

   $ 253.2      $ —        $ 253.2      $ 142.6      $ 108.3      $ 2.3  

Fixed maturity and open ended mutual funds (2)

   $ 21.8      $ 5.2      $ 27.0      $ —        $ —        $ 27.0  
     As of December 31, 2016  
                          Balance sheet location  
     Cost      Gross
Unrealized
Gains
     Fair
Value
     Cash and cash
equivalents
     Short-term
investments
     Other
assets
 

Money market mutual funds

   $ 189.0      $ —        $ 189.0      $ 189.0      $ —        $ —    

Certificates of deposit and money market deposit accounts (1)

   $ 1,190.5      $ —        $ 1,190.5      $ 1,017.0      $ 173.4      $ 0.1  

Fixed maturity and open ended mutual funds (2)

   $ 27.0      $ 5.6      $ 32.6      $ —        $ —        $ 32.6  

 

(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 September 30, 2017 and December 31, 2016. The remaining contractual maturities for the certificates of deposits classified in other assets are 13 to 51 months at September 30, 2017 and 13 months to 15 months at December 31, 2016. Time deposits with a maturity of less than 90 days at time of purchase are classified as cash and cash equivalents.

(2) 

Consists of investments in fixed maturity mutual funds and open-ended mutual funds. The remaining contractual maturities for the fixed maturity instruments range from nine months to ten months and six months to 19 months at September 30, 2017 and December 31, 2016 respectively.

The money market mutual funds as well as the fixed maturity and open ended mutual funds in the table above are deemed to be “available for sale” under ASC Topic 320 and the fair value of these instruments is determined using Level 1 inputs as defined in the ASC.

NOTE 7. 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.

Bureau van Dijk

On August 10, 2017, a subsidiary of the Company acquired 100% of Yellow Maple I B.V., an indirect parent company of Bureau van Dijk Electronic Publishing B.V., a global provider of business intelligence and company information products. The cash payment of $3,542.0 million was funded with a combination of cash on hand, primarily offshore, and new debt financing. The acquisition extends Moody’s position as a leader in risk data and analytical insight.

 

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Shown below is the preliminary purchase price allocation, which summarizes the fair value of the assets and liabilities assumed, at the date of acquisition:

 

(Amounts in millions)

     

Current assets

      $ 160.5  

Property and equipment, net

        4.2  

Intangible assets:

     

Customer relationships (23 year weighted average life)

   $ 998.7     

Product technology (12 year weighted average life)

     258.5     

Trade name (18 year weighted average life)

     82.2     

Database (10 year weighted average life)

     13.0     
  

 

 

    

Total intangible assets (21 year weighted average life)

        1,352.4  

Goodwill

        2,636.1  

Other assets

        4.3  

Liabilities

     

Deferred revenue

   $ (101.1   

Accounts payable and accrued liabilities

     (48.3   

Deferred tax liabilities, net

     (348.1   

Other liabilities

     (118.0   
  

 

 

    

Total liabilities

        (615.5
     

 

 

 

Net assets acquired

      $ 3,542.0  
     

 

 

 

The Company has performed a preliminary valuation analysis of the fair market value of assets and liabilities of the Bureau van Dijk 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 uncertain tax positions 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 $36 million. Additionally, current assets include accounts receivable of approximately $90 million (net of an allowance for uncollectible accounts of $1.4 million).

The amount of Bureau van Dijk’s revenue and Net Income from August 10, 2017 through September 30, 2017 included in the Company’s statement of operations was $30.3 million and ($2.0) million, respectively. The acquired deferred revenue balance was reduced by $53 million as part of acquisition accounting to establish the fair value of deferred revenue. This will reduce reported revenue by $53 million over the remaining contractual period of in progress customer arrangements assumed as of the acquisition date. This resulted in an approximate $14 million reduction in reported revenue for the period from August 10, 2017 to September 30, 2017. Amortization of acquired intangible assets was approximately $10 million for the period from August 10, 2017 through September 30, 2017.

Goodwill

Under the acquisition method of accounting for business combinations, the excess of the purchase price over the fair value of the net assets acquired is allocated 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. 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 Bureau van Dijk 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.

Bureau van Dijk will be a separate reporting unit for purposes of the Company’s annual goodwill impairment assessment.

 

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Other Liabilities Assumed

In connection with the acquisition, the Company assumed liabilities relating to UTBs as well as deferred tax liabilities which relate to acquired intangible assets. These items are included in other liabilities in the table above.

Transaction and Non-Recurring Integration Costs

In connection with the acquisition, the Company incurred transaction and non-recurring integration costs (Acquisition-Related Expenses) through the first nine months of 2017. Acquisition-Related Expenses of $16.7 million were comprised of transaction costs (consisting primarily of legal and advisory costs) of $8.5 million and non-recurring integration costs of $8.2 million for the nine months ended September 30, 2017.

Supplementary Unaudited Pro Forma Information

Supplemental information on an unaudited pro forma basis is presented below for the nine months ended September 30, 2017 and 2016 as if the acquisition of Bureau van Dijk occurred on January 1, 2016. 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, 2016. 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.

 

(Amounts in millions)    For the nine months ended
September 30 2017
     For the nine months ended
September 30 2016
 

Pro forma Revenue

   $ 3,226.9      $ 2,821.8  

Pro forma Net Income attributable to Moody’s

   $ 965.9      $ 695.1  

The unaudited pro forma results do not include any anticipated cost savings or other effects of the planned integration of Bureau van Dijk. 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 Bureau van Dijk 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 Bureau van Dijk amounts in the pro forma results include a reduction in revenue of approximately $50 million and $1 million relating to a fair value adjustment to deferred revenue required as part of acquisition accounting for the nine months ended September 30, 2016 and 2017, respectively.

The following acquisitions occurred prior to the third quarter 2017. 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.

SCDM Financial

On February 13, 2017, a subsidiary of the Company acquired the structured finance data and analytics business of SCDM Financial. The aggregate purchase price was not material and the near term impact to the Company’s operations and cash flow is not expected to be material. This business unit operates in the MA reportable segment and goodwill related to this acquisition has been allocated to the RD&A reporting unit.

 

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Korea Investor Service (KIS)

In July 2016, a subsidiary of the Company acquired the non-controlling interest of KIS and additional shares of KIS Pricing. The aggregate purchase price was not material and the near term impact to the Company’s operations and cash flow is not expected to be material. KIS and KIS Pricing are a part of the MIS segment.

Gilliland Gold Young (GGY)

On March 1, 2016, subsidiaries of the Company acquired 100% of GGY, a leading provider of advanced actuarial software for the life insurance industry. The cash payments noted in the table below were funded with cash on hand. The acquisition of GGY will allow MA to provide an industry-leading enterprise risk offering for global life insurers and reinsurers.

The table below details the total consideration relating to the acquisition:

 

(amounts in millions)       

Cash paid at closing

   $ 83.4  

Additional consideration paid to sellers in the third quarter 2016(1)

     3.1  
  

 

 

 

Total consideration

   $ 86.5  
  

 

 

 

 

(1) 

Represents additional consideration paid to the sellers for amounts withheld at closing pending the completion of certain administrative matters

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

      $ 11.7  

Property and equipment, net

        2.0  

Indemnification assets

        1.5  

Intangible assets:

     

Trade name (19 year weighted average life)

   $ 3.7     

Client relationships (21 year weighted average life)

     13.8     

Software (7 year weighted average life)

     16.6     
  

 

 

    

Total intangible assets (14 year weighted average life)

        34.1  

Goodwill

        59.4  

Liabilities

        (22.2
     

 

 

 

Net assets acquired

      $ 86.5  
     

 

 

 

Current assets in the table above include acquired cash of $7.5 million. Additionally, current assets include accounts receivable of $2.9 million. Goodwill, which has been assigned to the MA segment, is not deductible for tax.

In connection with the acquisition, the Company assumed liabilities relating to UTPs and certain other tax exposures which are included in the liabilities assumed in the table above. The sellers have contractually indemnified the Company against any potential payments that may have to be made regarding these amounts. Accordingly, the Company carries an indemnification asset on its consolidated balance sheet at September 30, 2017 and December 31, 2016.

The Company incurred $0.9 million of costs directly related to the GGY acquisition of which $0.6 million was incurred in 2015 and $0.3 million was incurred in the first quarter of 2016. These costs are recorded within selling, general and administrative expenses in the Company’s consolidated statements of operations.

GGY is part of the ERS reporting unit for purposes of the Company’s annual goodwill impairment assessment.

 

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NOTE 8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company is exposed to global market risks, including risks from changes in FX rates and changes in interest rates. Accordingly, the Company uses derivatives in certain instances to manage the aforementioned financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for speculative purposes.

Derivatives and non-derivative instruments designated as accounting hedges:

Interest Rate Swaps

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) income, net in the Company’s consolidated statement 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
September 30,
2017
     As of
December 31,
2016
    

2010 Senior Notes due 2020

   Pay Floating/Receive Fixed    $ 500.0      $ 500.0        3-month LIBOR  

2014 Senior Notes due 2019

   Pay Floating/Receive Fixed    $ 450.0      $ 450.0        3-month LIBOR  

2012 Senior Notes due 2022

   Pay Floating/Receive Fixed    $ 80.0      $ 80.0        3-month LIBOR  

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 recognized in the
consolidated statements of  operations
 
          Three Months Ended      Nine months ended  
          September 30,      September 30,  

Derivatives designated as fair value

accounting hedges

  

Location on Statement of Operations

   2017      2016      2017      2016  

Interest rate swaps

   Interest expense, net    $ 1.6      $ 2.7      $ 5.8      $ 8.8  

 

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Cross-currency swaps

In conjunction with the issuance of the 2015 Senior Notes, the Company entered into a cross-currency swap to exchange €100 million for U.S. dollars on the date of the settlement of the notes. The purpose of this cross-currency swap is to mitigate FX risk on the remaining principal balance on the 2015 Senior Notes that was not designated as a net investment hedge as more fully discussed below. Under the terms of the swap, the Company will pay the counterparty interest on the $110.5 million received at 3.945% per annum and the counterparty will pay the Company interest on the €100 million paid at 1.75% per annum. These interest payments will be settled in March of each year, beginning in 2016, until either the maturity of the cross-currency swap in 2027 or upon early termination at the discretion of the Company. The principal payments on this cross currency swap will be settled in 2027, concurrent with the repayment of the 2015 Senior Notes at maturity or upon early termination at the discretion of the Company. In March 2016, the Company designated these cross-currency swaps as cash flow hedges. Accordingly, changes in fair value subsequent to the date the swaps were designated as cash flow hedges will initially be recognized in OCI. Gains and losses on the swaps initially recognized in OCI will be reclassified to the statement of operations in the period in which changes in the underlying hedged item affects net income. Ineffectiveness, if any, will be recognized in other non-operating (expense) income, net in the Company’s consolidated statement of operations.

Forward start interest rate swaps

In the second quarter of 2017, in conjunction with the then-forecasted issuance of the Company’s 2017 Private Placement Notes Due 2023 and 2017 Private Placement Notes Due 2028, the Company entered into forward starting interest rate swaps to mitigate the risk of changes in the semi-annual interest payments attributable to changes in market interest rates during the period leading up to the forecasted debt issuance. The swaps were terminated on June 5, 2017 following the issuance of the aforementioned notes and the losses recorded to OCI upon settlement were not material.

Net investment hedges

The Company entered into foreign currency forward contracts that are designated as net investment hedges and additionally has designated €400 million of the 2015 Senior Notes Due 2027 as a net investment hedge. These hedges are intended to mitigate FX exposure related to non-U.S. dollar net investments in certain foreign subsidiaries against changes in foreign exchange rates. These net investment hedges are designated as accounting hedges under the applicable sections of Topic 815 of the ASC. This net investment hedge will end upon the repayment of the notes in 2027 unless terminated earlier at the discretion of the Company.

Hedge effectiveness is assessed based on the overall changes in the fair value of the hedge. For hedges that meet the effectiveness requirements, any change in the fair value is recorded in OCI in the foreign currency translation account. Any change in the fair value of these hedges that is the result of ineffectiveness is recognized immediately in other non-operating (expense) income, net in the Company’s consolidated statement of operations.

 

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The following table summarizes the notional amounts of the Company’s outstanding forward contracts that were designated as net investment hedges:

 

     September 30,      December 31,  
     2017      2016  
     Sell      Buy      Sell      Buy  

Notional amount of net investment hedges:

           

Contracts to sell GBP for euros

   £   —          —        £ 22.1      26.4  

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

 

Derivatives and non-derivative

instruments in

Net Investment Hedging Relationships

   Amount of
Gain/(Loss) Recognized
in AOCI on Derivative
(Effective Portion)
     Amount of Gain/(Loss)
Reclassified from AOCI into

Income (Effective Portion)
     Amount of
Gain/(Loss)
Recognized Directly
into Income

(Ineffective Portion),
net of Tax
 
     Three Months Ended      Three Months Ended      Three Months Ended  
     September 30,      September 30,      September 30,  
     2017      2016      2017      2016      2017     2016  

FX forwards

   $ 0.4      $ (0.2    $ —        $ —        $ —       $ —    

Long-term debt

     (10.3      (3.2      —          —          —         —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total net investment hedges

   $ (9.9    $ (3.4    $ —        $ —        $ —       $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Derivatives in cash flow hedging

relationships

                                        

Cross currency swap

   $ 3.2      $ 3.2      $ 2.6    $ 0.9    $ —       $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total cash flow hedges

   $ 3.2      $ 3.2      $ 2.6      $ 0.9      $ —       $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ (6.7    $ (0.2    $ 2.6      $ 0.9      $ —       $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Derivatives and non-derivative

instruments in

Net Investment Hedging Relationships

   Amount of
Gain/(Loss) Recognized
in AOCI on Derivative
(Effective Portion)
     Amount of Gain/(Loss)
Reclassified from AOCI into
Income (Effective Portion)
     Amount of
Gain/(Loss)
Recognized Directly
into Income

(Ineffective Portion),
net of Tax
 
     Nine months ended      Nine months ended      Nine months ended  
     September 30,      September 30,      September 30,  
     2017      2016      2017      2016      2017     2016  

FX forwards

   $ 1.2      $ (13.4    $ —        $ —        $ —       $ —    

Long-term debt

     (31.4      (9.2      —          —          —         —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total net investment hedges

   $ (30.2    $ (22.6    $ —        $ —        $ —       $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Derivatives in cash flow hedging

relationships

                                        

Cross currency swap

   $ 6.6      $ 1.5      $ 7.9    $ 0.6    $ 0.4 **    $ —    

Interest rate contracts

     (0.4      —          (1.1      —          —         —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total cash flow hedges

   $ 6.2      $ 1.5      $ 6.8      $ 0.6      $ 0.4     $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ (24.0    $ (21.1    $ 6.8      $ 0.6      $ 0.4     $ —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

* For the three and nine months ended September 30, 2017, reflects $4.2 million and $12.8 million in gains, respectively, recorded in other non-operating income (expense), net and $1.6 million and $4.9 million relating to the tax effect of the aforementioned item. For the three and nine months ended September 30, 2016, reflects $1.3 million and $0.9 million in losses, respectively, recorded in other non-operating income (expense), net and $0.4 million and $0.3 million relating to the tax effect of the aforementioned item.
** For the nine months ended September 30, 2017, reflects $0.7 million in gains recorded in other non-operating income (expense), net and $0.3 million relating to the tax effect of the aforementioned item.

 

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

 

     Cumulative Gains/(Losses), net of tax  
     September 30,
2017
     December 31,
2016
 

Net investment hedges

     

FX forwards

   $ 23.5      $ 22.3  

Long-term debt

     (18.9      12.5  
  

 

 

    

 

 

 

Total net gains on net investment hedges

   $ 4.6      $ 34.8  
  

 

 

    

 

 

 

Cash flow hedges

     

Interest rate contracts

   $ (0.4    $ (1.1

Cross currency swap

     1.5        2.8  
  

 

 

    

 

 

 

Total net gains on cash flow hedges

     1.1        1.7  
  

 

 

    

 

 

 

Total net gains in AOCI

   $ 5.7      $ 36.5  
  

 

 

    

 

 

 

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 February 2018.

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

 

     September 30,      December 31,  
     2017      2016  
     Sell      Buy      Sell      Buy  

Notional amount of currency pair:

           

Contracts to sell USD for GBP

   $ 471.0      £ 356.1      $ —        £ —    

Contracts to sell USD for JPY

   $ 24.3      ¥ 2,700.0      $ —        $ —    

Contracts to sell USD for CAD

   $ 51.9      C$ 64.0      $ —        C$ —    

Contracts to purchase euros with Singapore dollars

   S$  —        —        S$ 55.5      36.0  

Contracts to sell euros for GBP

   —        £ —        31.0      £ 25.9  

Contracts to sell USD for Singapore dollars

   $ 38.9      S$ 53.0      $ —        S$ —    

Contracts to sell euros for USD

   6.0      $ 7.2      —        $ —    

Contracts to sell USD for EUR

   $ 54.3      45.0      $ —        —    

 

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Table of Contents

Foreign exchange options and forward contracts relating to the acquisition of Bureau van Dijk

The Company entered into a foreign currency collar consisting of option contracts to economically hedge the Bureau van Dijk euro denominated purchase price (as discussed further in Note 7). These option contracts are not designated as accounting hedges under the applicable sections of Topic 815 of the ASC. The foreign currency option contracts consisted of separate put and call options each in the aggregate notional amount of €2.7 billion. This collar was settled at the end of July 2017, in advance of the August 10, 2017 closing of the Bureau van Dijk acquisition in connection with the Company’s funding mechanics to fund the euro denominated purchase price.

The Company entered into foreign exchange forwards to hedge the Bureau van Dijk purchase price for the period from the settlement of the aforementioned foreign currency collar until the closing date on August 10, 2017. These forward contracts were not designated as accounting hedges under the applicable sections of Topic 815 of the ASC. The foreign exchange forwards consisted of contracts to sell $2.8 billion and buy €2.4 billion as well as contracts to sell $41 million and buy £31 million.

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
September 30,
     Nine months ended
September 30,
 

Derivatives not designated as accounting hedges

   Location on Statement of Operations   2017      2016      2017      2016  

Foreign exchange forwards

   Other non-operating income
(expense), net
  $ 9.2      $ (0.7    $ 14.0      $ (5.9

Foreign exchange forwards relating to Bureau van Dijk acquisition

   Purchase Price Hedge Gain     10.3        —          10.3        —    

FX collar relating to Bureau van Dijk acquisition

   Purchase Price Hedge Gain     59.6        —          100.8        —    
    

 

 

    

 

 

    

 

 

    

 

 

 
     $ 79.1      $ (0.7    $ 125.1      $ (5.9
    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

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,
2017
     December 31,
2016
 

Assets:

        

Derivatives designated as accounting hedges:

        

FX forwards on net investment in certain foreign subsidiaries

     Other current assets      $ —        $ 0.6  

Cross-currency swap

     Other assets        7.3        —    

Interest rate swaps

     Other assets        5.0        7.0  
     

 

 

    

 

 

 

Total derivatives designated as accounting hedges

      $ 12.3      $ 7.6  
     

 

 

    

 

 

 

Derivatives not designated as accounting hedges:

        

FX forwards on certain assets and liabilities

     Other current assets        10.6        —    
     

 

 

    

 

 

 

Total assets

      $ 22.9      $ 7.6  
     

 

 

    

 

 

 

Liabilities:

        

Derivatives designated as accounting hedges:

        

Cross-currency swap

     Other liabilities      $ —        $ 3.8  

Interest rate swaps

     Other liabilities        1.0        0.8  
     

 

 

    

 

 

 

Total derivatives designated as accounting hedges

        1.0        4.6  
     

 

 

    

 

 

 

Non-derivative instrument designated as accounting hedge:

        

Long-term debt designated as net investment hedge

     Long-term debt        472.9        421.9  

Derivatives not designated as accounting hedges:

        

FX forwards on certain assets and liabilities

    

Accounts payable
and accrued
liabilities
 
 
 
     4.1        0.8  
     

 

 

    

 

 

 

Total liabilities

      $ 478.0      $ 427.3  
     

 

 

    

 

 

 

 

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NOTE 9. GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS

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

 

     Nine months ended September 30, 2017  
     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

   $ 277.0     $ —        $ 277.0     $ 758.8     $ (12.2   $ 746.6     $ 1,035.8     $ (12.2   $ 1,023.6  

Additions/adjustments

     —         —          —         2,639.7       —         2,639.7       2,639.7       —         2,639.7  

Foreign currency translation adjustments

     10.5       —          10.5       48.3       —         48.3       58.8       —         58.8  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 287.5     $ —        $ 287.5     $ 3,446.8     $ (12.2   $ 3,434.6     $ 3,734.3     $ (12.2   $ 3,722.1  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     Year ended December 31, 2016  
     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

   $ 284.4     $ —        $ 284.4     $ 704.1     $ (12.2   $ 691.9     $ 988.5     $ (12.2   $ 976.3  

Additions/adjustments

     —         —          —         61.0       —         61.0       61.0       —         61.0  

Goodwill derecognized upon sale of subsidiary

     (3.2     —          (3.2     —         —         —         (3.2     —         (3.2

Foreign currency translation adjustments

     (4.2     —          (4.2     (6.3     —         (6.3     (10.5     —         (10.5
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 277.0     $ —        $ 277.0     $ 758.8     $ (12.2   $ 746.6     $ 1,035.8     $ (12.2   $ 1,023.6  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The 2017 additions/adjustments for the MA segment in the table above relate to the acquisition of Bureau van Dijk and the structured finance data and analytics business of SCDM. The 2016 additions/adjustments for the MA segment in the table above relate to the acquisition of GGY. The 2016 goodwill derecognized for the MIS segment in the table above relates to the divestiture of ICTEAS in the fourth quarter of 2016.

 

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Acquired intangible assets and related amortization consisted of:

 

     September 30,      December 31,  
     2017      2016  

Customer relationships

   $ 1,325.4      $ 310.1  

Accumulated amortization

     (144.4      (124.4
  

 

 

    

 

 

 

Net customer relationships

     1,181.0        185.7  
  

 

 

    

 

 

 

Trade secrets

     30.2        29.9  

Accumulated amortization

     (27.6      (25.6
  

 

 

    

 

 

 

Net trade secrets

     2.6        4.3  
  

 

 

    

 

 

 

Software/Product Technology

     354.1        87.7  

Accumulated amortization

     (70.6      (54.9
  

 

 

    

 

 

 

Net software

     283.5        32.8  
  

 

 

    

 

 

 

Trade names

     160.7        75.3  

Accumulated amortization

     (24.4      (19.9
  

 

 

    

 

 

 

Net trade names

     136.3        55.4  
  

 

 

    

 

 

 

Other (1)

     57.6        43.5  

Accumulated amortization

     (27.9      (25.3
  

 

 

    

 

 

 

Net other

     29.7        18.2  
  

 

 

    

 

 

 

Total acquired intangible assets, net

   $ 1,633.1      $ 296.4  
  

 

 

    

 

 

 

 

(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      Nine months ended  
     September 30,      September 30,  
     2017      2016      2017      2016  

Amortization expense

   $ 18.8      $ 8.9      $ 35.9      $ 25.5  

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

 

Year Ending December 31,

      

2017 (after September 30)

   $ 25.4  

2018

     99.8  

2019

     95.8  

2020

     93.5  

2021

     93.3  

Thereafter

     1,225.3  
  

 

 

 

Total estimated future amortization

   $ 1,633.1  
  

 

 

 

 

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Amortizable intangible assets are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the estimated undiscounted future cash flows are lower than the carrying amount of the related asset, a loss is recognized for the difference between the carrying amount and the estimated fair value of the asset. There were no impairments to intangible assets during the nine months ended September 30, 2017 and 2016.

NOTE 10. FAIR VALUE

The table below presents information about items that are carried at fair value at September 30, 2017 and December 31, 2016:

 

          Fair Value Measurement as of September 30, 2017  
     

Description

   Balance      Level 1      Level 2  

Assets:

           
  

Derivatives (a)

   $ 22.9      $ —        $ 22.9  
  

Money market mutual funds

     18.5        18.5        —    
  

Fixed maturity and open ended mutual funds (b)

     27.0        27.0        —    
     

 

 

    

 

 

    

 

 

 
  

Total

   $ 68.4      $ 45.5      $ 22.9  
     

 

 

    

 

 

    

 

 

 

Liabilities:

           
  

Derivatives (a)

   $ 5.1      $ —        $ 5.1  
     

 

 

    

 

 

    

 

 

 
  

Total

   $ 5.1      $ —        $ 5.1  
     

 

 

    

 

 

    

 

 

 
          Fair Value Measurement as of December 31, 2016  
     

Description

   Balance      Level 1      Level 2  

Assets:

           
  

Derivatives (a)

   $ 7.6      $ —        $ 7.6  
  

Money market mutual funds

     189.0        189.0        —    
  

Fixed maturity and open ended mutual funds (b)

     32.6        32.6        —    
     

 

 

    

 

 

    

 

 

 
  

Total

   $ 229.2      $ 221.6      $ 7.6  
     

 

 

    

 

 

    

 

 

 

Liabilities:

           
  

Derivatives (a)

   $ 5.4      $ —        $ 5.4  
     

 

 

    

 

 

    

 

 

 
  

Total

   $ 5.4      $ —        $ 5.4  
     

 

 

    

 

 

    

 

 

 

 

(a)

Represents FX forwards on certain assets and liabilities and on net investments in certain foreign subsidiaries as well as FX options, interest rate swaps and cross-currency swaps as more fully described in Note 8 to the condensed consolidated financial statements.

(b)

Consists of investments in fixed maturity mutual funds and open-ended mutual funds.

The money market mutual funds as well as the fixed maturity and open ended mutual funds in the table above are deemed to be ‘available for sale’ under ASC Topic 320 and the fair value of these instruments is determined using Level 1 inputs as defined in the ASC.

 

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NOTE 11. OTHER BALANCE SHEET AND STATEMENT OF OPERATIONS INFORMATION

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

 

     September 30,      December 31,  
     2017      2016  

Other current assets:

     

Prepaid taxes

   $ 74.9      $ 47.0  

Prepaid expenses

     89.9        65.7  

Other

     35.7        28.1  
  

 

 

    

 

 

 

Total other current assets

   $ 200.5      $ 140.8  
  

 

 

    

 

 

 
     September 30,      December 31,  
     2017      2016  

Other assets:

     

Investments in joint ventures

   $ 83.4      $ 26.3  

Deposits for real-estate leases

     12.3        10.8  

Indemnification assets related to acquisitions

     16.8        16.5  

Mutual funds and fixed deposits

     27.0        32.7  

Other

     29.0        25.9  
  

 

 

    

 

 

 

Total other assets

   $ 168.5      $ 112.2  
  

 

 

    

 

 

 
     September 30,      December 31,  
     2017      2016  

Accounts payable and accrued liabilities:

     

Salaries and benefits

   $ 93.2      $ 89.3  

Incentive compensation

     180.0        151.1  

Accrued settlement charge

     —          863.8  

Customer credits, advanced payments and advanced billings

     23.6        28.4  

Self-insurance reserves

     9.8        11.1  

Dividends

     5.3        78.5  

Professional service fees

     45.6        40.4  

Interest accrued on debt

     37.5        59.2  

Accounts payable

     29.2        28.4  

Income taxes

     49.8        16.8  

Restructuring

     0.6        6.3  

Pension and other retirement employee benefits

     7.7        6.1  

Accrued royalties (1)

     17.3        1.8  

Other

     77.9        63.1  
  

 

 

    

 

 

 

Total accounts payable and accrued liabilities

   $ 577.5      $ 1,444.3  
  

 

 

    

 

 

 
     September 30,      December 31,  
     2017      2016  

Other liabilities:

     

Pension and other retirement employee benefits

   $ 268.3      $ 264.1  

Deferred rent-non-current portion

     104.6        98.3  

Interest accrued on UTPs

     48.9        34.1  

Legacy and other tax matters

     1.2        1.2  

Other

     24.3        27.5  
  

 

 

    

 

 

 

Total other liabilities

   $ 447.3      $ 425.2  
  

 

 

    

 

 

 

 

(1) 

Primarily relates to fees due to Bureau van Dijk’s data providers    

 

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Changes in the Company’s self-insurance reserves for claims insured by the Company’s wholly-owned insurance subsidiary, which primarily relate to legal defense costs for claims from prior years, are as follows:

 

     Nine months  ended
September 30, 2017
     Year Ended
December 31, 2016
 

Balance January 1,

   $ 11.1      $ 19.7  

Accruals (reversals), net

     4.2        12.1  

Payments

     (5.5      (20.7
  

 

 

    

 

 

 

Balance

   $ 9.8      $ 11.1  
  

 

 

    

 

 

 

Other Non-Operating Income (Expense):

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

 

     Three Months Ended      Nine months ended  
     September 30,      September 30,  
     2017      2016      2017      2016  

FX gain/(loss)

   $ (6.7    $ 4.3      $ (12.5    $ 9.1  

Legacy Tax benefit

     —          1.6        —          1.6  

Joint venture income

     2.7        2.3        7.7        7.2  

Other

     2.6        (1.3      2.3        (2.4
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ (1.4    $ 6.9      $ (2.5    $ 15.5  
  

 

 

    

 

 

    

 

 

    

 

 

 

Purchase Price Hedge Gain:

There was a $111.1 million realized gain reflecting gains on an FX collar and foreign exchange forwards to economically hedge the euro denominated purchase price for Bureau van Dijk as more fully discussed in Note 8 to the condensed consolidated financial statements.

CCXI Gain:

CCXI is a Chinese credit rating agency in which Moody’s acquired a 49% stake in 2006. Moody’s accounts for this investment under the equity method of accounting. On March 21, 2017, CCXI, as part of a strategic business realignment, issued additional capital to its majority shareholder in exchange for a ratings business wholly-owned by the majority shareholder and which has the right to rate a different class of debt instrument in the Chinese market. The capital issuance by CCXI in exchange for this ratings business diluted Moody’s ownership interest in CCXI to 30% of a larger business and resulted in a $59.7 million non-cash, non-taxable gain. The issuance of additional capital by CCXI is treated as if Moody’s sold a 19% interest in CCXI at fair value. The fair value of the 19% interest in CCXI that Moody’s hypothetically sold was estimated using both a discounted cash flow methodology and comparable public company multiples. A DCF analysis requires significant estimates, including projections of future operating results and cash flows based on the budgets and forecasts of CCXI, expected long-term growth rates, terminal values, WACC and the effects of external factors and market conditions. Moody’s will continue to account for its 30% interest in CCXI under the equity method of accounting.

 

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NOTE 12. COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME

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

 

     Three  Months
Ended September 30,
2017
     Nine  months
ended September 30,
2017
     Affected line in the consolidated
statement of operations
 
        

Gains on cash flow hedges

        

Cross-currency swap

     3.5        12.1       

Other non-operating

income (expense), net

 

 

Interest rate contract

     0.7        (0.4     
Interest expense,
net
 
 
  

 

 

    

 

 

    

Total before income taxes

     4.2        11.7     

Income tax effect of items above

     (1.6      (4.9     
Provision for
income taxes
 
 
  

 

 

    

 

 

    

Total net gains on cash flow hedges

     2.6        6.8     
  

 

 

    

 

 

    

Gains on available for sale securities:

        

Gains on available for sale securities

     1.1        1.1       

Other non-operating

income (expense), net

 

 

  

 

 

    

 

 

    

Total gains on available for sale securities

     1.1        1.1     
  

 

 

    

 

 

    

Pension and other retirement benefits

        

Amortization of actuarial losses and prior service costs included in net income

     (1.3      (4.0      Operating expense  

Amortization of actuarial losses and prior service costs included in net income

     (0.8      (2.4      SG&A expense  
  

 

 

    

 

 

    

Total before income taxes

     (2.1      (6.4   
  

 

 

    

 

 

    

Income tax effect of item above

     0.8        2.5       
Provision for
income taxes
 
 
  

 

 

    

 

 

    

Total pension and other retirement benefits

     (1.3      (3.9   
  

 

 

    

 

 

    

Total net gains included in Net Income attributable to reclassifications out of AOCI

   $ 2.4      $ 4.0     
  

 

 

    

 

 

    
     Three Months
Ended September 30,
2016
     Nine months
ended September 30,
2016
     Affected line in the consolidated
statement of operations
 

Gains on cash flow hedges

        

Cross-currency swap

     1.3        0.9       

Other non-operating
income (expense),
net
 
 
 

Income tax effect of item above

     (0.4      (0.3     
Provision for
income taxes
 
 
  

 

 

    

 

 

    

Total net losses on cash flow hedges

     0.9        0.6     
  

 

 

    

 

 

    

Pension and other retirement benefits

        

Amortization of actuarial losses and prior service costs included in net income

     (1.5      (4.6      Operating expense  

Amortization of actuarial losses and prior service costs included in net income

     (0.9      (2.7      SG&A expense  
  

 

 

    

 

 

    

Total before income taxes

     (2.4      (7.3   
  

 

 

    

 

 

    

Income tax effect of item above

     0.9        2.8       
Provision for
income taxes
 
 
  

 

 

    

 

 

    

Total pension and other retirement benefits

     (1.5      (4.5   
  

 

 

    

 

 

    

Total losses included in Net Income attributable to reclassifications out of AOCI

   $ (0.6    $ (3.9   
  

 

 

    

 

 

    

 

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

 

    Three Months Ended  
    September 30, 2017     September 30, 2016  
Gains/(Losses)   Pension
and Other
Retirement
Benefits
    Gains/
(Losses) on
Cash Flow
Hedges
    Foreign
Currency
Translation
Adjustments
    Gains on
Available

for Sale
Securities
    Total     Pension
and Other
Retirement
Benefits
    Gains/
(Losses) on
Cash Flow
Hedges
    Foreign
Currency
Translation
Adjustments
    Gains on
Available

for Sale
Securities
    Total  

Balance June 30,

  $ (72.0   $ 0.5     $ (241.8   $ 3.6     $ (309.7   $ (79.4   $ (2.5   $ (239.4   $ 4.5     $ (316.8

Other comprehensive income/(loss) before reclassifications

    —         3.2       50.8       0.3       54.3       —         3.2       9.2       (1.9     10.5  

Amounts reclassified from AOCI

    1.3       (2.6     —         (1.1     (2.4     1.5       (0.9     —         —         0.6  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income/(loss)

    1.3       0.6       50.8       (0.8     51.9       1.5       2.3       9.2       (1.9     11.1  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance September 30,

  $ (70.7   $ 1.1     $ (191.0   $ 2.8     $ (257.8   $ (77.9   $ (0.2   $ (230.2   $ 2.6     $ (305.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Nine months ended  
    September 30, 2017     September 30, 2016  
Gains/(Losses)   Pension
and Other
Retirement
Benefits
    Gains/
(Losses) on
Cash Flow
Hedges
    Foreign
Currency
Translation
Adjustments
    Gains on
Available
for Sale
Securities
    Total     Pension
and Other
Retirement
Benefits
    Gains/
(Losses) on
Cash Flow
Hedges
    Foreign
Currency
Translation
Adjustments
    Gains on
Available
for Sale
Securities
    Total  

Balance December 31,

  $ (79.5   $ 1.7     $ (290.2   $ 3.1     $ (364.9   $ (85.7   $ (1.1   $ (256.0   $ 3.3     $ (339.5

Other comprehensive income/(loss) before reclassifications

    4.9       6.2       99.2       0.8       111.1       3.3       1.5       25.8       (0.7     29.9  

Amounts reclassified from AOCI

    3.9       (6.8     —         (1.1     (4.0     4.5       (0.6     —         —         3.9  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income/(loss)

    8.8       (0.6     99.2       (0.3     107.1       7.8       0.9       25.8       (0.7     33.8  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance September 30,

  $ (70.7   $ 1.1     $ (191.0   $ 2.8     $ (257.8   $ (77.9   $ (0.2   $ (230.2   $ 2.6     $ (305.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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NOTE 13. 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”.

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 September 30,  
     Pension Plans      Other Retirement Plans  
     2017      2016      2017      2016  

Components of net periodic expense

           

Service cost

   $ 4.6      $ 5.0      $ 0.7      $ 0.6  

Interest cost

     4.7        4.5        0.2        0.3  

Expected return on plan assets

     (4.1      (4.3      —          —    

Amortization of net actuarial loss from earlier periods

     2.1        2.5        0.1        0.1  

Amortization of net prior service costs from earlier periods

     —          0.1        (0.1      (0.1
  

 

 

    

 

 

    

 

 

    

 

 

 

Net periodic expense

   $ 7.3      $ 7.8      $ 0.9      $ 0.9  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Nine months ended September 30,  
     Pension Plans      Other Retirement Plans  
     2017      2016      2017      2016  

Components of net periodic expense

           

Service cost

   $ 13.8      $ 15.1      $ 1.9      $ 1.7  

Interest cost

     13.9        13.6        0.8        0.8  

Expected return on plan assets

     (12.4      (12.8      —          —    

Amortization of net actuarial loss from earlier periods

     6.6        7.4        0.1        0.1  

Amortization of net prior service costs from earlier periods

     —          0.1        (0.2      (0.2
  

 

 

    

 

 

    

 

 

    

 

 

 

Net periodic expense

   $ 21.9      $ 23.4      $ 2.6      $ 2.4  
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company made a contribution of $10.4 million to its funded pension plan as well as payments of $3.5 million related to its unfunded U.S. DBPPs and $0.7 million to its U.S. other retirement plans during the nine months ended September 30, 2017. The Company anticipates making payments of $2.3 million and $0.3 million to its unfunded U.S. DBPPs and U.S. other retirement plans, respectively, during the remainder of 2017.

 

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NOTE 14. INDEBTEDNESS

The following table summarizes total indebtedness:

 

     September 30, 2017  
     Principal
Amount
     Fair Value of
Interest Rate
Swap (1)
    Unamortized
(Discount)
Premium
    Unamortized
Debt Issuance
Costs
    Carrying
Value
 

Notes Payable:

           

5.50% 2010 Senior Notes, due 2020

   $ 500.0      $ 4.1     $ (1.1   $ (1.3   $ 501.7  

4.50% 2012 Senior Notes, due 2022

     500.0        —         (2.1     (1.8     496.1  

4.875% 2013 Senior Notes, due 2024

     500.0        —         (1.9     (2.5     495.6  

2.75% 2014 Senior Notes (5-Year), due 2019

     450.0        (0.1     (0.3     (1.2     448.4  

5.25% 2014 Senior Notes (30-Year), due 2044

     600.0        —         3.3       (5.7     597.6  

1.75% 2015 Senior Notes, due 2027

     591.1        —         —         (3.5     587.6  

2.75% 2017 Senior Notes, due 2021

     500.0        —         (1.4     (3.4     495.2  

2017 Floating Rate Senior Notes, due 2018

     300.0        —         —         (0.7     299.3  

2.625% 2017 Private Placement Notes, due 2023

     500.0        —         (1.1     (3.7     495.2  

3.25% 2017 Private Placement Notes, due 2028

     500.0        —         (5.3     (4.0     490.7  

2017 Term Loan Facility, due 2020

     500.0        —         —         (0.8     499.2  

Commercial Paper

     315.0        —         (0.2     —         314.8  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total debt

   $ 5,756.1      $ 4.0     $ (10.1   $ (28.6   $ 5,721.4  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Current portion

              (614.1
           

 

 

 

Total long-term debt

              5,107.3  
           

 

 

 
     December 31, 2016  
     Principal
Amount
     Fair Value of
Interest Rate
Swap (1)
    Unamortized
(Discount)
Premium
    Unamortized
Debt Issuance
Costs
    Carrying
Value
 

Notes Payable:

           

6.06% Series 2007-1 Notes due 2017

   $ 300.0      $ —       $ —       $ —       $ 300.0  

5.50% 2010 Senior Notes, due 2020

     500.0        5.5       (1.3     (1.6     502.6  

4.50% 2012 Senior Notes, due 2022

     500.0        (0.2     (2.4     (2.1     495.3  

4.875% 2013 Senior Notes, due 2024

     500.0        —         (2.1     (2.7     495.2  

2.75% 2014 Senior Notes (5-Year), due 2019

     450.0        0.9       (0.4     (1.7     448.8  

5.25% 2014 Senior Notes (30-Year), due 2044

     600.0        —         3.3       (5.9     597.4  

1.75% 2015 Senior Notes, due 2027

     527.4        —         —         (3.7     523.7  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total debt

   $ 3,377.4      $ 6.2     $ (2.9   $ (17.7   $ 3,363.0  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Current portion

              (300.0
           

 

 

 

Total long-term debt

            $ 3,063.0  
           

 

 

 

 

(1) 

The Company has entered into interest rate swaps on the 2010 Senior Notes, 2012 Senior Notes and the 2014 Senior Notes (5-Year) which are more fully discussed in Note 8 above.

 

37


Table of Contents

Term Loan Facility

On June 6, 2017, the Company entered into a three-year term loan facility with the capacity to borrow up to $500.0 million. On August 8, 2017, the Company borrowed $500 million under the 2017 Term Loan for which the proceeds were used to fund the acquisition of Bureau van Dijk and to pay acquisition-related fees and expenses. At the Company’s election, interest on borrowings under the 2017 Term Loan is payable at rates that are based on either (a) Alternate Base Rate (as defined in the 2017 Term Loan Facility agreement) plus an applicable rate (ranging from 0 BPS to 50 BPS per annum) or (b) the Adjusted LIBO Rate (as defined in the 2017 Term Loan Facility agreement) plus an applicable rate (ranging from 87.5 BPS to 150 BPS per annum), in each case, depending on the Company’s index debt rating, as set forth in the 2017 Term Loan agreement.

The 2017 Term Loan contains covenants that, among other things, restrict the ability of the Company to engage in mergers, consolidations, asset sales, transactions with affiliates, sale and leaseback transactions or to incur liens, with exceptions as set forth in the 2017 Term Loan Facility agreement. The 2017 Term Loan also contains a financial covenant that requires the Company to maintain a debt to EBITDA ratio of not more than: (i) 4.5 to 1.0 as of the end of each fiscal quarter ending on September 30, 2017, December 31, 2017 and March 31, 2018 and (ii) 4.0 to 1.0 as of the end of the fiscal quarter ended on June 30, 2018. The 2017 Term Loan also contains customary events of default.

Credit Facility

On June 6, 2017, the Company entered into an amendment to the 2015 Facility. Pursuant to the amendment, the applicable rate for borrowings under the 2015 Facility will range from 0 BPS to 32.5 BPS per annum for Alternate Base Rate loans (as defined in the 2015 Facility agreement) and 79.5 BPS to 132.5 BPS per annum for Eurocurrency loans (as defined in the 2015 Facility agreement). In addition, the facility fee paid by the Company now ranges from 8 BPS to 17.5 BPS on the daily amount of commitments (whether used or unused), in each case, depending on the Company’s index debt rating. The amendment also modifies, among other things, the existing financial covenant, so that, the Company’s debt to EBITDA ratio shall not exceed 4.5 to 1.0 as of the end of each fiscal quarter ending on September 30, 2017, December 31, 2017 and March 31, 2018 and shall not exceed 4.0 to 1.0 as of the end of the fiscal quarter ended on June 30, 2018.

Commercial Paper

On August 3, 2016, the Company entered into a private placement commercial paper program under which the Company may issue CP notes up to a maximum amount of $1.0 billion. Borrowings under the CP Program are backstopped by the 2015 Facility. Amounts under the CP Program may be re-borrowed. The maturity of the CP Notes will vary, but may not exceed 397 days from the date of issue. The CP Notes are sold at a discount from par, or alternatively, sold at par and bear interest at rates that will vary based upon market conditions. The rates of interest will depend on whether the CP Notes will be a fixed or floating rate. The interest on a floating rate may be based on the following: (a) certificate of deposit rate; (b) commercial paper rate; (c) the federal funds rate; (d) the LIBOR; (e) prime rate; (f) Treasury rate; or (g) such other base rate as may be specified in a supplement to the private placement agreement. The CP Program contains certain events of default including, among other things: non-payment of principal, interest or fees; entrance into any form of moratorium; and bankruptcy and insolvency events, subject in certain instances to cure periods. As of September 30, 2017, the Company has CP borrowings outstanding of $315.0 million with a weighted average maturity date at the time of issuance of 56 days. At September 30, 2017, the weighted average remaining maturity and interest rate on CP outstanding was 17 days and 1.51% respectively.

 

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Table of Contents

Notes Payable

On March 2, 2017, the Company issued $300 million aggregate principal amount of senior unsecured floating rate notes in a public offering. The 2017 Floating Rate Senior Notes bear interest at a floating rate which is to be calculated by Wells Fargo Bank, National Association, equal to three-month LIBOR as determined on the interest determination date plus 0.35%. The interest determination date for an interest period will be the second London business day preceding the first day of such interest period. The 2017 Floating Rate Senior Notes will mature on September 4, 2018. Interest on the 2017 Floating Rate Senior Notes will accrue from March 2, 2017, and will be paid quarterly in arrears on June 4, 2017, September 4, 2017, December 4, 2017, March 4, 2018, June 4, 2018 and on the maturity date, to the record holders at the close of business on the business date preceding the interest payment date. The 2017 Floating Rate Senior Notes are not redeemable prior to their maturity.

On March 2, 2017, the Company issued $500 million aggregate principal amount of senior unsecured notes in a public offering. The 2017 Senior Notes bear interest at a fixed rate of 2.750% and mature on December 15, 2021. Interest on the 2017 Senior Notes is due semiannually on June 15 and December 15 of each year, commencing June 15, 2017. The Company may redeem the 2017 Senior Notes, in whole or in part, at any time at a price equity to 100% of the principal amount being redeemed, plus accrued and unpaid interest and a Make-Whole Amount.

On June 12, 2017, the Company issued and sold through a private placement transaction, $500 million aggregate principal amount of its 2017 Private Placement Notes Due 2023 and $500 million aggregate principal amount of its 2017 Private Placement Notes Due 2028. The 2017 Private Placement Notes Due 2023 bear interest at the fixed rate of 2.625% per year and mature on January 15, 2023. The 2017 Private Placement Notes Due 2028 bear interest at the fixed rate of 3.250% per year and mature on January 15, 2028. Interest on each tranche of notes will be due semiannually on January 15 and July 15 of each year, commencing January 15, 2018. The Company entered into a registration rights agreement, dated as of June 12, 2017, with the representatives of the initial purchasers of the notes, which sets forth, among other things, the Company’s obligations to register the notes under the Securities Act, within 365 days of issuance. The net proceeds of the note offering were used to finance, in part, the acquisition of Bureau van Dijk. In addition, the Company may redeem each of the notes in whole or in part, at any time at a price equity to 100% of the principal amount being redeemed, plus accrued interest and a Make-Whole Amount.

For all of the aforementioned notes, at the option of the holders of the notes, the Company may be required to purchase all or a portion of the notes upon occurrence of a “Change of Control Triggering Event,” as defined in the 2017 Indenture, at a price equal to 101% of the principal amount, thereof, plus accrued and unpaid interest to the date of purchase. The 2017 Indenture contains covenants that limit the ability of the Company and certain of its subsidiaries to, among other things, incur or create liens and enter into sale and leaseback transactions. In addition, the 2017 Indenture contains a covenant that limits the ability of the Company to consolidate or merge with another entity or to sell all or substantially all of its assets to another entity. The 2017 Indenture also contains customary default provisions. In addition, an event of default will occur if the Company or certain of its subsidiaries fail to pay the principal of any indebtedness (as defined in the 2017 Indenture) when due at maturity in an aggregate amount of $50 million or more, or a default occurs that results in the acceleration of the maturity of the Company’s or certain of its subsidiaries’ indebtedness in an aggregate amount of $50 million or more. Upon the occurrence and during the continuation of an event of default under the 2017 Indenture, all the aforementioned notes may become immediately due and payable either automatically or by the vote of the holders of more than 25% of the aggregate principal amount of all of the notes of the applicable series then outstanding.

In the first quarter of 2017, the Company repaid the Series 2007-1 Notes along with a Make-Whole Amount of approximately $7 million.

 

39


Table of Contents

2017 Bridge Credit Facility

On May 15, 2017, the Company entered into a 364-Day Bridge Credit Agreement providing for a $1.5 billion bridge facility. On June 12, 2017, the commitments under this facility were terminated upon the issuance of the 2017 Private Placement Notes Due 2023, the 2017 Private Placement Notes Due 2028 and the 2017 Term Loan Facility.

At September 30, 2017, 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, 2017, there were no such cross defaults.

The repayment schedule for the Company’s borrowings is as follows:

 

Year Ended December 31,

   2010
Senior
Notes
due
2020
     2012
Senior
Notes
due
2022
     2013
Senior
Notes
due
2024
     2014
Senior
Notes
(5-Year)
due
2019
     2014
Senior
Notes
(30-Year)
due

2044
     2015
Senior
Notes
(1) due
2027
     2017
Floating
Rate
Senior
Notes
due
2018
     Term
Loan
Facility
due
2020
     2017
Senior
Notes
due
2021
     2017
Private
Placement
Notes

due
2023
     2017
Private
Placement
Notes

due
2028
     Commercial
Paper
     Total  

2017 (after September 30,)

   $ —        $ —        $ —        $ —        $ —        $ —        $ —        $ —        $ —        $ —        $ —        $ 315.0      $ 315.0  

2018

     —          —          —          —          —          —          300.0        —          —          —          —          —          300.0  

2019

     —          —          —          450.0        —          —          —          —          —          —          —          —          450.0  

2020

     500.0        —          —          —          —          —          —          500.0        —          —          —          —          1,000.0  

2021

     —          —          —          —          —