|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||
GLOSSARY OF TERMS AND ABBREVIATIONS
The following terms, abbreviations and acronyms are used to identify frequently used terms in this report:
|
TERM |
DEFINITION | |
| ACNielsen | ACNielsen Corporation – a former affiliate of Old D&B | |
| Analytics | Moody's Analytics – a reportable segment of MCO formed in January 2008 which includes the non-rating commercial activities of MCO | |
| AOCI | Accumulated other comprehensive income (loss); a separate component of shareholders' equity (deficit) | |
| ASC |
The FASB Accounting Standards Codification; the sole source of authoritative GAAP as of July 1, 2009 except for rules and interpretive releases of the SEC, which are also sources of authoritative GAAP for SEC registrants | |
| ASU | The FASB Accounting Standards Updates 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 | |
| B&H | Barrie & Hibbert Limited, an acquisition completed in December 2011; part of the MA segment, a leading provider of risk management modeling tools for insurance companies worldwide | |
| Basel II | Capital adequacy framework published in June 2004 by the Basel Committee on Banking Supervision | |
| Board | The board of directors of the Company | |
| Bps | Basis points | |
| Canary Wharf Lease | Operating lease agreement entered into on February 6, 2008 for office space in London, England, occupied by the Company in the second half of 2009 | |
| CFG | Corporate finance group; an LOB of MIS | |
| CMBS | Commercial mortgage-backed securities; part of CREF | |
| Cognizant | Cognizant Corporation – a former affiliate of Old D&B, which comprised the IMS Health and NMR businesses | |
| 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 outsourced research and analytical services to institutional investors. | |
| Corporate Family Ratings | Rating opinion of a corporate family's ability to honor all of its financial obligations which is assigned to the corporate family as if it had a single class of debt and a single consolidated legal entity structure. This rating is often issued in connection with ratings of leveraged finance transactions | |
| COSO | Committee of Sponsoring Organizations of the Treadway Commission | |
| Council | Council of European Finance Ministers | |
| CP | Commercial paper | |
| CP Notes | Unsecured CP notes | |
| CP Program | The Company's CP program entered into on October 3, 2007 | |
| CRAs | Credit rating agencies | |
| CREF | Commercial real estate finance which includes REITs, commercial real estate collateralized debt obligations and CMBS; part of SFG | |
| CSI | CSI Global Education, Inc., an acquisition completed in November 2010; part of the MA segment; a provider of financial learning, credentials, and certification in Canada | |
| D&B Business | Old D&B's Dun & Bradstreet operating company | |
| DBPPs | Defined benefit pension plans | |
| DCF | Discounted cash flow; a fair value calculation methodology whereby future projected cash flows are discounted back to their present value using a discount rate | |
| Debt/EBITDA | Ratio of Total Debt to EBITDA | |
| Directors' Plan | The 1998 Moody's Corporation Non-Employee Directors' Stock Incentive Plan | |
| Distribution Date | September 30, 2000; the date which Old D&B separated into two publicly traded companies – Moody's Corporation and New D&B | |
| ECAIs | External Credit Assessment Institutions | |
| ECB | European Central Bank | |
| EMEA | Represents countries within Europe, the Middle East and Africa | |
| EPS | Earnings per share | |
| ESPP | The 1999 Moody's Corporation Employee Stock Purchase Plan | |
| ETR | Effective tax rate | |
| EU | European Union | |
| EUR | Euros | |
| Excess Tax Benefit | 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 that the option or restricted share is expensed under GAAP | |
| Exchange Act | The Securities Exchange Act of 1934, as amended | |
| FASB | Financial Accounting Standards Board | |
| FIG | Financial institutions group; an LOB of MIS | |
| Fitch | Fitch Ratings, a part of the Fitch Group | |
| Financial Reform Act | Dodd-Frank Wall Street Reform and Consumer Protection Act | |
| FX | Foreign exchange | |
| GAAP | U.S. Generally Accepted Accounting Principles | |
| GBP | British pounds | |
| G-8 | The finance ministers and central bank governors of the group of eight countries consisting of Canada, France, Germany, Italy, Japan, Russia, U.S. and U.K. | |
| G-20 | The G-20 is an informal forum that promotes open and constructive discussion between industrial and emerging-market countries on key issues related to global economic stability. By contributing to the strengthening of the international financial architecture and providing opportunities for dialogue on national policies, international co-operation, and international financial institutions, the G-20 helps to support growth and development across the globe. The G-20 is comprised of: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, U.K., U.S. and the EU, which is represented by the rotating Council presidency and the ECB | |
| IMS Health | A spin-off of Cognizant, which provides services to the pharmaceutical and healthcare industries | |
| Indenture | Indenture and supplemental indenture dated August 19, 2010, relating to the 2010 Senior Notes | |
| Indicative Ratings | These are ratings which are provided as of a point in time, and not published or monitored. They are primarily provided to potential or current issuers to indicate what a rating may be based on business fundamentals and financial conditions as well as based on proposed financings | |
| Intellectual Property | The Company's intellectual property, including but not limited to proprietary information, trademarks, research, software tools and applications, models and methodologies, databases, domain names, and other proprietary materials | |
| IOSCO | International Organization of Securities Commissions | |
| IOSCO Code | Code of Conduct Fundamentals for CRAs issued by IOSCO | |
| IRS | Internal Revenue Service | |
| Korea | Republic of South Korea | |
| LIBOR | London Interbank Offered Rate | |
| LOB | Line of Business | |
| MA | Moody's Analytics – a reportable segment of MCO formed in January 2008 which includes the non-rating commercial activities of MCO | |
| Make Whole Amount | The prepayment penalty relating to the Series 2005-1 Notes and Series 2007-1 Notes; a premium based on the excess, if any, of the discounted value of the remaining scheduled payments over the prepaid principal | |
| 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 | |
| MIS Code | Moody's Investors Service Code of Professional Conduct | |
| Moody's | Moody's Corporation and its subsidiaries; MCO; the Company | |
| Net Income | Earnings attributable to Moody's Corporation, which excludes the portion of net income from consolidated entities attributable to non-controlling shareholders | |
| New D&B | The New D&B Corporation – which comprises the D&B business after September 30, 2000 | |
| NM | Not-meaningful percentage change (over 400%) | |
| NMR | Nielsen Media Research, Inc.; a spin-off of Cognizant; a leading source of television audience measurement services | |
| NRSRO | Nationally Recognized Statistical Rating Organization | |
| Old D&B | The former Dun and Bradstreet Company which distributed New D&B shares on September 30, 2000, and was renamed Moody's Corporation | |
| Post-Retirement Plans | Moody's funded and unfunded U.S. pension plans, the U.S. post-retirement healthcare plans and the U.S. post-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 | |
| PPP | Profit Participation Plan | |
| RD&A | Research, Data and Analytics; an LOB within MA that distributes investor-oriented research and data, including in-depth research on major debt issuers, industry studies, commentary on topical credit events, economic research and analytical tools such as quantitative risk scores | |
| Redeemable Noncontrolling Interest |
Represents minority shareholders' interest in entities which are controlled but not wholly-owned by Moody's and for which Moody's obligation to redeem the minority shareholders' interest is in the control of the minority shareholders | |
| Reform Act | Credit Rating Agency Reform Act of 2006 | |
| REITs | Real estate investment trusts | |
| Reorganization | The Company's business reorganization announced in August 2007 which resulted in two new reportable segments (MIS and MA) beginning in January 2008 | |
| RMBS | Residential mortgage-backed securities; part of SFG | |
| RMS | The Risk Management Software LOB within MA which provides both economic and regulatory capital risk management software and implementation services | |
| S&P | Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. | |
| SEC | Securities and Exchange Commission | |
| Series 2005-1 Notes | Principal amount of $300 million, 4.98% senior unsecured notes due in September 2015 pursuant to the 2005 Agreement | |
| SFG | Structured finance group; an LOB of MIS | |
| SG&A | Selling, general and administrative expenses | |
| Stock Plans | The Old D&B's 1998 Key Employees' Stock Incentive Plan and the Restated 2001 Moody's Corporation Key Employees' Stock Incentive Plan | |
| T&E | Travel and entertainment expenses | |
| TPE | Third party evidence, as defined in the ASC, used to determine selling price based on a vendor's or any competitor's largely interchangeable products or services in standalone sales transactions to similarly situated customers | |
| Total Debt | Current and long-term portion of debt as reflected on the consolidated balance sheets, excluding current accounts payable and accrued liabilities incurred in the ordinary course of business | |
| U.S. | United States | |
| USD | U.S. dollar | |
| UTBs | Unrecognized tax benefits | |
| UTPs | Uncertain tax positions | |
| VSOE | Vendor specific objective evidence; evidence, as defined in the ASC, 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 | |
| WACC | Weighted average cost of capital | |
| 1998 Plan | Old D&B's 1998 Key Employees' Stock Incentive Plan | |
| 2000 Distribution | The distribution by Old D&B to its shareholders of all of the outstanding shares of New D&B common stock on September 30, 2000 | |
|
2000 Distribution Agreement |
Agreement governing certain ongoing relationships between the Company and New D&B after the 2000 Distribution including the sharing of any liabilities for the payment of taxes, penalties and interest resulting from unfavorable IRS determinations on certain tax matters and certain other potential tax liabilities | |
| 2001 Plan | The Amended and Restated 2001 Moody's Corporation Key Employees' Stock Incentive Plan | |
| 2005 Agreement | Note purchase agreement dated September 30, 2005 relating to the Series 2005-1 Notes | |
| 2007 Agreement | Note purchase agreement dated September 7, 2007 relating to the Series 2007-1 Notes | |
| 2007 Facility | Revolving credit facility of $1 billion entered into on September 28, 2007, expiring in 2012 | |
| 2007 Restructuring Plan | The Company's 2007 restructuring plan approved December 31, 2007 | |
| 2008 Term Loan | Five-year $150.0 million senior unsecured term loan entered into by the Company on May 7, 2008 | |
| 2009 Restructuring Plan | The Company's 2009 restructuring plan approved March 27, 2009 | |
| 2010 Senior Notes | Principal amount of $500.0 million, 5.50% senior unsecured notes due in September 2010 pursuant to the Indenture | |
| 7WTC | The Company's corporate headquarters located at 7 World Trade Center | |
| 7WTC Lease | Operating lease agreement entered into on October 20, 2006 | |
|
|||
| NOTE 1 | DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION |
Moody's is a provider of (i) credit ratings, (ii) credit and economic related research, data and analytical tools, (iii) risk management software, (iv) quantitative credit risk measures, credit portfolio management solutions, training and financial credentialing and certification services and (v) outsourced research and analytical services to institutional customers. Moody's operates in two reportable segments: MIS and MA.
MIS, the credit rating agency, publishes credit ratings on a wide range of debt obligations and the entities that issue such obligations in markets worldwide. Revenue is derived from the originators and issuers of such transactions who use MIS ratings in the distribution of their debt issues to investors.
The MA segment, which includes all of the Company's non-rating commercial activities, develops a wide range of products and services that support the risk management activities of institutional participants in global financial markets. Within its RD&A business, MA distributes investor-oriented 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 and provides economic research and credit data and analytical tools such as quantitative credit risk scores. Within its RMS business, MA provides both economic and regulatory capital risk management software solutions. Within its professional services business it provides quantitative credit risk measures, credit portfolio management solutions, training, financial credentialing and certification services as well as outsourced research and analytical services to institutional investors.
The Company operated as part of Old D&B until September 30, 2000, when Old D&B separated into two publicly traded companies – Moody's Corporation and New D&B. At that time, Old D&B distributed to its shareholders shares of New D&B stock. New D&B comprised the business of Old D&B's Dun & Bradstreet operating company. The remaining business of Old D&B consisted solely of the business of providing ratings and related research and credit risk management services and was renamed Moody's Corporation. For purposes of governing certain ongoing relationships between the Company and New D&B after the 2000 Distribution and to provide for an orderly transition, the Company and New D&B entered into various agreements including a distribution agreement, tax allocation agreement and employee benefits agreement.
|
|||
| NOTE 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Consolidation
The consolidated financial statements include those of Moody's Corporation and its majority- and wholly-owned subsidiaries. The effects of all intercompany transactions have been eliminated. Investments in companies for which the Company has significant influence over operating and financial policies but not a controlling interest are accounted for on an equity basis.
The Company applies the guidelines set forth in Topic 810 of the ASC in assessing its interests in variable interest entities to decide whether to consolidate that entity. The Company has reviewed the potential variable interest entities and determined that there are no consolidation requirements under Topic 810 of the ASC.
Cash and Cash Equivalents
Cash equivalents principally consist of investments in money market mutual funds and high-grade commercial paper with maturities of three months or less when purchased.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives. Expenditures for maintenance and repairs that do not extend the economic useful life of the related assets are charged to expense as incurred.
Research and Development Costs
All research and development costs are expensed as incurred. These costs primarily reflect the development of credit processing software and quantitative credit risk assessment products sold by the MA segment. These costs also reflect expenses for new quantitative research and business ideas that potentially warrant near-term investment within MIS or MA which could potentially result in commercial opportunities for the Company.
Research and development costs were $29.8 million, $20.3 million, and $14.3 million for the years ended December 31, 2011, 2010 and 2009, respectively, and are included in operating expenses within the Company's consolidated statements of operations. These costs generally consist of professional services provided by third parties and compensation costs of employees.
Costs for internally developed computer software that will be sold, leased or otherwise marketed are capitalized when technological feasibility has been established. These costs primarily relate to the development or enhancement of credit processing software and quantitative credit risk assessment products sold by the MA segment, to be licensed to customers and generally consist of professional services provided by third parties and compensation costs of employees that develop the software. Judgment is required in determining when technological feasibility of a product is established and the Company believes that technological feasibility for its software products is reached after all high-risk development issues have been resolved through coding and testing. Generally, this occurs shortly before the products are released to customers. Accordingly, costs for internally developed computer software that will be sold, leased or otherwise marketed that were eligible for capitalization under Topic 985 of the ASC as well as the related amortization expense related to such costs were immaterial for the years ended December 31, 2011, 2010 and 2009.
Computer Software Developed or Obtained for Internal Use
The Company capitalizes costs related to software developed or obtained for internal use. These assets, included in property and equipment in the consolidated balance sheets, relate to the Company's accounting, product delivery and other systems. Such costs generally consist of direct costs of third-party license fees, professional services provided by third parties and employee compensation, in each case incurred either during the application development stage or in connection with upgrades and enhancements that increase functionality. Such costs are depreciated over their estimated useful lives on a straight-line basis. Costs incurred during the preliminary project stage of development as well as maintenance costs are expensed as incurred.
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 November 30 or more frequently if impairment indicators arise in accordance with ASC Topic 350. These impairment indicators could include significant events or circumstances that would reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition or sale or disposition of a significant portion of a reporting unit.
At November 30, 2011, the Company had six primary reporting units: one in MIS that encompasses all of Moody's ratings operations and five reporting units within MA: RD&A, RMS, training, CSI and Copal. 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 RMS 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 training reporting unit consists of the portion of the MA business that offers both credit training as well as other professional development training. In November 2010, the Company acquired CSI, which was assessed separately as its own reporting unit for the annual goodwill impairment assessment as of November 30, 2011 as the entity has not yet been integrated with one of the aforementioned MA reporting units. In the fourth quarter of 2011, the Company acquired Copal and B&H, for which Copal is deemed to be a separate reporting unit and B&H is part of the RMS reporting unit at December 31, 2011.
In 2011, the FASB issued an ASU which permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before proceeding with a quantitative assessment. The Company has adopted the provisions of this ASU and accordingly, the Company evaluates the recoverability of goodwill using a three-step impairment test approach at the reporting unit level. In the first step, the Company assesses various qualitative factors to determine whether it is more likely than not that 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 is 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 must perform a third step of the impairment test to determine the implied fair value of the reporting unit's goodwill. The implied fair value of the goodwill is determined based on the difference between the fair value of the reporting unit and the net fair value of the identifiable assets and liabilities of the reporting unit. If the implied fair value of the goodwill is less than the carrying value, the difference is recognized as an impairment charge. For the reporting units where the Company is consistently able to conclude on impairment 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.
Determining the fair value of a reporting unit or an indefinite-lived acquired intangible asset involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and appropriate market comparables. The Company bases its fair value estimates on assumptions believed to be reasonable. However, as these estimates and assumptions are unpredictable and inherently uncertain, actual future results may differ from these estimates. In addition, the Company also makes certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of its reporting units.
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. Other assets and liabilities, including applicable corporate assets, are allocated to the extent they are related to the operation of respective reporting units.
Rent Expense
The Company records rent expense on a straight-line basis over the life of the lease. In cases where there is a free rent period or future fixed rent escalations the Company will record a deferred rent liability. Additionally, the receipt of any lease incentives will be recorded as a deferred rent liability which will be amortized over the lease term as a reduction of rent expense.
Stock-Based Compensation
The Company records compensation expense for all share-based payment award transactions granted to employees based on the fair value of the equity instrument at the time of grant. This includes shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. The Company has also established a pool of additional paid-in capital related to the tax effects of employee share-based compensation ("APIC Pool"), which is available to absorb any recognized tax deficiencies.
Derivative Instruments and Hedging Activities
Based on the Company's risk management policy, from time to time the Company may use derivative financial instruments to reduce exposure to changes in foreign exchange rates and interest rates. The Company does not enter into derivative financial instruments for speculative purposes. All derivative financial instruments are recorded on the balance sheet at their respective fair values. The changes in the value of derivatives that qualify as fair value hedges are recorded currently into earnings. Changes in the derivative's fair value that qualify as cash flow hedges are recorded as other comprehensive income or loss, to the extent the hedge is effective, and such amounts are reclassified to earnings in the same period or periods during which the hedged transaction affects income.
Revenue Recognition
Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or the services have been provided and accepted by the customer when applicable, fees are determinable and the collection of resulting receivables is considered probable.
In October 2009, the FASB issued ASU No. 2009-13, "Multiple-Deliverable Revenue Arrangements" ("ASU 2009-13"). The standard changes the requirements for establishing separate units of accounting in a multiple element arrangement and requires the allocation of arrangement consideration based on the relative selling price of each deliverable. The Company adopted ASU 2009-13 on a prospective basis for applicable transactions originating or materially modified on or after January 1, 2010. If applied in the same manner to the year ended December 31, 2009, ASU 2009-13 would not have had a material impact on net revenue reported for both its MIS and MA segments in terms of the timing and pattern of revenue recognition. The adoption of ASU 2009-13 did not have a significant effect on the Company's net revenue in the period of adoption and is also not expected to have a significant effect on the Company's net revenue in periods after the initial adoption when applied to multiple element arrangements based on the currently anticipated business volume and pricing.
For 2010 and future periods, pursuant to the guidance of ASU 2009-13, when a sales arrangement contains multiple deliverables, the Company allocates revenue to each deliverable based on its relative selling price which is determined based on its vendor specific objective evidence ("VSOE") if available, third party evidence ("TPE") if VSOE is not available, or estimated selling price ("ESP") if neither VSOE nor TPE is available.
The Company's products and services will generally continue to qualify as separate units of accounting under ASU 2009-13. The Company evaluates each deliverable in an arrangement to determine whether it represents a separate unit of accounting. A deliverable constitutes a separate unit of accounting when it has stand-alone value to the customers and if the arrangement includes a customer refund or return right relative to the delivered item, the delivery and performance of the undelivered item is considered probable and substantially in the Company's control. In instances where the aforementioned criteria are not met, the deliverable is combined with the undelivered items and revenue recognition is determined as one single unit.
The Company determines whether its selling price in a multi-element transaction meets the VSOE criteria by using the price charged for a deliverable when sold separately. In instances where the Company is not able to establish VSOE for all deliverables in a multiple element arrangement, which may be due to the Company infrequently selling each element separately, not selling products within a reasonably narrow price range, or only having a limited sales history, the Company attempts to establish TPE for deliverables. The Company determines whether TPE exists by evaluating largely similar and interchangeable competitor products or services in standalone sales to similarly situated customers. However, due to the difficulty in obtaining third party pricing, possible differences -in its market strategy from that of its peers and the potential that products and services offered by the Company may contain a significant level of differentiation and/or customization such that the comparable pricing of products with similar functionality cannot be obtained, the Company generally is unable to reliably determine TPE. Based on the selling price hierarchy established by ASU 2009-13, when the Company is unable to establish selling price using VSOE or TPE, the Company will establish an ESP. ESP is the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. The Company establishes its best estimate of ESP considering internal factors relevant to is pricing practices such as costs and margin objectives, standalone sales prices of similar products, percentage of the fee charged for a primary product or service relative to a related product or service, and customer segment and geography. Additional consideration is also given to market conditions such as competitor pricing strategies and market trend. The Company reviews its determination of VSOE, TPE and ESP on an annual basis or more frequently as needed.
In the MIS segment, revenue attributed to initial ratings of issued securities is recognized when the rating is issued. Revenue attributed to monitoring of issuers or issued securities is recognized ratably over the period in which the monitoring is performed, generally one year. In the case of commercial mortgage-backed securities, derivatives, international residential mortgage-backed and asset-backed securities, issuers can elect to pay the monitoring fees upfront. These fees are deferred and recognized over the future monitoring periods based on the expected lives of the rated securities, which ranged from two to 51 years at December 31, 2011. At December 31, 2011, 2010 and 2009, deferred revenue related to these securities was approximately $79 million, $76 million, and $78 million.
Multiple element revenue arrangements in the MIS segment are generally comprised of an initial rating and the related monitoring service. Beginning January 1, 2010, in instances where monitoring fees are not charged for the first year monitoring effort, fees are allocated to the initial rating and monitoring services based on the relative selling price of each service to the total arrangement fees. The Company generally uses ESP in determining the selling price for its initial ratings as the Company rarely sells initial ratings separately without providing related monitoring services and thus is unable to establish VSOE or TPE for initial ratings. Prior to January 1, 2010 and pursuant to the previous accounting standards, for these types of arrangements the initial rating fee was first allocated to the monitoring service determined based on the estimated fair market value of monitoring services, with the residual amount allocated to the initial rating. Under ASU 2009-13 this practice can no longer be used for non-software deliverables upon the adoption of ASU 2009-13.
MIS estimates revenue for ratings of commercial paper for which, in addition to a fixed annual monitoring fee, issuers are billed quarterly based on amounts outstanding. Revenue is accrued each quarter based on estimated amounts outstanding and is billed when actual data is available. The estimate is determined based on the issuers' most recent reported quarterly data. At December 31, 2011, 2010 and 2009, accounts receivable included approximately $24 million, $25 million, and $27 million, respectively, related to accrued commercial paper revenue. Historically, MIS has not had material differences between the estimated revenue and the actual billings. Furthermore, for certain annual monitoring services, fees are not invoiced until the end of the annual monitoring period and revenue is accrued ratably over the monitoring period.
In the MA segment, products and services offered by the Company include software licenses and related maintenance, subscriptions, and professional services. Revenue from subscription based products, such as research and data subscriptions and certain software-based credit risk management subscription products, is recognized ratably over the related subscription period, which is principally one year. Revenue from sale of perpetual licenses of credit processing software is generally recognized at the time the product master or first copy is delivered or transferred to and accepted by the customer. Software maintenance revenue is recognized ratably over the annual maintenance period. Revenue from services rendered within the professional services line of business is generally recognized as the services are performed. If uncertainty exists regarding customer acceptance of the product or service, revenue is not recognized until acceptance occurs. A large portion of annual research and data subscriptions and annual software maintenance are invoiced in the months of November, December and January.
Products and services offered within the MA segment are sold either stand-alone or together in various combinations. In instances where a multiple element arrangement includes software and non-software deliverables, revenue is allocated to the non-software deliverables and to the software deliverables, as a group, using the relative selling prices of each of the deliverables in the arrangement based on the aforementioned selling price hierarchy. Revenue is recognized for each element based upon the conditions for revenue recognition noted above.
If the arrangement contains more than one software deliverable, the arrangement consideration allocated to the software deliverables as a group is allocated to each software deliverable using VSOE. In the instances where the Company is not able to determine VSOE for all of the deliverables of an arrangement, the Company allocates the revenue to the undelivered elements equal to its VSOE and the residual revenue to the delivered elements. If the Company is unable to determine VSOE for an undelivered element, the Company defers all revenue allocated to the software deliverables until the Company has delivered all of the elements or when VSOE has been determined for the undelivered elements.
Prior to January 1, 2010 and pursuant to the previous accounting standards, the Company allocated revenue in a multiple element arrangement to each deliverable based on its relative fair value, or for software elements, based on VSOE. If the fair value was not available for an undelivered element, the revenue for the entire arrangement was deferred.
Accounts Receivable Allowances
Moody's records an allowance for estimated future adjustments to customer billings as a reduction of revenue, based on historical experience and current conditions. Such amounts are reflected as additions to the accounts receivable allowance. Additionally, estimates of uncollectible accounts are recorded as bad debt expense and are reflected as additions to the accounts receivable allowance. Billing adjustments and uncollectible account write-offs are recorded against the allowance. Moody's evaluates its accounts receivable allowance by reviewing and assessing historical collection and adjustment experience and the current status of customer accounts. Moody's also considers the economic environment of the customers, both from an industry and geographic perspective, in evaluating the need for allowances. Based on its analysis, Moody's adjusts its allowance as considered appropriate in the circumstances.
Operating Expenses
Operating expenses are charged to income as incurred. These expenses include costs associated with the development and production of the Company's products and services and their delivery to customers. These expenses principally include employee compensation and benefits and travel costs that are incurred in connection with these activities.
Restructuring
The Company's restructuring accounting follows the provisions of: Topic 712 of the ASC for severance relating to employee terminations, Topic 715 of the ASC for pension settlements and curtailments, and Topic 420 of the ASC for contract termination costs and other exit activities.
Selling, General and Administrative Expenses
SG&A expenses are charged to income as incurred. These expenses include such items as compensation and benefits for corporate officers and staff and compensation and other expenses related to sales of products. They also include items such as office rent, business insurance, professional fees and gains and losses from sales and disposals of assets.
Redeemable noncontrolling interest
The Company records its redeemable noncontrolling interest at fair value on the date of the related business combination transaction. The redeemable noncontrolling interest represents noncontrolling shareholders' interest in entities which are controlled but not wholly-owned by Moody's and for which Moody's obligation to redeem the minority shareholders' interest is in the control of the minority shareholders. Subsequent to the initial measurement, the redeemable noncontrolling interest is recorded at the greater of its redemption value or its carrying value at the end of each reporting period. At December 31, 2011, the carrying value of the redeemable noncontrolling interest exceeded its redemption value. Accordingly, the redeemable noncontrolling interest is recorded at its carrying value. If the redeemable noncontrolling interest is carried at its redemption value, the difference between the redemption value and the carrying value would be adjusted through capital surplus at the end of each reporting period. The Company also performs a quarterly assessment to determine if the aforementioned redemption value exceeds the fair value of the redeemable noncontrolling interest. If the redemption value of the redeemable noncontrolling interest were to exceed its fair value, the excess would reduce the net income attributable to Moody's shareholders.
Foreign Currency Translation
For all operations outside the U.S. where the Company has designated the local currency as the functional currency, assets and liabilities are translated into U.S. dollars using end of year exchange rates, and revenue and expenses are translated using average exchange rates for the year. For these foreign operations, currency translation adjustments are accumulated in a separate component of shareholders' equity.
Comprehensive Income
Comprehensive income represents the change in net assets of a business enterprise during a period due to transactions and other events and circumstances from non-owner sources including foreign currency translation impacts, net actuarial losses and net prior service costs related to pension and other post-retirement plans and derivative instruments. Accumulated other comprehensive (loss) income is primarily comprised of:
| December 31, | ||||||||
| (in millions) | 2011 | 2010 | ||||||
| Currency translation adjustments, net of tax | $(23.3 | ) | $ | 23.6 | ||||
| Net actuarial losses and net prior service costs related to Post-Retirement Plans, net of tax | (81.2 | ) | (51.4 | ) | ||||
| Realized and unrealized losses on cash flow hedges, net of tax | (3.0 | ) | (5.6 | ) | ||||
|
|
|
|
|
|||||
|
Total accumulated other comprehensive loss |
$(107.5 | ) | (33.4 | ) | ||||
|
|
|
|
|
|||||
Income Taxes
The Company accounts for income taxes under the asset and liability method in accordance with Topic 740 of the ASC. Therefore, income tax expense is based on reported income before income taxes, and deferred income taxes reflect the effect of temporary differences between the amounts of assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes.
The Company classifies interest related to unrecognized tax benefits in interest expense in its consolidated statements of operations. Penalties are recognized in other non-operating expenses. For UTPs, the Company first determines whether it is more-likely-than-not (defined as a likelihood of more than fifty percent) that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more-likely-than-not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority.
For certain of its non-U.S. subsidiaries, the Company has deemed its undistributed earnings relating to these subsidiaries to be indefinitely reinvested within its foreign operations. Accordingly, the Company has not provided deferred income taxes on these indefinitely reinvested earnings. It is not practicable to determine the amount of deferred taxes that might be required to be provided if such earnings were distributed in the future due to complexities in the tax laws and in the hypothetical calculations that would have to be made.
Fair Value of Financial Instruments
The Company's financial instruments include cash, cash equivalents, trade receivables and payables, all of which are short-term in nature and, accordingly, approximate fair value. Additionally, the Company invests in short-term investments that are carried at cost, which approximates fair value due to their short-term maturities. Also, the Company uses derivative instruments, as further described in Note 5, to manage certain financial exposures that occur in the normal course of business. These derivative instruments are carried at fair value on the Company's consolidated balance sheets. The Company also is subject to contingent consideration obligations related to certain of its acquisitions as more fully discussed in Note 7. These obligations are carried at their estimated fair value within the Company's consolidated balance sheets.
Fair value is defined by the ASC as the price that would be received from selling an asset or paid to transfer a liability (i.e., an exit price) in an orderly transaction between market participants at the measurement date. The determination of this fair value is based on the principal or most advantageous market in which the Company could commence transactions and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance. Also, determination of fair value assumes that market participants will consider the highest and best use of the asset.
The ASC establishes a fair value hierarchy whereby the inputs contained in valuation techniques used to measure fair value are categorized into three broad levels as follows:
Level 1: quoted market prices in active markets that the reporting entity has the ability to access at the date of the fair value measurement;
Level 2: inputs other than quoted market prices described in Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities;
Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value measurement of the assets or liabilities.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk principally consist of cash and cash equivalents, short-term investments, trade receivables and derivatives.
Cash equivalents consist of investments in high quality investment-grade securities within and outside the U.S. The Company manages its credit risk exposure by allocating its cash equivalents among various money market mutual funds and issuers of high- grade commercial paper. Short-term investments primarily consist of certificates of deposit and high-grade corporate bonds in Korea as of December 31, 2011 and 2010. The Company manages its credit risk exposure on cash equivalents and short-term investments by limiting the amount it can invest with any single issuer. No customer accounted for 10% or more of accounts receivable at December 31, 2011 or 2010.
Earnings per Share of Common Stock
Basic shares outstanding are calculated based on the weighted average number of shares of common stock outstanding during the reporting period. Diluted shares outstanding are calculated giving effect to all potentially dilutive common shares, assuming that such shares were outstanding during the reporting period.
Pension and Other Post-Retirement Benefits
Moody's maintains various noncontributory DBPPs as well as other contributory and noncontributory retirement and post-retirement plans. The expense and assets/liabilities that the Company reports for its pension and other post-retirement benefits are dependent on many assumptions concerning the outcome of future events and circumstances. These assumptions represent the Company's best estimates and may vary by plan. The differences between the assumptions for the expected long-term rate of return on plan assets and actual experience is spread over a five-year period to the market related value of plan assets which is used in determining the expected return on assets component of annual pension expense. All other actuarial gains and losses are generally deferred and amortized over the estimated average future working life of active plan participants.
The Company recognizes as an asset or liability in its statement of financial position the funded status of its defined benefit post-retirement plans, measured on a plan-by-plan basis. Changes in the funded status are recorded as part of other comprehensive income during the period the changes occur.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. Estimates are used for, but not limited to, revenue recognition, accounts receivable allowances, income taxes, contingencies, valuation of long-lived and intangible assets, goodwill, pension and other post-retirement benefits, stock-based compensation, and depreciation and amortization rates for property and equipment and computer software.
The financial market volatility and poor economic conditions beginning in the third quarter of 2007 and continuing into 2011, both in the U.S. and in many other countries where the Company operates, have impacted and will continue to impact Moody's business. If such conditions were to recur they could have a material impact to the Company's significant accounting estimates discussed above, in particular those around accounts receivable allowances, valuations of investments in affiliates, goodwill and other acquired intangible assets, and pension and other post-retirement benefits.
Recently Issued Accounting Pronouncements
Adopted:
In January 2010, the FASB issued ASU No. 2010-06, "Improving Disclosures about Fair Value Measurements". The standard requires disclosure regarding transfers in and out of Level 1 and Level 2 classifications within the fair value hierarchy as well as requiring further detail of activity within the Level 3 category of the fair value hierarchy. The standard also requires disclosures regarding the fair value for each class of assets and liabilities, which is a subset of assets or liabilities within a line item in a company's balance sheet. Additionally, the standard requires further disclosures surrounding inputs and valuation techniques used in fair value measurements. The disclosures and clarifications of existing disclosures set forth in this ASU are effective for interim and annual reporting periods beginning after December 15, 2009, except for the additional disclosures regarding Level 3 fair value measurements, for which the effective date is for fiscal years and interim periods within those years beginning after December 15, 2010. The Company has fully adopted all provisions of this ASU as of January 1, 2011 and the implementation did not have a material impact on the Company's consolidated financial statements.
In December 2010, the FASB issued ASU No. 2010-29, "Disclosure of Supplementary Pro Forma Information for Business Combinations". The objective of this ASU is to address diversity in practice regarding proforma disclosures for revenue and earnings of the acquired entity. The amendments in this ASU specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in this ASU also expand the supplemental pro forma disclosures under ASC Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this ASU are effective for fiscal years beginning on or after December 15, 2010. The Company will conform to the disclosure requirements set forth in this ASU for any future business combinations for which the impact to the consolidated statement of operations would be material.
In September 2011, the FASB issued ASU No. 2011-08, "Intangibles - Goodwill and Other (Topic 350)". The objective of this ASU is to simplify how entities test goodwill for impairment. This ASU permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350 of the ASC. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. Prior to the issuance of this ASU, an entity was required to test goodwill for impairment, on at least an annual basis, by comparing the fair value of a reporting unit with its carrying amount, including goodwill (step one). If the fair value of a reporting unit was less than its carrying amount, then the second step of the test would be performed to measure the amount of the impairment loss, if any. Under the amendments in this ASU, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with early adoption permitted. The Company adopted this ASU in the fourth quarter of 2011 and applied its provisions in assessing the potential goodwill impairment which is performed at least annually as of November 30.
Not yet adopted:
In May 2011, the FASB issued ASU No. 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs". The objective of this ASU is to achieve common fair value measurement and disclosure requirements in U.S. GAAP and IFRS. The amendments in this ASU change the wording used to describe current requirements in U.S. GAAP for measuring fair value and for financial statement disclosure about fair value measurements. Some of the amendments in the ASU clarify the FASB's intent or change a particular principle or requirement pertaining to the application of existing fair value measurement requirements or for disclosing information about fair value measurements. The amendments in this ASU are required to be applied prospectively and are effective for fiscal years beginning after December 15, 2011. Early adoption is not permitted. The Company is currently evaluating the potential impact, if any, of the implementation of this ASU on its consolidated financial statements.
In June 2011, the FASB issued ASU No. 2011-05, "Presentation of Comprehensive Income". Under the amendments in this ASU, an entity has two options for presenting its total comprehensive income: to show its components along with the components of net income in a single continuous statement, or in two separate but consecutive statements. The amendments in this ASU are required to be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. In December 2011, the FASB issued ASU No. 2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income", which indefinitely defers the requirement in ASU No. 2011-05 to present on the face of the financial statements reclassification adjustments for items that are reclassified from OCI to net income in the statement(s) where the components of net income and the components of OCI are presented. All other provisions of this ASU, which are to be applied retrospectively, are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company intends to adopt all provisions that were not deferred beginning with its Form 10Q for the three months ended March 31, 2012. The adoption of this ASU will not have any impact on the Company's consolidated financial statements other than revising the presentation of the components of comprehensive income.
|
|||
| NOTE 4 | SHORT-TERM INVESTMENTS |
Short-term investments are securities with maturities greater than 90 days at the time of purchase that are available for use in the Company's operations in the next twelve months. The short-term investments, primarily consisting of certificates of deposit, are classified as held-to-maturity and therefore are carried at cost. The remaining contractual maturities of the short-term investments were one to seven months and one to six months as of December 31, 2011 and 2010, respectively. Interest and dividends are recorded into income when earned.
|
|||
| NOTE 5 | 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.
Interest Rate Swaps
In the fourth quarter of 2010, the Company entered into interest rate swaps with a total notional amount of $300 million to convert the fixed interest rate on the Series 2005-1 Notes to a floating interest rate based on the 3-month LIBOR. The purpose of this hedge was to mitigate the risk associated with changes in the fair value of the Series 2005-1 Notes, thus the Company has designated these swaps as fair value hedges. The fair value of the swaps is reported in other assets at December 31, 2011 and in other liabilities at December 31, 2010 in the Company's consolidated balance sheets with a corresponding adjustment to the carrying value of the Series 2005-1 Notes. The changes in the fair value of the hedges and the underlying hedged item generally offset and the net cash settlements on the swaps are recorded each period within interest expense, net in the Company's consolidated statement of operations. The net interest income recognized in interest income (expense), net within the Company's consolidated statement of operations on these swaps was $4.1 million in 2011 and was immaterial in 2010.
In May 2008, the Company entered into interest rate swaps with a total notional amount of $150 million to protect against fluctuations in the LIBOR-based variable interest rate on the 2008 Term Loan. These interest rate swaps are designated as cash flow hedges. Accordingly, changes in the fair value of these swaps are recorded to other comprehensive income or loss, to the extent that the hedge is effective, and such amounts are reclassified to earnings in the same period during which the hedged transaction affects income. The fair value of the swaps is reported in other liabilities in the Company's consolidated balance sheets at December 31, 2011 and 2010.
Foreign Exchange Forwards and Options
The Company engaged in hedging activities to protect against FX risks from forecasted billings and related revenue denominated in the euro and the GBP. FX options and forward exchange contracts were utilized to hedge exposures related to changes in FX rates. As of December 31, 2010, these FX options and forward exchange contracts have matured and as of December 31, 2011 all realized gains and losses have been reclassified from AOCI into earnings. These FX options and forward exchange contracts were designated as cash flow hedges.
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 the entity's functional currency. These forward contracts are not designated as hedging instruments under the applicable sections of Topic 815 of the ASC. Accordingly, changes in the fair value of these contracts are recognized immediately in other non-operating income (expense), 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 entity's functional currency. These contracts have expiration dates at various times through March 2012.
The following table summarizes the notional amounts of the Company's outstanding foreign exchange forwards:
| December 31, 2011 |
December 31, 2010 |
|||||||
| Notional amount of Currency Pair: | ||||||||
| Contracts to purchase USD with euros | $ | 27.5 | $ | 11.7 | ||||
| Contracts to sell USD for euros | $ | 47.7 | $ | 55.5 | ||||
| Contracts to purchase USD with GBP | $ | 2.4 | $ | — | ||||
| Contracts to sell USD for GBP | $ | 17.6 | $ | 20.7 | ||||
| Contracts to purchase USD with other foreign currencies | $ | 3.2 | $ | 5.4 | ||||
| Contracts to sell USD for other foreign currencies | $ | 7.6 | $ | 19.5 | ||||
| Contracts to purchase euros with other foreign currencies | € | 13.6 | € | 10.5 | ||||
| Contracts to purchase euros with GBP | € | 1.6 | € | — | ||||
| Contracts to sell euros for GBP | € | 7.2 | € | 14.0 | ||||
The net gains (losses) on these instruments recognized in other non-operating income (expense), net in the Company's consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009 were ($1.4) million, ($2.2) million and $3.0 million, respectively.
The table below shows the classification between assets and liabilities on the Company's consolidated balance sheets of the fair value of derivative instruments:
| Fair Value of Derivative Instruments | ||||||||||||||||
| Asset | Liability | |||||||||||||||
| December 31, 2011 |
December 31, 2010 |
December 31, 2011 |
December 31, 2010 |
|||||||||||||
| Derivatives designated as accounting hedges: | ||||||||||||||||
| Interest rate swaps | $ | 11.5 | $ | — | $ | 4.5 | $ | 12.2 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives not designated as accounting hedges: | ||||||||||||||||
| FX forwards on certain assets and liabilities | 1.1 | 2.0 | 2.3 | 0.7 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total | $ | 12.6 | $ | 2.0 | $ | 6.8 | $ | 12.9 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The fair value for the interest rate swaps is included in other assets and other liabilities in the consolidated balance sheets at December 31, 2011 and in other liabilities at December 31, 2010. The fair value of the FX forwards is included in other current assets and account payable and accrued liabilities as of December 31, 2011 and December 31, 2010, respectively. Refer to Note 9 for further information on the fair value of derivatives.
The following table provides information on gains (losses) on the company's cash flow hedges:
|
Derivatives in Cash Flow Hedging Relationships |
Amount of Gain/(Loss) Recognized in AOCI on Derivative (Effective Portion) |
Location of Gain/(Loss) Reclassified from AOCI into Income (Effective Portion) |
Amount of Gain/(Loss) Reclassified from AOCI into Income (Effective Portion) |
Location of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
Amount of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
|||||||||||||||||||||||||
| Year Ended December 31, |
Year Ended December 31, |
Year Ended December 31, |
||||||||||||||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||
| FX options | $ | — | $ | — | Revenue | $ | (0.2 | ) | $ | (1.0 | ) | Revenue | $ | — | $ | — | ||||||||||||||
| Interest rate swaps | (0.6 | ) | (3.1 | ) | Interest expense | (3.0 | ) | (2.8 | ) | N/A | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Total | $ | (0.6 | ) | $ | (3.1 | ) | $ | (3.2 | ) | $ | (3.8 | ) | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
All gains and losses on derivatives designated as cash flow hedges for accounting purposes are initially recognized through AOCI. Realized gains and losses reported in AOCI are reclassified into earnings (into revenue for the FX options and into interest expense, net for the interest rate swaps) as the underlying transaction is recognized.
The cumulative amount of unrecognized hedge losses recorded in AOCI is as follows:
| Unrecognized Losses, net of tax |
||||||||
| December 31, 2011 |
December 31, 2010 |
|||||||
| FX options | $ | — | $ | (0.2 | ) | |||
| Interest rate swaps | (3.0 | ) | (5.4 | ) | ||||
|
|
|
|
|
|||||
|
Total |
$ | (3.0 | ) | $ | (5.6 | ) | ||
|
|
|
|
|
|||||
|
|||
| NOTE 6 | PROPERTY AND EQUIPMENT, NET |
Property and equipment, net consisted of:
| December 31, | ||||||||
| 2011 | 2010 | |||||||
| Office and computer equipment (3 – 20 year estimated useful life) | $ | 106.8 | $ | 92.2 | ||||
| Office furniture and fixtures (5 – 10 year estimated useful life) | 40.6 | 40.2 | ||||||
| Internal-use computer software (3 – 5 year estimated useful life) | 241.8 | 199.1 | ||||||
| Leasehold improvements (3 – 17 year estimated useful life) | 195.8 | 188.6 | ||||||
|
|
|
|
|
|||||
|
Total property and equipment, at cost |
585.0 | 520.1 | ||||||
| Less: accumulated depreciation and amortization | (258.2 | ) | (200.8 | ) | ||||
|
|
|
|
|
|||||
| Total property and equipment, net | $ | 326.8 | $ | 319.3 | ||||
|
|
|
|
|
|||||
Depreciation and amortization expense related to the above assets was $58.7 million, $49.9 million, and $47.7 million for the years ended December 31, 2011, 2010 and 2009, respectively.
|
|||
| NOTE 7 | ACQUISITIONS |
All of the acquisitions described below were accounted for using the purchase method of accounting whereby the purchase price is allocated first to the net assets of the acquired entity based on the fair value of its net assets. Any excess of the purchase price over the fair value of the net assets acquired is recorded to goodwill. These acquisitions are discussed below in more detail.
Barrie & Hibbert Limited
On December 16, 2011, a subsidiary of the Company acquired Barrie & Hibbert Limited, a provider of risk management modeling tools for insurance companies worldwide. B&H operates within the RMS LOB of MA, broadening MA's suite of software solutions for the insurance and pension sectors.
The aggregate purchase price was $79.5 million in cash payments to the sellers and was funded with cash on hand.
Shown below is the purchase price allocation, which summarizes the fair values of the assets acquired, and liabilities assumed, at the date of acquisition:
| Current assets | $ | 15.2 | ||||||
| Property and equipment, net | 0.7 | |||||||
| Intangible assets: | ||||||||
|
Trade name (5 year weighted average life) |
$ | 1.9 | ||||||
|
Client relationships (18 year weighted average life) |
10.4 | |||||||
|
Software (7 year weighted average life) |
16.8 | |||||||
|
Other intangibles (2 year weighted average life) |
0.1 | |||||||
|
|
|
|||||||
|
Total intangible assets (11 year weighted average life) |
29.2 | |||||||
| Goodwill | 52.5 | |||||||
| Liabilities assumed | (18.1 | ) | ||||||
|
|
|
|||||||
| Net assets acquired | $ | 79.5 | ||||||
|
|
|
Current assets include acquired cash of approximately $10 million. The acquired goodwill, which has been assigned to the MA segment, will not be amortized and will not be deductible for tax. B&H operates within the RMS reporting unit and goodwill associated with the acquisition was part of the RMS reporting unit within the MA segment as of the acquisition date.
The Company incurred approximately $1 million of costs directly related to the acquisition of B&H during the year ended December 31, 2011. These costs, which primarily consisted of consulting and legal fees, are recorded within selling, general and administrative expenses in the Company's consolidated statements of operations.
The amount of revenue and expenses included in the Company's consolidated statement of operations for B&H from the acquisition date through December 31, 2011 was not material. The near term impact to operations and cash flow from this acquisition is not expected to be material to the Company's consolidated financial statements. Due to the close proximity of this acquisition to December 31, 2011, the Company is still in the process of evaluating the fair values of the assets and liabilities acquired relating to B&H.
Copal Partners
On November 4, 2011, subsidiaries of the Company acquired a 67% interest in Copal Partners Limited and a 100% interest in two related entities that were wholly-owned by Copal Partners Limited (together herein referred to as "Copal"). These acquisitions resulted in the Company obtaining an approximate 75% economic ownership interest in the Copal group of companies. Copal is a provider of outsourced research and consulting services to the financial services industry. Copal will operate within the professional services LOB of MA and will complement the research, data, software and education services offered by MA. The table below details the total consideration transferred to the sellers of Copal:
| Cash paid | $ | 125.0 | ||
| Put/call option for non-controlling interest | 61.2 | |||
| Contingent consideration liability assumed | 6.8 | |||
|
|
|
|||
| Total fair value of consideration transferred | $ | 193.0 | ||
|
|
|
In conjunction with the purchase, the Company and the non-controlling shareholders entered into a put/call option agreement whereby the Company has the option to purchase from the non-controlling shareholders and the non-controlling shareholders have the option to sell to the Company the remaining 33% ownership interest of Copal Partners Limited at a later date based on a strike price to be calculated on pre-determined formulas using a combination of revenue and EBITDA multiples when exercised. The derivation of the estimated put/call option strike price on the date of acquisition utilized a Monte Carlo simulation model. This model contemplated multiple scenarios which simulated certain of Copal's revenue, EBITDA margins and equity values to estimate the present value of the expected strike price of the option. There is no limit as to the amount of the strike price on the put/call option. It is estimated that the exercise of the put/call arrangement will take place in the next three to six years based on a Monte Carlo simulation. This put/call arrangement expires on the sixth anniversary date of the acquisition.
Additionally, as part of the consideration transferred, the Company issued a note payable of $14.2 million to the sellers which is more fully discussed in Note 15 to these consolidated financial statements. The Company has a right to reduce the amount payable under this note with payments that it may be required to make relating to certain UTPs associated with the acquisition, which is more fully discussed below. Accordingly, this note payable is not carried on the consolidated balance sheet as of December 31, 2011 in accordance with certain indemnification arrangements relating to these UTP's which are more fully discussed below.
Also, the purchase agreement contains several different provisions for contingent cash payments to the sellers valued at $6.8 million at the acquisition date. A portion of the contingent cash payments are based on revenue and EBITDA growth for certain of the acquired Copal entities. This growth is calculated by comparing revenue and EBITDA in the year immediately prior to the exercise of the aforementioned put/call option to revenue and EBITDA in the year ended December 31, 2011. There are no limitations set forth in the acquisition agreement relating to the amount payable under this contingent payment arrangement and payments under the arrangement, if any, would be made upon the exercise of the put/call option. Other contingent cash payments are based on the achievement of revenue targets for 2012 and 2013, with certain limits on the amount of revenue that can be applied to the derivation of the contingent payment. Each of these contingent payments has a maximum payout of $2.5 million. The Company has recorded the fair value of these arrangements within other liabilities in its consolidated balance sheet. Further information on the inputs and methodologies utilized to derive the fair value of these contingent consideration liabilities are discussed in Note 9.
The Company incurred approximately $7 million of costs directly related to the acquisition of Copal during the year ended December 31, 2011. These costs which primarily consisted of consulting and legal fees, are recorded within selling, general and administrative expenses in the Company's consolidated statements of operations.
Shown below is the purchase price allocation, which summarizes the fair values of the assets acquired, and liabilities assumed, at the date of acquisition:
| Current assets | $ | 15.5 | ||||||
| Property and equipment, net | 0.5 | |||||||
| Intangible assets: | ||||||||
|
Trade name (15 year weighted average life) |
$ | 8.6 | ||||||
|
Client relationships (16 year weighted average life) |
66.2 | |||||||
|
Other (2 year weighted average life) |
4.4 | |||||||
|
|
|
|||||||
|
Total intangible assets (15 year weighted average life) |
79.2 | |||||||
| Goodwill | 143.4 | |||||||
| Indemnification asset | 12.0 | |||||||
| Other assets | 6.6 | |||||||
| Liabilities assumed | (64.2 | ) | ||||||
|
|
|
|||||||
| Net assets acquired | $ | 193.0 | ||||||
|
|
|
Current assets include acquired cash of approximately $7 million. The acquired goodwill, which has been assigned to the MA segment, will not be amortized and will not be deductible for tax.
In connection with the acquisition, the Company assumed liabilities relating to UTPs, which are included in the liabilities assumed in the table above and for which the sellers have contractually indemnified the Company against any potential payments. Under the terms of the acquisition agreement, a portion of the purchase price was remitted to an escrow agent for certain uncertainties associated with the transaction. Additionally, the Company is contractually indemnified for payments in excess of the amount paid into escrow via a reduction to the amount payable under the aforementioned note payable issued to the sellers and the amount payable under the put/call option to acquire the remaining 33% interest in the Copal entity not wholly-owned. Accordingly, the Company carries an indemnification asset on its consolidated balance sheet at December 31, 2011 for which a portion has been offset by the note payable and the put/call arrangement in the amount of $14.2 million and $6.8 million, respectively.
As of December 31, 2011, Copal operates as its own reporting unit. Accordingly, goodwill associated with the acquisition is part of the Copal reporting unit within the MA segment. Copal will remain a separate reporting unit until MA management completes its assessment on how to integrate the entity into the MA operating segment.
The amount of revenue and expenses for Copal from the acquisition date through December 31, 2011 was not material. The near term impact to operations and cash flow from this acquisition is not expected to be material to the Company's consolidated financial statements. Due to the close proximity of this acquisition to December 31, 2011, the Company is still in the process of evaluating the fair values of the assets and liabilities acquired relating to Copal.
KIS Pricing, Inc.
On May 6, 2011, a subsidiary of the Company acquired a 16% additional direct equity investment in KIS Pricing from a shareholder with a non-controlling interest in the entity. The additional interest adds to the Company's existing indirect ownership of KIS Pricing through its controlling equity stake in Korea Investors Service (KIS). The aggregate purchase price was not material and the near term impact to operations and cash flow is not expected to be material. KIS Pricing is part of the MA segment.
CSI Global Education, Inc.
On November 18, 2010, a subsidiary of the Company acquired CSI Global Education, Inc., Canada's leading provider of financial learning, credentials, and certification. CSI operates within MA, strengthening the Company's capabilities for delivering credit and other financial training programs to financial institutions worldwide and bolsters Moody's efforts to serve as an essential resource to financial market participants.
The aggregate purchase price was $151.4 million in net cash payments to the sellers. There is a 2.5 million Canadian dollar contingent cash payment which is dependent upon the achievement of a certain contractual milestone by January 2016. The Company has recognized the fair value of the contingent payment of $2.0 million as a long-term liability at the acquisition date using a discounted cash flow methodology which assumes that the entire 2.5 million Canadian dollar payment will be made by January 2016. That measure is based on significant inputs that are not observable in the market, which ASC 820 refers to as Level 3 inputs. Subsequent fair value changes, which will be measured quarterly, up to the ultimate amount paid, will be recognized in earnings. The purchase price was funded with cash on hand.
Shown below is the purchase price allocation, which summarizes the fair values of the assets acquired, and liabilities assumed, at the date of acquisition:
| Current assets | $ | 5.1 | ||||||
| Property and equipment, net | 0.8 | |||||||
| Intangible assets: | ||||||||
|
Trade name (30 year weighted average life) |
$ | 9.0 | ||||||
|
Client relationships (21 year weighted average life) |
63.1 | |||||||
|
Trade secret (13 year weighted average life) |
5.8 | |||||||
|
|
|
|||||||
|
Total intangible assets (21 year weighted average life) |
77.9 | |||||||
| Goodwill | 104.6 | |||||||
| Liabilities assumed | (37.0 | ) | ||||||
|
|
|
|||||||
| Net assets acquired | 151.4 | |||||||
|
|
|
Current assets include acquired cash of approximately $2.8 million. The acquired goodwill, which has been assigned to the MA segment, will not be amortized and will not be deductible for tax. As of December 31, 2011, CSI operates as its own reporting unit and thus goodwill associated with the acquisition of CSI is all part of the CSI reporting unit within the MA segment. CSI will remain a separate reporting unit until MA management completes its evaluation as to how the acquired entity will be integrated into the MA segment.
The near term impact to operations and cash flow from this acquisition was not material to the Company's consolidated financial statements.
For all acquisitions completed during the year ended December 31, 2011, the Company has not presented proforma combined results for these acquisitions because the impact on the previously reported statements of operations would not have been material.
|
|||
| NOTE 8 | GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS |
The following table summarizes the activity in goodwill:
| Year Ended December 31, | ||||||||||||||||||||||||
| 2011 | 2010 | |||||||||||||||||||||||
| MIS | MA | Consolidated | MIS | MA | Consolidated | |||||||||||||||||||
| Beginning balance | $ | 11.4 | $ | 454.1 | $ | 465.5 | $ | 11.1 | $ | 338.1 | $ | 349.2 | ||||||||||||
| Additions/adjustments | — | 198.5 | 198.5 | — | 104.6 | 104.6 | ||||||||||||||||||
| Foreign currency translation adjustments | (0.4 | ) | (20.7 | ) | (21.1 | ) | 0.3 | 11.4 | 11.7 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Ending balance | $ | 11.0 | $ | 631.9 | $ | 642.9 | $ | 11.4 | $ | 454.1 | $ | 465.5 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
The additions/adjustments for the MA segment in the table above relate to the acquisitions of CSI in 2010 and Copal and B&H in 2011 as further described in Note 7 above.
Acquired intangible assets consisted of:
| December 31, | ||||||||
| 2011 | 2010 | |||||||
| Customer relationships | $ | 217.9 | $ | 145.1 | ||||
| Accumulated amortization | (58.6 | ) | (49.2 | ) | ||||
|
|
|
|
|
|||||
|
Net customer relationships |
159.3 | 95.9 | ||||||
|
|
|
|
|
|||||
| Trade secrets | 31.3 | 31.4 | ||||||
| Accumulated amortization | (13.4 | ) | (10.9 | ) | ||||
|
|
|
|
|
|||||
|
Net trade secrets |
17.9 | 20.5 | ||||||
|
|
|
|
|
|||||
| Software | 70.9 | 54.8 | ||||||
| Accumulated amortization | (25.1 | ) | (20.3 | ) | ||||
|
|
|
|
|
|||||
|
Net software |
45.8 | 34.5 | ||||||
|
|
|
|
|
|||||
| Trade names | 28.1 | 17.9 | ||||||
| Accumulated amortization | (9.0 | ) | (8.3 | ) | ||||
|
|
|
|
|
|||||
|
Net trade names |
19.1 | 9.6 | ||||||
|
|
|
|
|
|||||
| Other | 24.6 | 19.6 | ||||||
| Accumulated amortization | (13.1 | ) | (11.3 | ) | ||||
|
|
|
|
|
|||||
|
Net other |
11.5 | 8.3 | ||||||
|
|
|
|
|
|||||
|
Total |
$ | 253.6 | $ | 168.8 | ||||
|
|
|
|
|
|||||
The amounts as of December 31, 2011 in the table above include intangible assets acquired in the 2011 purchases of Copal and B&H, and the amounts as of December 31, 2010 include intangible assets acquired in the 2010 purchase of CSI, as more fully discussed in Note 7 above. Other intangible assets primarily consist of databases and covenants not to compete. Amortization expense relating to intangible assets is as follows:
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Amortization Expense | $ | 20.5 | $ | 16.4 | $ | 16.4 | ||||||
Estimated future annual amortization expense for intangible assets subject to amortization is as follows:
|
Year Ended December 31, |
||||
| 2012 | $ | 28.0 | ||
| 2013 | 27.2 | |||
| 2014 | 22.1 | |||
| 2015 | 20.7 | |||
| 2016 | 19.5 | |||
| Thereafter | 136.1 | |||
Intangible assets are reviewed for recoverability whenever 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. Goodwill is analyzed for impairment annually or more frequently if circumstances indicate the assets may be impaired.
For the years ended December 31, 2011, 2010 and 2009 there were no impairments to goodwill or to intangible assets except for an immaterial $0.2 million impairment of intangible assets in 2009 which was included in the restructuring charge as further discussed in Note 11 below. The Company measured the amount of the impairment loss by comparing the carrying amount of the related assets to their fair value. The fair value was determined by utilizing the expected present value technique which uses multiple cash flow scenarios that reflect the range of possible outcomes and a risk-free rate.
|
|||
| NOTE 9 | FAIR VALUE |
The table below presents information about items, which are carried at fair value on a recurring basis at December 31, 2011 and 2010:
| Fair Value Measurement as of December 31, 2011 | ||||||||||||||||
|
Description |
Balance | Level 1 | Level 2 | Level 3 | ||||||||||||
| Assets: | ||||||||||||||||
|
Derivatives (a) |
$ | 12.6 | $ | — | $ | 12.6 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
$ | 12.6 | $ | — | $ | 12.6 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liabilities: | ||||||||||||||||
|
Derivatives (a) |
6.8 | — | 6.8 | — | ||||||||||||
|
Contingent consideration arising from acquisitions |
9.1 | — | — | 9.1 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
$ | 15.9 | $ | — | $ | 6.8 | $ | 9.1 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Fair Value Measurement as of December 31, 2010 | ||||||||||||||||
|
Description |
Balance | Level 1 | Level 2 | Level 3 | ||||||||||||
| Assets: | ||||||||||||||||
|
Derivatives (a) |
$ | 2.0 | $ | — | $ | 2.0 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
2.0 | — | 2.0 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liabilities: | ||||||||||||||||
|
Derivatives (a) |
12.9 | 12.9 | ||||||||||||||
|
Contingent consideration arising from acquisitions (b) |
2.1 | — | — | 2.1 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
15.0 | — | 12.9 | 2.1 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (a) | Represents interest rate swaps and FX forwards as more fully described in Note 5 to the financial statements |
| (b) | Represents contingent consideration liabilities pursuant to the agreements for certain MA acquisitions which are more fully discussed in Note 7 to the consolidated financial statements |
The following table summarizes the changes in the fair value of the Company's Level 3 liabilities:
| Contingent Consideration Year Ended December 31, |
||||||||
| 2011 | 2010 | |||||||
| Balance as of January 1 | $ | 2.1 | $ | — | ||||
| Issuances | 7.4 | 2.0 | ||||||
| Settlements | (0.3 | ) | — | |||||
| Total losses (realized and unrealized): | ||||||||
|
Included in earnings |
0.3 | — | ||||||
| Foreign currency translation adjustments | (0.4 | ) | 0.1 | |||||
|
|
|
|
|
|||||
| Balance as of December 31 | $ | 9.1 | $ | 2.1 | ||||
|
|
|
|
|
|||||
The losses included in earnings in the table above are recorded within SG&A expenses in the Company's consolidated statement of operations. During the year ended December 31, 2011, there were gains of $0.3 million relating to contingent consideration obligations that were settled during the year. The remaining losses of $0.6 million relate to contingent consideration obligations outstanding at December 31, 2011.
The following are descriptions of the methodologies utilized by the Company to estimate the fair value of its derivative contracts and contingent consideration obligations:
Derivatives:
In determining the fair value of the derivative contracts in the table above, the Company utilizes industry standard valuation models when active market quotes are not available. Where applicable, these models project future cash flows and discount the future amounts to a present value using spot rates, forward points, currency volatilities, interest rates as well as the risk of non-performance of the Company and the counterparties with whom it has derivative contracts. The Company has established strict counterparty credit guidelines and only enters into transactions with financial institutions that adhere to these guidelines. Accordingly, the risk of counterparty default is deemed to be minimal.
Contingent consideration:
At December 31, 2011, the Company has contingent consideration obligations related to the acquisitions of CSI and Copal which are based on certain financial and non-financial metrics set forth in the acquisition agreements. These obligations are measured using Level 3 inputs as defined in the ASC. The Company has recorded the obligations for these contingent consideration arrangements on the date of each respective acquisition based on management's best estimates of the achievement of the metrics.
The contingent consideration obligation for CSI is based on the achievement of a certain contractual milestone by January 2016. The Company utilizes a discounted cash flow methodology to value this obligation. The future expected cash flow for this obligation is discounted using an interest rate available to borrowers with similar credit risk profiles to that of the Company. The most significant estimate involved in the measurement of this obligation is the probability that the milestone will be reached by January 2016. At December 31, 2011, the Company expects that this milestone will be reached by the aforementioned date.
There are several contingent consideration obligations relating to the acquisition of Copal which are more fully discussed in Note 7. The Company utilizes discounted cash flow methodologies to value these obligations. The expected future cash flows for these obligations are discounted using a risk-free interest rate plus a credit spread based on the option adjusted spread of the Company's publicly traded debt as of the valuation date. The most significant estimate involved in the measurement of these obligations is the projected future results of the applicable Copal entities. Also, for the portion of the obligations which are dependent upon the exercise of the call/put option, the Company has utilized a Monte Carlo simulation model to estimate when the option will be exercised, thus triggering the payment of contingent consideration.
|
|||
| NOTE 10 | OTHER BALANCE SHEET INFORMATION |
The following tables contain additional detail related to certain balance sheet captions:
| December 31, | ||||||||
| 2011 | 2010 | |||||||
| Other current assets: | ||||||||
|
Prepaid taxes |
$ | 27.6 | $ | 82.3 | ||||
|
Prepaid expenses |
44.6 | 39.8 | ||||||
|
Other |
5.4 | 5.8 | ||||||
|
|
|
|
|
|||||
|
Total other current assets |
$ | 77.6 | $ | 127.9 | ||||
|
|
|
|
|
|||||
| December 31, | ||||||||
| 2011 | 2010 | |||||||
| Other assets: | ||||||||
|
Investments in joint ventures |
$ | 37.2 | $ | 30.8 | ||||
|
Deposits for real-estate leases |
12.2 | 11.4 | ||||||
|
Other |
32.6 | 13.6 | ||||||
|
|
|
|
|
|||||
|
Total other assets |
$ | 82.0 | $ | 55.8 | ||||
|
|
|
|
|
|||||
| December 31, | ||||||||
| 2011 | 2010 | |||||||
| Accounts payable and accrued liabilities: | ||||||||
|
Salaries and benefits |
$ | 73.8 | $ | 69.6 | ||||
|
Incentive compensation |
114.1 | 116.8 | ||||||
|
Profit sharing contribution |
7.1 | 12.6 | ||||||
|
Customer credits, advanced payments and advanced billings |
17.6 | 15.3 | ||||||
|
Dividends |
38.2 | 27.9 | ||||||
|
Professional service fees |
50.5 | 50.6 | ||||||
|
Interest accrued on debt |
15.1 | 17.6 | ||||||
|
Accounts payable |
16.4 | 14.3 | ||||||
|
Income taxes (see Note 14) |
23.4 | 26.9 | ||||||
|
Restructuring (see Note 11) |
0.2 | 0.7 | ||||||
|
Deferred rent-current portion |
1.7 | 2.7 | ||||||
|
Pension and other post retirement employee benefits (see Note 12) |
3.8 | 9.5 | ||||||
|
Interest accrued on UTPs |
29.7 | — | ||||||
|
Other |
60.7 | 49.9 | ||||||
|
|
|
|
|
|||||
|
Total accounts payable and accrued liabilities |
$ | 452.3 | $ | 414.4 | ||||
|
|
|
|
|
|||||
| December 31, | ||||||||
| 2011 | 2010 | |||||||
| Other liabilities: | ||||||||
|
Pension and other post retirement employee benefits (see Note 12) |
$ | 187.5 | $ | 132.8 | ||||
|
Deferred rent-non-current portion |
108.8 | 100.4 | ||||||
|
Interest accrued on UTPs |
11.8 | 33.7 | ||||||
|
Legacy and other tax matters |
52.6 | 57.3 | ||||||
|
Other |
44.1 | 38.1 | ||||||
|
|
|
|
|
|||||
|
Total other liabilities |
$ | 404.8 | $ | 362.3 | ||||
|
|
|
|
|
|||||
REDEEMABLE NONCONTROLLING INTEREST:
The following table shows changes in the redeemable noncontrolling interest related to the acquisition of Copal for the year ended December 31, 2011:
| (in millions) | Redeemable Noncontrolling Interest |
|||
| Balance January 1, 2011 | $ | — | ||
|
Fair value at date of acquisition |
68.0 | |||
|
Reduction due to right of offset for UTPs * |
(6.8 | ) | ||
|
Net earnings |
1.0 | |||
|
Distributions |
— | |||
|
Translation adjustment |
(1.7 | ) | ||
|
|
|
|||
| Balance December 31, 2011 | $ | 60.5 | ||
|
|
|
|||
| * | Relates to right of offset pursuant to the Copal acquisition agreement whereby the amount due to the sellers under the put/call arrangement is reduced by the amount of UTPs that the Company may be required to pay. See Note 7 for further detail on this arrangement. |
|
|||
| NOTE 11 | RESTRUCTURING |
On March 27, 2009 the Company approved the 2009 Restructuring Plan to reduce costs in response to a strategic review of its business in certain jurisdictions and weak global economic and market conditions. The 2009 Restructuring Plan consisted of headcount reductions of approximately 150 positions representing approximately 4% of the Company's workforce at December 31, 2008 as well as contract termination costs and the divestiture of non-strategic assets. The Company's plan included closing offices in South Bend, Indiana; Jakarta, Indonesia and Taipei, Taiwan. There was $0.2 million in accelerated amortization for intangible assets recognized in the first quarter of 2009 relating to the closure of the Jakarta, Indonesia office. The cumulative amount of expense incurred from inception through December 31, 2011 for the 2009 Restructuring Plan was $14.7 million. The 2009 Restructuring Plan was substantially complete at September 30, 2009.
On December 31, 2007, the Company approved the 2007 Restructuring Plan that reduced global headcount by approximately 275 positions, or approximately 7.5% of the workforce at December 31, 2007, in response to the Company's reorganization announced in August 2007 and a decline in the then current and anticipated issuance of rated debt securities in some market sectors. Included in the 2007 Restructuring Plan was a reduction of staff as a result of: (i) consolidation of certain corporate staff functions, (ii) the integration of businesses comprising MA and (iii) an anticipated decline in new securities issuance in some market sectors. The 2007 Restructuring Plan also called for the termination of technology contracts as well as the outsourcing of certain technology functions. The cumulative amount of expense incurred from inception through December 31, 2011 for the 2007 Restructuring Plan was $50.4 million. The 2007 Restructuring Plan was substantially complete as of December 31, 2008.
Total expenses included in the accompanying consolidated statements of operations are as follows:
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| 2007 Restructuring Plan | $ | — | $ | 1.0 | $ | 1.9 | ||||||
| 2009 Restructuring Plan | — | (0.9 | ) | 15.6 | ||||||||
|
|
|
|
|
|
|
|||||||
|
Total |
$ | — | $ | 0.1 | $ | 17.5 | ||||||
|
|
|
|
|
|
|
|||||||
The expense in 2010 and 2009 related to the 2007 Restructuring Plan and the expense in 2010 related to the 2009 Restructuring Plan primarily reflects adjustments to previous estimates.
As of December 31, 2011 and 2010, the remaining liabilities related to both the 2007 Restructuring Plan and the 2009 Restructuring Plan were immaterial.
|
|||
| NOTE 12 | PENSION AND OTHER POST-RETIREMENT BENEFITS |
U.S. Plans
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 or final average pay for selected executives. The Company also provides certain healthcare and life insurance benefits for retired U.S. employees. These post-retirement healthcare plans are contributory with participants' contributions adjusted annually; the life insurance plans are noncontributory. Moody's funded and unfunded U.S. pension plans, the U.S. post-retirement healthcare plans and the U.S. post-retirement life insurance plans are collectively referred to herein as the "Post-Retirement Plans". Effective at the Distribution Date, Moody's assumed responsibility for the pension and other post-retirement benefits relating to its active employees. New D&B has assumed responsibility for the Company's retirees and vested terminated employees as of the Distribution Date.
Through 2007, substantially all U.S. employees were eligible to participate in the Company's DBPPs. Effective January 1, 2008, the Company no longer offers DBPPs to employees hired or rehired on or after January 1, 2008 and new hires instead will receive a retirement contribution in 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 benefit formulas.
Following is a summary of changes in benefit obligations and fair value of plan assets for the Post-Retirement Plans for the years ended December 31:
| Pension Plans | Other Post-Retirement Plans | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Change in Benefit Obligation: | ||||||||||||||||
|
Benefit obligation, beginning of the period |
$ | (242.5 | ) | $ | (213.0 | ) | $ | (15.6 | ) | $ | (13.1 | ) | ||||
|
Service cost |
(15.1 | ) | (13.5 | ) | (1.1 | ) | (0.9 | ) | ||||||||
|
Interest cost |
(13.1 | ) | (12.0 | ) | (0.8 | ) | (0.8 | ) | ||||||||
|
Plan participants' contributions |
— | — | (0.2 | ) | (0.2 | ) | ||||||||||
|
Benefits paid |
13.6 | 10.5 | 0.8 | 0.7 | ||||||||||||
|
Actuarial gain (loss) |
(4.9 | ) | 7.4 | (0.9 | ) | (0.4 | ) | |||||||||
|
Assumption changes |
(36.8 | ) | (21.9 | ) | (2.4 | ) | (0.9 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Benefit obligation, end of the period | (298.8 | ) | (242.5 | ) | (20.2 | ) | (15.6 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Change in Plan Assets: | ||||||||||||||||
|
Fair value of plan assets, beginning of the period |
120.4 | 108.2 | — | — | ||||||||||||
|
Actual return on plan assets |
0.8 | 13.9 | — | — | ||||||||||||
|
Benefits paid |
(13.6 | ) | (10.5 | ) | (0.8 | ) | (0.7 | ) | ||||||||
|
Employer contributions |
25.4 | 8.8 | 0.6 | 0.5 | ||||||||||||
|
Plan participants' contributions |
— | — | 0.2 | 0.2 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Fair value of plan assets, end of period |
133.0 | 120.4 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Funded status of the plans | (165.8 | ) | (122.1 | ) | (20.2 | ) | (15.6 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Amounts Recorded on the Consolidated Balance Sheets: | ||||||||||||||||
|
Pension and post-retirement benefits liability-current |
(3.0 | ) | (8.9 | ) | (0.8 | ) | (0.6 | ) | ||||||||
|
Pension and post-retirement benefits liability-non current |
(162.8 | ) | (113.2 | ) | (19.4 | ) | (15.0 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net amount recognized | $ | (165.8 | ) | $ | (122.1 | ) | $ | (20.2 | ) | $ | (15.6 | ) | ||||
|
|
|
|
|
|
|
|
|
|||||||||
| Accumulated benefit obligation, end of the period | $ | (256.1 | ) | $ | (214.6 | ) | ||||||||||
|
|
|
|
|
|||||||||||||
The following information is for those pension plans with an accumulated benefit obligation in excess of plan assets:
| December 31, | ||||||||
| 2011 | 2010 | |||||||
| Aggregate projected benefit obligation | $ | 298.8 | $ | 242.5 | ||||
| Aggregate accumulated benefit obligation | $ | 256.1 | $ | 214.6 | ||||
| Aggregate fair value of plan assets | $ | 133.0 | $ | 120.4 | ||||
The following table summarizes the pre-tax net actuarial losses and prior service cost recognized in AOCI for the Company's Post-Retirement Plans as of December 31:
| Pension Plans | Other Post-Retirement Plans | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Net actuarial (losses) | $ | (127.1 | ) | $ | (80.9 | ) | $ | (6.1 | ) | $ | (3.1 | ) | ||||
| Net prior service costs | (4.7 | ) | (5.3 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total recognized in AOCI- pretax |
$ | (131.8 | ) | $ | (86.2 | ) | $ | (6.1 | ) | $ | (3.1 | ) | ||||
|
|
|
|
|
|
|
|
|
|||||||||
The following table summarizes the estimated pre-tax net actuarial losses and prior service cost for the Company's Post-Retirement Plans that will be amortized from AOCI and recognized as components of net periodic expense during the next fiscal year:
| Pension Plans | Other Post-Retirement Plans | |||||||
| Net actuarial losses | $ | 8.9 | $ | 0.5 | ||||
| Net prior service costs | 0.7 | — | ||||||
|
|
|
|
|
|||||
|
Total to be recognized as components of net periodic expense |
$ | 9.6 | $ | 0.5 | ||||
|
|
|
|
|
|||||
Net periodic benefit expenses recognized for the Post-Retirement Plans for years ended December 31:
| Pension Plans | Other Post-Retirement Plans | |||||||||||||||||||||||
| 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | |||||||||||||||||||
| Components of net periodic expense | ||||||||||||||||||||||||
| Service cost | $ | 15.1 | $ | 13.5 | $ | 12.1 | $ | 1.1 | $ | 0.9 | $ | 0.8 | ||||||||||||
| Interest cost | 13.1 | 12.0 | 9.9 | 0.8 | 0.8 | 0.7 | ||||||||||||||||||
| Expected return on plan assets | (11.9 | ) | (10.5 | ) | (10.0 | ) | — | — | — | |||||||||||||||
| Amortization of net actuarial loss from earlier periods | 5.0 | 2.8 | 0.6 | 0.3 | 0.1 | — | ||||||||||||||||||
| Amortization of net prior service costs from earlier periods | 0.6 | 0.7 | 0.4 | — | — | — | ||||||||||||||||||
| Settlement charges | 1.6 | 1.3 | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net periodic expense | $ | 23.5 | $ | 19.8 | $ | 13.0 | $ | 2.2 | $ | 1.8 | $ | 1.5 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
The following table summarizes the pre-tax amounts recorded in OCI related to the Company's Post- Retirement Plans for the years ended December 31:
| Pension Plans | Other Post-Retirement Plans | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Amortization of net actuarial losses | $ | 5.0 | $ | 2.8 | $ | 0.3 | $ | 0.1 | ||||||||
| Amortization of prior service costs | 0.6 | 0.7 | — | — | ||||||||||||
| Accelerated recognition of actuarial loss due to settlement | 1.6 | 1.3 | — | — | ||||||||||||
| Net actuarial (loss) arising during the period | (52.8 | ) | (11.2 | ) | (3.3 | ) | (1.2 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total recognized in Other Comprehensive Income – pre-tax |
$ | (45.6 | ) | $ | (6.4 | ) | $ | (3.0 | ) | $ | (1.1 | ) | ||||
|
|
|
|
|
|
|
|
|
|||||||||
ADDITIONAL INFORMATION:
Assumptions – Post-Retirement Plans
Weighted-average assumptions used to determine benefit obligations at December 31:
| Pension Plans | Other Post-Retirement Plans | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Discount rate | 4.25 | % | 5.39 | % | 4.05 | % | 5.15 | % | ||||||||
| Rate of compensation increase | 4.00 | % | 4.00 | % | — | — | ||||||||||
Weighted-average assumptions used to determine net periodic benefit expense for years ended December 31:
| Pension Plans | Other Post-Retirement Plans | |||||||||||||||||||||||
| 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | |||||||||||||||||||
| Discount rate | 5.39 | % | 5.95 | % | 6.00 | % | 5.15 | % | 5.75 | % | 6.25 | % | ||||||||||||
| Expected return on plan assets | 8.35 | % | 8.35 | % | 8.35 | % | — | — | — | |||||||||||||||
| Rate of compensation increase | 4.00 | % | 4.00 | % | 4.00 | % | — | — | — | |||||||||||||||
For 2011, the Company continued to use an expected rate of return on assets of 8.35% for Moody's funded pension plan. The expected rate of return on plan assets represents the Company's best estimate of the long-term return on plan assets and is determined by using a building block approach, which generally weighs the underlying long-term expected rate of return for each major asset class based on their respective allocation target within the plan portfolio. As the assumption reflects a long-term time horizon, the plan performance in any one particular year does not, by itself, significantly influence the Company's evaluation. For 2012, the expected rate of return used in calculating the net periodic benefit costs is 7.85%, which reflects the Company's most recent view of long-term capital market outlook and is commensurate with the returns expected to be generated by the plan assets under Company's current investment strategy, net of expenses.
Assumed Healthcare Cost Trend Rates at December 31:
| 2011 | 2010 | 2009 | ||||||||||||||||||||||
| Pre-age 65 | Post-age 65 | Pre-age 65 | Post-age 65 | Pre-age 65 | Post-age 65 | |||||||||||||||||||
|
Healthcare cost trend rate assumed for the following year |
7.4 | % | 8.4 | % | 7.9 | % | 8.9 | % | 8.4 | % | 9.4 | % | ||||||||||||
|
Ultimate rate to which the cost trend rate is assumed to decline (ultimate trend rate) |
|
5.0% |
|
5.0% | 5.0% | |||||||||||||||||||
| Year that the rate reaches the ultimate trend rate | 2020 | 2020 | 2020 | |||||||||||||||||||||
The assumed health cost trend rate reflects different expectations for the medical and prescribed medication components of health care costs for pre and post-65 retirees. As the Company subsidies for retiree healthcare coverage are capped at the 2005 level, for the majority of the post-retirement health plan participants, retiree contributions are assumed to increase at the same rate as the healthcare cost trend rates. As such, a one percentage-point increase or decrease in assumed healthcare cost trend rates would not have affected total service and interest cost and would have a minimal impact on the post-retirement benefit obligation.
In March 2010, the Patient Protection and Affordable Care Act (the "Act") and the related reconciliation measure, which modifies certain provisions of the Act, were signed into law. The Act repeals the current rule permitting deduction of the portion of the drug coverage expense that is offset by the Medicare Part D subsidy. The provision of the Act is effective for taxable years beginning after December 31, 2010 and the reconciliation measure delays the aforementioned repeal of the drug coverage expense reduction by two years to December 31, 2012. The Company has accounted for the enactment of the two laws in the first quarter of 2010, for which the impact to the Company's income tax expense and net income was immaterial. Other key provisions of the Act, such as coverage mandates, early retiree reinsurance program, and excise tax are also considered and their impacts on the benefit plan obligation of the Company's Other Post-Retirement Plans are deemed immaterial.
Plan Assets
Moody's investment objective for the assets in the funded pension plan is to earn total returns that will minimize future contribution requirements over the long-term within a prudent level of risk. The Company works with its independent investment consultants to determine asset allocation targets for its pension plan investment portfolio based on its assessment of business and financial conditions, demographic and actuarial data, funding characteristics, and related risk factors. Other relevant factors, including historical and forward –looking views of inflation and capital market returns, are also considered. Risk management practices include monitoring of the plan, diversification across asset classes and investment styles, and periodic rebalancing toward asset allocation targets. The Company's monitoring of the plan includes ongoing reviews of investment performance, annual liability measurements, periodic asset/liability studies, and investment portfolio reviews.
Prior to 2009, the Company's target asset allocation was approximately 70% in diversified U.S. and non-U.S. equity securities, 20% in long-duration investment grade government and corporate bonds, and 10% in private real estate funds. In 2009, the Company revised its target asset allocation to approximately 60% (range of 50% to 70%) in equity securities, 30% (range of 25% to 35%) in fixed income securities and 10% (range of 7% to 13%) in other investments based on the Company's pension asset-liability study conducted. The revised asset allocation policy is expected to earn a return comparable to the Company's prior allocation target over the long-term and the Company has rebalanced its pension plan assets in 2010 to comply with the revised policy.
In accordance with the revised asset allocation policy, the funded plan will use a combination of active and passive investment strategies and different investment styles for its investment portfolios within each asset class. The plan's equity investments are diversified across U.S. and non-U.S. stocks of small, medium and large capitalization. The plan's fixed income investments are diversified principally across U.S. and non-U.S. government and corporate bonds which are expected to help reduce plan exposure to interest rate variation and to better align assets with obligations. Approximately 3% of total plan assets may be invested in funds which invest in debts rated below investment grade and 3% may be invested in emerging market debt. The plan's other investments are made through private real estate and convertible securities funds and these investments are expected to provide additional diversification benefits and absolute return enhancement to the plan assets. The Company does not use derivatives to leverage the portfolio. The overall allocation is expected to help protect the plan's funded status while generating sufficiently stable returns over the long-term.
The fair value of the Company' pension plan assets by asset category at December 31, 2011, determined based on the hierarchy of fair value measurements as defined in Footnote 2, and at December 31, 2010 are as follows:
| Fair Value Measurement as of December 31, 2011 | ||||||||||||||||||||
|
Asset Category |
Balance | Level 1 | Level 2 | Level 3 | % of total assets |
|||||||||||||||
| Cash and cash equivalents | $ | 0.2 | $ | — | $ | 0.2 | $ | — | 0 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Emerging markets equity fund | 7.7 | $ | 7.7 | $ | — | — | 6 | % | ||||||||||||
| Common/collective trust funds – equity securities | ||||||||||||||||||||
|
U.S. large-cap |
26.4 | — | 26.4 | — | 20 | % | ||||||||||||||
|
U.S. small and mid-cap |
9.3 | — | 9.3 | — | 7 | % | ||||||||||||||
|
International |
30.4 | — | 30.4 | — | 23 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total equity investments | 73.8 | 7.7 | 66.1 | — | 56 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Common/collective trust funds – fixed income securities | ||||||||||||||||||||
|
Long-term investment grade government/corporate bonds |
28.8 | — | 28.8 | — | 21 | % | ||||||||||||||
|
U.S. Treasury Inflation-Protected Securities (TIPs) |
7.6 | — | 7.6 | — | 6 | % | ||||||||||||||
|
Emerging markets bonds |
4.5 | — | 4.5 | — | 3 | % | ||||||||||||||
|
High yield bonds |
3.6 | — | 3.6 | — | 3 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total fixed-income investments | 44.5 | — | 44.5 | — | 33 | % | ||||||||||||||
| Common/collective trust funds – convertible securities | 4.8 | — | 4.8 | — | 4 | % | ||||||||||||||
| Private real estate fund | 9.7 | — | — | 9.7 | 7 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total other investment | 14.5 | — | 4.8 | 9.7 | 11 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Assets | $ | 133.0 | $ | 7.7 | $ | 115.6 | $ | 9.7 | 100 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Fair Value Measurement as of December 31, 2010 | ||||||||||||||||||||
|
Asset Category |
Balance | Level 1 | Level 2 | Level 3 | % of total assets |
|||||||||||||||
| Emerging markets equity fund | $ | 10.3 | $ | 10.3 | $ | — | $ | — | 9 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Common/collective trust funds – equity securities | ||||||||||||||||||||
|
U.S. large-cap |
26.0 | — | 26.0 | — | 21 | % | ||||||||||||||
|
U.S. small and mid-cap |
9.6 | — | 9.6 | — | 8 | % | ||||||||||||||
|
International |
32.1 | — | 32.1 | — | 27 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total equity investments | 78.0 | 10.3 | 67.7 | — | 65 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Common/collective trust funds-fixed income securities | ||||||||||||||||||||
|
Long-term investment grade government/corporate bonds |
18.8 | — | 18.8 | — | 15 | % | ||||||||||||||
|
U.S. Treasury Inflation-Protected Securities (TIPs) |
5.4 | — | 5.4 | — | 4 | % | ||||||||||||||
|
Emerging markets bonds |
3.2 | — | 3.2 | — | 3 | % | ||||||||||||||
|
High yield bonds |
3.3 | — | 3.3 | — | 3 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total fixed-income investments | 30.7 | — | 30.7 | — | 25 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Common/collective trust funds – convertible securities | 3.4 | — | 3.4 | — | 3 | % | ||||||||||||||
| Private real estate fund | 8.3 | — | — | 8.3 | 7 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total other investment | 11.7 | — | 3.4 | 8.3 | 10 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Assets | $ | 120.4 | $ | 10.3 | $ | 101.8 | $ | 8.3 | 100 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalent is primarily comprised of investment in money market mutual funds. In determining fair value, Level 1 investments are valued based on quoted market prices in active markets. Investments in common/collective trust funds are valued using the net asset value (NAV) per unit in each fund. The NAV is based on the value of the underlying investments owned by each trust, minus its liabilities, and then divided by the number of shares outstanding. Common/collective trust funds are categorized in Level 2 to the extent that they are readily redeemable at their NAV or else they are categorized in Level 3 of the fair value hierarchy. The Company's investment in a private real estate fund is valued using the NAV per unit of funds that are invested in real property, and the real property is valued using independent market appraisals. Since appraisals involve utilization of significant unobservable inputs and the private real estate fund is not readily redeemable for cash, the Company's investment in the private real estate fund is categorized in Level 3.
The table below is a summary of changes in the fair value of the Plan's Level 3 assets:
| Real estate investment fund: | ||||
| Balance as of December 31, 2010 | $ | 8.3 | ||
| Return on plan assets related to assets held as of December 31, 2011 | 1.0 | |||
| Return on plan assets related to assets sold during the period | — | |||
| Purchases (sales), net | 0.4 | |||
|
|
|
|||
| Balance as of December 31, 2011 | $ | 9.7 | ||
|
|
|
Except for the Company's U.S. funded pension plan, all of Moody's Post-Retirement Plans are unfunded and therefore have no plan assets.
Cash Flows
The Company contributed $13.6 million to its funded pension plan during the year ended December 31, 2011 and made no contributions in 2010. The Company made payments of $11.8 million and $8.8 related to its U.S. unfunded pension plan obligations during the years ended December 31, 2011 and 2010, respectively and included in these amounts were lump sum settlement payments of $6.9 million and $7.0 million for 2011 and 2010, respectively. The Company made payments of $0.6 million and $0.5 million to its other U.S. post-retirement plans during the years ended December 31, 2011 and 2010, respectively. The Company presently anticipates making contributions of $17.5 million to its funded pension plan and anticipates making payments of $3.0 million to its unfunded U.S. pension plans and $0.8 million to its other U.S. post-retirement plans during the year ended December 31, 2012.
Estimated Future Benefits Payable
Estimated future benefits payments for the Post-Retirement Plans are as follows at ended December 31, 2011:
|
Year Ending December 31, |
Pension Plan | Other Post- Retirement Plans * |
||||||
| 2012 | $ | 7.0 | $ | 0.8 | ||||
| 2013 | 8.0 | 0.9 | ||||||
| 2014 | 8.8 | 1.0 | ||||||
| 2015 | 9.9 | 1.2 | ||||||
| 2016 | 11.3 | 1.3 | ||||||
| 2017 – 2021 | $ | 106.4 | $ | 8.2 | ||||
| * | The estimated future benefits payable for the Post-Retirement Plans are reflected net of the expected Medicare Part D subsidy for which the subsidy is insignificant on an annual basis for all the years presented. |
Defined Contribution Plans
Moody's has a Profit Participation Plan covering substantially all U.S. employees. The Profit Participation Plan provides for an employee salary deferral and the Company matches employee contributions with cash contributions equal to 50% of employee contribution up to a maximum of 3% of the employee's pay. Moody's also makes additional contributions to the Profit Participation Plan based on year-to-year growth in the Company's EPS. Effective January 1, 2008, all new hires are automatically enrolled in the Profit Participation Plan when they meet eligibility requirements unless they decline participation. As the Company's U.S. DBPPs are closed to new entrants effective January 1, 2008, all eligible new hires will instead receive a retirement contribution into the Profit Participation Plan in value similar to the pension benefits. Additionally, effective January 1, 2008, the Company implemented a deferred compensation plan in the U.S., which is unfunded and provides for employee deferral of compensation and Company matching contributions related to compensation in excess of the IRS limitations on benefits and contributions under qualified retirement plans. Total expenses associated with U.S. defined contribution plans were $14.9 million, $19.4 million and $9.1 million in 2011, 2010, and 2009, respectively.
Effective January 1, 2008, Moody's has designated the Moody's Stock Fund, an investment option under the Profit Participation Plan, as an Employee Stock Ownership Plan and, as a result, participants in the Moody's Stock Fund may receive dividends in cash or may reinvest such dividends into the Moody's Stock Fund. Moody's paid approximately $0.3 million in dividends in each of the years ended December 31, 2011 and 2010 for the Company's common shares held by the Moody's Stock Fund. The Company records the dividends as a reduction of retained earnings in the Consolidated Statements of Shareholders' Equity (Deficit). The Moody's Stock Fund held approximately 610,000 and 645,000 shares of Moody's common stock at December 31, 2011 and 2010, respectively.
International Plans
Certain of the Company's international operations provide pension benefits to their employees. For defined contribution plans, company contributions are primarily determined as a percentage of employees' eligible compensation. Moody's also makes contributions to non-U.S. employees under a profit sharing plan which is based on year-to-year growth in the Company's diluted EPS. Expenses related to these defined contribution plans for the years ended December 31, 2011, 2010 and 2009 were $16.3 million, $11.8 million and $5.7 million, respectively.
For defined benefit plans, the Company maintains various unfunded DBPPs and post-retirement health benefit plan for certain of its non-U.S. subsidiaries located in Germany, France and Canada. These unfunded DBPPs are generally based on each eligible employee's years of credited service and on compensation levels as specified in the plans. The DBPP in Germany was closed to new entrants in 2002. Total defined benefit pension liabilities recorded related to non-U.S. pension plans was $5.3 million, $4.6 million and $3.6 million based on a weighted average discount rate of 4.79%, 5.28%, and 5.56% at December 31, 2011, 2010 and 2009, respectively. The pension liabilities recorded as of December 31, 2011 represent the unfunded status of these pension plans and were recognized in the statement of financial position as non-current liabilities. Total pension expense recorded for the years ended December 31, 2011, 2010 and 2009 was approximately $0.6 million, $0.5 million and $0.4 million, respectively. These amounts are not included in the tables above. As of December 31, 2011, the Company has included in AOCI net actuarial gains of $0.8 million ($0.6 million net of tax) related to non-U.S. pension plans that have yet to be recognized as a reduction to net periodic pension expense and the Company expects its 2012 amortization of the net actuarial gains to be immaterial. The Company's non-U.S. other post-retirement benefit obligation is not material as of December 31, 2011.
|
|||
| NOTE 13 | STOCK-BASED COMPENSATION PLANS |
Presented below is a summary of the stock compensation cost and associated tax benefit in the accompanying Consolidated Statements of Operations:
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Stock compensation cost | $ | 56.7 | $ | 56.6 | $ | 57.4 | ||||||
| Tax benefit | $ | 18.1 | $ | 23.9 | $ | 20.9 | ||||||
The fair value of each employee stock option award is estimated on the date of grant using the Black-Scholes option-pricing model that uses the assumptions noted below. The expected dividend yield is derived from the annual dividend rate on the date of grant. The expected stock volatility is based on an assessment of historical weekly stock prices of the Company as well as implied volatility from Moody's traded options. The risk-free interest rate is based on U.S. government zero coupon bonds with maturities similar to the expected holding period. The expected holding period was determined by examining historical and projected post-vesting exercise behavior activity.
The following weighted average assumptions were used for options granted:
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Expected dividend yield | 1.53% | 1.58% | 1.59% | |||||||||
| Expected stock volatility | 41% | 44% | 38% | |||||||||
| Risk-free interest rate | 3.33% | 2.73% | 2.63% | |||||||||
| Expected holding period | 7.6 yrs | 5.9 yrs | 5.8 yrs | |||||||||
| Grant date fair value | $ | 12.49 | $ | 10.38 | $ | 8.52 | ||||||
Under the 1998 Plan, 33.0 million shares of the Company's common stock have been reserved for issuance. The 2001 Plan, which is shareholder approved, permits the granting of up to 35.6 million shares, of which not more than 15.0 million shares are available for grants of awards other than stock options. The 2001 Plan was amended and approved at the annual shareholders meeting on April 20, 2010, increasing the number of shares reserved for issuance by 7.0 million which are included in the aforementioned amounts. The Stock Plans provide that options are exercisable not later than ten years from the grant date. The vesting period for awards under the Stock Plans is generally determined by the Board at the date of the grant and has been four years except for employees who are at or near retirement eligibility, as defined, for which vesting is between one and four years. Additionally, the vesting period is three years for certain performance-based restricted stock that contain a condition whereby the number of shares that ultimately vest are based on the achievement of certain non-market based performance metrics of the Company. Options may not be granted at less than the fair market value of the Company's common stock at the date of grant. The Stock Plans also provide for the granting of restricted stock.
The Company maintains the Directors' Plan for its Board, which permits the granting of awards in the form of non-qualified stock options, restricted stock or performance shares. The Directors' Plan provides that options are exercisable not later than ten years from the grant date. The vesting period is determined by the Board at the date of the grant and is generally one year for options and between one and three years for restricted stock. Under the Directors' Plan, 0.8 million shares of common stock were reserved for issuance. Any director of the Company who is not an employee of the Company or any of its subsidiaries as of the date that an award is granted is eligible to participate in the Directors' Plan.
A summary of option activity as of December 31, 2011 and changes during the year then ended is presented below:
|
Options |
Shares | Weighted Average Exercise Price Per Share |
Weighted Average Remaining Contractual Term |
Aggregate Intrinsic Value |
||||||||||||
| Outstanding, December 31, 2010 | 19.3 | $ | 38.11 | |||||||||||||
| Granted | 0.6 | 30.59 | ||||||||||||||
| Exercised | (2.2 | ) | 23.21 | |||||||||||||
| Forfeited | (0.1 | ) | 28.49 | |||||||||||||
| Expired | (0.2 | ) | 50.34 | |||||||||||||
|
|
|
|||||||||||||||
| Outstanding, December 31, 2011 | 17.4 | $ | 39.60 | 4.7 yrs | $ | 64.6 | ||||||||||
|
|
|
|||||||||||||||
| Vested and expected to vest, December 31, 2011 | 17.0 | $ | 39.86 | 4.6 yrs | $ | 62.3 | ||||||||||
|
|
|
|||||||||||||||
| Exercisable, December 31, 2011 | 13.4 | $ | 42.94 | 3.8 yrs | $ | 41.0 | ||||||||||
|
|
|
|||||||||||||||
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between Moody's closing stock price on the last trading day of the year ended December 31, 2011 and the exercise prices, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options as of December 31, 2011. This amount varies based on the fair value of Moody's stock. As of December 31, 2011 there was $19.6 million of total unrecognized compensation expense related to options. The expense is expected to be recognized over a weighted average period of 1.4 years.
The following table summarizes information relating to stock option exercises:
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Proceeds from stock option exercises | $ | 50.3 | $ | 36.4 | $ | 18.0 | ||||||
| Aggregate intrinsic value | $ | 25.3 | $ | 19.7 | $ | 13.8 | ||||||
| Tax benefit realized upon exercise | $ | 9.6 | $ | 7.8 | $ | 5.4 | ||||||
A summary of the status of the Company's nonvested restricted stock as of December 31, 2011 and changes during the year then ended is presented below:
|
Nonvested Restricted Stock |
Shares | Weighted Average Grant Date Fair Value Per Share |
||||||
| Balance, December 31, 2010 | 2.0 | $ | 33.10 | |||||
|
Granted |
1.5 | 30.52 | ||||||
|
Vested |
(0.6 | ) | 38.42 | |||||
|
Forfeited |
(0.1 | ) | 29.89 | |||||
|
|
|
|||||||
| Balance, December 31, 2011 | 2.8 | $ | 30.65 | |||||
|
|
|
|||||||
As of December 31, 2011, there was $43.3 million of total unrecognized compensation expense related to nonvested restricted stock. The expense is expected to be recognized over a weighted average period of 1.7 years.
The following table summarizes information relating to the vesting of restricted stock awards:
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Fair value of vested shares | $ | 18.9 | $ | 12.4 | $ | 8.0 | ||||||
| Tax benefit realized upon vesting | $ | 6.9 | $ | 4.7 | $ | 2.9 | ||||||
A summary of the status of the Company's performance-based restricted stock as of December 31, 2011 and changes during the year then ended is presented below:
|
Performance based restricted stock |
Shares | Weighted Average Grant Date Fair Value Per Share |
||||||
| Balance, December 31, 2010 | 0.4 | $ | 25.33 | |||||
|
Granted |
0.4 | 28.76 | ||||||
|
Adjustment to shares expected to vest* |
0.2 | 26.63 | ||||||
|
|
|
|||||||
| Balance, December 31, 2011 | 1.0 | $ | 26.92 | |||||
|
|
|
|||||||
| * | The adjustment reflects additional shares expected to vest based on the Company's projected achievement of certain non-market based performance metrics as of December 31, 2011. |
As of December 31, 2011, there was $13.0 million of total unrecognized compensation expense related to this plan. The expense is expected to be recognized over a weighted average period of 0.9 years.
The Company has a policy of issuing treasury stock to satisfy shares issued under stock-based compensation plans.
In addition, the Company also sponsors the ESPP. Under the ESPP, 6.0 million shares of common stock were reserved for issuance. The ESPP allows eligible employees to purchase common stock of the Company on a monthly basis at a discount to the average of the high and the low trading prices on the New York Stock Exchange on the last trading day of each month. This discount was 5% in 2011, 2010 and 2009 resulting in the ESPP qualifying for non-compensatory status under Topic 718 of the ASC. Accordingly, no compensation expense was recognized for the ESPP in 2011 , 2010, and 2009. The employee purchases are funded through after-tax payroll deductions, which plan participants can elect from one percent to ten percent of compensation, subject to the annual federal limit.
|
|||
| NOTE 14 | INCOME TAXES |
Components of the Company's provision for income taxes are as follows:
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Current: | ||||||||||||
|
Federal |
$ | 133.6 | $ | 106.6 | $ | 99.2 | ||||||
|
State and Local |
28.1 | 22.1 | 53.3 | |||||||||
|
Non-U.S. |
89.8 | 82.9 | 70.1 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Total current |
251.5 | 211.6 | 222.6 | |||||||||
|
|
|
|
|
|
|
|||||||
| Deferred: | ||||||||||||
|
Federal |
9.3 | (14.7 | ) | 22.8 | ||||||||
|
State and Local |
7.0 | 10.6 | (9.3 | ) | ||||||||
|
Non-U.S. |
(6.0 | ) | (6.5 | ) | 3.0 | |||||||
|
|
|
|
|
|
|
|||||||
|
Total deferred |
10.3 | (10.6 | ) | 16.5 | ||||||||
|
|
|
|
|
|
|
|||||||
| Total provision for income taxes | $ | 261.8 | $ | 201.0 | $ | 239.1 | ||||||
|
|
|
|
|
|
|
|||||||
A reconciliation of the U.S. federal statutory tax rate to the Company's effective tax rate on income before provision for income taxes is as follows:
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| U.S. statutory tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
| State and local taxes, net of federal tax benefit | 2.7 | 2.9 | 4.4 | |||||||||
| Benefit of foreign operations | (6.3 | ) | (9.7 | ) | (2.4 | ) | ||||||
| Legacy tax items | (0.2 | ) | (0.4 | ) | (0.3 | ) | ||||||
| Other | — | 0.3 | 0.3 | |||||||||
|
|
|
|
|
|
|
|||||||
| Effective tax rate | 31.2 | % | 28.1 | % | 37.0 | % | ||||||
|
|
|
|
|
|
|
|||||||
| Income tax paid | $ | 191.4 | $ | 247.9 | $ | 192.2 | ||||||
|
|
|
|
|
|
|
|||||||
The source of income before provision for income taxes is as follows:
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| United States | $ | 469.1 | $ | 390.6 | $ | 386.9 | ||||||
| International | 370.7 | 323.8 | 259.3 | |||||||||
|
|
|
|
|
|
|
|||||||
| Income before provision for income taxes | $ | 839.8 | $ | 714.4 | $ | 646.2 | ||||||
|
|
|
|
|
|
|
|||||||
The components of deferred tax assets and liabilities are as follows:
| Year Ended December 31, | ||||||||
| 2011 | 2010 | |||||||
| Deferred tax assets: | ||||||||
|
Current: |
||||||||
|
Account receivable allowances |
$ | 8.0 | $ | 10.5 | ||||
|
Accrued compensation and benefits |
12.3 | 12.3 | ||||||
|
Deferred revenue |
5.8 | 6.0 | ||||||
|
Legal and professional fees |
9.8 | 13.1 | ||||||
|
Restructuring |
1.4 | 1.1 | ||||||
|
Uncertain tax positions |
43.6 | — | ||||||
|
Other |
3.4 | 4.9 | ||||||
|
|
|
|
|
|||||
|
Total current |
84.3 | 47.9 | ||||||
|
|
|
|
|
|||||
|
Non-current: |
||||||||
|
Accumulated depreciation and amortization |
1.3 | 1.6 | ||||||
|
Stock-based compensation |
89.6 | 84.9 | ||||||
|
Benefit plans |
82.7 | 62.8 | ||||||
|
Deferred rent and construction allowance |
30.5 | 30.4 | ||||||
|
Deferred revenue |
36.4 | 37.4 | ||||||
|
Foreign net operating loss (1) |
9.7 | 11.5 | ||||||
|
Uncertain tax positions |
21.2 | 58.8 | ||||||
|
Self-insured related reserves |
23.0 | 22.7 | ||||||
|
Other |
7.2 | 5.4 | ||||||
|
|
|
|
|
|||||
|
Total non-current |
301.6 | 315.5 | ||||||
|
|
|
|
|
|||||
| Total deferred tax assets | 385.9 | 363.4 | ||||||
|
|
|
|
|
|||||
| Deferred tax liabilities: | ||||||||
|
Current: |
||||||||
|
Other |
— | (0.2 | ) | |||||
|
|
|
|
|
|||||
|
Total Current |
— | (0.2 | ) | |||||
|
|
|
|
|
|||||
|
Non-current: |
||||||||
|
Accumulated depreciation |
(25.6 | ) | (16.4 | ) | ||||
|
Foreign earnings to be repatriated |
(2.6 | ) | (1.2 | ) | ||||
|
Amortization of intangible assets and capitalized software |
(135.7 | ) | (108.2 | ) | ||||
|
Self-insured related income |
(26.8 | ) | (27.1 | ) | ||||
|
Other liabilities |
(2.4 | ) | (1.5 | ) | ||||
|
|
|
|
|
|||||
|
Total non-current |
(193.1 | ) | (154.4 | ) | ||||
|
|
|
|
|
|||||
| Total deferred tax liabilities | (193.1 | ) | (154.6 | ) | ||||
|
|
|
|
|
|||||
| Net deferred tax asset | 192.8 | 208.8 | ||||||
| Valuation allowance | (13.9 | ) | (12.8 | ) | ||||
|
|
|
|
|
|||||
| Total net deferred tax assets | $ | 178.9 | $ | 196.0 | ||||
|
|
|
|
|
|||||
| (1) | Amounts are primarily set to expire beginning in 2015, if unused. |
Prepaid taxes of $27.6 million and $82.3 million for December 31, 2011 and 2010, respectively are included in other current assets in the consolidated balance sheets. As of December 31, 2011, the Company had approximately $956.1 million of undistributed earnings of foreign subsidiaries that it intends to indefinitely reinvest in foreign operations. The Company has not provided deferred income taxes on these indefinitely reinvested earnings. It is not practicable to determine the amount of deferred taxes that might be required to be provided if such earnings were distributed in the future, due to complexities in the tax laws and in the hypothetical calculations that would have to be made.
The Company had valuation allowances of $13.9 million and $12.8 million at December 31, 2011 and 2010, respectively, related to foreign net operating losses for which realization is uncertain. The change in the valuation allowances for 2011 and 2010 results primarily from the increase in valuation allowances in certain jurisdictions based on the Company's evaluation of the expected realization of these future benefits.
As of December 31, 2011 the Company had $205.4 million of UTPs of which $131.1 million represents the amount that, if recognized, would impact the effective tax rate in future periods.
A reconciliation of the beginning and ending amount of UTPs is as follows:
| 2011 | 2010 | 2009 | ||||||||||
| Balance as of January 1 | $ | 180.8 | $ | 164.2 | $ | 185.1 | ||||||
| Additions for tax positions related to the current year | 48.9 | 31.1 | 31.1 | |||||||||
| Additions for tax positions of prior years | 15.3 | 16.2 | 52.5 | |||||||||
| Reductions for tax positions of prior years | (27.3 | ) | (9.9 | ) | (47.0 | ) | ||||||
| Settlements with taxing authorities | (2.1 | ) | — | (50.7 | ) | |||||||
| Lapse of statute of limitations | (10.2 | ) | (20.8 | ) | (6.8 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Balance as of December 31 | $ | 205.4 | $ | 180.8 | $ | 164.2 | ||||||
|
|
|
|
|
|
|
|||||||
The Company classifies interest related to UTPs in interest expense in its consolidated statements of operations. Penalties, if incurred, would be recognized in other non-operating expenses. During 2011, the Company accrued net interest of $7 million related to UTPs. As of December 31, 2011 and 2010, the amount of accrued interest recorded in the Company's consolidated balance sheets related to UTPs was $41.5 million and $33.7 million, respectively.
Moody's Corporation and subsidiaries are subject to U.S. federal income tax as well as income tax in various state, local and foreign jurisdictions. The Company's U.S. federal income tax returns for the years 2008 and 2009 are under examination and its 2010 return remains open to examination. New York City income tax returns for the years 2008 through 2010 are currently under examination. In January 2012, the examination of the Company's New York State income tax returns for the years 2004 through 2010 was completed and resulted in a payment of approximately $89 million, including interest. This payment is not expected to have a material impact on the provision for income taxes or net income in 2012. Tax filings in the U.K. remain open to examination for tax years 2007 through 2010.
For current ongoing audits related to open tax years the Company estimates that it is reasonably possible that the balance of UTPs could decrease in the next twelve months as a result of the effective settlement of these audits. The Company believes that the effective settlement of tax audits in the next twelve months will result in a decrease in UTPs of $100 million to $120 million, including decreases associated with the above mentioned $89 million payment.
|
|||
| NOTE 15 | INDEBTEDNESS |
The following table summarizes total indebtedness:
| December 31, | ||||||||
| 2011 | 2010 | |||||||
| 2007 Facility | $ | — | $ | — | ||||
| Commercial paper | — | — | ||||||
| Notes payable: | ||||||||
|
Series 2005-1 Notes due 2015, including fair value of interest rate swap of $11.5 million at 2011 and $(3.7) million at 2010 |
311.5 | 296.3 | ||||||
|
Series 2007-1 Notes due in 2017 |
300.0 | 300.0 | ||||||
|
2010 Senior Notes, due 2020, net of unamortized discount of $2.7 million and $3.0 million in 2011 and 2010, respectively |
497.3 | 497.0 | ||||||
| 2008 Term Loan, various payments through 2013 | 135.0 | 146.3 | ||||||
|
|
|
|
|
|||||
| Total debt | 1,243.8 | 1,239.6 | ||||||
| Current portion | (71.3 | ) | (11.3 | ) | ||||
|
|
|
|
|
|||||
| Total long-term debt | $ | 1,172.5 | $ | 1,228.3 | ||||
|
|
|
|
|
|||||
2007 Facility
On September 28, 2007, the Company entered into a $1.0 billion five-year senior, unsecured revolving credit facility, expiring in September 2012. The 2007 Facility will serve, in part, to support the Company's CP Program described below. Interest on borrowings is payable at rates that are based on LIBOR plus a premium that can range from 16.0 to 40.0 basis points of the outstanding borrowing amount depending on the Debt/EBITDA ratio. The Company also pays quarterly facility fees, regardless of borrowing activity under the 2007 Facility. The quarterly fees for the 2007 Facility can range from 4.0 to 10.0 basis points per annum of the facility amount, depending on the Company's Debt/EBITDA ratio. The Company also pays a utilization fee of 5.0 basis points on borrowings outstanding when the aggregate amount outstanding exceeds 50% of the total facility. The 2007 Facility contains certain covenants that, among other things, restrict the ability of the Company and certain of its subsidiaries, without the approval of the lenders, to engage in mergers, consolidations, asset sales, transactions with affiliates and sale-leaseback transactions or to incur liens, as defined in the related agreement. The 2007 Facility also contains financial covenants that, among other things, require the Company to maintain a Debt/EBITDA ratio of not more than 4.0 to 1.0 at the end of any fiscal quarter.
Commercial Paper
On October 3, 2007, 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. Amounts available under the CP Program may be re-borrowed. The CP Program is supported by the Company's 2007 Facility. The maturities 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 at the time of issuance. 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.
Notes Payable
On November 4, 2011, in connection with the acquisition of Copal, a subsidiary of the Company issued a $14.2 million non-interest bearing note to the sellers which represented a portion of the consideration transferred to acquire the Copal entities. If a seller subsequently transfers to the Company all of its shares, the Company must repay the seller its proportion of the principal on the later of (i) the fourth anniversary date of the note or (ii) within a time frame set forth in the acquisition agreement relating to the resolution of certain income tax uncertainties pertaining to the transaction. Otherwise, the Company must repay any amount outstanding on the earlier of (i) two business days subsequent to the exercise of the put/call option to acquire the remaining shares of Copal of (ii) the tenth anniversary date of the issuance of the note. The Company has the right to offset payment of the note against certain indemnification assets associated with UTPs related to the acquisition, which are more fully discussed in Note 7. Accordingly, the Company has offset the liability for this note against the indemnification asset, thus no balance for this note is carried on the Company's consolidated balance sheet at December 31, 2011. In the event that the Company would not be required to settle amounts related to the UTPs, the Company would be required to pay the sellers the principal in accordance with the note agreement. The Company may prepay the note in accordance with certain terms set forth in the acquisition agreement.
On August 19, 2010, the Company issued $500 million aggregate principal amount of senior unsecured notes in a public offering. The 2010 Senior Notes bear interest at a fixed rate of 5.50% and mature on September 1, 2020. Interest on the 2010 Senior Notes will be due semi-annually on September 1 and March 1 of each year, commencing March 1, 2011. The Company may prepay the 2010 Senior Notes, in whole or in part, at any time at a price equal to 100% of the principal amount being prepaid, plus accrued and unpaid interest and a Make-Whole Amount. Additionally, 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 Indenture, at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase. The 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 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 Indenture 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 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 Indenture, the 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 then outstanding.
On September 7, 2007, the Company issued and sold through a private placement transaction, $300.0 million aggregate principal amount of its 6.06% Series 2007-1 Senior Unsecured Notes due 2017 pursuant to the 2007 Agreement. The Series 2007-1 Notes have a ten-year term and bear interest at an annual rate of 6.06%, payable semi-annually on March 7 and September 7. Under the terms of the 2007 Agreement, the Company may, from time to time within five years, in its sole discretion, issue additional series of senior notes in an aggregate principal amount of up to $500.0 million pursuant to one or more supplements to the 2007 Agreement. The Company may prepay the Series 2007-1 Notes, in whole or in part, at any time at a price equal to 100% of the principal amount being prepaid, plus accrued and unpaid interest and a Make Whole Amount. The 2007 Agreement contains covenants that limit the ability of the Company, and certain of its subsidiaries to, among other things: enter into transactions with affiliates, dispose of assets, incur or create liens, enter into any sale-leaseback transactions, or merge with any other corporation or convey, transfer or lease substantially all of its assets. The Company must also not permit its Debt/EBITDA ratio to exceed 4.0 to 1.0 at the end of any fiscal quarter.
On September 30, 2005, the Company issued and sold through a private placement transaction, $300.0 million aggregate principal amount of its Series 2005-1 Senior Unsecured Notes due 2015 pursuant to the 2005 Agreement. The Series 2005-1 Notes have a ten-year term and bear interest at an annual rate of 4.98%, payable semi-annually on March 30 and September 30. Proceeds from the sale of the Series 2005-1 Notes were used to refinance $300.0 million aggregate principal amount of the Company's outstanding 7.61% senior notes which matured on September 30, 2005. In the event that Moody's pays all, or part, of the Series 2005-1 Notes in advance of their maturity, such prepayment will be subject to a Make Whole Amount. The Series 2005-1 Notes are subject to certain covenants that, among other things, restrict the ability of the Company and certain of its subsidiaries, without the approval of the lenders, to engage in mergers, consolidations, asset sales, transactions with affiliates and sale-leaseback transactions or to incur liens, as defined in the related agreements.
2008 Term Loan
On May 7, 2008, Moody's entered into a five-year, $150.0 million senior unsecured term loan with several lenders. Proceeds from the loan were used to pay off a portion of the CP outstanding. Interest on borrowings under the 2008 Term Loan is payable quarterly at rates that are based on LIBOR plus a margin that can range from 125 basis points to 175 basis points depending on the Company's Debt/EBITDA ratio. The outstanding borrowings shall amortize in accordance with the schedule of payments set forth in the 2008 Term Loan outlined in the table below.
The 2008 Term Loan contains restrictive covenants that, among other things, restrict the ability of the Company to engage or to permit its subsidiaries to engage in mergers, consolidations, asset sales, transactions with affiliates and sale-leaseback transactions or to incur, or permit its subsidiaries to incur, liens, in each case, subject to certain exceptions and limitations. The 2008 Term Loan also limits the amount of debt that subsidiaries of the Company may incur. In addition, the 2008 Term Loan contains a financial covenant that requires the Company to maintain a Debt/EBITDA ratio of not more than 4.0 to 1.0 at the end of any fiscal quarter.
The principal payments due on the Company's long-term borrowings for each of the next five years are presented in the table below:
| 2008 Term Loan | Series 2005-1 Notes | Total | ||||||||||
|
Year Ending December 31, |
||||||||||||
| 2012 | $ | 71.3 | $ | — | $ | 71.3 | ||||||
| 2013 | 63.7 | — | 63.7 | |||||||||
| 2014 | — | — | — | |||||||||
| 2015 | — | 300.0 | 300.0 | |||||||||
| 2016 | — | — | — | |||||||||
|
|
|
|
|
|
|
|||||||
| Total | $ | 135.0 | $ | 300.0 | $ | 435.0 | ||||||
In the fourth quarter of 2010, the Company entered into interest rate swaps with a total notional amount of $300 million which will convert the fixed rate of interest on the Series 2005-1 Notes to a floating LIBOR-based interest rate. Also, on May 7, 2008, the Company entered into interest rate swaps with a total notional amount of $150 million to protect against fluctuations in the LIBOR-based variable interest rate on the 2008 Term Loan. Both of these interest rate swaps are more fully discussed in Note 5 above.
INTEREST EXPENSE, NET
The following table summarizes the components of interest as presented in the consolidated statements of operations:
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Income | $ | 5.3 | $ | 3.1 | $ | 2.5 | ||||||
| Expense on borrowings | (65.5 | ) | (52.2 | ) | (45.5 | ) | ||||||
| UTBs and other tax related interest | (8.7 | ) | (7.7 | ) | 1.6 | |||||||
| Legacy Tax (a) | 3.7 | 2.5 | 6.5 | |||||||||
| Interest capitalized | 3.1 | 1.8 | 1.5 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total | $ | (62.1 | ) | $ | (52.5 | ) | $ | (33.4 | ) | |||
|
|
|
|
|
|
|
|||||||
| Interest paid | $ | 67.2 | $ | 44.0 | $ | 46.1 | ||||||
|
|
|
|
|
|
|
|||||||
| (a) | Represents a reduction of accrued interest related to the favorable resolution of Legacy Tax Matters, further discussed in Note 18 to the consolidated financial statements. |
Net interest expense of $33.4 million in 2009 reflects a reduction of approximately $12 million related to tax and tax-related liabilities.
At December 31, 2011, the Company was in compliance with all covenants contained within all of the debt agreements. In addition to the covenants described above, the 2007 Facility, the 2005 Agreement, the 2007 Agreement, the 2010 Senior Notes and the 2008 Term Loan contain cross default provisions whereby 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.
The Company's long-term debt, including the current portion, is recorded at cost except for the Series 2005-1 Notes which are carried at cost adjusted for the fair value of an interest rate swap used to hedge the fair value of the note. The fair value and carrying value of the Company's long-term debt as of December 31, 2011 and 2010 is as follows:
| December 31, 2011 | December 31, 2010 | |||||||||||||||
| Carrying Amount |
Estimated Fair Value |
Carrying Amount |
Estimated Fair Value |
|||||||||||||
| Series 2005-1 Notes* | $ | 311.5 | $ | 316.5 | $ | 296.3 | $ | 310.6 | ||||||||
| Series 2007-1 Notes | 300.0 | 332.7 | 300.0 | 321.3 | ||||||||||||
| 2010 Senior Notes | 497.3 | 525.6 | 497.0 | 492.1 | ||||||||||||
| 2008 Term Loan | 135.0 | 135.0 | 146.3 | 146.3 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total | $ | 1,243.8 | $ | 1,309.8 | $ | 1,239.6 | $ | 1,270.3 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| * | The carrying amount includes an $11.5 million and ($3.7) million fair value adjustment on an interest rate hedge at December 31, 2011 and 2010, respectively. |
The fair value of the Company's 2010 Senior Notes is based on quoted market prices. The fair value of the remaining long-term debt, which is not publicly traded, is estimated using discounted cash flows based on prevailing interest rates available to the Company for borrowings with similar maturities.
|
|||
| NOTE 16 | CAPITAL STOCK |
Authorized Capital Stock
The total number of shares of all classes of stock that the Company has authority to issue under its Restated Certificate of Incorporation is 1.02 billion shares with a par value of $0.01, of which 1.0 billion are shares of common stock, 10.0 million are shares of preferred stock and 10.0 million are shares of series common stock. The preferred stock and series common stock can be issued with varying terms, as determined by the Board.
Share Repurchase Program
The Company implemented a systematic share repurchase program in the third quarter of 2005 through an SEC Rule 10b5-1 program. Moody's may also purchase opportunistically when conditions warrant. On July 30, 2007, the Board of the Company authorized a $2.0 billion share repurchase program, which the Company began utilizing in January 2008. There is no established expiration date for the remaining authorization. The Company's intent is to return capital to shareholders in a way that serves their long-term interests. As a result, Moody's share repurchase activity will continue to vary from quarter to quarter.
During 2011, Moody's repurchased 11.0 million shares of its common stock under the aforementioned July 30, 2007 authorization, and issued 2.9 million shares under employee stock-based compensation plans.
Dividends
During the years ended December 31, 2011, 2010 and 2009, the Company paid dividends of:
| Dividends Paid Per Share | ||||||||||||
| Year ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| First quarter | $ | 0.115 | $ | 0.105 | $ | 0.10 | ||||||
| Second quarter | 0.14 | 0.105 | 0.10 | |||||||||
| Third quarter | 0.14 | 0.105 | 0.10 | |||||||||
| Fourth quarter | 0.14 | 0.105 | 0.10 | |||||||||
|
|
|
|
|
|
|
|||||||
| Year ended December 31, | $ | 0.535 | $ | 0.42 | $ | 0.40 | ||||||
|
|
|
|
|
|
|
|||||||
On December 13, 2011, the Board of the Company approved the declaration of a quarterly dividend of $0.16 per share of Moody's common stock, payable on March 10, 2012 to shareholders of record at the close of business on February 20, 2012. The continued payment of dividends at the rate noted above, or at all, is subject to the discretion of the Board.
|
|||
| NOTE 17 | LEASE COMMITMENTS |
Moody's operates its business from various leased facilities, which are under operating leases that expire over the next 16 years. Moody's also leases certain computer and other equipment under operating leases that expire over the next five years. Rent expense, including lease incentives, is amortized on a straight-line basis over the related lease term. Rent expense under operating leases for the years ended December 31, 2011, 2010 and 2009 was $73.1 million, $70.9 million and $74.3 million, respectively. The amount of deferred rent that is included in other liabilities in the consolidated balance sheets is $110.5 million and $103.1 million at December 31, 2011 and 2010, respectively.
The approximate minimum rent for operating leases that have remaining or original non-cancelable lease terms in excess of one year at December 31, 2011 is as follows:
|
Year Ending December 31, |
Operating Leases | |||
| 2012 | $ | 73.0 | ||
| 2013 | 70.6 | |||
| 2014 | 62.8 | |||
| 2015 | 55.1 | |||
| 2016 | 51.0 | |||
| Thereafter | 537.6 | |||
|
|
|
|||
| Total minimum lease payments | $ | 850.1 | ||
|
|
|
|||
On October 20, 2006, the Company entered into a 21-year operating lease agreement to occupy 15 floors of an office building at 7WTC which includes a total of 20 years of renewal options. On March 28, 2007 the 7WTC lease agreement was amended for the Company to lease an additional two floors for a term of 20 years. The total base rent for the entire lease term, including rent credits, for the 7WTC lease is approximately $642 million. As of December 31, 2011, the company has a remaining obligation of $536.2 million.
On February 6, 2008, the Company entered into a 17.5 year operating lease agreement to occupy six floors of an office tower located in the Canary Wharf district of London, England. The total base rent of the Canary Wharf Lease over its 17.5-year term is approximately 134 million GBP, and the Company began making base rent payments in 2011. As of December 31, 2011, the company has a remaining obligation of $201.4 million. In addition to the base rent payments the Company is obligated to pay certain customary amounts for its share of operating expenses and tax obligation.
|
|||
| NOTE 18 | CONTINGENCIES |
From time to time, Moody's is involved in legal and tax proceedings, governmental investigations, claims and litigation that are incidental to the Company's business, including claims based on ratings assigned by MIS. Moody's is also subject to ongoing tax audits in the normal course of business. Management periodically assesses the Company's liabilities and contingencies in connection with these matters based upon the latest information available. Moody's discloses material pending legal proceedings pursuant to SEC rules and other pending matters as it may determine to be appropriate.
Following the events in the U.S. subprime residential mortgage sector and the credit markets more broadly over the last several years, MIS and other credit rating agencies are the subject of intense scrutiny, increased regulation, ongoing investigation, and civil litigation. Legislative, regulatory and enforcement entities around the world are considering additional legislation, regulation and enforcement actions, including with respect to MIS's compliance with newly imposed regulatory standards. Moody's has received subpoenas and inquiries from states attorneys general and other governmental authorities and is responding to such investigations and inquiries.
In addition, the Company is facing litigation from market participants relating to the performance of MIS rated securities. Although Moody's in the normal course experiences such litigation, the volume and cost of defending such litigation has significantly increased following the events in the U.S. subprime residential mortgage sector and the credit markets more broadly over the last several years.
On June 27, 2008, the Brockton Contributory Retirement System, a purported shareholder of the Company's securities, filed a purported shareholder derivative complaint on behalf of the Company against its directors and certain senior officers, and the Company as nominal defendant, in the Supreme Court of the State of New York, County of New York. The plaintiff asserts various causes of action relating to the named defendants' oversight of MIS's ratings of RMBS and constant-proportion debt obligations, and their participation in the alleged public dissemination of false and misleading information about MIS's ratings practices and/or a failure to implement internal procedures and controls to prevent the alleged wrongdoing. The plaintiff seeks compensatory damages, restitution, disgorgement of profits and other equitable relief. On July 2, 2008, Thomas R. Flynn, a purported shareholder of the Company's securities, filed a similar purported shareholder derivative complaint on behalf of the Company against its directors and certain senior officers, and the Company as nominal defendant, in the Supreme Court of the State of New York, County of New York, asserting similar claims and seeking the same relief. The cases have been consolidated and plaintiffs filed an amended consolidated complaint in November 2008. The Company removed the consolidated action to the United States District Court for the Southern District of New York in December 2008. In January 2009, the plaintiffs moved to remand the case to the Supreme Court of the State of New York, which the Company opposed. On February 23, 2010, the court issued an opinion remanding the case to the Supreme Court of New York. On October 30, 2008, the Louisiana Municipal Police Employees Retirement System, a purported shareholder of the Company's securities, also filed a shareholder derivative complaint on behalf of the Company against its directors and certain officers, and the Company as a nominal defendant, in the U.S. District Court for the Southern District of New York. This complaint also asserts various causes of action relating to the Company's ratings of RMBS, CDO and constant-proportion debt obligations, and named defendants' participation in the alleged public dissemination of false and misleading information about MIS's ratings practices and/or a failure to implement internal procedures and controls to prevent the alleged wrongdoing. On December 9, 2008, Rena Nadoff, a purported shareholder of the Company, filed a shareholder derivative complaint on behalf of the Company against its directors and its CEO, and the Company as a nominal defendant, in the Supreme Court of the State of New York. The complaint asserts a claim for breach of fiduciary duty in connection with alleged overrating of asset-backed securities and underrating of municipal securities. On October 20, 2009, the Company moved to dismiss or stay the action in favor of related federal litigation. On January 26, 2010, the court entered a stipulation and order, submitted jointly by the parties, staying the Nadoff litigation pending coordination and prosecution of similar claims in the above and below described federal derivative actions. On July 6, 2009, W. A. Sokolowski, a purported shareholder of the Company, filed a purported shareholder derivative complaint on behalf of the Company against its directors and current and former officers, and the Company as a nominal defendant, in the United States District Court for the Southern District of New York. The complaint asserts claims relating to alleged mismanagement of the Company's processes for rating structured finance transactions, alleged insider trading and causing the Company to buy back its own stock at artificially inflated prices.
Two purported class action complaints have been filed by purported purchasers of the Company's securities against the Company and certain of its senior officers, asserting claims under the federal securities laws. The first was filed by Raphael Nach in the U.S. District Court for the Northern District of Illinois on July 19, 2007. The second was filed by Teamsters Local 282 Pension Trust Fund in the U.S. District Court for the Southern District of New York on September 26, 2007. Both actions have been consolidated into a single proceeding entitled In re Moody's Corporation Securities Litigation in the U.S. District Court for the Southern District of New York. On June 27, 2008, a consolidated amended complaint was filed, purportedly on behalf of all purchasers of the Company's securities during the period February 3, 2006 through October 24, 2007. Plaintiffs allege that the defendants issued false and/or misleading statements concerning the Company's business conduct, business prospects, business conditions and financial results relating primarily to MIS's ratings of structured finance products including RMBS, CDO and constant-proportion debt obligations. The plaintiffs seek an unspecified amount of compensatory damages and their reasonable costs and expenses incurred in connection with the case. The Company moved for dismissal of the consolidated amended complaint in September 2008. On February 23, 2009, the court issued an opinion dismissing certain claims and sustaining others. On January 22, 2010, plaintiffs moved to certify a class of individuals who purchased Moody's Corporation common stock between February 3, 2006 and October 24, 2007, which the Company opposed. On March 31, 2011, the court issued an opinion denying plaintiffs' motion to certify the proposed class. On April 14, 2011, plaintiffs filed a petition in the United States Court of Appeals for the Second Circuit seeking discretionary permission to appeal the decision. The Company filed its response to the petition on April 25, 2011. On July 20, 2011, the Second Circuit issued an order denying plaintiffs' petition for leave to appeal.
For claims, litigation and proceedings not related to income taxes, where it is both probable that a liability is expected to be incurred and the amount of loss can be reasonably estimated, the Company records liabilities in the consolidated financial statements and periodically adjusts these as appropriate. In other instances, because of uncertainties related to the probable outcome and/or the amount or range of loss, management does not record a liability but discloses the contingency if significant. As additional information becomes available, the Company adjusts its assessments and estimates of such matters accordingly. In view of the inherent difficulty of predicting the outcome of litigation, regulatory, enforcement and similar matters and contingencies, particularly where the claimants seek large or indeterminate damages or where the parties assert novel legal theories or the matters involve a large number of parties, the Company cannot predict what the eventual outcome of the pending matters will be or the timing of any resolution of such matters. The Company also cannot predict the impact (if any) that any such matters may have on how its business is conducted, on its competitive position or on its financial position, results of operations or cash flows. As the process to resolve the pending matters referred to above progresses, management will continue to review the latest information available and assess its ability to predict the outcome of such matters and the effects, if any, on its operations and financial condition. However, in light of the inherent uncertainties involved in these matters, the large or indeterminate damages sought in some of them and the novel theories of law asserted, an estimate of the range of possible losses cannot be made at this time. For income tax matters, the Company employs the prescribed methodology of Topic 740 of the ASC which requires a company to first determine whether it is more-likely-than-not (defined as a likelihood of more than fifty percent) that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more-likely-than-not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority.
Legacy Tax Matters
Moody's continues to have exposure to potential liabilities arising from Legacy Tax Matters. As of December 31, 2011, Moody's has recorded liabilities for Legacy Tax Matters totaling $54.6 million. This includes liabilities and accrued interest due to New D&B arising from the 2000 Distribution Agreement. It is possible that the ultimate liability for Legacy Tax Matters could be greater than the liabilities recorded by the Company, which could result in additional charges that may be material to Moody's future reported results, financial position and cash flows.
The following summary of the relationships among Moody's, New D&B and their predecessor entities is important in understanding the Company's exposure to the Legacy Tax Matters.
In November 1996, The Dun & Bradstreet Corporation separated into three separate public companies: The Dun & Bradstreet Corporation, ACNielsen Corporation and Cognizant Corporation. In June 1998, The Dun & Bradstreet Corporation separated into two separate public companies: Old D&B and R.H. Donnelley Corporation. During 1998, Cognizant separated into two separate public companies: IMS Health Incorporated and Nielsen Media Research, Inc. In September 2000, Old D&B separated into two separate public companies: New D&B and Moody's.
Old D&B and its predecessors entered into global tax planning initiatives in the normal course of business. These initiatives are subject to normal review by tax authorities. Old D&B and its predecessors also entered into a series of agreements covering the sharing of any liabilities for payment of taxes, penalties and interest resulting from unfavorable IRS determinations on certain tax matters, and certain other potential tax liabilities, all as described in such agreements. Further, in connection with the 2000 Distribution and pursuant to the terms of the 2000 Distribution Agreement, New D&B and Moody's have agreed on the financial responsibility for any potential liabilities related to these Legacy Tax Matters.
At the time of the 2000 Distribution, New D&B paid Moody's $55.0 million for 50% of certain anticipated future tax benefits through 2012. In the event that these tax benefits are not claimed or otherwise not realized by New D&B, or there is an IRS audit of New D&B impacting these tax benefits, Moody's would be required to repay to New D&B an amount equal to the discounted value of its share of the related future tax benefits as well as its share of any tax liability incurred by New D&B. In June 2011, the statute of limitations for New D&B relating to the 2004 tax year expired. As a result, in the second quarter of 2011, Moody's recorded a reduction of accrued interest expense of $2.8 million ($1.7 million, net of tax) and an increase in other non-operating income of $6.4 million, relating to amounts due to New D&B. As of December 31, 2011, Moody's liability with respect to this matter totaled $52.6 million.
Additionally, in April 2011, Moody's received a refund of $0.9 million ($0.6 million, net of tax) for interest assessed related to pre-spinoff tax years. Coupled with the $6.4 million noted above (and related interest of $1.7 million), net legacy tax benefits were $8.7 million in the year ended December 31, 2011 of which $7 million was deemed to be unusual in nature.
In 2005, settlement agreements were executed with the IRS with respect to certain Legacy Tax Matters related to the years 1989-1990 and 1993-1996. With respect to these settlements, Moody's and New D&B believed that IMS Health and NMR did not pay their full share of the liability to the IRS under the terms of the applicable separation agreements between the parties. Moody's and New D&B subsequently paid these amounts to the IRS and commenced arbitration proceedings against IMS Health and NMR to resolve this dispute. Pursuant to these arbitration proceedings, the Company received $10.8 million ($6.5 million as a reduction of interest expense and $4.3 million as a reduction of tax expense) in 2009. The aforementioned settlement payment resulted in net income benefits of $8.2 million in 2009. The Company continues to carry a $2 million liability for this matter.
In 2006, New D&B and Moody's each deposited $39.8 million with the IRS in order to stop the accrual of statutory interest on potential tax deficiencies with respect to the 1997 through 2002 tax years. In 2007, New D&B and Moody's requested a return of that deposit. The IRS applied a portion of the deposit in satisfaction of an assessed deficiency and returned the balance to the Company. Moody's subsequently pursued a refund for a portion of the outstanding amount. In May 2010, the IRS refunded $5.2 million to the Company for the 1997 tax year, which included interest of approximately $2.5 million resulting in an after-tax benefit of $4.6 million.
|
|||
| NOTE 19 | SEGMENT INFORMATION |
The Company operates in two reportable segments: MIS and MA. The rating agency is reported in the MIS segment and all of Moody's other non-rating commercial activities are reported in the MA segment.
Revenue for MIS and expenses for MA include an intersegment royalty charged to MA for the rights to use and distribute content, data and products developed by MIS. Also, revenue for MA and expenses for MIS include an intersegment license fee charged to MIS from MA for certain MA products and services utilized in MIS's ratings process. Additionally, overhead costs and corporate expenses of the Company which exclusively benefit only one segment, are fully charged to that segment. Overhead costs and corporate expenses of the Company which benefit both segments are allocated to each segment based on a revenue-split methodology. Overhead expenses include costs such as rent and occupancy, information technology and support staff such as finance, human resource and information technology. Beginning on January 1, 2011, the Company refined its methodology for allocating the aforementioned overhead and corporate costs to its segments to better align the costs allocated based on each segments usage of the overhead services. The refined methodology is reflected in the segment results for the year ended December 31, 2011 and accordingly, the segment results for the year ended December 31, 2010 and 2009 have been reclassified to conform to the new presentation. "Eliminations" in the table below represent intersegment royalty/license revenue/expense.
FINANCIAL INFORMATION BY SEGMENT:
| Year Ended December 31, | ||||||||||||||||||||||||||||||||
| 2011 | 2010 | |||||||||||||||||||||||||||||||
| MIS | MA | Eliminations | Consolidated | MIS | MA | Eliminations | Consolidated | |||||||||||||||||||||||||
| Revenue | $ | 1,634.7 | $ | 722.4 | $ | (76.4 | ) | $ | 2,280.7 | $ | 1,466.3 | $ | 636.3 | $ | (70.6 | ) | $ | 2,032.0 | ||||||||||||||
| Expenses: | ||||||||||||||||||||||||||||||||
|
Operating, SG&A |
831.0 | 558.5 | (76.4 | ) | 1,313.1 | 781.5 | 481.9 | (70.6 | ) | 1,192.8 | ||||||||||||||||||||||
|
Restructuring |
— | — | — | — | 0.1 | — | — | 0.1 | ||||||||||||||||||||||||
|
Depreciation and amortization |
41.0 | 38.2 | — | 79.2 | 35.0 | 31.3 | — | 66.3 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total |
872.0 | 596.7 | (76.4 | ) | 1,392.3 | 816.6 | 513.2 | (70.6 | ) | 1,259.2 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Operating income | $ | 762.7 | $ | 125.7 | $ | — | $ | 888.4 | $ | 649.7 | $ | 123.1 | $ | — | $ | 772.8 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Year Ended December 31, | ||||||||||||||||
| 2009 | ||||||||||||||||
| MIS | MA | Eliminations | Consolidated | |||||||||||||
| Revenue | $ | 1,277.7 | $ | 590.1 | $ | (70.6 | ) | $ | 1,797.2 | |||||||
| Expenses: | ||||||||||||||||
|
Operating, SG&A |
674.7 | 424.0 | (70.6 | ) | 1,028.1 | |||||||||||
|
Restructuring |
8.7 | 8.8 | — | 17.5 | ||||||||||||
|
Depreciation and amortization |
31.3 | 32.8 | — | 64.1 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
714.7 | 465.6 | (70.6 | ) | 1,109.7 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Operating income | $ | 563.0 | $ | 124.5 | $ | — | $ | 687.5 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The cumulative restructuring charges from inception through December 31, 2011 incurred for both the 2007 and 2009 Restructuring Plans, which are further discussed in Note 11 above, are $48.9 million and $16.2 million for the MIS and MA operating segments, respectively.
MIS AND MA REVENUE BY LINE OF BUSINESS
The tables below present revenue by LOB:
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| MIS: | ||||||||||||
| Corporate finance (CFG) | $ | 652.1 | $ | 563.9 | $ | 408.2 | ||||||
| Structured finance (SFG) | 344.6 | 290.8 | 304.9 | |||||||||
| Financial institutions (FIG) | 294.9 | 278.7 | 258.5 | |||||||||
| Public, project and infrastructure finance (PPIF) | 277.3 | 271.6 | 246.1 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Total external revenue |
1,568.9 | 1,405.0 | 1,217.7 | |||||||||
| Intersegment royalty | 65.8 | 61.3 | 60.0 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total | 1,634.7 | 1,466.3 | 1,277.7 | |||||||||
|
|
|
|
|
|
|
|||||||
| MA: | ||||||||||||
| Research, data and analytics (RD&A) | 451.3 | 425.0 | 413.6 | |||||||||
| Risk management software (RMS) | 183.4 | 173.2 | 145.1 | |||||||||
| Professional services | 77.1 | 28.8 | 20.8 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Total external revenue |
711.8 | 627.0 | 579.5 | |||||||||
| Intersegment license fee | 10.6 | 9.3 | 10.6 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total | 722.4 | 636.3 | 590.1 | |||||||||
|
|
|
|
|
|
|
|||||||
| Eliminations | (76.4 | ) | (70.6 | ) | (70.6 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Total MCO | $ | 2,280.7 | $ | 2,032.0 | $ | 1,797.2 | ||||||
|
|
|
|
|
|
|
|||||||
CONSOLIDATED REVENUE INFORMATION BY GEOGRAPHIC AREA
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Revenue: | ||||||||||||
| U.S. | $ | 1,177.0 | $ | 1,089.5 | $ | 920.8 | ||||||
|
|
|
|
|
|
|
|||||||
| International: | ||||||||||||
|
EMEA |
708.4 | 627.4 | 624.7 | |||||||||
|
Other |
395.3 | 315.1 | 251.7 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Total International |
1,103.7 | 942.5 | 876.4 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total | $ | 2,280.7 | $ | 2,032.0 | $ | 1,797.2 | ||||||
|
|
|
|
|
|
|
|||||||
| Long-lived assets at December 31: | ||||||||||||
| United States | $ | 495.8 | $ | 476.5 | $ | 465.0 | ||||||
| International | 727.5 | 477.1 | 282.1 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total | $ | 1,223.3 | $ | 953.6 | $ | 747.1 | ||||||
|
|
|
|
|
|
|
|||||||
TOTAL ASSETS BY SEGMENT
| December 31, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||
| MIS | MA | Corporate Assets (a) |
Consolidated | MIS | MA | Corporate Assets (a) |
Consolidated | |||||||||||||||||||||||||
| Total Assets | $ | 725.9 | $ | 1,289.7 | $ | 860.5 | $ | 2,876.1 | $ | 639.0 | $ | 910.0 | $ | 991.3 | $ | 2,540.3 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| (a) | Represents common assets that are shared between each segment or utilized by the corporate entity. Such assets primarily include cash and cash equivalents, short-term investments, unallocated property and equipment and deferred tax assets. |
|
|||
| NOTE 20 | VALUATION AND QUALIFYING ACCOUNTS |
Accounts receivable allowances primarily represent adjustments to customer billings that are estimated when the related revenue is recognized and also represents an estimate for uncollectible accounts. The valuation allowance on deferred tax assets relates to foreign net operating losses for which realization is uncertain. Below is a summary of activity for both allowances:
|
Year Ended December 31, |
Balance at Beginning of the Year |
Additions | Write-offs and Adjustments |
Balance at End of the Year |
||||||||||||
| 2011 | ||||||||||||||||
|
Accounts receivable allowance |
$ | (33.0 | ) | $ | (40.6 | ) | $ | 45.6 | $ | (28.0 | ) | |||||
|
Deferred tax assets – valuation allowance |
$ | (12.8 | ) | $ | (4.0 | ) | $ | 2.9 | $ | (13.9 | ) | |||||
| 2010 | ||||||||||||||||
|
Accounts receivable allowance |
$ | (24.6 | ) | $ | (46.5 | ) | $ | 38.1 | $ | (33.0 | ) | |||||
|
Deferred tax assets – valuation allowance |
$ | (4.5 | ) | $ | (8.8 | ) | $ | 0.5 | $ | (12.8 | ) | |||||
| 2009 | ||||||||||||||||
|
Accounts receivable allowance |
$ | (23.9 | ) | $ | (41.2 | ) | $ | 40.5 | $ | (24.6 | ) | |||||
|
Deferred tax assets – valuation allowance |
$ | (0.7 | ) | $ | (4.5 | ) | $ | 0.7 | $ | (4.5 | ) | |||||
|
|||
| NOTE 21 | OTHER NON-OPERATING INCOME (EXPENSE), NET |
The following table summarizes the components of other non-operating income (expense) as presented in the consolidated statements of operations:
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| FX gain/(loss) | $ | 2.6 | $ | (5.1 | ) | $ | (9.5 | ) | ||||
| Legacy Tax (see Note 18) | 6.4 | — | — | |||||||||
| Joint venture income | 6.8 | 2.8 | 6.1 | |||||||||
| Other | (2.3 | ) | (3.6 | ) | (4.5 | ) | ||||||
|
|
|
|
|
|
|
|||||||
|
Total |
$ | 13.5 | $ | (5.9 | ) | $ | (7.9 | ) | ||||
|
|
|
|
|
|
|
|||||||
|
|||
| NOTE 22 | RELATED PARTY TRANSACTIONS |
Moody's Corporation made grants of $5 million to The Moody's Foundation during the year ended December 31, 2011. Grants of $4.4 million were made during the year ended December 31, 2010 and no grants were made during the year ended December 31, 2009. The Foundation carries out philanthropic activities primarily in the areas of education and health and human services. Certain members of Moody's senior management are on the Board of the Foundation.
|
|||
| NOTE 23 | QUARTERLY FINANCIAL DATA (UNAUDITED) |
| Three Months Ended | ||||||||||||||||
|
(amounts in millions, except EPS) |
March 31 | June 30 | September 30 | December 31 | ||||||||||||
| 2011 | ||||||||||||||||
| Revenue | $ | 577.1 | $ | 605.2 | $ | 531.3 | $ | 567.1 | ||||||||
| Operating Income | $ | 250.1 | $ | 270.1 | $ | 196.1 | $ | 172.1 | ||||||||
| Net income attributable to Moody's | $ | 155.5 | $ | 189.0 | $ | 130.7 | $ | 96.2 | ||||||||
| EPS: | ||||||||||||||||
|
Basic |
$ | 0.68 | $ | 0.83 | $ | 0.58 | $ | 0.43 | ||||||||
|
Diluted |
$ | 0.67 | $ | 0.82 | $ | 0.57 | $ | 0.43 | ||||||||
| 2010 | ||||||||||||||||
| Revenue | $ | 476.6 | $ | 477.8 | $ | 513.3 | $ | 564.3 | ||||||||
| Operating income | $ | 196.8 | $ | 190.5 | $ | 188.9 | $ | 196.6 | ||||||||
| Net income attributable to Moody's | $ | 113.4 | $ | 121.0 | $ | 136.0 | $ | 137.4 | ||||||||
| EPS: | ||||||||||||||||
|
Basic |
$ | 0.48 | $ | 0.51 | $ | 0.58 | $ | 0.59 | ||||||||
|
Diluted |
$ | 0.47 | $ | 0.51 | $ | 0.58 | $ | 0.58 | ||||||||
Basic and diluted EPS are computed for each of the periods presented. The number of weighted average shares outstanding changes as common shares are issued pursuant to employee stock plans and for other purposes or as shares are repurchased. Therefore, the sum of basic and diluted EPS for each of the four quarters may not equal the full year basic and diluted EPS.
The quarterly financial data includes a $7.0 and $4.6 million benefit to net income related to the resolution of Legacy Tax Matters for the three months ended June 30, 2011 and 2010, respectively. Also, there was a tax benefit of approximately $14 million during the three months ended June 30, 2011 resulting from a foreign tax ruling and a tax benefit of approximately $7 million in the three months ended September 30, 2011 resulting from the settlement of state tax audits. Additionally, there was a tax benefit of $17.6 million during the three months ended September 30, 2010 resulting from the indefinite reinvestment of certain foreign earnings and a tax benefit of $18.4 million in the three months ended December 31, 2010 resulting from the utilization of foreign tax credits and lower state taxes.
|
|||
| NOTE 24. | SUBSEQUENT EVENT |
In January 2012, the examination of the Company's New York State income tax returns for the years 2004 through 2010 was completed and resulted in a payment of approximately $89 million, including interest. The Company had accrued for this liability as of December 31, 2011 and thus the payment is not expected to have a material impact to the provision for income taxes or Net Income in 2012.
|
|||
Basis of Consolidation
The consolidated financial statements include those of Moody's Corporation and its majority- and wholly-owned subsidiaries. The effects of all intercompany transactions have been eliminated. Investments in companies for which the Company has significant influence over operating and financial policies but not a controlling interest are accounted for on an equity basis.
The Company applies the guidelines set forth in Topic 810 of the ASC in assessing its interests in variable interest entities to decide whether to consolidate that entity. The Company has reviewed the potential variable interest entities and determined that there are no consolidation requirements under Topic 810 of the ASC.
Cash and Cash Equivalents
Cash equivalents principally consist of investments in money market mutual funds and high-grade commercial paper with maturities of three months or less when purchased.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives. Expenditures for maintenance and repairs that do not extend the economic useful life of the related assets are charged to expense as incurred.
Research and Development Costs
All research and development costs are expensed as incurred. These costs primarily reflect the development of credit processing software and quantitative credit risk assessment products sold by the MA segment. These costs also reflect expenses for new quantitative research and business ideas that potentially warrant near-term investment within MIS or MA which could potentially result in commercial opportunities for the Company.
Research and development costs were $29.8 million, $20.3 million, and $14.3 million for the years ended December 31, 2011, 2010 and 2009, respectively, and are included in operating expenses within the Company's consolidated statements of operations. These costs generally consist of professional services provided by third parties and compensation costs of employees.
Costs for internally developed computer software that will be sold, leased or otherwise marketed are capitalized when technological feasibility has been established. These costs primarily relate to the development or enhancement of credit processing software and quantitative credit risk assessment products sold by the MA segment, to be licensed to customers and generally consist of professional services provided by third parties and compensation costs of employees that develop the software. Judgment is required in determining when technological feasibility of a product is established and the Company believes that technological feasibility for its software products is reached after all high-risk development issues have been resolved through coding and testing. Generally, this occurs shortly before the products are released to customers. Accordingly, costs for internally developed computer software that will be sold, leased or otherwise marketed that were eligible for capitalization under Topic 985 of the ASC as well as the related amortization expense related to such costs were immaterial for the years ended December 31, 2011, 2010 and 2009.
Computer Software Developed or Obtained for Internal Use
The Company capitalizes costs related to software developed or obtained for internal use. These assets, included in property and equipment in the consolidated balance sheets, relate to the Company's accounting, product delivery and other systems. Such costs generally consist of direct costs of third-party license fees, professional services provided by third parties and employee compensation, in each case incurred either during the application development stage or in connection with upgrades and enhancements that increase functionality. Such costs are depreciated over their estimated useful lives on a straight-line basis. Costs incurred during the preliminary project stage of development as well as maintenance costs are expensed as incurred.
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 November 30 or more frequently if impairment indicators arise in accordance with ASC Topic 350. These impairment indicators could include significant events or circumstances that would reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition or sale or disposition of a significant portion of a reporting unit.
At November 30, 2011, the Company had six primary reporting units: one in MIS that encompasses all of Moody's ratings operations and five reporting units within MA: RD&A, RMS, training, CSI and Copal. 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 RMS 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 training reporting unit consists of the portion of the MA business that offers both credit training as well as other professional development training. In November 2010, the Company acquired CSI, which was assessed separately as its own reporting unit for the annual goodwill impairment assessment as of November 30, 2011 as the entity has not yet been integrated with one of the aforementioned MA reporting units. In the fourth quarter of 2011, the Company acquired Copal and B&H, for which Copal is deemed to be a separate reporting unit and B&H is part of the RMS reporting unit at December 31, 2011.
In 2011, the FASB issued an ASU which permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before proceeding with a quantitative assessment. The Company has adopted the provisions of this ASU and accordingly, the Company evaluates the recoverability of goodwill using a three-step impairment test approach at the reporting unit level. In the first step, the Company assesses various qualitative factors to determine whether it is more likely than not that 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 is 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 must perform a third step of the impairment test to determine the implied fair value of the reporting unit's goodwill. The implied fair value of the goodwill is determined based on the difference between the fair value of the reporting unit and the net fair value of the identifiable assets and liabilities of the reporting unit. If the implied fair value of the goodwill is less than the carrying value, the difference is recognized as an impairment charge. For the reporting units where the Company is consistently able to conclude on impairment 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.
Determining the fair value of a reporting unit or an indefinite-lived acquired intangible asset involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and appropriate market comparables. The Company bases its fair value estimates on assumptions believed to be reasonable. However, as these estimates and assumptions are unpredictable and inherently uncertain, actual future results may differ from these estimates. In addition, the Company also makes certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of its reporting units.
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. Other assets and liabilities, including applicable corporate assets, are allocated to the extent they are related to the operation of respective reporting units.
Rent Expense
The Company records rent expense on a straight-line basis over the life of the lease. In cases where there is a free rent period or future fixed rent escalations the Company will record a deferred rent liability. Additionally, the receipt of any lease incentives will be recorded as a deferred rent liability which will be amortized over the lease term as a reduction of rent expense.
Stock-Based Compensation
The Company records compensation expense for all share-based payment award transactions granted to employees based on the fair value of the equity instrument at the time of grant. This includes shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. The Company has also established a pool of additional paid-in capital related to the tax effects of employee share-based compensation ("APIC Pool"), which is available to absorb any recognized tax deficiencies.
Derivative Instruments and Hedging Activities
Based on the Company's risk management policy, from time to time the Company may use derivative financial instruments to reduce exposure to changes in foreign exchange rates and interest rates. The Company does not enter into derivative financial instruments for speculative purposes. All derivative financial instruments are recorded on the balance sheet at their respective fair values. The changes in the value of derivatives that qualify as fair value hedges are recorded currently into earnings. Changes in the derivative's fair value that qualify as cash flow hedges are recorded as other comprehensive income or loss, to the extent the hedge is effective, and such amounts are reclassified to earnings in the same period or periods during which the hedged transaction affects income.
Revenue Recognition
Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or the services have been provided and accepted by the customer when applicable, fees are determinable and the collection of resulting receivables is considered probable.
In October 2009, the FASB issued ASU No. 2009-13, "Multiple-Deliverable Revenue Arrangements" ("ASU 2009-13"). The standard changes the requirements for establishing separate units of accounting in a multiple element arrangement and requires the allocation of arrangement consideration based on the relative selling price of each deliverable. The Company adopted ASU 2009-13 on a prospective basis for applicable transactions originating or materially modified on or after January 1, 2010. If applied in the same manner to the year ended December 31, 2009, ASU 2009-13 would not have had a material impact on net revenue reported for both its MIS and MA segments in terms of the timing and pattern of revenue recognition. The adoption of ASU 2009-13 did not have a significant effect on the Company's net revenue in the period of adoption and is also not expected to have a significant effect on the Company's net revenue in periods after the initial adoption when applied to multiple element arrangements based on the currently anticipated business volume and pricing.
For 2010 and future periods, pursuant to the guidance of ASU 2009-13, when a sales arrangement contains multiple deliverables, the Company allocates revenue to each deliverable based on its relative selling price which is determined based on its vendor specific objective evidence ("VSOE") if available, third party evidence ("TPE") if VSOE is not available, or estimated selling price ("ESP") if neither VSOE nor TPE is available.
The Company's products and services will generally continue to qualify as separate units of accounting under ASU 2009-13. The Company evaluates each deliverable in an arrangement to determine whether it represents a separate unit of accounting. A deliverable constitutes a separate unit of accounting when it has stand-alone value to the customers and if the arrangement includes a customer refund or return right relative to the delivered item, the delivery and performance of the undelivered item is considered probable and substantially in the Company's control. In instances where the aforementioned criteria are not met, the deliverable is combined with the undelivered items and revenue recognition is determined as one single unit.
The Company determines whether its selling price in a multi-element transaction meets the VSOE criteria by using the price charged for a deliverable when sold separately. In instances where the Company is not able to establish VSOE for all deliverables in a multiple element arrangement, which may be due to the Company infrequently selling each element separately, not selling products within a reasonably narrow price range, or only having a limited sales history, the Company attempts to establish TPE for deliverables. The Company determines whether TPE exists by evaluating largely similar and interchangeable competitor products or services in standalone sales to similarly situated customers. However, due to the difficulty in obtaining third party pricing, possible differences -in its market strategy from that of its peers and the potential that products and services offered by the Company may contain a significant level of differentiation and/or customization such that the comparable pricing of products with similar functionality cannot be obtained, the Company generally is unable to reliably determine TPE. Based on the selling price hierarchy established by ASU 2009-13, when the Company is unable to establish selling price using VSOE or TPE, the Company will establish an ESP. ESP is the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. The Company establishes its best estimate of ESP considering internal factors relevant to is pricing practices such as costs and margin objectives, standalone sales prices of similar products, percentage of the fee charged for a primary product or service relative to a related product or service, and customer segment and geography. Additional consideration is also given to market conditions such as competitor pricing strategies and market trend. The Company reviews its determination of VSOE, TPE and ESP on an annual basis or more frequently as needed.
In the MIS segment, revenue attributed to initial ratings of issued securities is recognized when the rating is issued. Revenue attributed to monitoring of issuers or issued securities is recognized ratably over the period in which the monitoring is performed, generally one year. In the case of commercial mortgage-backed securities, derivatives, international residential mortgage-backed and asset-backed securities, issuers can elect to pay the monitoring fees upfront. These fees are deferred and recognized over the future monitoring periods based on the expected lives of the rated securities, which ranged from two to 51 years at December 31, 2011. At December 31, 2011, 2010 and 2009, deferred revenue related to these securities was approximately $79 million, $76 million, and $78 million.
Multiple element revenue arrangements in the MIS segment are generally comprised of an initial rating and the related monitoring service. Beginning January 1, 2010, in instances where monitoring fees are not charged for the first year monitoring effort, fees are allocated to the initial rating and monitoring services based on the relative selling price of each service to the total arrangement fees. The Company generally uses ESP in determining the selling price for its initial ratings as the Company rarely sells initial ratings separately without providing related monitoring services and thus is unable to establish VSOE or TPE for initial ratings. Prior to January 1, 2010 and pursuant to the previous accounting standards, for these types of arrangements the initial rating fee was first allocated to the monitoring service determined based on the estimated fair market value of monitoring services, with the residual amount allocated to the initial rating. Under ASU 2009-13 this practice can no longer be used for non-software deliverables upon the adoption of ASU 2009-13.
MIS estimates revenue for ratings of commercial paper for which, in addition to a fixed annual monitoring fee, issuers are billed quarterly based on amounts outstanding. Revenue is accrued each quarter based on estimated amounts outstanding and is billed when actual data is available. The estimate is determined based on the issuers' most recent reported quarterly data. At December 31, 2011, 2010 and 2009, accounts receivable included approximately $24 million, $25 million, and $27 million, respectively, related to accrued commercial paper revenue. Historically, MIS has not had material differences between the estimated revenue and the actual billings. Furthermore, for certain annual monitoring services, fees are not invoiced until the end of the annual monitoring period and revenue is accrued ratably over the monitoring period.
In the MA segment, products and services offered by the Company include software licenses and related maintenance, subscriptions, and professional services. Revenue from subscription based products, such as research and data subscriptions and certain software-based credit risk management subscription products, is recognized ratably over the related subscription period, which is principally one year. Revenue from sale of perpetual licenses of credit processing software is generally recognized at the time the product master or first copy is delivered or transferred to and accepted by the customer. Software maintenance revenue is recognized ratably over the annual maintenance period. Revenue from services rendered within the professional services line of business is generally recognized as the services are performed. If uncertainty exists regarding customer acceptance of the product or service, revenue is not recognized until acceptance occurs. A large portion of annual research and data subscriptions and annual software maintenance are invoiced in the months of November, December and January.
Products and services offered within the MA segment are sold either stand-alone or together in various combinations. In instances where a multiple element arrangement includes software and non-software deliverables, revenue is allocated to the non-software deliverables and to the software deliverables, as a group, using the relative selling prices of each of the deliverables in the arrangement based on the aforementioned selling price hierarchy. Revenue is recognized for each element based upon the conditions for revenue recognition noted above.
If the arrangement contains more than one software deliverable, the arrangement consideration allocated to the software deliverables as a group is allocated to each software deliverable using VSOE. In the instances where the Company is not able to determine VSOE for all of the deliverables of an arrangement, the Company allocates the revenue to the undelivered elements equal to its VSOE and the residual revenue to the delivered elements. If the Company is unable to determine VSOE for an undelivered element, the Company defers all revenue allocated to the software deliverables until the Company has delivered all of the elements or when VSOE has been determined for the undelivered elements.
Prior to January 1, 2010 and pursuant to the previous accounting standards, the Company allocated revenue in a multiple element arrangement to each deliverable based on its relative fair value, or for software elements, based on VSOE. If the fair value was not available for an undelivered element, the revenue for the entire arrangement was deferred.
Accounts Receivable Allowances
Moody's records an allowance for estimated future adjustments to customer billings as a reduction of revenue, based on historical experience and current conditions. Such amounts are reflected as additions to the accounts receivable allowance. Additionally, estimates of uncollectible accounts are recorded as bad debt expense and are reflected as additions to the accounts receivable allowance. Billing adjustments and uncollectible account write-offs are recorded against the allowance. Moody's evaluates its accounts receivable allowance by reviewing and assessing historical collection and adjustment experience and the current status of customer accounts. Moody's also considers the economic environment of the customers, both from an industry and geographic perspective, in evaluating the need for allowances. Based on its analysis, Moody's adjusts its allowance as considered appropriate in the circumstances.
Operating Expenses
Operating expenses are charged to income as incurred. These expenses include costs associated with the development and production of the Company's products and services and their delivery to customers. These expenses principally include employee compensation and benefits and travel costs that are incurred in connection with these activities.
Restructuring
The Company's restructuring accounting follows the provisions of: Topic 712 of the ASC for severance relating to employee terminations, Topic 715 of the ASC for pension settlements and curtailments, and Topic 420 of the ASC for contract termination costs and other exit activities.
Selling, General and Administrative Expenses
SG&A expenses are charged to income as incurred. These expenses include such items as compensation and benefits for corporate officers and staff and compensation and other expenses related to sales of products. They also include items such as office rent, business insurance, professional fees and gains and losses from sales and disposals of assets.
Redeemable noncontrolling interest
The Company records its redeemable noncontrolling interest at fair value on the date of the related business combination transaction. The redeemable noncontrolling interest represents noncontrolling shareholders' interest in entities which are controlled but not wholly-owned by Moody's and for which Moody's obligation to redeem the minority shareholders' interest is in the control of the minority shareholders. Subsequent to the initial measurement, the redeemable noncontrolling interest is recorded at the greater of its redemption value or its carrying value at the end of each reporting period. At December 31, 2011, the carrying value of the redeemable noncontrolling interest exceeded its redemption value. Accordingly, the redeemable noncontrolling interest is recorded at its carrying value. If the redeemable noncontrolling interest is carried at its redemption value, the difference between the redemption value and the carrying value would be adjusted through capital surplus at the end of each reporting period. The Company also performs a quarterly assessment to determine if the aforementioned redemption value exceeds the fair value of the redeemable noncontrolling interest. If the redemption value of the redeemable noncontrolling interest were to exceed its fair value, the excess would reduce the net income attributable to Moody's shareholders.
Foreign Currency Translation
For all operations outside the U.S. where the Company has designated the local currency as the functional currency, assets and liabilities are translated into U.S. dollars using end of year exchange rates, and revenue and expenses are translated using average exchange rates for the year. For these foreign operations, currency translation adjustments are accumulated in a separate component of shareholders' equity.
Comprehensive Income
Comprehensive income represents the change in net assets of a business enterprise during a period due to transactions and other events and circumstances from non-owner sources including foreign currency translation impacts, net actuarial losses and net prior service costs related to pension and other post-retirement plans and derivative instruments. Accumulated other comprehensive (loss) income is primarily comprised of:
| December 31, | ||||||||
| (in millions) | 2011 | 2010 | ||||||
| Currency translation adjustments, net of tax | $(23.3 | ) | $ | 23.6 | ||||
| Net actuarial losses and net prior service costs related to Post-Retirement Plans, net of tax | (81.2 | ) | (51.4 | ) | ||||
| Realized and unrealized losses on cash flow hedges, net of tax | (3.0 | ) | (5.6 | ) | ||||
|
|
|
|
|
|||||
|
Total accumulated other comprehensive loss |
$(107.5 | ) | (33.4 | ) | ||||
|
|
|
|
|
|||||
Income Taxes
The Company accounts for income taxes under the asset and liability method in accordance with Topic 740 of the ASC. Therefore, income tax expense is based on reported income before income taxes, and deferred income taxes reflect the effect of temporary differences between the amounts of assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes.
The Company classifies interest related to unrecognized tax benefits in interest expense in its consolidated statements of operations. Penalties are recognized in other non-operating expenses. For UTPs, the Company first determines whether it is more-likely-than-not (defined as a likelihood of more than fifty percent) that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more-likely-than-not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority.
For certain of its non-U.S. subsidiaries, the Company has deemed its undistributed earnings relating to these subsidiaries to be indefinitely reinvested within its foreign operations. Accordingly, the Company has not provided deferred income taxes on these indefinitely reinvested earnings. It is not practicable to determine the amount of deferred taxes that might be required to be provided if such earnings were distributed in the future due to complexities in the tax laws and in the hypothetical calculations that would have to be made.
Fair Value of Financial Instruments
The Company's financial instruments include cash, cash equivalents, trade receivables and payables, all of which are short-term in nature and, accordingly, approximate fair value. Additionally, the Company invests in short-term investments that are carried at cost, which approximates fair value due to their short-term maturities. Also, the Company uses derivative instruments, as further described in Note 5, to manage certain financial exposures that occur in the normal course of business. These derivative instruments are carried at fair value on the Company's consolidated balance sheets. The Company also is subject to contingent consideration obligations related to certain of its acquisitions as more fully discussed in Note 7. These obligations are carried at their estimated fair value within the Company's consolidated balance sheets.
Fair value is defined by the ASC as the price that would be received from selling an asset or paid to transfer a liability (i.e., an exit price) in an orderly transaction between market participants at the measurement date. The determination of this fair value is based on the principal or most advantageous market in which the Company could commence transactions and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance. Also, determination of fair value assumes that market participants will consider the highest and best use of the asset.
The ASC establishes a fair value hierarchy whereby the inputs contained in valuation techniques used to measure fair value are categorized into three broad levels as follows:
Level 1: quoted market prices in active markets that the reporting entity has the ability to access at the date of the fair value measurement;
Level 2: inputs other than quoted market prices described in Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities;
Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value measurement of the assets or liabilities.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk principally consist of cash and cash equivalents, short-term investments, trade receivables and derivatives.
Cash equivalents consist of investments in high quality investment-grade securities within and outside the U.S. The Company manages its credit risk exposure by allocating its cash equivalents among various money market mutual funds and issuers of high- grade commercial paper. Short-term investments primarily consist of certificates of deposit and high-grade corporate bonds in Korea as of December 31, 2011 and 2010. The Company manages its credit risk exposure on cash equivalents and short-term investments by limiting the amount it can invest with any single issuer. No customer accounted for 10% or more of accounts receivable at December 31, 2011 or 2010.
Earnings per Share of Common Stock
Basic shares outstanding are calculated based on the weighted average number of shares of common stock outstanding during the reporting period. Diluted shares outstanding are calculated giving effect to all potentially dilutive common shares, assuming that such shares were outstanding during the reporting period.
Pension and Other Post-Retirement Benefits
Moody's maintains various noncontributory DBPPs as well as other contributory and noncontributory retirement and post-retirement plans. The expense and assets/liabilities that the Company reports for its pension and other post-retirement benefits are dependent on many assumptions concerning the outcome of future events and circumstances. These assumptions represent the Company's best estimates and may vary by plan. The differences between the assumptions for the expected long-term rate of return on plan assets and actual experience is spread over a five-year period to the market related value of plan assets which is used in determining the expected return on assets component of annual pension expense. All other actuarial gains and losses are generally deferred and amortized over the estimated average future working life of active plan participants.
The Company recognizes as an asset or liability in its statement of financial position the funded status of its defined benefit post-retirement plans, measured on a plan-by-plan basis. Changes in the funded status are recorded as part of other comprehensive income during the period the changes occur.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. Estimates are used for, but not limited to, revenue recognition, accounts receivable allowances, income taxes, contingencies, valuation of long-lived and intangible assets, goodwill, pension and other post-retirement benefits, stock-based compensation, and depreciation and amortization rates for property and equipment and computer software.
The financial market volatility and poor economic conditions beginning in the third quarter of 2007 and continuing into 2011, both in the U.S. and in many other countries where the Company operates, have impacted and will continue to impact Moody's business. If such conditions were to recur they could have a material impact to the Company's significant accounting estimates discussed above, in particular those around accounts receivable allowances, valuations of investments in affiliates, goodwill and other acquired intangible assets, and pension and other post-retirement benefits.
|
|||
| December 31, | ||||||||
| (in millions) | 2011 | 2010 | ||||||
| Currency translation adjustments, net of tax | $(23.3 | ) | $ | 23.6 | ||||
| Net actuarial losses and net prior service costs related to Post-Retirement Plans, net of tax | (81.2 | ) | (51.4 | ) | ||||
| Realized and unrealized losses on cash flow hedges, net of tax | (3.0 | ) | (5.6 | ) | ||||
|
|
|
|
|
|||||
|
Total accumulated other comprehensive loss |
$(107.5 | ) | (33.4 | ) | ||||
|
|
|
|
|
|||||
|
|||
| December 31, 2011 |
December 31, 2010 |
|||||||
| Notional amount of Currency Pair: | ||||||||
| Contracts to purchase USD with euros | $ | 27.5 | $ | 11.7 | ||||
| Contracts to sell USD for euros | $ | 47.7 | $ | 55.5 | ||||
| Contracts to purchase USD with GBP | $ | 2.4 | $ | — | ||||
| Contracts to sell USD for GBP | $ | 17.6 | $ | 20.7 | ||||
| Contracts to purchase USD with other foreign currencies | $ | 3.2 | $ | 5.4 | ||||
| Contracts to sell USD for other foreign currencies | $ | 7.6 | $ | 19.5 | ||||
| Contracts to purchase euros with other foreign currencies | € | 13.6 | € | 10.5 | ||||
| Contracts to purchase euros with GBP | € | 1.6 | € | — | ||||
| Contracts to sell euros for GBP | € | 7.2 | € | 14.0 | ||||
| Fair Value of Derivative Instruments | ||||||||||||||||
| Asset | Liability | |||||||||||||||
| December 31, 2011 |
December 31, 2010 |
December 31, 2011 |
December 31, 2010 |
|||||||||||||
| Derivatives designated as accounting hedges: | ||||||||||||||||
| Interest rate swaps | $ | 11.5 | $ | — | $ | 4.5 | $ | 12.2 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Derivatives not designated as accounting hedges: | ||||||||||||||||
| FX forwards on certain assets and liabilities | 1.1 | 2.0 | 2.3 | 0.7 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total | $ | 12.6 | $ | 2.0 | $ | 6.8 | $ | 12.9 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Derivatives in Cash Flow Hedging Relationships |
Amount of Gain/(Loss) Recognized in AOCI on Derivative (Effective Portion) |
Location of Gain/(Loss) Reclassified from AOCI into Income (Effective Portion) |
Amount of Gain/(Loss) Reclassified from AOCI into Income (Effective Portion) |
Location of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
Amount of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
|||||||||||||||||||||||||
| Year Ended December 31, |
Year Ended December 31, |
Year Ended December 31, |
||||||||||||||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||
| FX options | $ | — | $ | — | Revenue | $ | (0.2 | ) | $ | (1.0 | ) | Revenue | $ | — | $ | — | ||||||||||||||
| Interest rate swaps | (0.6 | ) | (3.1 | ) | Interest expense | (3.0 | ) | (2.8 | ) | N/A | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Total | $ | (0.6 | ) | $ | (3.1 | ) | $ | (3.2 | ) | $ | (3.8 | ) | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Unrecognized Losses, net of tax |
||||||||
| December 31, 2011 |
December 31, 2010 |
|||||||
| FX options | $ | — | $ | (0.2 | ) | |||
| Interest rate swaps | (3.0 | ) | (5.4 | ) | ||||
|
|
|
|
|
|||||
|
Total |
$ | (3.0 | ) | $ | (5.6 | ) | ||
|
|
|
|
|
|||||
|
|||
| December 31, | ||||||||
| 2011 | 2010 | |||||||
| Office and computer equipment (3 – 20 year estimated useful life) | $ | 106.8 | $ | 92.2 | ||||
| Office furniture and fixtures (5 – 10 year estimated useful life) | 40.6 | 40.2 | ||||||
| Internal-use computer software (3 – 5 year estimated useful life) | 241.8 | 199.1 | ||||||
| Leasehold improvements (3 – 17 year estimated useful life) | 195.8 | 188.6 | ||||||
|
|
|
|
|
|||||
|
Total property and equipment, at cost |
585.0 | 520.1 | ||||||
| Less: accumulated depreciation and amortization | (258.2 | ) | (200.8 | ) | ||||
|
|
|
|
|
|||||
| Total property and equipment, net | $ | 326.8 | $ | 319.3 | ||||
|
|
|
|
|
|||||
|
|||
| Current assets | $ | 15.2 | ||||||
| Property and equipment, net | 0.7 | |||||||
| Intangible assets: | ||||||||
|
Trade name (5 year weighted average life) |
$ | 1.9 | ||||||
|
Client relationships (18 year weighted average life) |
10.4 | |||||||
|
Software (7 year weighted average life) |
16.8 | |||||||
|
Other intangibles (2 year weighted average life) |
0.1 | |||||||
|
|
|
|||||||
|
Total intangible assets (11 year weighted average life) |
29.2 | |||||||
| Goodwill | 52.5 | |||||||
| Liabilities assumed | (18.1 | ) | ||||||
|
|
|
|||||||
| Net assets acquired | $ | 79.5 | ||||||
|
|
|
| Current assets | $ | 15.5 | ||||||
| Property and equipment, net | 0.5 | |||||||
| Intangible assets: | ||||||||
|
Trade name (15 year weighted average life) |
$ | 8.6 | ||||||
|
Client relationships (16 year weighted average life) |
66.2 | |||||||
|
Other (2 year weighted average life) |
4.4 | |||||||
|
|
|
|||||||
|
Total intangible assets (15 year weighted average life) |
79.2 | |||||||
| Goodwill | 143.4 | |||||||
| Indemnification asset | 12.0 | |||||||
| Other assets | 6.6 | |||||||
| Liabilities assumed | (64.2 | ) | ||||||
|
|
|
|||||||
| Net assets acquired | $ | 193.0 | ||||||
|
|
|
| Cash paid | $ | 125.0 | ||
| Put/call option for non-controlling interest | 61.2 | |||
| Contingent consideration liability assumed | 6.8 | |||
|
|
|
|||
| Total fair value of consideration transferred | $ | 193.0 | ||
|
|
|
| Current assets | $ | 5.1 | ||||||
| Property and equipment, net | 0.8 | |||||||
| Intangible assets: | ||||||||
|
Trade name (30 year weighted average life) |
$ | 9.0 | ||||||
|
Client relationships (21 year weighted average life) |
63.1 | |||||||
|
Trade secret (13 year weighted average life) |
5.8 | |||||||
|
|
|
|||||||
|
Total intangible assets (21 year weighted average life) |
77.9 | |||||||
| Goodwill | 104.6 | |||||||
| Liabilities assumed | (37.0 | ) | ||||||
|
|
|
|||||||
| Net assets acquired | 151.4 | |||||||
|
|
|
|
|||
| Year Ended December 31, | ||||||||||||||||||||||||
| 2011 | 2010 | |||||||||||||||||||||||
| MIS | MA | Consolidated | MIS | MA | Consolidated | |||||||||||||||||||
| Beginning balance | $ | 11.4 | $ | 454.1 | $ | 465.5 | $ | 11.1 | $ | 338.1 | $ | 349.2 | ||||||||||||
| Additions/adjustments | — | 198.5 | 198.5 | — | 104.6 | 104.6 | ||||||||||||||||||
| Foreign currency translation adjustments | (0.4 | ) | (20.7 | ) | (21.1 | ) | 0.3 | 11.4 | 11.7 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Ending balance | $ | 11.0 | $ | 631.9 | $ | 642.9 | $ | 11.4 | $ | 454.1 | $ | 465.5 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| December 31, | ||||||||
| 2011 | 2010 | |||||||
| Customer relationships | $ | 217.9 | $ | 145.1 | ||||
| Accumulated amortization | (58.6 | ) | (49.2 | ) | ||||
|
|
|
|
|
|||||
|
Net customer relationships |
159.3 | 95.9 | ||||||
|
|
|
|
|
|||||
| Trade secrets | 31.3 | 31.4 | ||||||
| Accumulated amortization | (13.4 | ) | (10.9 | ) | ||||
|
|
|
|
|
|||||
|
Net trade secrets |
17.9 | 20.5 | ||||||
|
|
|
|
|
|||||
| Software | 70.9 | 54.8 | ||||||
| Accumulated amortization | (25.1 | ) | (20.3 | ) | ||||
|
|
|
|
|
|||||
|
Net software |
45.8 | 34.5 | ||||||
|
|
|
|
|
|||||
| Trade names | 28.1 | 17.9 | ||||||
| Accumulated amortization | (9.0 | ) | (8.3 | ) | ||||
|
|
|
|
|
|||||
|
Net trade names |
19.1 | 9.6 | ||||||
|
|
|
|
|
|||||
| Other | 24.6 | 19.6 | ||||||
| Accumulated amortization | (13.1 | ) | (11.3 | ) | ||||
|
|
|
|
|
|||||
|
Net other |
11.5 | 8.3 | ||||||
|
|
|
|
|
|||||
|
Total |
$ | 253.6 | $ | 168.8 | ||||
|
|
|
|
|
|||||
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Amortization Expense | $ | 20.5 | $ | 16.4 | $ | 16.4 | ||||||
|
Year Ended December 31, |
||||
| 2012 | $ | 28.0 | ||
| 2013 | 27.2 | |||
| 2014 | 22.1 | |||
| 2015 | 20.7 | |||
| 2016 | 19.5 | |||
| Thereafter | 136.1 | |||
|
|||
| Fair Value Measurement as of December 31, 2011 | ||||||||||||||||
|
Description |
Balance | Level 1 | Level 2 | Level 3 | ||||||||||||
| Assets: | ||||||||||||||||
|
Derivatives (a) |
$ | 12.6 | $ | — | $ | 12.6 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
$ | 12.6 | $ | — | $ | 12.6 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liabilities: | ||||||||||||||||
|
Derivatives (a) |
6.8 | — | 6.8 | — | ||||||||||||
|
Contingent consideration arising from acquisitions |
9.1 | — | — | 9.1 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
$ | 15.9 | $ | — | $ | 6.8 | $ | 9.1 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Fair Value Measurement as of December 31, 2010 | ||||||||||||||||
|
Description |
Balance | Level 1 | Level 2 | Level 3 | ||||||||||||
| Assets: | ||||||||||||||||
|
Derivatives (a) |
$ | 2.0 | $ | — | $ | 2.0 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
2.0 | — | 2.0 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liabilities: | ||||||||||||||||
|
Derivatives (a) |
12.9 | 12.9 | ||||||||||||||
|
Contingent consideration arising from acquisitions (b) |
2.1 | — | — | 2.1 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
15.0 | — | 12.9 | 2.1 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (a) | Represents interest rate swaps and FX forwards as more fully described in Note 5 to the financial statements |
| (b) | Represents contingent consideration liabilities pursuant to the agreements for certain MA acquisitions which are more fully discussed in Note 7 to the consolidated financial statements |
| Contingent Consideration Year Ended December 31, |
||||||||
| 2011 | 2010 | |||||||
| Balance as of January 1 | $ | 2.1 | $ | — | ||||
| Issuances | 7.4 | 2.0 | ||||||
| Settlements | (0.3 | ) | — | |||||
| Total losses (realized and unrealized): | ||||||||
|
Included in earnings |
0.3 | — | ||||||
| Foreign currency translation adjustments | (0.4 | ) | 0.1 | |||||
|
|
|
|
|
|||||
| Balance as of December 31 | $ | 9.1 | $ | 2.1 | ||||
|
|
|
|
|
|||||
|
|||
| December 31, | ||||||||
| 2011 | 2010 | |||||||
| Other current assets: | ||||||||
|
Prepaid taxes |
$ | 27.6 | $ | 82.3 | ||||
|
Prepaid expenses |
44.6 | 39.8 | ||||||
|
Other |
5.4 | 5.8 | ||||||
|
|
|
|
|
|||||
|
Total other current assets |
$ | 77.6 | $ | 127.9 | ||||
|
|
|
|
|
|||||
| December 31, | ||||||||
| 2011 | 2010 | |||||||
| Other assets: | ||||||||
|
Investments in joint ventures |
$ | 37.2 | $ | 30.8 | ||||
|
Deposits for real-estate leases |
12.2 | 11.4 | ||||||
|
Other |
32.6 | 13.6 | ||||||
|
|
|
|
|
|||||
|
Total other assets |
$ | 82.0 | $ | 55.8 | ||||
|
|
|
|
|
|||||
| December 31, | ||||||||
| 2011 | 2010 | |||||||
| Accounts payable and accrued liabilities: | ||||||||
|
Salaries and benefits |
$ | 73.8 | $ | 69.6 | ||||
|
Incentive compensation |
114.1 | 116.8 | ||||||
|
Profit sharing contribution |
7.1 | 12.6 | ||||||
|
Customer credits, advanced payments and advanced billings |
17.6 | 15.3 | ||||||
|
Dividends |
38.2 | 27.9 | ||||||
|
Professional service fees |
50.5 | 50.6 | ||||||
|
Interest accrued on debt |
15.1 | 17.6 | ||||||
|
Accounts payable |
16.4 | 14.3 | ||||||
|
Income taxes (see Note 14) |
23.4 | 26.9 | ||||||
|
Restructuring (see Note 11) |
0.2 | 0.7 | ||||||
|
Deferred rent-current portion |
1.7 | 2.7 | ||||||
|
Pension and other post retirement employee benefits (see Note 12) |
3.8 | 9.5 | ||||||
|
Interest accrued on UTPs |
29.7 | — | ||||||
|
Other |
60.7 | 49.9 | ||||||
|
|
|
|
|
|||||
|
Total accounts payable and accrued liabilities |
$ | 452.3 | $ | 414.4 | ||||
|
|
|
|
|
|||||
| December 31, | ||||||||
| 2011 | 2010 | |||||||
| Other liabilities: | ||||||||
|
Pension and other post retirement employee benefits (see Note 12) |
$ | 187.5 | $ | 132.8 | ||||
|
Deferred rent-non-current portion |
108.8 | 100.4 | ||||||
|
Interest accrued on UTPs |
11.8 | 33.7 | ||||||
|
Legacy and other tax matters |
52.6 | 57.3 | ||||||
|
Other |
44.1 | 38.1 | ||||||
|
|
|
|
|
|||||
|
Total other liabilities |
$ | 404.8 | $ | 362.3 | ||||
|
|
|
|
|
|||||
| (in millions) | Redeemable Noncontrolling Interest |
|||
| Balance January 1, 2011 | $ | — | ||
|
Fair value at date of acquisition |
68.0 | |||
|
Reduction due to right of offset for UTPs * |
(6.8 | ) | ||
|
Net earnings |
1.0 | |||
|
Distributions |
— | |||
|
Translation adjustment |
(1.7 | ) | ||
|
|
|
|||
| Balance December 31, 2011 | $ | 60.5 | ||
|
|
|
|||
|
|||
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| 2007 Restructuring Plan | $ | — | $ | 1.0 | $ | 1.9 | ||||||
| 2009 Restructuring Plan | — | (0.9 | ) | 15.6 | ||||||||
|
|
|
|
|
|
|
|||||||
|
Total |
$ | — | $ | 0.1 | $ | 17.5 | ||||||
|
|
|
|
|
|
|
|||||||
|
|||
| Pension Plans | Other Post-Retirement Plans | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Change in Benefit Obligation: | ||||||||||||||||
|
Benefit obligation, beginning of the period |
$ | (242.5 | ) | $ | (213.0 | ) | $ | (15.6 | ) | $ | (13.1 | ) | ||||
|
Service cost |
(15.1 | ) | (13.5 | ) | (1.1 | ) | (0.9 | ) | ||||||||
|
Interest cost |
(13.1 | ) | (12.0 | ) | (0.8 | ) | (0.8 | ) | ||||||||
|
Plan participants' contributions |
— | — | (0.2 | ) | (0.2 | ) | ||||||||||
|
Benefits paid |
13.6 | 10.5 | 0.8 | 0.7 | ||||||||||||
|
Actuarial gain (loss) |
(4.9 | ) | 7.4 | (0.9 | ) | (0.4 | ) | |||||||||
|
Assumption changes |
(36.8 | ) | (21.9 | ) | (2.4 | ) | (0.9 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Benefit obligation, end of the period | (298.8 | ) | (242.5 | ) | (20.2 | ) | (15.6 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Change in Plan Assets: | ||||||||||||||||
|
Fair value of plan assets, beginning of the period |
120.4 | 108.2 | — | — | ||||||||||||
|
Actual return on plan assets |
0.8 | 13.9 | — | — | ||||||||||||
|
Benefits paid |
(13.6 | ) | (10.5 | ) | (0.8 | ) | (0.7 | ) | ||||||||
|
Employer contributions |
25.4 | 8.8 | 0.6 | 0.5 | ||||||||||||
|
Plan participants' contributions |
— | — | 0.2 | 0.2 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Fair value of plan assets, end of period |
133.0 | 120.4 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Funded status of the plans | (165.8 | ) | (122.1 | ) | (20.2 | ) | (15.6 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Amounts Recorded on the Consolidated Balance Sheets: | ||||||||||||||||
|
Pension and post-retirement benefits liability-current |
(3.0 | ) | (8.9 | ) | (0.8 | ) | (0.6 | ) | ||||||||
|
Pension and post-retirement benefits liability-non current |
(162.8 | ) | (113.2 | ) | (19.4 | ) | (15.0 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net amount recognized | $ | (165.8 | ) | $ | (122.1 | ) | $ | (20.2 | ) | $ | (15.6 | ) | ||||
|
|
|
|
|
|
|
|
|
|||||||||
| Accumulated benefit obligation, end of the period | $ | (256.1 | ) | $ | (214.6 | ) | ||||||||||
|
|
|
|
|
|||||||||||||
| December 31, | ||||||||
| 2011 | 2010 | |||||||
| Aggregate projected benefit obligation | $ | 298.8 | $ | 242.5 | ||||
| Aggregate accumulated benefit obligation | $ | 256.1 | $ | 214.6 | ||||
| Aggregate fair value of plan assets | $ | 133.0 | $ | 120.4 | ||||
| Pension Plans | Other Post-Retirement Plans | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Net actuarial (losses) | $ | (127.1 | ) | $ | (80.9 | ) | $ | (6.1 | ) | $ | (3.1 | ) | ||||
| Net prior service costs | (4.7 | ) | (5.3 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total recognized in AOCI- pretax |
$ | (131.8 | ) | $ | (86.2 | ) | $ | (6.1 | ) | $ | (3.1 | ) | ||||
|
|
|
|
|
|
|
|
|
|||||||||
| Pension Plans | Other Post-Retirement Plans | |||||||
| Net actuarial losses | $ | 8.9 | $ | 0.5 | ||||
| Net prior service costs | 0.7 | — | ||||||
|
|
|
|
|
|||||
|
Total to be recognized as components of net periodic expense |
$ | 9.6 | $ | 0.5 | ||||
|
|
|
|
|
|||||
| Pension Plans | Other Post-Retirement Plans | |||||||||||||||||||||||
| 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | |||||||||||||||||||
| Components of net periodic expense | ||||||||||||||||||||||||
| Service cost | $ | 15.1 | $ | 13.5 | $ | 12.1 | $ | 1.1 | $ | 0.9 | $ | 0.8 | ||||||||||||
| Interest cost | 13.1 | 12.0 | 9.9 | 0.8 | 0.8 | 0.7 | ||||||||||||||||||
| Expected return on plan assets | (11.9 | ) | (10.5 | ) | (10.0 | ) | — | — | — | |||||||||||||||
| Amortization of net actuarial loss from earlier periods | 5.0 | 2.8 | 0.6 | 0.3 | 0.1 | — | ||||||||||||||||||
| Amortization of net prior service costs from earlier periods | 0.6 | 0.7 | 0.4 | — | — | — | ||||||||||||||||||
| Settlement charges | 1.6 | 1.3 | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net periodic expense | $ | 23.5 | $ | 19.8 | $ | 13.0 | $ | 2.2 | $ | 1.8 | $ | 1.5 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Pension Plans | Other Post-Retirement Plans | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Amortization of net actuarial losses | $ | 5.0 | $ | 2.8 | $ | 0.3 | $ | 0.1 | ||||||||
| Amortization of prior service costs | 0.6 | 0.7 | — | — | ||||||||||||
| Accelerated recognition of actuarial loss due to settlement | 1.6 | 1.3 | — | — | ||||||||||||
| Net actuarial (loss) arising during the period | (52.8 | ) | (11.2 | ) | (3.3 | ) | (1.2 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total recognized in Other Comprehensive Income – pre-tax |
$ | (45.6 | ) | $ | (6.4 | ) | $ | (3.0 | ) | $ | (1.1 | ) | ||||
|
|
|
|
|
|
|
|
|
|||||||||
| Pension Plans | Other Post-Retirement Plans | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Discount rate | 4.25 | % | 5.39 | % | 4.05 | % | 5.15 | % | ||||||||
| Rate of compensation increase | 4.00 | % | 4.00 | % | — | — | ||||||||||
| Pension Plans | Other Post-Retirement Plans | |||||||||||||||||||||||
| 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | |||||||||||||||||||
| Discount rate | 5.39 | % | 5.95 | % | 6.00 | % | 5.15 | % | 5.75 | % | 6.25 | % | ||||||||||||
| Expected return on plan assets | 8.35 | % | 8.35 | % | 8.35 | % | — | — | — | |||||||||||||||
| Rate of compensation increase | 4.00 | % | 4.00 | % | 4.00 | % | — | — | — | |||||||||||||||
| 2011 | 2010 | 2009 | ||||||||||||||||||||||
| Pre-age 65 | Post-age 65 | Pre-age 65 | Post-age 65 | Pre-age 65 | Post-age 65 | |||||||||||||||||||
|
Healthcare cost trend rate assumed for the following year |
7.4 | % | 8.4 | % | 7.9 | % | 8.9 | % | 8.4 | % | 9.4 | % | ||||||||||||
|
Ultimate rate to which the cost trend rate is assumed to decline (ultimate trend rate) |
|
5.0% |
|
5.0% | 5.0% | |||||||||||||||||||
| Year that the rate reaches the ultimate trend rate | 2020 | 2020 | 2020 | |||||||||||||||||||||
| Fair Value Measurement as of December 31, 2011 | ||||||||||||||||||||
|
Asset Category |
Balance | Level 1 | Level 2 | Level 3 | % of total assets |
|||||||||||||||
| Cash and cash equivalents | $ | 0.2 | $ | — | $ | 0.2 | $ | — | 0 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Emerging markets equity fund | 7.7 | $ | 7.7 | $ | — | — | 6 | % | ||||||||||||
| Common/collective trust funds – equity securities | ||||||||||||||||||||
|
U.S. large-cap |
26.4 | — | 26.4 | — | 20 | % | ||||||||||||||
|
U.S. small and mid-cap |
9.3 | — | 9.3 | — | 7 | % | ||||||||||||||
|
International |
30.4 | — | 30.4 | — | 23 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total equity investments | 73.8 | 7.7 | 66.1 | — | 56 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Common/collective trust funds – fixed income securities | ||||||||||||||||||||
|
Long-term investment grade government/corporate bonds |
28.8 | — | 28.8 | — | 21 | % | ||||||||||||||
|
U.S. Treasury Inflation-Protected Securities (TIPs) |
7.6 | — | 7.6 | — | 6 | % | ||||||||||||||
|
Emerging markets bonds |
4.5 | — | 4.5 | — | 3 | % | ||||||||||||||
|
High yield bonds |
3.6 | — | 3.6 | — | 3 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total fixed-income investments | 44.5 | — | 44.5 | — | 33 | % | ||||||||||||||
| Common/collective trust funds – convertible securities | 4.8 | — | 4.8 | — | 4 | % | ||||||||||||||
| Private real estate fund | 9.7 | — | — | 9.7 | 7 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total other investment | 14.5 | — | 4.8 | 9.7 | 11 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Assets | $ | 133.0 | $ | 7.7 | $ | 115.6 | $ | 9.7 | 100 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Fair Value Measurement as of December 31, 2010 | ||||||||||||||||||||
|
Asset Category |
Balance | Level 1 | Level 2 | Level 3 | % of total assets |
|||||||||||||||
| Emerging markets equity fund | $ | 10.3 | $ | 10.3 | $ | — | $ | — | 9 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Common/collective trust funds – equity securities | ||||||||||||||||||||
|
U.S. large-cap |
26.0 | — | 26.0 | — | 21 | % | ||||||||||||||
|
U.S. small and mid-cap |
9.6 | — | 9.6 | — | 8 | % | ||||||||||||||
|
International |
32.1 | — | 32.1 | — | 27 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total equity investments | 78.0 | 10.3 | 67.7 | — | 65 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Common/collective trust funds-fixed income securities | ||||||||||||||||||||
|
Long-term investment grade government/corporate bonds |
18.8 | — | 18.8 | — | 15 | % | ||||||||||||||
|
U.S. Treasury Inflation-Protected Securities (TIPs) |
5.4 | — | 5.4 | — | 4 | % | ||||||||||||||
|
Emerging markets bonds |
3.2 | — | 3.2 | — | 3 | % | ||||||||||||||
|
High yield bonds |
3.3 | — | 3.3 | — | 3 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total fixed-income investments | 30.7 | — | 30.7 | — | 25 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Common/collective trust funds – convertible securities | 3.4 | — | 3.4 | — | 3 | % | ||||||||||||||
| Private real estate fund | 8.3 | — | — | 8.3 | 7 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total other investment | 11.7 | — | 3.4 | 8.3 | 10 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Assets | $ | 120.4 | $ | 10.3 | $ | 101.8 | $ | 8.3 | 100 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Real estate investment fund: | ||||
| Balance as of December 31, 2010 | $ | 8.3 | ||
| Return on plan assets related to assets held as of December 31, 2011 | 1.0 | |||
| Return on plan assets related to assets sold during the period | — | |||
| Purchases (sales), net | 0.4 | |||
|
|
|
|||
| Balance as of December 31, 2011 | $ | 9.7 | ||
|
|
|
|
Year Ending December 31, |
Pension Plan | Other Post- Retirement Plans * |
||||||
| 2012 | $ | 7.0 | $ | 0.8 | ||||
| 2013 | 8.0 | 0.9 | ||||||
| 2014 | 8.8 | 1.0 | ||||||
| 2015 | 9.9 | 1.2 | ||||||
| 2016 | 11.3 | 1.3 | ||||||
| 2017 – 2021 | $ | 106.4 | $ | 8.2 | ||||
| * | The estimated future benefits payable for the Post-Retirement Plans are reflected net of the expected Medicare Part D subsidy for which the subsidy is insignificant on an annual basis for all the years presented. |
|
|||
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Stock compensation cost | $ | 56.7 | $ | 56.6 | $ | 57.4 | ||||||
| Tax benefit | $ | 18.1 | $ | 23.9 | $ | 20.9 | ||||||
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Expected dividend yield | 1.53% | 1.58% | 1.59% | |||||||||
| Expected stock volatility | 41% | 44% | 38% | |||||||||
| Risk-free interest rate | 3.33% | 2.73% | 2.63% | |||||||||
| Expected holding period | 7.6 yrs | 5.9 yrs | 5.8 yrs | |||||||||
| Grant date fair value | $ | 12.49 | $ | 10.38 | $ | 8.52 | ||||||
|
Options |
Shares | Weighted Average Exercise Price Per Share |
Weighted Average Remaining Contractual Term |
Aggregate Intrinsic Value |
||||||||||||
| Outstanding, December 31, 2010 | 19.3 | $ | 38.11 | |||||||||||||
| Granted | 0.6 | 30.59 | ||||||||||||||
| Exercised | (2.2 | ) | 23.21 | |||||||||||||
| Forfeited | (0.1 | ) | 28.49 | |||||||||||||
| Expired | (0.2 | ) | 50.34 | |||||||||||||
|
|
|
|||||||||||||||
| Outstanding, December 31, 2011 | 17.4 | $ | 39.60 | 4.7 yrs | $ | 64.6 | ||||||||||
|
|
|
|||||||||||||||
| Vested and expected to vest, December 31, 2011 | 17.0 | $ | 39.86 | 4.6 yrs | $ | 62.3 | ||||||||||
|
|
|
|||||||||||||||
| Exercisable, December 31, 2011 | 13.4 | $ | 42.94 | 3.8 yrs | $ | 41.0 | ||||||||||
|
|
|
|||||||||||||||
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Proceeds from stock option exercises | $ | 50.3 | $ | 36.4 | $ | 18.0 | ||||||
| Aggregate intrinsic value | $ | 25.3 | $ | 19.7 | $ | 13.8 | ||||||
| Tax benefit realized upon exercise | $ | 9.6 | $ | 7.8 | $ | 5.4 | ||||||
|
Nonvested Restricted Stock |
Shares | Weighted Average Grant Date Fair Value Per Share |
||||||
| Balance, December 31, 2010 | 2.0 | $ | 33.10 | |||||
|
Granted |
1.5 | 30.52 | ||||||
|
Vested |
(0.6 | ) | 38.42 | |||||
|
Forfeited |
(0.1 | ) | 29.89 | |||||
|
|
|
|||||||
| Balance, December 31, 2011 | 2.8 | $ | 30.65 | |||||
|
|
|
|||||||
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Fair value of vested shares | $ | 18.9 | $ | 12.4 | $ | 8.0 | ||||||
| Tax benefit realized upon vesting | $ | 6.9 | $ | 4.7 | $ | 2.9 | ||||||
|
Performance based restricted stock |
Shares | Weighted Average Grant Date Fair Value Per Share |
||||||
| Balance, December 31, 2010 | 0.4 | $ | 25.33 | |||||
|
Granted |
0.4 | 28.76 | ||||||
|
Adjustment to shares expected to vest* |
0.2 | 26.63 | ||||||
|
|
|
|||||||
| Balance, December 31, 2011 | 1.0 | $ | 26.92 | |||||
|
|
|
|||||||
|
|||
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Current: | ||||||||||||
|
Federal |
$ | 133.6 | $ | 106.6 | $ | 99.2 | ||||||
|
State and Local |
28.1 | 22.1 | 53.3 | |||||||||
|
Non-U.S. |
89.8 | 82.9 | 70.1 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Total current |
251.5 | 211.6 | 222.6 | |||||||||
|
|
|
|
|
|
|
|||||||
| Deferred: | ||||||||||||
|
Federal |
9.3 | (14.7 | ) | 22.8 | ||||||||
|
State and Local |
7.0 | 10.6 | (9.3 | ) | ||||||||
|
Non-U.S. |
(6.0 | ) | (6.5 | ) | 3.0 | |||||||
|
|
|
|
|
|
|
|||||||
|
Total deferred |
10.3 | (10.6 | ) | 16.5 | ||||||||
|
|
|
|
|
|
|
|||||||
| Total provision for income taxes | $ | 261.8 | $ | 201.0 | $ | 239.1 | ||||||
|
|
|
|
|
|
|
|||||||
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| U.S. statutory tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
| State and local taxes, net of federal tax benefit | 2.7 | 2.9 | 4.4 | |||||||||
| Benefit of foreign operations | (6.3 | ) | (9.7 | ) | (2.4 | ) | ||||||
| Legacy tax items | (0.2 | ) | (0.4 | ) | (0.3 | ) | ||||||
| Other | — | 0.3 | 0.3 | |||||||||
|
|
|
|
|
|
|
|||||||
| Effective tax rate | 31.2 | % | 28.1 | % | 37.0 | % | ||||||
|
|
|
|
|
|
|
|||||||
| Income tax paid | $ | 191.4 | $ | 247.9 | $ | 192.2 | ||||||
|
|
|
|
|
|
|
|||||||
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| United States | $ | 469.1 | $ | 390.6 | $ | 386.9 | ||||||
| International | 370.7 | 323.8 | 259.3 | |||||||||
|
|
|
|
|
|
|
|||||||
| Income before provision for income taxes | $ | 839.8 | $ | 714.4 | $ | 646.2 | ||||||
|
|
|
|
|
|
|
|||||||
| Year Ended December 31, | ||||||||
| 2011 | 2010 | |||||||
| Deferred tax assets: | ||||||||
|
Current: |
||||||||
|
Account receivable allowances |
$ | 8.0 | $ | 10.5 | ||||
|
Accrued compensation and benefits |
12.3 | 12.3 | ||||||
|
Deferred revenue |
5.8 | 6.0 | ||||||
|
Legal and professional fees |
9.8 | 13.1 | ||||||
|
Restructuring |
1.4 | 1.1 | ||||||
|
Uncertain tax positions |
43.6 | — | ||||||
|
Other |
3.4 | 4.9 | ||||||
|
|
|
|
|
|||||
|
Total current |
84.3 | 47.9 | ||||||
|
|
|
|
|
|||||
|
Non-current: |
||||||||
|
Accumulated depreciation and amortization |
1.3 | 1.6 | ||||||
|
Stock-based compensation |
89.6 | 84.9 | ||||||
|
Benefit plans |
82.7 | 62.8 | ||||||
|
Deferred rent and construction allowance |
30.5 | 30.4 | ||||||
|
Deferred revenue |
36.4 | 37.4 | ||||||
|
Foreign net operating loss (1) |
9.7 | 11.5 | ||||||
|
Uncertain tax positions |
21.2 | 58.8 | ||||||
|
Self-insured related reserves |
23.0 | 22.7 | ||||||
|
Other |
7.2 | 5.4 | ||||||
|
|
|
|
|
|||||
|
Total non-current |
301.6 | 315.5 | ||||||
|
|
|
|
|
|||||
| Total deferred tax assets | 385.9 | 363.4 | ||||||
|
|
|
|
|
|||||
| Deferred tax liabilities: | ||||||||
|
Current: |
||||||||
|
Other |
— | (0.2 | ) | |||||
|
|
|
|
|
|||||
|
Total Current |
— | (0.2 | ) | |||||
|
|
|
|
|
|||||
|
Non-current: |
||||||||
|
Accumulated depreciation |
(25.6 | ) | (16.4 | ) | ||||
|
Foreign earnings to be repatriated |
(2.6 | ) | (1.2 | ) | ||||
|
Amortization of intangible assets and capitalized software |
(135.7 | ) | (108.2 | ) | ||||
|
Self-insured related income |
(26.8 | ) | (27.1 | ) | ||||
|
Other liabilities |
(2.4 | ) | (1.5 | ) | ||||
|
|
|
|
|
|||||
|
Total non-current |
(193.1 | ) | (154.4 | ) | ||||
|
|
|
|
|
|||||
| Total deferred tax liabilities | (193.1 | ) | (154.6 | ) | ||||
|
|
|
|
|
|||||
| Net deferred tax asset | 192.8 | 208.8 | ||||||
| Valuation allowance | (13.9 | ) | (12.8 | ) | ||||
|
|
|
|
|
|||||
| Total net deferred tax assets | $ | 178.9 | $ | 196.0 | ||||
|
|
|
|
|
|||||
| (1) | Amounts are primarily set to expire beginning in 2015, if unused. |
| 2011 | 2010 | 2009 | ||||||||||
| Balance as of January 1 | $ | 180.8 | $ | 164.2 | $ | 185.1 | ||||||
| Additions for tax positions related to the current year | 48.9 | 31.1 | 31.1 | |||||||||
| Additions for tax positions of prior years | 15.3 | 16.2 | 52.5 | |||||||||
| Reductions for tax positions of prior years | (27.3 | ) | (9.9 | ) | (47.0 | ) | ||||||
| Settlements with taxing authorities | (2.1 | ) | — | (50.7 | ) | |||||||
| Lapse of statute of limitations | (10.2 | ) | (20.8 | ) | (6.8 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Balance as of December 31 | $ | 205.4 | $ | 180.8 | $ | 164.2 | ||||||
|
|
|
|
|
|
|
|||||||
|
|||
| December 31, | ||||||||
| 2011 | 2010 | |||||||
| 2007 Facility | $ | — | $ | — | ||||
| Commercial paper | — | — | ||||||
| Notes payable: | ||||||||
|
Series 2005-1 Notes due 2015, including fair value of interest rate swap of $11.5 million at 2011 and $(3.7) million at 2010 |
311.5 | 296.3 | ||||||
|
Series 2007-1 Notes due in 2017 |
300.0 | 300.0 | ||||||
|
2010 Senior Notes, due 2020, net of unamortized discount of $2.7 million and $3.0 million in 2011 and 2010, respectively |
497.3 | 497.0 | ||||||
| 2008 Term Loan, various payments through 2013 | 135.0 | 146.3 | ||||||
|
|
|
|
|
|||||
| Total debt | 1,243.8 | 1,239.6 | ||||||
| Current portion | (71.3 | ) | (11.3 | ) | ||||
|
|
|
|
|
|||||
| Total long-term debt | $ | 1,172.5 | $ | 1,228.3 | ||||
|
|
|
|
|
|||||
| 2008 Term Loan | Series 2005-1 Notes | Total | ||||||||||
|
Year Ending December 31, |
||||||||||||
| 2012 | $ | 71.3 | $ | — | $ | 71.3 | ||||||
| 2013 | 63.7 | — | 63.7 | |||||||||
| 2014 | — | — | — | |||||||||
| 2015 | — | 300.0 | 300.0 | |||||||||
| 2016 | — | — | — | |||||||||
|
|
|
|
|
|
|
|||||||
| Total | $ | 135.0 | $ | 300.0 | $ | 435.0 | ||||||
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Income | $ | 5.3 | $ | 3.1 | $ | 2.5 | ||||||
| Expense on borrowings | (65.5 | ) | (52.2 | ) | (45.5 | ) | ||||||
| UTBs and other tax related interest | (8.7 | ) | (7.7 | ) | 1.6 | |||||||
| Legacy Tax (a) | 3.7 | 2.5 | 6.5 | |||||||||
| Interest capitalized | 3.1 | 1.8 | 1.5 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total | $ | (62.1 | ) | $ | (52.5 | ) | $ | (33.4 | ) | |||
|
|
|
|
|
|
|
|||||||
| Interest paid | $ | 67.2 | $ | 44.0 | $ | 46.1 | ||||||
|
|
|
|
|
|
|
|||||||
| (a) | Represents a reduction of accrued interest related to the favorable resolution of Legacy Tax Matters, further discussed in Note 18 to the consolidated financial statements. |
| December 31, 2011 | December 31, 2010 | |||||||||||||||
| Carrying Amount |
Estimated Fair Value |
Carrying Amount |
Estimated Fair Value |
|||||||||||||
| Series 2005-1 Notes* | $ | 311.5 | $ | 316.5 | $ | 296.3 | $ | 310.6 | ||||||||
| Series 2007-1 Notes | 300.0 | 332.7 | 300.0 | 321.3 | ||||||||||||
| 2010 Senior Notes | 497.3 | 525.6 | 497.0 | 492.1 | ||||||||||||
| 2008 Term Loan | 135.0 | 135.0 | 146.3 | 146.3 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total | $ | 1,243.8 | $ | 1,309.8 | $ | 1,239.6 | $ | 1,270.3 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| * | The carrying amount includes an $11.5 million and ($3.7) million fair value adjustment on an interest rate hedge at December 31, 2011 and 2010, respectively. |
|
|||
| Dividends Paid Per Share | ||||||||||||
| Year ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| First quarter | $ | 0.115 | $ | 0.105 | $ | 0.10 | ||||||
| Second quarter | 0.14 | 0.105 | 0.10 | |||||||||
| Third quarter | 0.14 | 0.105 | 0.10 | |||||||||
| Fourth quarter | 0.14 | 0.105 | 0.10 | |||||||||
|
|
|
|
|
|
|
|||||||
| Year ended December 31, | $ | 0.535 | $ | 0.42 | $ | 0.40 | ||||||
|
|
|
|
|
|
|
|||||||
|
|||
|
Year Ending December 31, |
Operating Leases | |||
| 2012 | $ | 73.0 | ||
| 2013 | 70.6 | |||
| 2014 | 62.8 | |||
| 2015 | 55.1 | |||
| 2016 | 51.0 | |||
| Thereafter | 537.6 | |||
|
|
|
|||
| Total minimum lease payments | $ | 850.1 | ||
|
|
|
|||
|
|||
| Year Ended December 31, | ||||||||||||||||||||||||||||||||
| 2011 | 2010 | |||||||||||||||||||||||||||||||
| MIS | MA | Eliminations | Consolidated | MIS | MA | Eliminations | Consolidated | |||||||||||||||||||||||||
| Revenue | $ | 1,634.7 | $ | 722.4 | $ | (76.4 | ) | $ | 2,280.7 | $ | 1,466.3 | $ | 636.3 | $ | (70.6 | ) | $ | 2,032.0 | ||||||||||||||
| Expenses: | ||||||||||||||||||||||||||||||||
|
Operating, SG&A |
831.0 | 558.5 | (76.4 | ) | 1,313.1 | 781.5 | 481.9 | (70.6 | ) | 1,192.8 | ||||||||||||||||||||||
|
Restructuring |
— | — | — | — | 0.1 | — | — | 0.1 | ||||||||||||||||||||||||
|
Depreciation and amortization |
41.0 | 38.2 | — | 79.2 | 35.0 | 31.3 | — | 66.3 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Total |
872.0 | 596.7 | (76.4 | ) | 1,392.3 | 816.6 | 513.2 | (70.6 | ) | 1,259.2 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Operating income | $ | 762.7 | $ | 125.7 | $ | — | $ | 888.4 | $ | 649.7 | $ | 123.1 | $ | — | $ | 772.8 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Year Ended December 31, | ||||||||||||||||
| 2009 | ||||||||||||||||
| MIS | MA | Eliminations | Consolidated | |||||||||||||
| Revenue | $ | 1,277.7 | $ | 590.1 | $ | (70.6 | ) | $ | 1,797.2 | |||||||
| Expenses: | ||||||||||||||||
|
Operating, SG&A |
674.7 | 424.0 | (70.6 | ) | 1,028.1 | |||||||||||
|
Restructuring |
8.7 | 8.8 | — | 17.5 | ||||||||||||
|
Depreciation and amortization |
31.3 | 32.8 | — | 64.1 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
714.7 | 465.6 | (70.6 | ) | 1,109.7 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Operating income | $ | 563.0 | $ | 124.5 | $ | — | $ | 687.5 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| MIS: | ||||||||||||
| Corporate finance (CFG) | $ | 652.1 | $ | 563.9 | $ | 408.2 | ||||||
| Structured finance (SFG) | 344.6 | 290.8 | 304.9 | |||||||||
| Financial institutions (FIG) | 294.9 | 278.7 | 258.5 | |||||||||
| Public, project and infrastructure finance (PPIF) | 277.3 | 271.6 | 246.1 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Total external revenue |
1,568.9 | 1,405.0 | 1,217.7 | |||||||||
| Intersegment royalty | 65.8 | 61.3 | 60.0 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total | 1,634.7 | 1,466.3 | 1,277.7 | |||||||||
|
|
|
|
|
|
|
|||||||
| MA: | ||||||||||||
| Research, data and analytics (RD&A) | 451.3 | 425.0 | 413.6 | |||||||||
| Risk management software (RMS) | 183.4 | 173.2 | 145.1 | |||||||||
| Professional services | 77.1 | 28.8 | 20.8 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Total external revenue |
711.8 | 627.0 | 579.5 | |||||||||
| Intersegment license fee | 10.6 | 9.3 | 10.6 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total | 722.4 | 636.3 | 590.1 | |||||||||
|
|
|
|
|
|
|
|||||||
| Eliminations | (76.4 | ) | (70.6 | ) | (70.6 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Total MCO | $ | 2,280.7 | $ | 2,032.0 | $ | 1,797.2 | ||||||
|
|
|
|
|
|
|
|||||||
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| Revenue: | ||||||||||||
| U.S. | $ | 1,177.0 | $ | 1,089.5 | $ | 920.8 | ||||||
|
|
|
|
|
|
|
|||||||
| International: | ||||||||||||
|
EMEA |
708.4 | 627.4 | 624.7 | |||||||||
|
Other |
395.3 | 315.1 | 251.7 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Total International |
1,103.7 | 942.5 | 876.4 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total | $ | 2,280.7 | $ | 2,032.0 | $ | 1,797.2 | ||||||
|
|
|
|
|
|
|
|||||||
| Long-lived assets at December 31: | ||||||||||||
| United States | $ | 495.8 | $ | 476.5 | $ | 465.0 | ||||||
| International | 727.5 | 477.1 | 282.1 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total | $ | 1,223.3 | $ | 953.6 | $ | 747.1 | ||||||
|
|
|
|
|
|
|
|||||||
| December 31, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||
| MIS | MA | Corporate Assets (a) |
Consolidated | MIS | MA | Corporate Assets (a) |
Consolidated | |||||||||||||||||||||||||
| Total Assets | $ | 725.9 | $ | 1,289.7 | $ | 860.5 | $ | 2,876.1 | $ | 639.0 | $ | 910.0 | $ | 991.3 | $ | 2,540.3 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| (a) | Represents common assets that are shared between each segment or utilized by the corporate entity. Such assets primarily include cash and cash equivalents, short-term investments, unallocated property and equipment and deferred tax assets. |
|
|||
|
Year Ended December 31, |
Balance at Beginning of the Year |
Additions | Write-offs and Adjustments |
Balance at End of the Year |
||||||||||||
| 2011 | ||||||||||||||||
|
Accounts receivable allowance |
$ | (33.0 | ) | $ | (40.6 | ) | $ | 45.6 | $ | (28.0 | ) | |||||
|
Deferred tax assets – valuation allowance |
$ | (12.8 | ) | $ | (4.0 | ) | $ | 2.9 | $ | (13.9 | ) | |||||
| 2010 | ||||||||||||||||
|
Accounts receivable allowance |
$ | (24.6 | ) | $ | (46.5 | ) | $ | 38.1 | $ | (33.0 | ) | |||||
|
Deferred tax assets – valuation allowance |
$ | (4.5 | ) | $ | (8.8 | ) | $ | 0.5 | $ | (12.8 | ) | |||||
| 2009 | ||||||||||||||||
|
Accounts receivable allowance |
$ | (23.9 | ) | $ | (41.2 | ) | $ | 40.5 | $ | (24.6 | ) | |||||
|
Deferred tax assets – valuation allowance |
$ | (0.7 | ) | $ | (4.5 | ) | $ | 0.7 | $ | (4.5 | ) | |||||
|
|||
| Year Ended December 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| FX gain/(loss) | $ | 2.6 | $ | (5.1 | ) | $ | (9.5 | ) | ||||
| Legacy Tax (see Note 18) | 6.4 | — | — | |||||||||
| Joint venture income | 6.8 | 2.8 | 6.1 | |||||||||
| Other | (2.3 | ) | (3.6 | ) | (4.5 | ) | ||||||
|
|
|
|
|
|
|
|||||||
|
Total |
$ | 13.5 | $ | (5.9 | ) | $ | (7.9 | ) | ||||
|
|
|
|
|
|
|
|||||||
|
|||
| Three Months Ended | ||||||||||||||||
|
(amounts in millions, except EPS) |
March 31 | June 30 | September 30 | December 31 | ||||||||||||
| 2011 | ||||||||||||||||
| Revenue | $ | 577.1 | $ | 605.2 | $ | 531.3 | $ | 567.1 | ||||||||
| Operating Income | $ | 250.1 | $ | 270.1 | $ | 196.1 | $ | 172.1 | ||||||||
| Net income attributable to Moody's | $ | 155.5 | $ | 189.0 | $ | 130.7 | $ | 96.2 | ||||||||
| EPS: | ||||||||||||||||
|
Basic |
$ | 0.68 | $ | 0.83 | $ | 0.58 | $ | 0.43 | ||||||||
|
Diluted |
$ | 0.67 | $ | 0.82 | $ | 0.57 | $ | 0.43 | ||||||||
| 2010 | ||||||||||||||||
| Revenue | $ | 476.6 | $ | 477.8 | $ | 513.3 | $ | 564.3 | ||||||||
| Operating income | $ | 196.8 | $ | 190.5 | $ | 188.9 | $ | 196.6 | ||||||||
| Net income attributable to Moody's | $ | 113.4 | $ | 121.0 | $ | 136.0 | $ | 137.4 | ||||||||
| EPS: | ||||||||||||||||
|
Basic |
$ | 0.48 | $ | 0.51 | $ | 0.58 | $ | 0.59 | ||||||||
|
Diluted |
$ | 0.47 | $ | 0.51 | $ | 0.58 | $ | 0.58 | ||||||||
|
|||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||
|
||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||
|
|||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||
|
|||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||
|
||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
|
|||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|