MOODYS CORP /DE/ (Form: 10-K, Received: 02/22/2021 06:05:57)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED December 31, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM            TO            .
COMMISSION FILE NUMBER 1-14037
MOODY’S CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 13-3998945
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
7 World Trade Center at 250 Greenwich Street, New York, New York 10007
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 553-0300.
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS TRADING SYMBOL(S) NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, par value $0.01 per share MCO New York Stock Exchange
1.75% Senior Notes Due 2027 MCO 27 New York Stock Exchange
0.950% Senior Notes Due 2030 MCO 30 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐  No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☑  No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☑  No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
 
Accelerated Filer 
Non-accelerated Filer 
Smaller  reporting company Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes ☐  No ☑
The aggregate market value of Moody’s Corporation Common Stock held by nonaffiliates* on June 30, 2020 (based upon its closing transaction price on the New York Stock Exchange on such date) was approximately $51 billion.
As of January 31, 2021, 187.1 million shares of Common Stock of Moody’s Corporation were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement for use in connection with its annual meeting of stockholders scheduled to be held on April 20, 2021, are incorporated by reference into Part III of this Form 10-K.
The Index to Exhibits is included as Part IV, Item 15(3) of this Form 10-K.
*Calculated by excluding all shares held by executive officers and directors of the Registrant without conceding that all such persons are “affiliates” of the Registrant for purposes of federal securities laws.
MOODY'S 2020 10-K 1


MOODY’S CORPORATION
INDEX TO FORM 10-K
Page(s)
4-9
Item 1.
10
10
10-15
16-19
20-21
22-24
24
24-25
26
26
27-28
Item 1A.
29-39
Item 1B.
40
Item 2.
40
Item 3.
40
Item 4.
40
Item 5.
41
41
41
41
42
Item 7.
43
43
44-49
49
50-63
63-64
65-70
71
71
71
Item 7A.
72
Item 8.
73-130
Item 9.
131
Item 9A.
131
2     MOODY'S 2020 10-K


MOODY'S 2020 10-K     3

GLOSSARY OF TERMS AND ABBREVIATIONS
The following terms, abbreviations and acronyms are used to identify frequently used terms in this report:
TERM DEFINITION
ABS Suite Business acquired by the Company in October 2019 which includes a software platform used by issuers and trustees for administration of asset-backed and mortgage-backed securities programs
Acquire Media (AM) An aggregator and distributor of curated real-time news, multimedia, data, and alerts; acquired by the Company on October 21, 2020
Acquisition-Related Amortization Amortization of definite-lived intangible assets acquired by the Company from all business combination transactions
Acquisition-Related Expenses Consists of expenses incurred over a multi-year period to complete and integrate the acquisition of Bureau van Dijk
Adjusted Diluted EPS Diluted EPS excluding the impact of certain items as detailed in the section entitled “Non-GAAP Financial Measures”
Adjusted Net Income Net Income excluding the impact of certain items as detailed in the section entitled “Non-GAAP Financial Measures”
Adjusted Operating Income Operating income excluding the impact of certain items as detailed in the section entitled "Non-GAAP Financial Measures"
Adjusted Operating Margin Adjusted Operating Income divided by revenue
Americas Represents countries within North and South America, excluding the U.S.
AML Anti-money laundering
AOCI Accumulated other comprehensive income (loss); a separate component of shareholders’ equity (deficit)
API Application Programming Interface
ASC The FASB Accounting Standards Codification; the sole source of authoritative GAAP as of July 1, 2009 except for rules and interpretive releases of the SEC, which are also sources of authoritative GAAP for SEC registrants
Asia-Pacific Represents Australia and countries in Asia including but not limited to: China, India, Indonesia, Japan, Korea, Malaysia, Singapore, Sri Lanka and Thailand
ASR Accelerated Share Repurchase
ASU The FASB Accounting Standards Update to the ASC. It also provides background information for accounting guidance and the bases for conclusions on the changes in the ASC. ASUs are not considered authoritative until codified into the ASC
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
Board The board of directors of the Company
BPS Basis points
Brexit The withdrawal of the United Kingdom from the European Union
Bureau van Dijk Bureau van Dijk Electronic Publishing, B.V.; a global provider of business intelligence and company information; acquired by the Company on August 10, 2017 via the acquisition of Yellow Maple I B.V., an indirect parent of Bureau van Dijk; part of the RD&A LOB and a reporting unit within the MA reportable segment
Catylist
A provider of commercial real estate (CRE) solutions for brokers; acquired by the Company on December 30, 2020
CCXI China Cheng Xin International Credit Rating Co. Ltd.; China’s first and largest domestic credit rating agency approved by the People’s Bank of China; the Company acquired a 49% interest in 2006; currently Moody’s owns 30% of CCXI.
4     MOODY'S 2020 10-K

TERM DEFINITION
CFG Corporate finance group; an LOB of MIS
CLO Collateralized loan obligation
CMBS Commercial mortgage-backed securities; an asset class within SFG
COLI Corporate-Owned Life Insurance
Commission European Commission
Common Stock The Company’s common stock
Company Moody’s Corporation and its subsidiaries; MCO; Moody’s
Content A reporting unit within the MA segment that offers subscription based research, data and analytical products, including credit ratings produced by MIS, credit research, quantitative credit scores and other analytical tools, economic research and forecasts
COVID-19 An outbreak of a novel strain of coronavirus resulting in an international public health crisis and a global pandemic
CP Commercial Paper
CP Notes Unsecured commercial paper issued under the CP Program
CP Program A program entered into on August 3, 2016 allowing the Company to privately place CP up to a maximum of $1 billion for which the maturity may not exceed 397 days from the date of issue and which is backstopped by the 2018 Facility.
CRAs Credit rating agencies
DBPPs Defined benefit pension plans
Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer Protection Act
EBITDA Earnings before interest, taxes, depreciation and amortization
EMEA Represents countries within Europe, the Middle East and Africa
EPS Earnings per share
ERS Enterprise Risk Solutions; an LOB within MA, which offers risk management software solutions as well as related risk management advisory engagements services
ESA Economics and Structured Analytics; part of the RD&A line of business within MA
ESG Environmental, Social and Governance
ESMA European Securities and Markets Authority
ESPP Employee stock purchase plan
ETR Effective tax rate
EU European Union
EUR Euros
EURIBOR The Euro Interbank Offered Rate
Eurozone Monetary union of the EU member states which have adopted the euro as their common currency
Excess Tax Benefits The difference between the tax benefit realized at exercise of an option or delivery of a restricted share and the tax benefit recorded at the time the option or restricted share is expensed under GAAP
Exchange Act The Securities Exchange Act of 1934, as amended
External Revenue Revenue excluding any intersegment amounts
FASB Financial Accounting Standards Board
Fermat Fermat International; an acquisition completed in October 2008; part of the MA segment; a provider of risk and performance management software to the global banking industry
MOODY'S 2020 10-K     5

TERM DEFINITION
FIG Financial institutions group; an LOB of MIS
Four Twenty Seven A provider of data, intelligence, and analysis related to physical climate risks; acquired by the Company in July 2019
Free Cash Flow Net cash provided by operating activities less cash paid for capital additions
FTSE Financial Times Stock Exchange
FX Foreign exchange
GAAP U.S. Generally Accepted Accounting Principles
GBP British pounds
GDP Gross domestic product
GDPR European Union’s General Data Protection Regulation
ICRA ICRA Limited; a provider of credit ratings and research in India.
INR Indian Rupee
IRS Internal Revenue Service
IT Information technology
KIS Korea Investors Service, Inc.; a Korean rating agency and consolidated subsidiary of the Company
KIS Pricing Korea Investors Service Pricing, Inc.; a Korean provider of fixed income securities pricing and consolidated subsidiary of the Company
KIS Research Korea Investors Service Research; a Korean provider of financial research and consolidated subsidiary of the Company
Korea Republic of South Korea
KYC Know-your-customer
LIBOR London Interbank Offered Rate
LOB Line of business
MA
Moody’s Analytics—a reportable segment of MCO; a global provider of data and analytic solutions which help companies make better and faster decisions; consists of two LOBs—RD&A and ERS
Make Whole Amount The prepayment penalty amount relating to certain Senior Notes, which is a premium based on the excess, if any, of the discounted value of the remaining scheduled payments over the prepaid principal
MAKS Moody’s Analytics Knowledge Services; formerly known as Copal Amba; provides offshore research and analytic services to the global financial and corporate sectors; formerly part of the PS LOB within the MA reportable segment; this business was divested in November 2019
MALS Moody’s Analytics Learning Solutions; a reporting unit within the MA segment that includes on-line and classroom-based training services as well as credentialing and certification services
MCO Moody’s; Moody’s Corporation and its subsidiaries; the Company
MD&A Management’s Discussion and Analysis of Financial Condition and Results of Operations
MESG Moody's ESG Solutions Group
MIS Moody’s Investors Service—a reportable segment of MCO; consists of five LOBs—SFG, CFG, FIG, PPIF and MIS Other
MIS Other Consists of non-ratings revenue from ICRA, KIS Pricing and KIS Research revenue as well as revenue from providing ESG research, data and assessments. These businesses are components of MIS; MIS Other is an LOB of MIS
Moody’s Moody’s Corporation and its subsidiaries; MCO; the Company
6     MOODY'S 2020 10-K

TERM DEFINITION
MSS
Moody's Shared Services; primarily consists of information technology and support staff such as finance, human resources and legal that support both MIS and MA.
NAV Net asset value
Net Income Net income attributable to Moody’s Corporation, which excludes net income from consolidated noncontrolling interests belonging to the minority interest holder
New Credit Losses Accounting Standard
Updates to the ASC pursuant to ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. This new accounting guidance requires the use of an “expected credit loss” impairment model for most financial assets reported at amortized cost, which will require entities to estimate expected credit losses over the lifetime of the instrument.
New Lease Accounting Standard Updates to the ASC pursuant to ASU No. 2016-02, “Leases (ASC Topic 842)”. This new accounting guidance requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses and cash flows depend on classification as either a finance or operating lease
N/A Not applicable
NM Percentage change is not meaningful
Non-GAAP A financial measure not in accordance with GAAP; these measures, when read in conjunction with the Company’s reported results, can provide useful supplemental information for investors analyzing period-to-period comparisons of the Company’s performance, facilitate comparisons to competitors’ operating results and to provide greater transparency to investors of supplemental information used by management in its financial and operational decision making
NRSRO Nationally Recognized Statistical Rating Organization, which is a credit rating agency registered with the SEC.
OCI Other comprehensive income (loss); includes gains and losses on cash flow and net investment hedges, certain gains and losses relating to pension and other retirement benefit obligations and foreign currency translation adjustments
Omega Performance A provider of online credit training; acquired by the Company in August 2018
Operating segment Term defined in the ASC relating to segment reporting; the ASC defines an operating segment as a component of a business entity that has each of the three following characteristics: i) the component engages in business activities from which it may recognize revenue and incur expenses; ii) the operating results of the component are regularly reviewed by the entity’s chief operating decision maker; and iii) discrete financial information about the component is available.
Other Retirement Plans The U.S. retirement healthcare and U.S. retirement life insurance plans
PCS Post-Contract Customer Support
PPIF Public, project and infrastructure finance; an LOB of MIS
Profit Participation Plan Defined contribution profit participation plan that covers substantially all U.S. employees of the Company
PS
Professional Services, a former LOB within MA which consisted of MAKS and MALS that provided offshore analytical and research services as well as learning solutions and certification programs. Subsequent to the divestiture of MAKS in 2019, revenue from the MALS reporting unit, which previous to 2020 was reported in the PS LOB, is now reported as part of the RD&A LOB. Prior periods have not been reclassified as the amounts were not material.
RD&A Research, Data and Analytics; an LOB within MA that offers: subscription based research, data and analytical products, including credit ratings produced by MIS; credit research; quantitative credit scores and other analytical tools; economic research and forecasts; business intelligence and company information products; commercial real estate data and analytical tools; and on-line and classroom-based training services as well as credentialing and certification services
Redeemable Non-controlling 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 represented by a put/call relationship
MOODY'S 2020 10-K     7

TERM DEFINITION
Reform Act Credit Rating Agency Reform Act of 2006
Regulatory Data Corporation (RDC) A provider of anti-money laundering (AML) and know-your-customer (KYC) data and due diligence services; the Company acquired RDC in February 2020
REIT Real Estate Investment Trust
Reis, Inc. (Reis) A provider of U.S. commercial real estate (CRE) data; acquired by the Company in October 2018; part of the RD&A LOB and a reporting unit within the MA reportable segment.
Relationship Revenue For MIS, represents recurring monitoring fees of a rated debt obligation and/or entities that issue such obligations, as well as revenue from programs such as commercial paper, medium-term notes and shelf registrations. For MIS Other represents subscription-based revenue. For MA, represents subscription-based revenue and software maintenance revenue
Reporting unit The level at which Moody’s evaluates its goodwill for impairment under U.S. GAAP; defined as an operating segment or one level below an operating segment
Retirement Plans Moody’s funded and unfunded pension plans, the healthcare plans and life insurance plans
Revenue Accounting Standard
Updates to the ASC pursuant to ASU No. 2014-09, “Revenue from Contracts with Customers (ASC Topic 606)”. This new accounting guidance significantly changes the accounting framework under U.S. GAAP relating to revenue recognition and to the accounting for the deferral of incremental costs of obtaining or fulfilling a contract with a customer
RiskFirst A company providing risk analytic solutions for the asset management and pension fund communities; acquired by the Company in July 2019
RMBS Residential mortgage-backed securities; an asset class within SFG
ROU Asset Assets recorded pursuant to the New Lease Accounting Standard which represent the Company’s right to use an underlying asset for the term of a lease
SaaS Software-as-a-Service
SEC U.S. Securities and Exchange Commission
Securities Act Securities Act of 1933, as amended
SFG Structured finance group; an LOB of MIS
SG&A Selling, general and administrative expenses
SSP Standalone selling price
T&M Time-and-Material
Tax Act The “Tax Cuts and Jobs Act” enacted into U.S. law on December 22, 2017, which significantly amends the tax code in the U.S.
Total Debt All indebtedness of the Company as reflected on the consolidated balance sheets
Transaction Revenue For MIS, represents the initial rating of a new debt issuance as well as other one-time fees. For MIS Other, represents revenue from professional services as well as data services, research and analytical engagements. For MA, represents perpetual software license fees and revenue from software implementation services, risk management advisory projects, training and certification services, and research and analytical engagements
U.K. United Kingdom
U.S. United States
USD U.S. dollar
UTPs Uncertain tax positions
Vigeo Eiris (VE)
A provider of Environmental, Social and Governance (ESG) research, data and assessments; acquired by the Company in April 2019
WACC Weighted Average Cost of Capital
8     MOODY'S 2020 10-K

TERM DEFINITION
ZM Financial Systems (ZMFS)
A provider of risk and financial management software for the U.S. banking sector; acquired by the Company in December 2020
2018 Restructuring Program
Restructuring program approved by the chief executive officer of Moody’s on October 26, 2018. This program included relocation of certain functions from high-cost to lower-cost jurisdictions, a reduction of staff, including from acquisitions and pursuant to a review of the business criticality of certain positions, and the rationalization and exit of certain real estate leases due to consolidation of various business activities.
2020 MA Strategic Reorganization Restructuring Program
Restructuring program approved by the chief executive officer of Moody’s on December 22, 2020, relating to a strategic reorganization in the MA reportable segment.
2020 Real Estate Rationalization Restructuring Program
Restructuring program approved by the chief executive officer of Moody’s on July 29, 2020, primarily in response to the COVID-19 pandemic which revolves around the rationalization and exit of certain real estate leases.
2012 Senior Notes Principal amount of $500 million, 4.50% senior unsecured notes due in September 2022
2013 Senior Notes Principal amount of $500 million, 4.875% senior unsecured notes due in February 2024
2014 Senior Notes Principal amount of $600 million, 5.25% senior unsecured notes due in July 2044
2015 Senior Notes Principal amount of €500 million, 1.75% senior unsecured notes due in March 2027
2017 Senior Notes Due 2023 Principal amount of $500 million, 2.625% senior unsecured notes due January 15, 2023
2017 Senior Notes Due 2028 Principal amount of $500 million, 3.25% senior unsecured notes due January 15, 2028
2017 Senior Notes Due 2021
Principal amount of $500 million, 2.75% senior unsecured notes originally due in December 2021, but early repaid by the Company in 2020.
2018 Facility Five-year unsecured revolving credit facility, with capacity to borrow up to $1 billion; backstops CP issued under the CP Program
2018 Senior Notes
Principal amount of $300 million, 3.25% senior unsecured notes originally due in June 2021, but early repaid by the Company in 2020.
2018 Senior Notes Due 2029 Principal amount of $400 million, 4.25% senior unsecured notes due February 1, 2029
2018 Senior Notes Due 2048 Principal amount of $400 million, 4.875% senior unsecured notes due December 17, 2048
2019 Senior Notes Principal amount of €750 million, 0.950% senior unsecured notes due in February 25, 2030
2020 Senior Notes Due 2025 Principal amount of $700 million, 3.75% senior unsecured notes due March 24, 2025
2020 Senior Notes Due 2050 Principal amount of $300 million, 3.25% senior unsecured notes due May 20, 2050
2020 Senior Notes Due 2060 Principal amount of $500 million, 2.55% senior unsecured notes due August 18, 2060
7WTC The Company’s corporate headquarters located at 7 World Trade Center in New York, NY

MOODY'S 2020 10-K     9

PART I

ITEM 1. BUSINESS
BACKGROUND
As used in this report, except where the context indicates otherwise, the terms “Moody’s” or the “Company” refer to Moody’s Corporation, a Delaware corporation, and its subsidiaries. The Company’s executive offices are located at 7 World Trade Center at 250 Greenwich Street, New York, NY 10007 and its telephone number is (212) 553-0300.
THE COMPANY
Company Overview
Moody’s is a global integrated risk assessment firm that empowers organizations and investors to make better decisions. Moody’s reports in two segments: MIS and MA. Financial information and operating results of these segments, including revenue, expenses and operating income, are included in Part II, Item 8. Financial Statements of this annual report and are herein incorporated by reference.

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Independent provider of credit rating opinions and related information for over 100 years
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A global integrated risk assessment firm that empowers organizations to make better decisions
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Global provider of data and analytic solutions which help companies make better and faster decisions.
59.7% 2020 Adjusted Operating Margin Total 2020 Revenue
of $5.4 billion
29.4% 2020 Adjusted Operating Margin
57.1% 2020 Operating Margin
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20.3% 2020 Operating Margin
44.5% 2020 Operating Margin
49.7% 2020 Adjusted Operating Margin


10     MOODY'S 2020 10-K

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2007 - 2016
Expanded beyond ratings agency
Established Moody’s Analytics
Built the ERS business (e.g., Fermat, B&H)
Expanded ratings to China (i.e., CCXI)
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2017 - 2020
Built out substantial data and analytics capabilities
Complemented ERS business with private company information (i.e., BvD)
Accelerated capability expansion (e.g., company database, CRE data, ESG data)
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2021 and Beyond
Positioned to serve a wide range of risk assessment markets
Competitive differentiator: integration of data and analytics combined with expertise and technology enablement
Further investment in data and analytics capabilities such as private company, CRE and ESG to serve high growth risk assessment use cases (e.g., KYC and compliance)


MOODY'S 2020 10-K     11

Moody's Investors Service Overview
MIS publishes credit ratings and provides assessment services on a wide range of debt obligations, programs and facilities, and the entities that issue such obligations in markets worldwide, including various corporate, financial institution and governmental obligations, and structured finance securities. A rating from MIS enables issuers to create timely, go-to-market debt strategies with the ability to capture wider investor focus and deeper liquidity options.

The Benefits of a Moody's Rating
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Access to capital Transparency, credit comparison and market stability Planning and budgeting Analytical capabilities
Moody’s opinions on credit are used by institutional investors throughout the world, making an issuer’s debt potentially more attractive to a wide range of buyers.
Signals a willingness by issuers to be transparent and provides issuers with an independent assessment against which to compare creditworthiness.
May help issuers when formulating internal capital plans and funding strategies
Among ratings advisors, Moody’s has a strong position and is well-recognized for the depth and breadth of its analytical capabilities.
A Moody’s rating may facilitate access to both domestic and international debt capital.

Moody’s ratings and research reports may help to maintain investor confidence, especially during periods of market stress.



Ratings revenue is derived from the originators and issuers of such transactions who use MIS ratings to support the distribution of their debt issues to investors. Ratings are disseminated via press releases to the public primarily through a variety of electronic media, including the internet and real-time information systems widely used by securities traders and investors.

12     MOODY'S 2020 10-K

MIS by the Numbers
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5,000+
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16,000+
Rated Non-Financial Corporates Rated Public Finance Issuers
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3,600+
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9,100+
Rated Financial Institutions Rated Structured Finance Deals
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145
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1,000+
Rated Sovereigns Rated Infrastructure & Public Finance Issuers
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47
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202
Rated Supranational Institutions Rating Methodologies
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459
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140+
Rated Sub-Sovereigns
Countries where MIS provides ratings

MIS also earns revenue from certain non-ratings-related operations, which primarily consist of financial instruments pricing services in the Asia-Pacific region, revenue from ESG research, data and assessments and revenue from ICRA's non-ratings operations. The revenue from these operations is included in the MIS Other LOB and is not material to the results of the MIS segment.

MOODY'S 2020 10-K     13

Moody's Analytics Overview
MA is a global provider of data and analytic solutions which help companies make better and faster decisions. MA’s analytic models, industry insights, software tools and proprietary data assets allow companies to inform and perform many critical business activities with trust and confidence. MA’s approach to aggregating, broadening and deepening available data, research, analytic tools and software solutions fosters a more integrated and efficient delivery to MA's customers resulting in better decisions around risks and opportunities. MA’s subscription businesses provide a significant base of recurring revenue to mitigate cyclical changes in debt issuance volumes that may result in volatility in MIS’s revenues.
MA's Diverse Product Solutions
Continuous expansion and refinement of content, tools and user experience to help customers make better and faster decisions.
Integrated Experience:
Ease of Use
Enhanced Content and Coverage:
More Value
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Onboard customers
Confirm KYC, AML
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Compliance modules
Leverage BvD, RDC and Acquire Media data
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Gather financials
Create credit statistics
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Spreading tools
Prepopulate and digitize financials

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Analyze credit and transaction
Assess creditworthiness of portfolio
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World class credit research and analytics
Early warning signals and credit scoring
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Consider risks holistically
Climate change, cyber, macro-economic
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ESG impact
of customer’s business
Multichannel Delivery
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Web
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Third party platforms
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Excel add-in
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Mobile
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API

14     MOODY'S 2020 10-K

MA Customers by the Numbers
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1,500+
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2,900+
Asset Managers Commercial Banks
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3,100+
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225+
Corporations Securities Dealers and Investment Banks
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675+
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4,000+
Insurance Companies Government & Other Entities
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300+
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337,000+
Real Estate Entities Individuals accessed the Moody's research website
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155+
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31,000+
Countries where MA customers operate Customer users accessed the Moody's research website in 2020

Sustainability
Moody’s manages its business with the goal of delivering value to all of its stakeholders, including its customers, employees, business partners, local communities and stockholders. As part of this effort, Moody’s advances sustainability by considering environmental, social, and governance (“ESG”) factors throughout its operations and products and services. It uses its expertise and assets to make a positive difference through technology tools, research and analytical services that help other organizations and the investor community better understand the links between sustainability considerations and the global markets. Moody’s efforts to promote sustainability-related thought leadership, assessments and data to market participants include following the policies of recognized sustainability organizations that develop standards or frameworks and/or evaluate and assess performance, including the Global Reporting Initiative and Sustainability Accounting Standards Board. Moody's also issues an annual report on how the Company has implemented the Task Force on Climate-related Financial Disclosures (“TCFD”) recommendations. Moody’s sustainability-related achievements in 2020 included the following:
established science based targets for reducing greenhouse gas (GHG) emissions and received validation for such targets from Science Based Targets initiative;
published Moody's Decarbonization Plan; and
introduced sustainability related performance goals for determining compensation of certain senior executives.
The Board oversees sustainability matters, with assistance from the Audit and Governance & Nominating Committees, as part of its oversight of management and the Company’s overall strategy.
MOODY'S 2020 10-K     15

HUMAN CAPITAL
Moody’s purpose is to bring clarity, knowledge and fairness to an interconnected world. The Company’s success in achieving its purpose is only possible through the collective contributions of its global employee population whose members possess the unique combination of skills, professional experience and diversity of backgrounds needed to advance the Company’s business and contribute to the communities in which it operates. Moody’s believes that it is essential to: i) create a workplace where its employees feel valued and inspired; ii) to provide an environment that fosters a culture of independence, inclusion and intellectual leadership; and iii) to support peer collaboration and professional growth.
As a global integrated risk assessment firm, attracting, supporting and retaining skilled talent is essential to the Company’s success. Moody’s addresses these goals by: (i) championing diversity, equity and inclusion among employees; (ii) seeking to provide market-competitive compensation and benefits and rewarding employees for their contributions to the Company’s strategic and operational goals; (iii) offering wellness programs; (iv) supporting employee learning, development and skills enhancement; and (v) advancing employee engagement.
Diversity, Equity and Inclusion
Moody's believes it is imperative to be visible champions of diversity, equity and inclusion because differing thoughts and perspectives help to enrich the Company’s offerings to its many stakeholders and improves performance. The key objectives for which the Company focuses with respect to these items include: (i) incorporating diversity, equity and inclusion into Moody’s business strategy; (ii) establishing leadership accountability with respect to diversity, including through executive compensation programs; (iii) working to increase diverse representation, e.g., women and ethnic groups; (iv) continuing to advance women and ethnically diverse employees in leadership roles; (v) enhancing employee training in diversity, equity and inclusion matters; (vi) promoting equal employment opportunities in all aspects of employment; (vii) designing the Company’s compensation practices to provide equal pay for equal work; and (viii) incorporating market standards, role, experience and performance into compensation decisions. The executive leadership team’s focus on these items is vital to attract, support and retain its skilled talent.
Moody’s has numerous diversity programs and eight active business resource groups (“BRGs”), representing 40 chapters and more than 5,400 memberships globally as of December 31, 2020. An employee can hold membership in multiple BRGs in a single region.
The Company’s diversity programs include its TIDE program (Talent Aspirations & Alignment, Insights, Development & Career Planning and Exposure & Expansion), which is a high potential employee diversity initiative aimed at elevating women and ethnically diverse employees into leadership positions.
The Company provides and periodically updates information on its BRGs and other diversity, inclusion and equity programs in its various sustainability and stakeholder reports and on its Diversity & Inclusion microsite. See moodys.com/csr and moodys.com/diversity for these items. The content of those websites is not incorporated by reference herein.
The charts below present additional information regarding the diversity of the Company's workforce as of December 31, 2020. The percentage for people of color ("POC") includes those who identified as Asian, Hispanic, Black, American Indian/Alaskan Native, Hawaiian/Other Pacific Island or two or more races. Officers and Managers are calculated using the job categories: executives, senior managers, mid-level managers, and first-level managers. The following data is based on Company records and may involve estimates or assumptions.
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16     MOODY'S 2020 10-K

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Compensation
Moody’s compensation programs are designed to foster and maintain a strong, capable, experienced and motivated global workforce. An important element of the Company’s compensation philosophy is aligning compensation to local market standards so that it can attract and retain the highly-skilled talent needed to thrive. The Company’s compensation packages include market-competitive salaries, annual bonuses and equity grants for certain employees.
Benefits and Wellness Programs
With respect to benefits, the Company views investments in benefits as an investment in its people. Moody’s is committed to providing competitive benefits programs designed to care for all employees and their families. The Company’s comprehensive programs offer resources for physical and mental health that promote preventive care, awareness and support a healthy lifestyle. The Company also promotes financial wellness and provides for flexible work arrangements, which support the Company’s efforts to create a work atmosphere in which people feel valued and inspired to give their best. Beyond delivering health, welfare, retirement benefits, and paid vacation and sick days, Moody’s extends other benefits to support its employees and their families. To provide competitive benefits, the Company periodically adjusts the nature and extent of benefits, such as parental leave, workplace flexibility and educational support.

MOODY'S 2020 10-K     17

Employee Population
As of December 31, 2020 and 2019, the number of Moody’s full-time equivalent employees was as follows:
Global Headcount
December 31, Change
2020 2019 %
MIS
U.S. 1,512  1,453  %
Non-U.S. 3,564  3,358  %
Total 5,076  4,811  %
MA
U.S. 2,004  1,810  11  %
Non-U.S. 2,963  3,023  (2) %
Total 4,967  4,833  %
MSS
U.S. 709  645  10  %
Non-U.S. 738  792  (7) %
Total 1,447  1,437  %
Total MCO
U.S. 4,225  3,908  %
Non-U.S. 7,265  7,173  %
Total 11,490  11,081  %

The MIS employee population primarily consists of credit analysts, data and operations analysts, credit strategy and methodology professionals, software engineers, sales and sales operations, and international strategy teams.
MA’s employee population primarily consists of software engineers, data and operation analysts, advisory and implementation teams and economists, as well as sales and sales support professionals.
The MSS employee population primarily consists of information technology professionals and other professional support staff such as finance, human resources and legal that support both MIS and MA.
18     MOODY'S 2020 10-K

Employee Engagement, Learning and Development
Management monitors employee turnover rates as presented in the chart below:

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The decline in the Company's voluntary turnover rates in 2020 compared to 2019 are likely due to the effects of COVID-19 on the labor market. Additionally, MSS involuntary turnover figures in 2020 in the chart above includes employees who separated pursuant to a third party outsourcing arrangement relating to certain back office functions.
Additionally, as a result of the COVID-19 pandemic, the Company enhanced its digital communications with its employees in 2020. These enhanced communications have allowed senior management to apprise employees of evolving priorities and its focus on the health, safety and well-being of Moody’s employees during this challenging time.
Learning & Development is one element of Moody’s talent management framework, which includes talent acquisition, performance management, total rewards, succession planning and leadership development. Each of these areas supports the Company’s business strategy and Moody’s culture as a diverse, equitable and inclusive place to work. The Company views learning and education as an investment in its people that aligns their professional goals and interests with the success of the firm, and helps to retain talent over the longer-term. A number of training programs are available, including leadership development, professional skills development, technical skills, as well as compliance training.
MOODY'S 2020 10-K     19

MOODY’S STRATEGY
Moody’s corporate mission is to provide trusted insights and standards that help decision-makers act with confidence. Moody’s will continue to invest with intent to defend and enhance its core businesses and expand into strategic adjacencies and new geographies.
Moody’s Priorities for Strategic Growth
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Global Integrated Risk Assessments Moody's Core Strengths Strategic Adjacencies and Expand into New Geographies
Standard Solutions and Insights Business Adjacencies
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Credit
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Data Trusted Brand Proprietary data and integrated analytics Commercial Real Estate Know Your Customer ESG
Regional Expansion
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Analytics
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Business-credit products Expanded global customer base EMEA Asia Pacific Latin America

Moody’s invests in initiatives to implement the Company’s strategy, including internally led organic development and targeted acquisitions. Illustrative examples include:

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Enhancements to ratings quality and product extensions
Investments that extend ownership and participation in joint ventures and strategic alliances
Expansion in emerging markets
New products, services, content and technology capabilities to meet customer demands
Selective bolt-on acquisitions that accelerate the ability to scale and grow Moody’s businesses

20     MOODY'S 2020 10-K

During 2020, Moody’s continued to invest in and acquire complementary businesses as further described below:

Date Business Company Stake Strategic Commentary
December 2020 Commercial Real Estate Catylist, Inc 100% A U.S. based provider of commercial real estate (CRE) solutions for brokers. The acquisition advances Moody’s Analytics CRE platform, substantially enhancing its coverage of property-level data and expanding its range of analytical solutions to the broker market.
December 2020 Risk Solutions ZM Financial Systems 100% A U.S. based provider of risk and financial management software for the U.S. banking sector. The acquisition advances Moody’s position in integrated risk assessment by broadening Moody’s Analytics’ suite of enterprise risk solutions, which help financial institutions make better decisions.
November 2020 ESG & KYC MioTech Minority Provider of ESG and KYC alternative data and insights serving the Greater China market. The investment reflects Moody’s commitment to providing China’s evolving financial markets with innovative and technology enabled ESG and KYC solutions.
October 2020 Data Acquire Media 100% A U.S. based aggregator and distributor of curated real-time news, multimedia, data, and alerts. The acquisition serves to advance MA’s solutions by strengthening its ability to provide early warning signals and real-time insight to market participants.
August 2020 Credit Ratings Malaysian Rating Corporation Berhad (MARC) Minority Credit rating agency serving the Malaysian domestic bond and sukuk markets. The investment strengthens Moody’s presence in Southeast Asia and across domestic bond markets globally, and advances its position as a leader in Islamic finance.
March 2020 Financial Training & Certifications RBA International 100% A U.K. based provider of online retail bank training and certifications. The acquisition deepens the capabilities of MA’s financial training and certifications business.
February 2020 KYC Regulatory DataCorp 100% A U.S. based provider of KYC data and due diligence services. The acquisition complements Moody’s 2017 acquisition of company data provider Bureau van Dijk (BvD), creating a global leader in compliance solutions, BvD’s fastest-growing business segment.


Moody's Priorities Looking Forward
Realizing the full potential of our global integrated risk assessment opportunity
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Sharpen focus on understanding and delivering for our customers Invest with intent to grow and scale Collaborate, modernize and innovate
World-class customer experience Deepen and extend our presence in risk assessment markets Technology interoperability and data access

MOODY'S 2020 10-K     21

PROSPECTS FOR GROWTH
Moody’s believes that the overall long-term outlook remains favorable for continued growth of the global fixed-income market and related financial information market, which includes information such as credit opinions, research, data, analytics, risk management tools and related services.
Moody’s growth is influenced by a number of trends that impact financial information markets including:

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Health of the world’s major economies
Debt capital markets activity Disintermediation of credit markets Fiscal and monetary policy of governments Expansion of market for integrated data and analytics solutions Business investment spending, including mergers and acquisitions

In an environment of increasing financial complexity and heightened attention to credit analysis and risk management, Moody’s is well positioned to benefit from continued growth in global fixed-income market activity and more widespread use of credit ratings, research and related analytical products. Moody’s expects that these developments will support continued long-term demand for high quality, independent credit opinions, research, data, analytics, risk management tools and related services. Moreover, pricing opportunities aligned with customer value creation and advances in information technology present growth opportunities for Moody’s.
Environmental, Social and Governance Data and Solutions
ESG data and solutions are expected to play an increasingly important role across both MIS and MA as market participants seek trusted insights and standards to make better decisions.
Priorities for Strategic Growth: ESG Integrated Across All Platforms, Driving Growth and Enhanced Relevance
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MIS Integration MA Integration MESG
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ESG Classification ESG Credit Scores Real Estate Solutions
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Moodys.com ESG Measures
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Climate Solutions
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Risk Analytics & Regulatory Reporting
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Index Solutions
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Credit Ratings & Research Heat Maps Lending Solutions and Tools APIs, and Data Feeds SME Solutions Sustainable Finance

22     MOODY'S 2020 10-K

Impact of Technology
The pace of change in technology and communication over the past two decades makes information about investment alternatives widely available throughout the world and facilitates issuers’ ability to place securities outside their national markets and similarly investors’ ability to obtain information about securities issued outside their national markets. Technology also allows issuers and investors the ability to more readily obtain information about new financing techniques and new types of securities that they may wish to purchase or sell, which in the absence of the appropriate technology might not be readily or easily obtainable. This availability of information promotes the ongoing integration and expansion of financial markets worldwide, giving issuers and investors access to a wider range of both established and newer capital markets. As technology provides broader access to worldwide markets, it also results in a greater need for credible, globally comparable opinions about credit risk, data, analytics and related services.
Moody’s operations are subject to various risks, as more fully described in Part I, Item 1A “Risk Factors,” inherent in conducting business on a global basis. Such risks include currency fluctuations and possible nationalization, expropriation, exchange and price controls, changes in the availability of data from public sector sources, limits on providing information across borders and other restrictive governmental actions.
MIS Prospects for Growth
Strong secular trends should continue to provide long-term growth opportunities in MIS. Key growth drivers include:
Debt market issuance driven by global GDP growth;
Continued disintermediation of fixed-income markets in both developed and emerging economies driving issuance and demand for new ratings products and services; and
Growth in first time rating mandates.
In addition to the factors noted above, growth in global fixed income markets in a given year is dependent on many macroeconomic and capital market factors including:

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Interest rates
Business investment spending Corporate refinancing needs Merger and acquisition activity Issuer financial health Consumer borrowing levels Securitization activity
Expansion of ratings coverage
Expansion into geographies with developing debt capital markets

Rating fees paid by debt issuers account for most of the revenue of MIS. Therefore, a substantial portion of MIS’s revenue is dependent upon the dollar-equivalent volume and number of ratable debt securities issued in the global capital markets.
MIS’s results can be affected by factors such as:
Performance and prospects for growth of the major world economies;
Fiscal and monetary policies pursued by their governments; and
Whether issuers request MIS ratings to aid investors in making their investment decisions.
However, annual fee arrangements with frequent debt issuers, annual debt monitoring fees and annual fees from commercial paper and medium-term note programs, bank deposit ratings, insurance company financial strength ratings, mutual fund ratings, and other areas partially mitigate MIS’s dependence on the volume or number of new debt securities issued in the global fixed-income markets. MIS’s global coverage positions it well to serve the needs of the global fixed income markets.
While already common in U.S. and Western European markets, an ongoing trend in the world’s capital markets is the disintermediation of financial systems. Issuers increasingly raise capital in the global public capital markets, in addition to, or in substitution for, traditional financial intermediaries. Moreover, financial intermediaries have sold assets in the global public capital markets, in addition to, or instead of, retaining those assets. Moody’s believes that issuer use of global debt capital markets offer advantages in capacity and efficiency compared to traditional banking systems and that the trend of increased disintermediation will continue. Further, disintermediation has continued because of the historically low interest rate environment and bank deleveraging, which has encouraged a number of corporations and other entities to seek alternative funding in the bond markets.
MOODY'S 2020 10-K     23

Moody’s also observes disintermediation in key emerging markets where economic growth may outpace internal banking system capacity. Thus, disintermediation is expected to continue over the longer-term, with Moody’s targeting investment and resources to those markets where disintermediation and bond issuance is expected to remain robust.
MA Prospects for Growth
Growth in MA is likely to be driven by expansion across customer sectors fostered by broadening MA's data and analytics solutions to meet an expanded set of customer use cases.
MA’s business growth is influenced by a number of factors, including:

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Growth from data and analytics in adjacent markets, including ESG, KYC, and CRE
Expansion of data sets and delivery options establishing a gateway that supports multiple stakeholders Ability to capitalize on demand for company data from a diverse set of use cases Continued digital transformation of credit decisioning and analytical tools (e.g., shift to SaaS-based solutions) Geographic expansion of actuarial and asset management solutions and continued investment in predictive analytics franchise

Moody’s expects that MA products and services that improve efficiencies, provide business insights, and enable compliance with financial regulation, including AML, KYC, and accounting standards, will continue to be in demand from institutions worldwide. In order to respond to other sources of demand and drive growth, MA is actively investing in new products, including enhanced data sets and improved delivery services (e.g., software-as-a-service). These efforts should support broader distribution of MA’s capabilities, deepen relationships with existing customers and drive new customer acquisition.

COMPETITION
MIS competes with other CRAs and with investment banks and brokerage firms that offer credit opinions and research. Many users of MIS’s ratings also have in-house credit research capabilities. There are also some rating markets, based on industry, geography and/or instrument type, in which Moody’s has made investments and obtained market positions superior to its competitors, while in other markets, the reverse is true.
MA competes broadly in the financial information industry against various diversified competitors. MA’s main competitors within RD&A are providers of fixed income analytics, valuations, economic data and research as well as a host of financial training and education firms. In ERS, MA faces competition from both large software providers and various other vendors as well as in-house solutions.
REGULATION
MIS, certain of the Company's ratings affiliates and many of the issuers and/or securities that it rates are subject to extensive regulation in the U.S., EU and in other countries (including by state and local authorities). In addition, some of the services offered by MA and its affiliates are subject to regulation in countries such as Canada, China and Australia. MA also derives a significant amount of its sales from banks and other financial services providers who are subject to regulatory oversight and who are required to pass through certain regulatory requirements to key suppliers such as MA. Existing and proposed laws and regulations can impact the Company’s operations, products and the markets in which the Company operates. Additional laws and regulations have been proposed or are being considered. Each of the existing, adopted, proposed and potential laws and regulations can increase the costs and legal risk associated with the Company’s operations, including the issuance of credit ratings, and may negatively impact the Company’s profitability and ability to compete, or result in changes in the demand for credit ratings, in the manner in which credit ratings are utilized and in the manner in which the Company operates.
24     MOODY'S 2020 10-K

The regulatory landscape continues to evolve. In the U.S., CRAs are subject to extensive regulation primarily pursuant to the Reform Act and the Dodd-Frank Act. The Reform Act added Section 15E to the Exchange Act and provided the SEC with the authority to establish a registration and oversight program for CRAs registered as NRSROs. Among other things, the Reform Act requires the SEC to submit an annual report to Congress providing an overview of SEC activities with respect to NRSROs, and the SEC’s views on the state of competition, transparency and conflicts of interests among NRSROs. The Dodd-Frank Act enhanced the SEC’s oversight of the regulation of NRSROs, and includes a requirement that the SEC publish an annual report summarizing the results of its annual examinations of NRSROs. To date, through a series of rulemakings, the SEC has implemented several Exchange Act provisions related to NRSROs. These include, for example, provisions addressing disclosure of data and assumptions underlying credit ratings, conflicts of interest with respect to sales and marketing practices, disclosure of performance statistics, application and disclosure of credit rating methodologies, analyst training and testing and consistent application of rating symbols and definitions. The Dodd-Frank Act also changed the pleading standard for CRAs. The Company has made, and continues to make, substantial IT and other investments, and has implemented the relevant compliance obligations.
In the EU, the CRA industry is registered and supervised through a pan-EU regulatory framework. The European Securities and Markets Authority (ESMA) has direct supervisory responsibility for registered CRAs throughout the EU MIS’ EU CRA subsidiaries are registered and are subject to formal regulation and periodic inspection. Applicable rules include, but are not limited to, procedural requirements with respect to use of credit ratings, independence and avoidance of conflicts of interest, conflicts of interest concerning investments in CRAs, methodologies, models and key rating assumptions, CRA rotation and use of multiple CRAs, outsourcing, disclosures, credit ratings of sovereign issuers, liability for intentional or grossly negligent failure to abide by applicable regulations, reporting requirements to ESMA regarding fees, and additional procedural and substantive requirements on the pricing of services. From time to time, ESMA publishes interpretive guidance, or thematic reports regarding various aspects of the CRA regulation and, annually, sets out its work program for the forthcoming year. ESMA’s 2021 work program includes monitoring, identifying and assessing new risks such as those emanating from COVID-19 and ESG data and rating providers, assessing the drivers behind changes to credit rating methodologies, engaging with CRAs on IT and information security controls and ensuring that credit ratings are accessible and usable by investors.
In 2021, the European Commission is expected to publish its second Sustainable Finance Action Plan which may include a timeline for the adoption of legislative proposals regarding products and services in the ESG sector. The Commission is also expected to publish a report in 2021 on CRAs and the integration of sustainability factors into their credit ratings. The Commission may also seek to introduce a regulatory framework that may impact Moody’s ESG products and services.
Separately, the U.K. left the EU on January 31, 2020 and commenced the Brexit implementation period ending on December 31, 2020. After the Brexit implementation period, the MIS U.K. registered CRA ceased to be registered with and regulated by ESMA and became subject to regulation by the U.K. Financial Conduct Authority. Regulatory arrangements were put in place by the relevant authorities in both the U.K. and the EU to allow credit ratings to be available for regulatory use in both the EU and the U.K. after the end of the Brexit implementation period. MIS has put arrangements in place to endorse its U.K. credit ratings into the EU and its EU credit ratings into the U.K. These arrangements are independent of the EU-U.K. Trade and Cooperation Agreement (“TCA”) that now governs the trading relationship between the EU and the U.K., subject to relevant ratification arrangements by each party.
In light of the regulations that have gone into effect in both the EU and the U.S. (as well as many other countries), periodically and as a matter of course pursuant to their enabling legislation, regulatory authorities have, and will continue to, publish reports that describe their oversight activities. In addition, other legislation and/or interpretation of existing regulation relating to the Company’s operations, including credit rating, ancillary and research services has been or is being considered by local, national and multinational bodies and this type of activity is likely to continue in the future. Finally, in certain countries, governments may provide financial or other support to locally-based CRAs. For example, governments may from time to time establish official CRAs or credit ratings criteria or procedures for evaluating local issuers. If enacted, any such legislation and regulation could change the competitive landscape in which MIS operates. The legal status of CRAs has been addressed by courts in various decisions and is likely to be considered and addressed in legal proceedings from time to time in the future. Management of the Company cannot predict whether these or any other proposals will be enacted, the outcome of any pending or possible future legal proceedings, or regulatory or legislative actions, or the ultimate impact of any such matters on the competitive position, financial position or results of operations of the Company.
MOODY'S 2020 10-K     25

INTELLECTUAL PROPERTY
Moody’s and its affiliates own and control a variety of intellectual property, including but not limited to:
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Proprietary information
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Publications
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Databases
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Trademarks
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Software tools and applications
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Domain names
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Research
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Models and methodologies
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Other proprietary materials that, in the aggregate, are of material importance to Moody’s business

Management of Moody’s believes that each of the trademarks and related corporate names, marks and logos relating to its businesses, including those containing the term “Moody’s”, are of material importance to the Company.
The Company, primarily through MA and its subsidiaries, licenses certain of its databases, software applications, credit risk models, training courses in credit risk and capital markets, research and other publications and services that contain intellectual property to its customers. In addition, the Company, primarily through Vigeo Eiris and Four Twenty Seven and their respective subsidiaries, licenses certain databases, software applications, assessments, research and other publications and services relating to ESG and climate risks that contain intellectual property to its customers. These licenses are provided pursuant to standard agreements containing customary restrictions and intellectual property protections.
In addition, Moody’s licenses from third parties certain technology, data and other intellectual property rights. Specifically, Moody’s obtains licenses from third parties to use financial information (such as market and index data, financial statement data, research data, default data, and security identifiers) as well as software development tools and libraries. In addition, the Company’s Bureau van Dijk and RDC businesses obtain from third party information providers certain financial, credit risk, compliance, management, ownership and/or other data worldwide, which Bureau van Dijk and RDC distribute through its company information products. The Company obtains such technology and intellectual property rights from generally available commercial sources. The Company also utilizes generally available open source software and libraries for internal use and subject to appropriately permissive open source licenses, to carry out routine functions in certain of the Company’s software products. Most of such technology and intellectual property is available from a variety of sources. Although certain financial information (particularly security identifiers, certain pricing or index data, and certain company financial data in selected geographic markets) is available from a limited number of sources, Moody’s does not believe it is dependent on any one data source for a material aspect of its business.
The names of Moody’s products and services referred to herein are trademarks, service marks or registered trademarks or service marks owned by or licensed to Moody’s or one or more of its affiliates. The Company owns thirty eight patents. None of the Company's intellectual property is subject to a specific expiration date, except to the extent that the patents and the copyright in items that the Company creates (such as credit reports, research, software, and other written opinions) expire pursuant to relevant law.
The Company considers its intellectual property to be proprietary, and Moody’s relies on a combination of copyright, trademark, trade secret, patent, non-disclosure and other contractual and technological safeguards for protection. Moody’s also pursues instances of third-party infringement of its intellectual property in order to protect the Company’s rights.
AVAILABLE INFORMATION
Moody’s investor relations internet website is http://ir.moodys.com/. Under the “SEC Filings” tab at this website, the Company makes available free of charge its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after they are filed with, or furnished to, the SEC.
The SEC maintains an internet site that contains annual, quarterly and current reports, proxy and other information statements that the Company files electronically with the SEC. The SEC’s internet site is http://www.sec.gov/.
26     MOODY'S 2020 10-K

INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Name, Age, Position and Biographical Data
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Robert Fauber, 50
President and Chief Executive Officer

Mr. Fauber has served as the Company’s President and Chief Executive Officer since January 2021. Mr. Fauber joined the Board of Directors in October 2020 and he currently serves on the Executive Committee of the Board of Directors. Prior to serving as CEO, Mr. Fauber served as Chief Operating Officer from November 2019 to December 2020, as President of Moody’s Investors Service, Inc. from June 2016 to October 2019, as Senior Vice President—Corporate & Commercial Development of Moody’s Corporation from April 2014 to May 2016, and was Head of the MIS Commercial Group from January 2013 to May 2016. From April 2009 through April 2014, he served as Senior Vice President—Corporate Development of Moody’s Corporation. Mr. Fauber served as Vice President—Corporate Development from September 2005 to April 2009. Prior to joining Moody’s, Mr. Fauber served in several roles at Citigroup and its investment banking subsidiary Salomon Smith Barney from 1999 to 2005. From 1992 to 1996, Mr. Fauber worked at NationsBank (now Bank of America) in the middle market commercial banking group.
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John J. Goggins, 60
Executive Vice President and General Counsel

Mr. Goggins has served as the Company’s Executive Vice President and General Counsel since April 2011 and the Company’s Senior Vice President and General Counsel from October 2000 until April 2011. Mr. Goggins joined Moody’s Investors Service, Inc. in February 1999 as Vice President and Associate General Counsel.
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Melanie Hughes, 58
Senior Vice President and Chief Human Resources Officer

Ms. Hughes has served as the Company’s Senior Vice President—Chief Human Resources Officer since September 2017. Prior to joining the Company, Ms. Hughes was Chief Human Resource Officer and Executive Vice President, Human Resources at American Eagle Outfitters from July 2016 to September 2017 and served as Executive Vice President, Human Resources at Tribune Media from May 2013 to June 2016. She has held several senior management roles for many different companies such as Coach, Gilt Group, DoubleClick and UBS Warburg.
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Mark Kaye, 41
Senior Vice President and Chief Financial Officer

Mr. Kaye has served as the Company’s Senior Vice President—Chief Financial Officer since August 2018. Prior to joining the Company, Mr. Kaye was Senior Vice President and Head of Financial Planning and Analysis at Massachusetts Mutual Life Insurance Company (MassMutual) since February 2016, and Chief Financial Officer of MassMutual U.S. since July 2015. Prior to that, Mr. Kaye served as Chief Financial Officer and Senior Vice President, Retirement Solutions, at Voya Financial from 2011 to 2015. Mr. Kaye previously held various senior financial and risk reporting positions at ING U.S. and ING Group, and was in the investment banking division of Credit Suisse First Boston.
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Name, Age, Position and Biographical Data
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Caroline Sullivan, 52
Senior Vice President and Corporate Controller

Ms. Sullivan has served as the Company’s Senior Vice President—Corporate Controller since December 2018. Prior to joining the Company, Ms. Sullivan served in several roles at Bank of America from 2011 to 2018, where her last position held was Managing Director and Global Banking Controller. Prior to that role, Ms. Sullivan supported the Global Wealth & Investment Management business from 2015 to 2017 in a variety of positions including Controller. Ms. Sullivan, a CPA, previously held various senior positions at several banks and a major accounting firm, and is a member of the Board of Directors of Financial Executives International.
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Stephen Tulenko, 53
President, Moody’s Analytics

Mr. Tulenko has served as President of Moody’s Analytics since November 2019. Mr. Tulenko served as Executive Director of Enterprise Risk Solutions from 2013 to October 2019 and as Executive Director of Global Sales, Customer Service and Marketing from 2008 to 2013. Prior to the formation of Moody’s Analytics, he held various sales, product development and product strategy roles at Moody’s Investors Service, Inc. Mr. Tulenko joined Moody’s in 1990.
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Michael West, 52
President, Moody’s Investors Service

Mr. West has served as President of Moody’s Investors Service, Inc. since November 2019. Mr. West served as Managing Director—Head of MIS Ratings and Research from June 2016 to October 2019. Previously, Mr. West served as Managing Director—Head of Global Structured Finance from February 2014 to May 2016 and Managing Director—Head of Global Corporate Finance from January 2010 to January 2014. Earlier in his career, he was also responsible for the research strategy for the ratings businesses and before that led Corporate Finance for the EMEA Region, European Corporates and the EMEA leveraged finance business. Prior to joining Moody’s in 1998, Mr. West worked at Bank of America and HSBC in various credit roles.

28     MOODY'S 2020 10-K

ITEM 1A.     RISK FACTORS
Please carefully consider the following discussion of significant factors, events and uncertainties that make an investment in the Company’s securities risky and provide important information for the understanding of the “forward-looking” statements discussed in Item 7 of this Form 10-K and elsewhere. These risk factors should be read in conjunction with the other information in this annual report on Form 10-K.
The events and consequences discussed in these risk factors could, in circumstances the Company may not be able to accurately predict, recognize, or control, have a material adverse effect on Moody’s business, financial condition, operating results (including components of the Company’s financial results such as sales and profits), cash flows and stock price. These risk factors do not identify all risks that Moody’s faces. The Company could also be affected by factors, events, or uncertainties that are not presently known to the Company or that the Company currently does not consider to present significant risks. In addition to the effects of the COVID-19 pandemic and resulting global disruptions on our business and operations discussed in Item 7 of this Form 10-K and in the risk factors below, additional or unforeseen effects from the COVID-19 pandemic and the global economic climate may give rise to or amplify many of these risks discussed below.
A. Legal and Regulatory Risks
Moody’s Faces Risks Related to U.S. Laws and Regulations Affecting the Credit Rating Industry and Moody’s Customers.
Moody’s operates in a highly regulated industry and is subject to extensive regulation by federal, state and local authorities in the U.S., including the Reform Act and the Financial Reform Act. These regulations are complex, continually evolving and have tended to become more stringent over time. Additionally, the change in the Presidential administration and changes in Congress may increase the uncertainty with regard to potential changes in these laws and regulations and the enforcement of any new or existing legislation or directives by government authorities. See “Regulation” in Part 1, Item 1 of this annual report on Form 10-K for more information. The current laws and regulations:
seek to encourage, and may result in, increased competition among CRAs and in the credit rating business;
may result in alternatives to credit ratings or changes in the pricing of credit ratings;
restrict the use of information in the development or maintenance of credit ratings;
increase regulatory oversight of the credit markets and CRA operations;
provide the SEC with direct jurisdiction over CRAs that seek NRSRO status, and grant authority to the SEC to inspect the operations of CRAs; and
provide for enhanced oversight standards and specialized pleading standards, which may result in increases in the number of legal proceedings claiming liability for losses suffered by investors on rated securities and aggregate legal defense costs.

If these laws and regulations, and any future rulemaking or court rulings, reduce demand for credit ratings or increase costs, Moody’s may be unable to pass such costs through to customers. In addition, there may be uncertainty over the scope, interpretation and administration of such laws and regulations. The Company’s compliance and efforts to mitigate the risk of fines, penalties or other sanctions can result in significant expenses. Legal proceedings that are increasingly lengthy can result in uncertainty over and exposure to liability.
It is difficult to accurately assess the future impact of legislative and regulatory requirements on Moody’s business and its customers’ businesses. For example, new laws and regulations may affect MIS’s communications with issuers as part of the rating assignment process, alter the manner in which MIS’s credit ratings are developed, assigned and communicated, affect the manner in which MIS or its customers or users of credit ratings operate, impact the demand for MIS’s credit ratings and alter the economics of the credit ratings business, including by restricting or mandating business models for CRAs. Further, speculation concerning the impact of legislative and regulatory initiatives and the increased uncertainty over potential liability and adverse legal or judicial determinations may negatively affect Moody’s stock price. Although these legislative and regulatory initiatives apply to CRAs and credit markets generally, they may affect Moody’s in a disproportionate manner. Each of these developments increase the costs and legal risk associated with the issuance of credit ratings and can have a material adverse effect on Moody’s operations, profitability and competitiveness, the demand for credit ratings and the manner in which such ratings are utilized.
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In addition, MA derives a significant amount of its sales from banks and other financial services providers who are subject to regulatory oversight. U.S. banking regulators, including the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System and the Consumer Financial Protection Board, as well as many state agencies have issued guidance to insured depository institutions and other providers of financial services on assessing and managing risks associated with third-party relationships, which include all business arrangements between a financial services provider and another entity, by contract or otherwise, and generally requires banks and financial services providers to exercise comprehensive oversight throughout each phase of a bank or financial service provider’s business arrangement with third-party service providers, and instructs banks and financial service providers to adopt risk management processes commensurate with the level of risk and complexity of their third-party relationships. In light of this, MA’s existing or potential bank and financial services customers subject to this guidance have sought to and may further revise their third-party risk management policies and processes and the terms on which they do business with MA. This can result in delayed or reduced sales to such customers, adversely affect MA’s relationship with such customers, increase the costs of doing business with such customers and/or result in MA assuming greater financial and legal risk under service agreements with such customers.
Moody’s Faces Risks Related to Financial Reforms Outside the U.S. Affecting the Credit Rating Industry and Moody’s Customers.
In addition to the extensive and evolving U.S. laws and regulations governing the industry, foreign jurisdictions have taken measures to regulate CRAs and the markets for credit ratings. In particular, the EU has adopted a common regulatory framework for CRAs operating in the EU and continues to monitor the credit rating industry and analyze approaches that may strengthen existing regulation. Ratings emanating from outside the EU are subject to ESMA’s oversight if they are endorsed into the EU. Additionally, other foreign jurisdictions have recently taken measures to increase regulation of rating agencies and markets for ratings. See “Regulation” in Part 1, Item 1 of this annual report on Form 10-K for more information.
The EU and other jurisdictions, as discussed further below, adopt legislation and engage in rulemaking on an ongoing basis that significantly impacts operations and the markets for the Company's products and services. Future laws and regulations could extend to products and services not currently regulated. These regulations could: (i) affect the need for debt securities to be rated, (ii) expand supervisory remits to include non-EU ratings used for regulatory purposes, (iii) increase the level of competition in the market for credit ratings, (iv) establish criteria for credit ratings or limit the entities authorized to provide credit ratings, and (iv) restrict the collection, use, accuracy, correction and sharing of personal information by CRAs, or (v) regulate pricing (such that fees that are based on costs and are non-discriminatory) on products and services provided by MA such as those products that incorporate ratings and research originated by MIS. Future regulations could also affect products and services the Company offers in the ESG sector (including those offered by Moody’s ESG Solutions Group).
Additionally, as of the date of the filing of this annual report on Form 10-K, there remains uncertainty regarding the impact that Brexit will have on the credit rating industry within the U.K., the EU and other jurisdictions. The U.K. left the EU on January 31, 2020, thereby entering an 11-month implementation period. The Brexit implementation period ended on December 31, 2020. Following the Brexit implementation period, the MIS U.K. registered CRA ceased to be registered with and regulated by ESMA and became subject to regulation by the U.K. Financial Conduct Authority. Regulatory arrangements put in place in both the U.K. and the EU allow credit ratings to be available for regulatory use in both the EU and the U.K. after the end of the Brexit-implementation period. MIS has put arrangements in place to endorse its U.K. credit ratings into the EU and its EU credit ratings into the U.K. The U.K. and the EU are expected to agree by March 2021 to a memorandum of understanding establishing the framework for structured regulatory cooperation on financial services. The contents and extent of the memorandum of understanding are currently unclear, and therefore the impact on Moody’s customers and other stakeholders is currently uncertain.
Both of Moody’s segments face risks related to financial reforms outside the U.S. affecting the credit rating industry and Moody’s customers. MIS is a registered entity and is therefore subject to formal regulation and periodic or other inspections in the EU and other foreign jurisdictions, such as, but not limited to, Hong Kong and China, where it operates through registered subsidiaries. For example:
In the EU, applicable rules include procedural requirements with respect to ratings of sovereign issuers, liability for intentional or grossly negligent failure to abide by applicable regulations, mandatory rotation requirements of CRAs hired by issuers of securities for ratings of resecuritizations, and restrictions on CRAs or their shareholders if certain ownership thresholds are crossed. Additional procedural and substantive requirements include conditions for the issuance of credit ratings, rules regarding the organization of CRAs, restrictions on activities deemed to create a conflict of interest, including fees that are based on costs and are non-discriminatory, and special requirements for the rating of structured finance instruments.
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In Hong Kong, applicable rules include liability for the intentional or negligent dissemination of false and misleading information and procedural requirements for the notification of certain matters to regulators. In addition, MIS Hong Kong is subject to a code of conduct applicable to CRAs that impose procedural and substantive requirements on the preparation and issuance of credit ratings, restrictions on activities deemed to create a conflict of interest including the disclosure of its compensation arrangements with rated entities and special requirements for the rating of structured finance instruments. A failure to comply with these procedural and substantive requirements also exposes MIS Hong Kong to the risk of regulatory enforcement action which could result in financial penalties or, in serious cases, its ability to conduct credit rating activities in Hong Kong.
In China, while MIS is not a licensed credit rating agency, it does issue global credit ratings from offices outside of China regarding Chinese issuers. In addition, the Company holds a 30% investment in a credit rating agency licensed in China. China has laws applicable to domestic credit rating agencies as well as foreign investment in such entities and entities in general (including national security review). Such laws are broadly crafted and the implementation and interpretation of such laws are subject to the broad discretion of Chinese regulators, which could affect our ability to conduct business in China.
In addition, U.S. economic sanctions have increasingly targeted Chinese persons. In response, China recently issued a blocking statute that establishes a framework for limiting the effect of foreign sanctions on Chinese persons. Blocking statutes typically create conflicts of law. An entity that is subject to conflicting laws in multiple jurisdictions may need to determine a means to comply with such laws. Such conflicts could eventually affect the ability of entities to adhere to applicable laws.

With respect to MA, regulators in Europe and other foreign markets in which MA is active have issued guidance similar to that issued in the U.S. relating to financial institutions’ assessment and management of risks associated with third-party relationships. In light of this, MA’s existing or potential bank and financial services customers subject to this guidance have sought and may further revise their third-party risk management policies and processes and the terms on which they do business with MA. This can result in delayed or reduced sales to such customers, adversely affect MA’s relationship with such customers, increase the costs of doing business with such customers and/or result in MA assuming greater financial and legal risk under service agreements with such customers.
Although Moody’s will monitor developments related to financial reforms outside the U.S. affecting the credit rating industry and Moody’s customers, Moody’s cannot predict the extent of such future laws and regulations, and the effect that they will have on Moody’s business or the potential for increased exposure to liability could be significant. For example, compliance with the EU and other foreign regulations may increase costs of operations and could have a significant negative effect on Moody’s operations, profitability or ability to compete, or the markets for its products and services, including in ways that Moody’s presently is unable to predict. In addition, exposure to increased liability under the EU regulations and regulations of other foreign jurisdictions may further increase costs and legal risks associated with the issuance of credit ratings and materially and adversely impact Moody’s results of operations. Financial reforms in the EU and other foreign jurisdictions may have a material adverse effect on Moody’s business, operating results and financial condition.
The Company Faces Exposure to Litigation and Government Regulatory Proceedings, Investigations and Inquiries Related to Rating Opinions and Other Business Practices.
Moody’s faces exposure to litigation and government and regulatory proceedings, investigations and inquiries related to MIS’s ratings actions, as well as other business practices and products within both MIS and MA. If the market value of credit-dependent instruments declines or defaults, whether as a result of difficult economic times, turbulent markets or otherwise, the number of investigations and legal proceedings that Moody’s faces could increase significantly. Parties who invest in securities rated by MIS may pursue claims against MIS or Moody’s for losses they face in their portfolios. For instance, Moody’s faced numerous class action lawsuits and other litigation, government investigations and inquiries concerning events linked to the U.S. subprime residential mortgage sector and broader deterioration in the credit markets during the financial crisis of 2007-2008. Legal proceedings impose additional expenses on the Company and require the attention of senior management to an extent that may significantly reduce their ability to devote time to addressing other business issues, and any of these proceedings, investigations or inquiries could ultimately result in adverse judgments, damages, fines, penalties or activity restrictions. Risks relating to legal proceedings are heightened in foreign jurisdictions that lack the legal protections or liability standards comparable to those that exist in the U.S. In addition, new laws and regulations have been and may continue to be enacted that establish lower liability standards, shift the burden of proof or relax pleading requirements, thereby increasing the risk of successful litigations in the U.S. and in foreign jurisdictions. These litigation risks are often difficult to assess or quantify. Moody’s may not have adequate insurance or reserves to cover these risks, and the existence and magnitude of these risks often remains unknown for substantial periods of time. Furthermore, when Moody’s is unable to achieve dismissals at an early stage and litigation matters proceed to trial, the aggregate legal defense costs incurred by Moody’s increase substantially, as does the risk of an adverse outcome.
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Additionally, as litigation or the process to resolve pending matters progresses, Moody’s will continue to review the latest information available and may change its accounting estimates, which could require Moody’s to record or increase liabilities in the consolidated financial statements in future periods. See Note 21 to the consolidated financial statements for more information regarding ongoing investigations and civil litigation that the Company currently faces. Due to the number of these proceedings and the significant amount of damages sought, there is a risk that Moody’s will be subject to judgments, settlements, fines, penalties or other adverse results that have a material adverse effect on its business, operating results and financial condition.
The Company Is Exposed to Risks Related to Its Compliance and Risk Management Programs.
Moody’s operates in a number of countries, and as a result the Company is required to comply and quickly adapt with numerous international and U.S. federal, state and local laws and regulations. The Company’s ability to comply with applicable laws and regulations, including anti-corruption, antitrust and securities trading laws, is largely dependent on its establishment and maintenance of compliance, review and reporting systems, as well as its ability to attract and retain qualified compliance and risk management personnel. Moody’s policies and procedures to identify, evaluate and manage the Company’s risks, including risks resulting from acquisitions, may not be fully effective, and Moody’s employees or agents may engage in misconduct, fraud or other errors. It is not always possible to deter such errors, and the precautions the Company takes to prevent and detect this activity may not be effective in all cases. If Moody’s employees violate its policies or if the Company’s risk management methods are not effective, the Company may be subject to criminal and civil liability, the suspension of the Company’s employees, fines, penalties, regulatory sanctions, injunctive relief, exclusion from certain markets or other penalties, and may suffer harm to its reputation, financial condition and operating results.
Moody’s Faces Risks Related to Protecting Its Intellectual Property Rights.
Moody’s considers many aspects of its products and services to be proprietary. Failure to protect the Company’s intellectual property adequately could harm its reputation and affect the Company’s ability to compete effectively. Businesses the Company acquires also involve intellectual property portfolios, which increase the challenges the Company faces in protecting its strategic advantage. In addition, the Company’s operating results can be adversely affected by inadequate or changing legal and technological protections for intellectual property and proprietary rights in some jurisdictions and markets. The lack of strong legal and technological intellectual property protections in foreign jurisdictions in which we operate may increase our vulnerability and may pose risks to our business. From time to time, laws are passed that require publication of certain information, in some cases at no cost, that the Company considers to be its intellectual property and that it currently sells or licenses for a fee, which could result in lost revenue.
Unauthorized third parties may also try to obtain and use technology or other information that the Company regards as proprietary. It is also possible that Moody’s competitors or other entities could obtain patents related to the types of products and services that Moody’s offers, and attempt to require Moody’s to stop developing or marketing the products or services, to modify or redesign the products or services to avoid infringing, or to obtain licenses from the holders of the patents in order to continue developing and marketing the products and services. Even if Moody’s attempts to assert or protect its intellectual property rights through litigation, it may require considerable cost, time and resources to do so, and there is no guarantee that the Company will be successful. The Company’s ability to establish, maintain and protect its intellectual property and proprietary rights against theft, misappropriation or infringement could be materially and adversely affected by insufficient and/or changing proprietary rights and intellectual property legal protections in some jurisdictions and markets. These risks, and the cost, time and resources needed to address them, may increase as the Company’s business grows and its profile rises in countries with intellectual property regimes that are less protective than the rules and regulations applied in the United States.
Moody’s Faces Risks Related to Tax Matters, Including Changes in Tax Rates or Tax Rules.
As a global company, Moody’s is subject to taxation in the United States and various other countries and jurisdictions. As a result, our effective tax rate is determined based on the taxable income and applicable tax rates in the various jurisdictions in which the Company operates. Moody’s future tax rates could be affected by changes in the composition of earnings in countries or states with differing tax rates or other factors, including by increased earnings in jurisdictions where Moody’s faces higher tax rates, losses incurred in jurisdictions for which Moody’s is not able to realize the related tax benefit, or changes in foreign currency exchange rates. Changes in the tax, accounting and other laws, treaties, regulations, policies and administrative practices, or changes to their interpretation or enforcement, including changes applicable to multinational corporations such as the Base Erosion Profit Shifting initiative being conducted by the Organization for Economic Co-operation and Development, which requires companies to disclose more information to tax authorities on operations around the world, and the European Union’s state aid rulings, could have a material adverse effect on the Company’s effective tax rate, results of operations and financial condition and may lead to greater audit scrutiny of profits earned in various countries.
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For example, the Tax Act made significant changes to the U.S. federal tax laws. Many aspects of the legislation remain uncertain or unclear and may not be clarified for some time. As additional regulatory guidance is issued interpreting or clarifying the Tax Act or if the tax accounting rules are modified, there may be adjustments or changes to the Company’s determination of its mandatory one-time deemed repatriation tax liability (“transition tax”) on previously untaxed accumulated earnings of foreign subsidiaries recorded in 2017. Additional regulatory guidance may also affect the Company’s expected future effective tax rates and tax assets and liabilities, which could have a material adverse effect on Moody’s business, results of operations, cash flows and financial condition. Furthermore, the Tax Act may impact the volume of debt securities issued as discussed in the Risk Factor, Changes in the Volume of Debt Securities Issued in Domestic and/or Global Capital Markets, Asset Levels and Flows into Investment Levels and Changes in Interest Rates and Other Volatility in the Financial Markets May Negatively Impact the Nature and Economics of the Company’s Business. Additionally, a change in the Presidential administration and changes in Congress increase the uncertainty with regard to potential changes in the U.S. federal tax laws and the interpretation or enforcement of legislation or directives by tax authorities.
In addition, Moody’s is subject to regular examination of its income tax returns by the Internal Revenue Service and other tax authorities, and the Company is experiencing increased scrutiny as its business grows. Moody’s regularly assesses the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of its provision for income taxes, including unrecognized tax benefits; however, developments in an audit or litigation could materially and adversely affect the Company. Although the Company believes its tax estimates and accruals are reasonable, there can be no assurance that any final determination will not be materially different than the treatment reflected in its historical income tax provisions, accruals and unrecognized tax benefits, which could materially and adversely affect the Company’s business, operating results, cash flows and financial condition.
B. Risks Relating to our Business
The Company is Exposed to Legal, Economic, Operational and Regulatory Risks of Operating in Multiple Jurisdictions.
Moody’s conducts operations in various countries outside the U.S. and derives a significant portion of its revenue from foreign sources. Changes in the economic condition of the various foreign economies in which the Company operates have an impact on the Company’s business. For example, economic uncertainty in the Eurozone or elsewhere, including, but not limited to, in Latin America or China, affects the number of securities offerings undertaken within those particular areas. In addition to the risks addressed elsewhere in this section, operations abroad expose Moody’s to a number of legal, economic and regulatory risks such as:
exposure to exchange rate movements between foreign currencies and USD;
restrictions on the ability to convert local currency into USD and the costs, including the tax impact, of repatriating cash held by entities outside the U.S.;
U.S. laws affecting overseas operations, including domestic and foreign export and import restrictions, tariffs and other trade barriers and restrictions, such as those related to the U.S.’s relationship with China and embargoes and sanctions laws with respect to Russia and Venezuela;
differing and potentially conflicting legal or civil liability, compliance and regulatory standards, including as a result of Brexit;
uncertainty about the future relationship between the U.K. and the EU;
current and future regulations relating to the imposition of mandatory rotation requirements on CRAs hired by issuers of securities;
uncertain and evolving laws and regulations, including those applicable to the financial services industries, such as the European Union’s implementation of the Markets in Financial Instruments Directive II, MiFID II, in January 2018, and to the protection of intellectual property;
the transition away from benchmark reference rates based on market participant judgements, such as LIBOR and EURIBOR, to rates based on observable transactions, such as the Secured Overnight Financing Rate (SOFR);
uncertainty regarding the future relationship between the U.S. and China, which may result in further restrictions or actions by the U.S. government with respect to doing business in China and/or by the Chinese government with respect to business conducted by foreign entities in China;
economic, political and geopolitical market conditions, including the effect of these conditions on customers and customer retention;
the possibility of nationalization, expropriation, price controls and other restrictive governmental actions;
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competition with CRAs that have greater familiarity, longer operating histories and/or support from local governments or other institutions;
uncertainties in obtaining data and creating products and services relevant to particular geographic markets;
reduced protection for intellectual property rights;
longer payment cycles and possible problems in collecting receivables;
differing accounting principles and standards;
difficulties in staffing and managing foreign operations, including potential relocation and/or restaffing of employees as a result of Brexit;
difficulties and delays in translating documentation into foreign languages;
potentially adverse tax consequences; and
complexities of compliance with employment laws and new data and cybersecurity rules in numerous jurisdictions.
Additionally, Moody’s is subject to complex U.S., foreign and other local laws and regulations that are applicable to its operations abroad, such as laws and regulations governing economic and trade sanctions, tariffs, embargoes, and anticorruption laws including the Foreign Corrupt Practices Act of 1977, the U.K. Bribery Act of 2010 and other similar local laws. The internal controls, policies and procedures and employee training and compliance programs to deter prohibited practices the Company has implemented may not be effective in preventing employees, contractors or agents from violating or circumventing such internal policies or from material violations of applicable laws and regulations. Any determination that the Company has violated sanctions, anti-bribery or anti-corruption laws could have a material adverse effect on Moody’s business, operating results and financial condition. Compliance with international and U.S. laws and regulations that apply to the Company’s international operations increases the cost of doing business in foreign jurisdictions. Violations of such laws and regulations may result in severe fines and penalties, criminal sanctions, administrative remedies, restrictions on business conduct and could have a material adverse effect on Moody’s reputation, its ability to attract and retain employees, its business, operating results and financial condition.
Moody’s Operations are Exposed to Risks from Infrastructure Malfunctions or Failures.
Moody’s ability to conduct business may be materially and adversely impacted by a disruption in the infrastructure that supports its businesses and the communities in which Moody’s is located, including New York City, the location of Moody’s headquarters, major cities worldwide in which Moody’s has offices, and locations in China used for certain Moody’s work. This may include a disruption involving physical or technological infrastructure (whether or not controlled by the Company), including the Company’s electronic delivery systems, data center facilities, or the Internet, used by the Company or third parties with or through whom Moody’s conducts business. Many of the Company’s products and services are delivered electronically and the Company’s customers depend on the Company’s ability to receive, store, process, transmit and otherwise rapidly handle very substantial quantities of data and transactions on computer-based networks. Some of Moody’s operations require complex processes and the Company’s extensive controls to reduce the risk of error inherent in our operations cannot eliminate such risk completely. The Company’s customers also depend on the continued capacity, reliability and security of the Company’s telecommunications, data centers, networks and other electronic delivery systems, including its websites and connections to the Internet. The Company’s employees also depend on these systems for internal use. Any significant failure, compromise, cyber-breach, interruption or a significant slowdown of operations of the Company’s infrastructure, whether due to human error, capacity constraints, hardware failure or defect, weather (including climate change), natural disasters, fire, power loss, telecommunication failures, break-ins, sabotage, intentional acts of vandalism, acts of terrorism, political unrest, pandemic (including the COVID-19 pandemic), war or otherwise, may impair the Company’s ability to deliver its products and services.
Moody’s efforts to secure and plan for potential disruptions of its major operating systems may not be successful. The Company relies on third-party providers, including, increasingly, cloud-based service providers, to provide certain essential services. While the Company believes that such providers are reliable, the Company has limited control over the performance of such providers. To the extent any of the Company’s third-party providers ceases to provide these services in an efficient, cost-effective manner or fails to adequately expand its services to meet the Company’s needs and the needs of the Company’s customers (including as a result of the COVID-19 pandemic), the Company could experience lower revenues and higher costs. Additionally, although the Company maintains processes to prevent, detect and recover from a disruption, the Company also does not have fully redundant systems for most of its smaller office locations and low-risk systems, and its disaster recovery plan does not include restoration of non-essential services. If a disruption occurs in one of Moody’s locations or systems and its personnel in those locations or those who rely on such systems are unable to utilize other systems or communicate with or travel to other locations, such persons’ ability to service and interact with Moody’s customers will suffer. The Company cannot predict with certainty all of the adverse effects that could result from the Company’s failure, or the failure of a third party, to efficiently address and resolve these delays and interruptions. A disruption to Moody’s operations or infrastructure may have a material adverse effect on its reputation, business, operating results and financial condition.
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Changes in the Volume of Debt Securities Issued in Domestic and/or Global Capital Markets, Asset Levels and Flows into Investment Levels and Changes in Interest Rates and Other Volatility in the Financial Markets Can Negatively Impact the Nature and Economics of the Company’s Business.
Moody’s business is impacted by general economic conditions and volatility in the U.S. and world financial markets. Furthermore, issuers of debt securities may elect to issue securities without ratings or securities which are rated or evaluated by non-traditional parties such as financial advisors, rather than traditional CRAs, such as MIS. A majority of Moody’s credit-rating-based revenue is transaction-based, and therefore it is especially dependent on the number and dollar volume of debt securities issued in the capital markets. Market disruptions and economic slowdown and uncertainty have in the past, and may in the future, negatively impacted the volume of debt securities issued in global capital markets and the demand for credit ratings. Changes to U.S. tax laws and policy can negatively affect the volume of debt securities issued in the U.S. For example, the Tax Act limits deductibility on interest payments and significantly reduces the tax cost associated with the repatriation of cash held outside the U.S., both of which could negatively affect the volume of debt securities issued. Conditions that reduce issuers’ ability or willingness to issue debt securities, such as market volatility, declining growth, currency devaluations or other adverse economic trends, reduce the number and dollar-equivalent volume of debt issuances for which Moody’s provides ratings services and thereby adversely affect the fees Moody’s earns in its ratings business.
Economic and government factors such as a long-term continuation of difficult economic conditions, the scaling back, wind-down or termination of COVID-19 economic stimulus and support programs, and current uncertainty in various other jurisdictions, may have an adverse impact on the Company’s business. Future debt issuances also could be negatively affected by increases in interest rates, widening credit spreads, regulatory and political developments, growth in the use of alternative sources of credit, and defaults by significant issuers. Declines or other changes in the markets for debt securities may materially and adversely affect the Company’s business, operating results and financial condition.
Moody’s initiatives to reduce costs to counteract a decline in its business may not be sufficient and cost reductions may be difficult or impossible to obtain in the short term, due in part to rent, technology, compliance and other fixed costs associated with some of the Company’s operations as well as the need to monitor outstanding ratings. Further, cost-reduction initiatives, including those under-taken to date, could make it difficult for the Company to rapidly expand operations in order to accommodate any unexpected increase in the demand for ratings. Volatility in the financial markets, including changes in the volumes of debt securities and changes in interest rates, may have a material adverse effect on the business, operating results and financial condition, which the Company may not be able to successfully offset with cost reductions.
The Company Faces Increased Pricing Pressure from Competitors and/or Customers.
There is price competition in the credit rating, research, and credit risk management markets, as well as in the market for research, business intelligence and analytical services offered by MA. Moody’s faces competition globally from other CRAs and from investment banks and brokerage firms that offer credit opinions in research, as well as from in-house research operations. Competition for customers and market share has spurred more aggressive tactics by some competitors in areas such as pricing and services, as well as increased competition from non-NRSROs that evaluate debt risk for issuers or investors. At the same time, a challenging business environment and consolidation among both competitors and customers, particularly those involved in structured finance products and commercial real estate, and other factors affecting demand may enhance the market power of competitors and reduce the Company’s customer base. Weak economic growth intensifies competitive pricing pressures and can result in customers’ use of free or lower-cost information that is available from alternative sources or their development of alternative, proprietary systems for assessing credit risk that replace the products currently purchased from Moody’s. While Moody’s seeks to compete primarily on the basis of the quality of its products and services, it can lose market share when its pricing is not sufficiently competitive. In addition, the Reform Act was designed to encourage competition among rating agencies. The formation of additional NRSROs may increase pricing and competitive pressures. Furthermore, in some of the countries in which Moody’s operates, governments may provide financial or other support to local rating agencies. Any inability of Moody’s to compete successfully with respect to the pricing of its products and services will have a material adverse impact on its business, operating results and financial condition.
The Company is Exposed to Reputation and Credibility Concerns.
Moody’s reputation and the strength of its brand are key competitive strengths. To the extent that the rating agency business as a whole or Moody’s, relative to its competitors, suffers a loss in credibility, Moody’s business will be significantly impacted. Factors that may have already affected credibility and could potentially continue to have an impact in this regard include the appearance of a conflict of interest, the performance of securities relative to the rating assigned to such securities, the timing and nature of changes in ratings, a major compliance failure, negative perceptions or publicity and increased criticism by users of ratings, regulators and legislative bodies, including as to the ratings process, including as to the Company’s recent ESG initiatives, and its implementation with respect to one or more securities and intentional, poor representation of our products and services by our partners or agents or unintentional misrepresentations of Moody’s products and services in advertising materials, public relations information, social media or other external communications. Operational errors, whether by Moody’s or a Moody’s competitor, could also harm the reputation of the Company or the credit rating industry. Damage to reputation and credibility could have a material adverse impact on Moody’s business, operating results and financial condition, as well as on the Company’s ability to find suitable candidates for acquisition.
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The Introduction of Competing Products, Technologies or Services by Other Companies Can Negatively Impact the Nature and Economics of the Company’s Business.
The markets for credit ratings, research, credit risk management services, research, business intelligence and analytical services are highly competitive and characterized by rapid technological change, changes in customer and investor demands, and evolving regulatory requirements, industry standards and market preferences. The ability to develop and successfully launch and maintain innovative products, technologies and services that anticipate customers’ and investors’ changing requirements and utilize emerging technological trends in a timely and cost-effective manner is a key factor in maintaining market share. Moody’s competitors include both established companies with significant financial resources, brand recognition, market experience and technological expertise, and smaller companies which may be better poised to quickly adopt new or emerging technologies or respond to customer requirements. Competitors may develop quantitative methodologies or related services for assessing credit risk that customers and market participants may deem preferable, more cost-effective or more valuable than the credit risk assessment methods currently employed by Moody’s, or may position, price or market their products in manners that differ from those utilized by Moody’s. Moody’s also competes indirectly against consulting firms and technology and information providers, some of whom are also suppliers to Moody’s; these indirect competitors could in the future choose to compete directly with Moody’s, cease doing business with Moody’s or change the terms under which it does business with Moody’s in a way that could negatively impact our business. In addition, customers or others may develop alternative, proprietary systems for assessing credit risk. Such developments could affect demand for Moody’s products and services and its growth prospects. Further, the increased availability in recent years of free or relatively inexpensive internet information may reduce the demand for Moody’s products and services. Moody’s growth prospects also could be adversely affected by Moody’s failure to make necessary or optimal capital infrastructure expenditures and improvements and the inability of its information technologies to provide adequate capacity and capabilities to meet increased demands of producing quality ratings and research products at levels achieved by competitors. Any inability of Moody’s to compete successfully may have a material adverse effect on its business, operating results and financial condition.
Moody’s Is Exposed to Risks Related to Loss of Key Employees and Related Compensation Cost Pressures.
Moody’s success depends upon its ability to recruit, retain and motivate highly skilled, experienced financial analysts and other professionals. Competition for skilled individuals in the financial services industry is intense, and Moody’s ability to attract high quality employees could be impaired if it is unable to offer competitive compensation and other incentives or if the regulatory environment mandates restrictions on or disclosures about individual employees that would not be necessary in competing industries. As greater focus has been placed on executive compensation at public companies, in the future, Moody’s may be required to alter its compensation practices in ways that adversely affect its ability to attract and retain talented employees. Investment banks, investors and competitors may seek to attract analyst talent by providing more favorable working conditions or offering significantly more attractive compensation packages than Moody’s. Moody’s also may not be able to identify and hire the appropriate qualified employees in some markets outside the U.S. with the required experience or skills to perform sophisticated credit analysis. Additionally, relocation and/or restaffing of employees due to Brexit could adversely affect our ability to attract and retain talent for our European operations. There is a risk that even when the Company invests significant resources in attempting to attract, train and retain qualified personnel, it will not succeed in its efforts, and its business could be harmed.
Moody’s is highly dependent on the continued services of Robert Fauber, the President and Chief Executive Officer, and other senior officers and key employees. The loss of the services of skilled personnel for any reason and Moody’s inability to replace them with suitable candidates quickly or at all, as well as any negative market perception resulting from such loss, could have a material adverse effect on Moody’s business, operating results and financial condition.
Moody’s Acquisitions, Dispositions and Other Strategic Transactions or Investments May Not Produce Anticipated Results Exposing the Company to Future Significant Impairment Charges Relating to Its Goodwill, Intangible Assets or Property and Equipment.
Moody’s regularly evaluates and enters into acquisition, disposition or other strategic transactions and investments to strengthen its business and grow the Company. For example, Moody’s acquired Bureau van Dijk in 2017, Reis in 2018, and Regulatory DataCorp (RDC) in February 2020. Such transactions and investments present significant challenges and risks. The Company faces intense competition for acquisition targets, especially in light of industry consolidation, which may affect Moody’s ability to complete such transactions on favorable terms or at all. Additionally, the Company makes significant investments in technology, including software for internal use, which can be expensive, time-intensive and complex to develop and implement.
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Any strategic transaction involves a number of risks, including unanticipated challenges regarding integration of operations, technologies and new employees; the existence of liabilities or contingencies not disclosed to or otherwise known by the Company prior to closing a transaction; unexpected regulatory and operating difficulties and expenditures; scrutiny from competition and antitrust authorities; failure to retain key personnel of the acquired business; future developments that impair the value of purchased goodwill or intangible assets; diversion of management’s focus from other business operations; failure to implement or remediate controls, procedures and policies appropriate for a larger public company at acquired companies that prior to the acquisition lacked such controls, procedures and policies; disputes or litigation arising out of acquisitions or dispositions; challenges retaining the customers of the acquired business; coordination of product, sales, marketing and program and systems management functions; integration of employees from the acquired business into Moody’s organization; integration of the acquired business’s accounting, information technology, human resources, legal and other administrative systems with Moody’s; risks that acquired systems expose us to cybersecurity risks; and for foreign transactions, additional risks related to the integration of operations across different cultures and languages, and the economic, political, and regulatory risks associated with specific countries. The anticipated benefits from an acquisition or other strategic transaction or investment may not be realized fully, or may take longer to realize than expected. As a result, the failure of acquisitions, dispositions and other strategic transactions and investments to perform as expected may have a material adverse effect on Moody’s business, operating results and financial condition.
At December 31, 2020, Moody’s had $4,556 million of goodwill and $1,824 million of intangible assets on its balance sheet. Approximately 93% of the goodwill and intangible assets reside in the MA business, including those related to Bureau van Dijk, and are allocated to the five reporting units within MA: Content; ERS; MALS; Bureau van Dijk; and Reis. The remaining 7% of goodwill and intangible assets reside in MIS and primarily relate to ICRA. Failure to achieve business objectives and financial projections in any of these reporting units could result in a significant asset impairment charge, which would result in a non-cash charge to operating expenses. Goodwill and intangible assets are tested for impairment on an annual basis and also when events or changes in circumstances indicate that impairment may have occurred. Determining whether an impairment of goodwill exists can be especially difficult in periods of market or economic uncertainty and turmoil, and requires significant management estimates and judgment. In addition, the potential for goodwill impairment is increased during periods of economic uncertainty. An asset impairment charge could have a material adverse effect on Moody’s business, operating results and financial condition.
The global COVID-19 pandemic may have a material adverse impact on our operations and financial performance, and is having a material adverse impact on the operations and financial performance of many of our customers. It is difficult to predict the extent to which the pandemic and related impacts will adversely impact our business operations, financial performance, results of operations, financial position and the achievement of our strategic objectives.
Our operations and financial performance could be negatively impacted by the COVID-19 pandemic that has caused, and is expected to continue to cause, the global slowdown of economic activity and significant volatility and disruption in financial markets. Because the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences continue to be uncertain, rapidly changing and difficult to predict, the pandemic’s impact on our operations and financial performance, as well as its impact on our ability to successfully execute our business strategies and initiatives, remains uncertain and difficult to predict. Further, the ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on many factors that are not within our control, including, but not limited, to: governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic (including restrictions on travel and workforce pressures); the impact of the pandemic and actions taken in response on global and regional economies, travel, and economic activity; the availability of federal, state, local or non-U.S. funding programs; general economic uncertainty in key global markets and financial market volatility; global economic conditions and levels of economic growth; uncertainty presented by approved vaccines, corresponding rollout and unanticipated consequences of such vaccine; and the pace of recovery when the COVID-19 pandemic subsides.
The COVID-19 pandemic has subjected our operations and financial performance to a number of risks, including, but not limited to, those discussed below:
The global credit market disruptions and economic stimulus measures led to robust U.S. investment grade and U.S. speculative grade issuance that may not continue as government programs are scaled back, wound down or terminated and as issuers reassess their capital position and liquidity needs.
We continue to publish research and issue credit ratings in accordance with our public credit rating methodologies in a highly uncertain, rapidly changing environment where it is difficult to predict the impact the COVID-19 pandemic has had on the operations and financial performance of many of our rated issuers. Given these unprecedented events, and our prior experience during periods of volatility and economic uncertainty, it is likely that our ratings and research will be challenged around the globe by the press, rated entities, investors and government agencies and officials. Such scrutiny has impacted and may continue to impact our reputation, brand and credibility and result in future government and regulatory proceedings, investigations, inquiries and litigation.
Likewise, MA continues to offer quantitative analytics in a highly uncertain, rapidly changing environment where it is difficult to accurately capture the impact of the COVID-19 pandemic within its analytical models across different business sectors and geographies. Any failure of MA’s models to sufficiently account for COVID-19 impacts may impact MA”s reputation, brand and credibility and could result in customer dissatisfaction and/or contract cancellations.
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Illness, travel restrictions or workforce disruptions could result in reduced sales opportunities for both MIS and MA and result in an extension of the MA sales cycles on existing opportunities as well as higher attrition rates and/or lower yields on renewable contracts.
The COVID-19 pandemic may decrease demand for the financial intelligence and analytical tools MA provides, in particular in the event that MA’s customers come under financial pressure and reduce spending for the types of products and services offered by MA.
Our customers are being impacted and will be impacted by the COVID-19 pandemic to differing degrees. Some of our customers may go out of business or lose access to market-based sources of capital, or experience significant spending constraints and layoffs, reducing the number of issuers in the market, issuance volume and demand for our products and services. As a result, we may face pricing pressure on our products, delayed renewals for certain subscription based products, and challenges to new sales which would in turn reduce revenue, ultimately impacting our results of operations.
The COVID-19 pandemic has increased volatility in the capital markets. The Company might not be able to continue to access preferred sources of liquidity when we would like, and our borrowing costs could increase.
While we have transitioned to remote work for all employees globally, maintaining such a state for an extended period of time may have a material adverse effect on our productivity, our ability to meet the needs of our customers and may expose us to both operational and security risks. In addition, maintaining an infrastructure that supports a prolonged remote working environment may limit information technology resources available for other projects.
As the COVID-19 pandemic continues to affect the global economy, it may have the effect of heightening many of the other risks, such as those surrounding cybersecurity, described in our risk factors in this Form 10-K. Further, the COVID-19 pandemic may also affect our operating and financial results in a manner that is not presently known to us or that we currently do not expect to present significant risks to our operations or financial results.
C. Technology Risks
The Company is Exposed to Risks Related to Cybersecurity and Protection of Confidential Information.
The Company’s operations rely on the secure processing, storage and transmission of confidential, sensitive, proprietary and other types of information relating to its business operations and confidential and sensitive information about its customers and employees in the Company’s computer systems and networks, and in those of its third party vendors. The risks the Company faces range from cyber-attacks common to most industries, to more advanced threats that target the Company because of its prominence in the global marketplace, or due to its ratings of sovereign debt. Breaches of Moody’s or Moody’s vendors’ technology and systems, whether from circumvention of security systems, denial-of-service attacks or other cyber-attacks, hacking, “phishing” attacks, computer viruses, ransomware, or malware, employee or insider error, malfeasance, social engineering, physical breaches or other actions, may result in manipulation or corruption of sensitive data, material interruptions or malfunctions in the Company’s or such vendors’ web sites or systems, applications, data processing, or disruption of other business operations, or may compromise the confidentiality and integrity of material information held by the Company (including information about Moody’s business, employees or customers), as well as sensitive personally identifiable information (PII), the disclosure of which could lead to identity theft. Measures that Moody’s takes to avoid, detect, mitigate or recover from material incidents can be expensive, and may be insufficient, circumvented, or may become ineffective. Further, the Company may be exposed to additional threats as the Company migrates its data from legacy systems to cloud-based solutions, and increased dependence on third parties to store cloud-based data subjects the Company to further cyber risks.
38     MOODY'S 2020 10-K

The Company has invested and continues to invest in risk management and information security measures in order to protect its systems and data, including employee training, disaster plans, and technical defenses. The cost and operational consequences of implementing, maintaining and enhancing further data or system protection measures could increase significantly to overcome increasingly intense, complex, and sophisticated global cyber threats. Despite the Company’s best efforts, it is not fully insulated from, and has in the past experienced, security threats and system disruptions. Although past incidents have not had a material adverse effect on the Company's operating results, there can be no assurance of a similar result in the future. Because the methods used for these systems cyberattacks are rapidly changing, the Company, despite significant focus and investment, may be unable to anticipate/deploy sufficient protections against such incidents. Further, the extent of a particular security incident and the steps needed to investigate may not be immediately clear, and it may take a significant amount of time before such an investigation can be completed and full and reliable information about the incident, including the extent of the harm and how best to remediate it, is known. Recent well-publicized security breaches at other companies have led to enhanced government and regulatory scrutiny of the measures taken by companies to protect against cyber-attacks, and may in the future result in heightened cybersecurity compliance requirements, including additional regulatory expectations for oversight of vendors and service providers. Cybersecurity incidents, including the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data, could cause reputational harm, loss of customers and revenue, fines, regulatory actions and scrutiny, sanctions or other statutory penalties, litigation, liability for failure to safeguard the Company’s customers’ information, or financial losses that are either not insured against or not fully covered through any insurance maintained by the Company. In addition, disclosure or media reports of actual or perceived security vulnerabilities to the Company’s systems or those of the Company’s third parties, even if no breach has been attempted or occurred, could lead to reputational harm, loss of customers and revenue, or increased regulatory actions oversight and scrutiny.
Any of the foregoing may have a material adverse effect on Moody’s business, operating results and financial condition.
The Company is Exposed to Risks Related Protection of Confidential Information
To conduct its operations, the Company regularly moves data across national borders, and consequently is subject to a variety of continuously evolving and developing laws and regulations in the United States and abroad regarding privacy, data protection and data security. The scope of the laws that may be applicable to Moody’s is often uncertain and may be conflicting, particularly with respect to foreign laws. For example, the European Union’s General Data Protection Regulation (“GDPR”), which became effective in May 2018, greatly increased the jurisdictional reach of European Union privacy law and added a broad array of requirements for processing personal data, including the public disclosure of significant data breaches. Failure to comply with GDPR requirements could result in penalties of up to 4% of annual worldwide revenue. Additionally, other countries have enacted or are enacting data localization laws that require data to stay within their borders. Further, laws such as the California Consumer Privacy Act, enacted in January 2020, will, among other things, require covered companies to provide new disclosures to consumers, and affords consumers new abilities to opt-out of certain sales of personal information. The effects of non-compliance with the CCPA and other similar data privacy laws in other jurisdictions are significant, however, and may require us to modify our data processing practices and policies and to incur additional costs and expenses. All of these evolving compliance and operational requirements have required changes to certain business practices, thereby increasing costs, requiring significant management time and attention, and subjecting the Company to negative publicity, as well as remedies that may harm its business, including fines, modified demands or orders. the cessation of existing business practices, and exposure to litigation, regulatory actions, sanctions or other statutory penalties.
The Company Is Dependent on the Use of Third-Party Software, Data, Hosted Solutions, Data Centers, Cloud and Network Infrastructure (Together, “Third Party Technology”), and Any Reduction in Third-Party Product Quality or Service Offerings, Could Have a Material Adverse Effect on the Company’s Business, Financial Condition or Results of Operations.
Moody’s relies on Third Party Technology in connection with its product development and offerings and operations. The Company depends on the ability of Third Party Technology providers to deliver and support reliable products, enhance their current products, develop new products on a timely and cost-effective basis, provide data necessary to develop and maintain its products and respond to emerging industry standards and other technological changes. The Third Party Technology Moody’s uses can become obsolete or restrictive, incompatible with future versions of the Company’s products, fail to be comprehensive or accurate, unavailable or fail to operate effectively (including as a result of the COVID-19 pandemic), and Moody’s business could be adversely affected when the Company is unable to timely or effectively replace such Third Party Technology.
The Company also monitors its use of Third Party Technology to comply with applicable license and other contractual requirements. Despite the Company’s efforts, the Company cannot ensure that such third parties will permit Moody’s use in the future, resulting in increased Third Party Technology acquisition costs and loss of rights. In addition, the Company’s operating costs could increase if license or other usage fees for Third Party Technology increase or the efforts to incorporate enhancements to Third Party Technology are substantial. In the ordinary course, our third-parties, including our vendors, are subject to various forms of cyber attacks. To date, such attacks have not resulted in a material adverse impact to our business operations, but there can be no guarantee we will not experience such an impact. Some of these third-party suppliers are also Moody’s competitors, increasing the risks noted above. When any of these risks materialize, they could have a material adverse effect on the Company’s business, financial condition or results of operations.
MOODY'S 2020 10-K     39


ITEM 1B.     UNRESOLVED STAFF COMMENTS
None.
ITEM 2.     PROPERTIES
Moody’s corporate headquarters is located at 7 World Trade Center at 250 Greenwich Street, New York, New York 10007, with approximately 797,537 square feet of leased space. As of December 31, 2020, Moody’s operations were conducted from 26 U.S. offices and 98 non-U.S. office locations, all of which are leased. These properties are geographically distributed to meet operating and sales requirements worldwide. These properties are generally considered to be both suitable and adequate to meet current operating requirements.
ITEM 3.     LEGAL PROCEEDINGS
For information regarding legal proceedings, see Part II, Item 8 –“Financial Statements”, Note 21 “Contingencies” in this Form 10-K.
ITEM 4.     MINE SAFETY DISCLOSURES
Not applicable.
40     MOODY'S 2020 10-K

PART II



ITEM 5.     MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Information in response to this Item is set forth under the captions below.
MOODY’S PURCHASES OF EQUITY SECURITIES
For the three months ended December 31, 2020:
Period
Total Number of Shares Purchased (1)
Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program
Approximate Dollar Value of Shares That May Yet Be Purchased Under The Program (2)
October 1- 31 2,306  $ —  — 
$1,081 million
November 1- 30 396,164  $ 277.73  395,735 
$971 million
December 1- 31 511,332  $ 278.92  502,196 
$831 million
Total 909,802  $ 278.40  897,931 
(1)Includes surrender to the Company of 2,306, 429 and 9,136 shares of common stock in October, November and December, respectively, to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees.
(2)As of the last day of each of the months. On October 22, 2018, the Board approved $1 billion in share repurchase authority, which was fully utilized during 2020. On December 16, 2019, the Board approved an additional $1 billion in share repurchase authority, which at December 31, 2020 had approximately $831 million of remaining authority. Additionally, on February 9, 2021, the Board approved an additional $1.0 billion of share repurchase authority. There is no established expiration date for either of the aforementioned remaining authorizations.
During the fourth quarter of 2020, Moody’s issued 0.2 million shares under employee stock-based compensation plans.
COMMON STOCK INFORMATION
The Company’s common stock trades on the New York Stock Exchange under the symbol “MCO”. The number of registered shareholders of record at January 31, 2021 was 1,721. A substantially greater number of the Company’s common stock is held by beneficial holders whose shares of record are held by banks, brokers and other financial institutions.
EQUITY COMPENSATION PLAN INFORMATION
The table below sets forth, as of December 31, 2020, certain information regarding the Company’s equity compensation plans.
Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (2)
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding Securities Reflected in Column (a))
(a) (b) (c)
Equity compensation plans approved by security holders 3,167,939 
(1)
$ 133.95  17,620,777 
(3)
Equity compensation plans not approved by security holders —  $ —  — 
Total 3,167,939  $ 133.95  17,620,777 
(1)Includes 2,505,011 options and unvested restricted shares outstanding under the Company's 2001 Key Employees' Stock Incentive Plan and 5,418 unvested restricted shares outstanding under the 1998 Non-Employee Directors' Stock Incentive Plan. This number also includes a maximum of 657,510 performance shares outstanding under the Company's 2001 Key Employees' Stock Incentive Plan, which is the maximum number of shares issuable pursuant to performance share awards assuming the maximum payout of 200% of the target award for performance shares granted in 2018, 2019 and 2020. Assuming payout at target, the number of shares to be issued upon the vesting of outstanding performance share awards is 328,755.
(2)Does not reflect unvested restricted shares or performance share awards included in column (a) because these awards have no exercise price.
(3)Includes 14,102,262 shares available for issuance as under the 2001 Stock Incentive Plan, of which all may be issued as options and 8,032,220 may be issued as restricted stock, performance shares or other stock-based awards under the 2001 Stock Incentive Plan and 887,433 shares available for issuance as options, shares of restricted stock or performance shares under the 1998 Directors Plan, and 2,631,082 shares available for issuance under the Company’s Employee Stock Purchase Plan. No new grants may be made under the 1998 Stock Incentive Plan, which expired by its terms in June 2008.
MOODY'S 2020 10-K     41


PERFORMANCE GRAPH
The following graph compares the total cumulative shareholder return of the Company to the performance of Standard & Poor’s 500 Composite Index and the Russell 3000 Financial Services Index. Both of the aforementioned indexes are easily accessible to the Company’s shareholders in newspapers, the internet and other readily available sources for purposes of the following graph.
The comparison assumes that $100.00 was invested in the Company’s common stock and in each of the foregoing indices on December 31, 2015. The comparison also assumes the reinvestment of dividends, if any. The total return for the common stock was 206% during the performance period as compared with a total return during the same period of 103% and 84% for the S&P 500 Composite Index and the Russell 3000 Financial Services Index, respectively.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Moody’s Corporation, the S&P 500 Index
and the Russell 3000 Financial Services Index

MCO-20201231_G125.JPG

Year Ended December 31,
2015 2016 2017 2018 2019 2020
Moody’s Corporation $ 100.00  $ 95.41  $ 151.24  $ 145.03  $ 248.37  $ 306.18 
S&P 500 Composite Index $ 100.00  $ 111.96  $ 136.40  $ 130.42  $ 171.49  $ 203.04 
Russell 3000—Financial Services Index $ 100.00  $ 117.96  $ 141.49  $ 129.67  $ 172.37  $ 183.75 

The comparisons in the graph above are provided in response to disclosure requirements of the SEC and are not intended to forecast or be indicative of future performance of the Company’s common stock.
42     MOODY'S 2020 10-K

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis of financial condition and results of operations should be read in conjunction with the Moody’s Corporation consolidated financial statements and notes thereto included elsewhere in this annual report on Form 10-K.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains Forward-Looking Statements. See “Forward-Looking Statements” commencing on page 71 and Item 1A. “Risk Factors” commencing on page 29 for a discussion of uncertainties, risks and other factors associated with these statements.
THE COMPANY
Moody’s is a global integrated risk assessment firm that empowers organizations and investors to make better decisions. Moody’s reports in two segments: MIS and MA.
MIS publishes credit ratings and provides assessment services on a wide range of debt obligations, programs and facilities, and the entities that issue such obligations in markets worldwide, including various corporate, financial institution and governmental obligations, and structured finance securities. Revenue is primarily derived from the originators and issuers of such transactions who use MIS ratings in the distribution of their debt issues to investors. Additionally, MIS earns revenue from certain non-ratings-related operations, which consist primarily of financial instrument pricing services in the Asia-Pacific region, revenue from providing ESG research, data and assessments and revenue from ICRA’s non-ratings operations. The revenue from these operations is included in the MIS Other LOB and is not material to the results of the MIS segment.
MA is a global provider of data and analytic solutions which help companies make better and faster decisions. MA’s analytic models, industry insights, software tools and proprietary data assets allow companies to inform and perform many critical business activities with trust and confidence. MA’s approach to aggregating, broadening and deepening available data, research, analytic tools and software solutions fosters a more integrated and efficient delivery to MA's customers resulting in better decisions around risks and opportunities.
COVID-19
The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business. While the Company has selectively reopened certain of its offices, Moody’s continues to require remote work for most employees globally and has operated effectively to date. The Company continues to monitor regional developments relating to the COVID-19 pandemic to inform decisions on the reopening of its offices.
The Company experienced disruption in certain sectors of its business beginning late in the first quarter of 2020 resulting from market volatility associated with the COVID-19 crisis. However, at the date of the filing of this annual report on Form 10-K, the Company is unable to predict either the potential near-term or longer-term impact that the COVID-19 crisis may have on its financial position and operating results due to numerous uncertainties regarding the duration and severity of the crisis, including the length of time to distribute a vaccine. As a result, it is reasonably possible that the Company could experience material impacts including, but not limited to: reductions in revenue and cash flows; additional credit losses related to accounts receivables; asset impairment charges; and changes in the funded status of defined benefit pension plans. While it is reasonably possible that the COVID-19 crisis could impact the results of operations and cash flows of the Company in the near term, Moody's believes that it has adequate liquidity to maintain its operations with minimal disruption and to maintain compliance with its debt covenants.
In 2020, in order to maximize liquidity and to increase available cash on hand through this period of uncertainty, the Company added $700 million in additional long-term borrowings as more fully discussed in the section entitled "Liquidity and Capital Resources" below and in Note 18 to the consolidated financial statements. In addition, the Company reduced discretionary spending, including temporarily suspending its share repurchase program beginning late in the first quarter of 2020 and spanning through the third quarter. The Company resumed its share repurchase program in the fourth quarter of 2020.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States. The Company utilized certain provisions in the CARES Act and other IRS guidance which permit the deferral of certain income and payroll tax remittances.
MOODY'S 2020 10-K     43

CRITICAL ACCOUNTING ESTIMATES
Moody’s discussion and analysis of its financial condition and results of operations are based on the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires Moody’s to make estimates and judgments that affect reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the dates of the financial statements and revenue and expenses during the reporting periods. These estimates are based on historical experience and on other assumptions that are believed to be reasonable under the circumstances. On an ongoing basis, Moody’s evaluates its estimates, including those related to revenue recognition, accounts receivable allowances, contingencies, restructuring, goodwill, long-lived assets (including acquired intangible assets), leases, pension and other retirement benefits and income taxes. Actual results may differ from these estimates under different assumptions or conditions. The following accounting estimates are considered critical because they are particularly dependent on management’s judgment about matters that are uncertain at the time the accounting estimates are made and changes to those estimates could have a material impact on the Company’s consolidated results of operations or financial condition.
Goodwill
On July 31st of each year, Moody’s evaluates its goodwill for impairment at the reporting unit level, defined as an operating segment (i.e., MIS and MA), or one level below an operating segment (i.e., a component of an operating segment).
The Company has seven primary reporting units at December 31, 2020: two within the Company’s ratings business (one for the ICRA business and one that encompasses all of Moody’s other ratings operations) and five reporting units within MA: Content, ERS, MALS, Bureau van Dijk and Reis. The Content reporting unit offers subscription-based research, data and analytical products, including credit ratings produced by MIS, credit research, quantitative credit scores and other analytical tools, economic research and forecasts, business intelligence and company information products. The ERS reporting unit provides products and services that support the credit risk management and regulatory compliance activities of financial institutions and also provides advanced actuarial software for the life insurance industry. These products and services are primarily delivered via software that is licensed on a perpetual basis or sold on a subscription basis. The MALS reporting unit consists of the portion of the MA business that offers both credit training as well as other professional development training. The Bureau van Dijk reporting unit primarily consists of the Bureau van Dijk business and the newly acquired RDC and AM businesses, and provides business intelligence and company information products. The Reis reporting unit, which consists of the Reis business and newly acquired Catylist business, provides commercial real estate market information and analytical tools.
The Company evaluates the recoverability of goodwill using a two-step impairment test approach at the reporting unit level. In the first step, the Company assesses various qualitative factors to determine whether the fair value of a reporting unit may be less than its carrying amount. If a determination is made based on the qualitative factors that an impairment does not exist, the Company is not required to perform further testing. If the aforementioned qualitative assessment results in the Company concluding that it is more likely than not that the fair value of a reporting unit may be less than its carrying amount, the fair value of the reporting unit will be quantitatively determined and compared to its carrying value including goodwill. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired. If the fair value of the reporting unit is less than the carrying value, the Company will record a goodwill impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value. The Company evaluates its reporting units on an annual basis, or more frequently if there are changes in the reporting structure of the Company due to acquisitions, realignments of reporting units or if there are indicators of potential impairment. For the reporting units where the Company is consistently able to conclude that no impairment exists using only a qualitative approach, the Company’s accounting policy is to perform the second step of the aforementioned goodwill impairment assessment at least once every three years.
Interim goodwill impairment assessments performed in 2020 in advance of the Company's annual assessment
During the first half of 2020, the observable market capitalization of ICRA declined to a level that resulted in a significant decline in headroom (the amount by which the fair value of a reporting unit exceeds its carrying value) from amounts reported in the Company's Form 10-K for the year ended December 31, 2019. ICRA is a publicly traded company in India, and accordingly the Company is able to derive its fair value based on its observable average market capitalization (plus a control premium) over a relatively short duration of time. While the estimate of the fair value of the ICRA reporting unit resulted in no impairment of goodwill in the first half of 2020, further declines in ICRA's average market capitalization could result in impairment in future quarters. As of the date of the filing of this annual report on Form 10-K, the ICRA market capitalization reflects a level that does not result in impairment.
As discussed in further detail in Note 10 to the Company's consolidated financial statements, ICRA has disclosed that it completed the internal examinations it conducted into anonymous allegations that were forwarded to ICRA by SEBI, certain additional allegations made during the course of that examination, and a separate anonymous complaint. ICRA reported that its Board of Directors have taken appropriate actions based on the findings of the completed examinations. As of the date of this annual report on Form 10-K, the Company is unable to estimate the financial impact, if any, that may result from a potential unfavorable conclusion of these matters or any other ICRA inquiry. An unfavorable resolution of such matters may negatively impact ICRA’s future operating results, which could result in an impairment of goodwill and amortizable intangible assets in future quarters.
44     MOODY'S 2020 10-K

At June 30, 2020, the Company performed an interim quantitative goodwill impairment assessment on the Reis reporting unit (acquired in October 2018), which resulted in no impairment of goodwill. The Company performed this quantitative assessment in response to a decline in projected cash flows relative to Reis' acquisition case projections and included the estimated impact of the COVID-19 crisis on the business. While the fair value at June 30, 2020 of the Reis reporting unit exceeded its carrying value, further declines in its financial projections could result in impairment in future quarters.
Annual goodwill impairment assessment performed at July 31, 2020
At July 31, 2020, the Company performed qualitative assessment for each of the reporting units. The qualitative analyses resulted in the Company determining that it was not more likely than not that the fair value of any reporting unit was less than its carrying amount.
Determining the fair value of a reporting unit or an indefinite-lived acquired intangible asset involves the use of significant estimates and assumptions, which are more fully described below. 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.
Other assets and liabilities, including applicable corporate assets, are allocated to the extent they are related to the operation of respective reporting units.
Sensitivity Analysis and Key Assumptions for Deriving the Fair Value of a Reporting Unit
The following table identifies the amount of goodwill allocated to each reporting unit as of December 31, 2020 and the amount by which the net assets of each reporting unit would exceed the fair value under Step 2 of the goodwill impairment test as prescribed in ASC Topic 350, assuming hypothetical reductions in their fair values as of the date of the last quantitative goodwill impairment assessment for each reporting unit (June 30, 2020 for ICRA and Reis; July 31, 2019 for all remaining reporting units).
Sensitivity Analysis
Deficit Caused by a Hypothetical Reduction to Fair Value
Goodwill 10  % 20  % 30  % 40  %
MIS $ 99  $ —  $ —  $ —  $ — 
Content 381  —  —  —  — 
ERS 800  —  —  —  — 
MALS 127  —  —  (12) (37)
ICRA 212  —  (2) (44) (85)
Bureau van Dijk 2,746  —  —  —  (266)
Reis 191  —  (22) (48) (74)
Totals $ 4,556  $ —  $ (24) $ (104) $ (462)

Methodologies and significant estimates utilized in determining the fair value of reporting units:
The following is a discussion regarding the Company’s methodology for determining the fair value of its reporting units as of the date of each reporting unit’s last quantitative assessment (June 30, 2020 for Reis and ICRA; and July 31, 2019 for the remaining reporting units). As ICRA is a publicly traded company in India, the Company estimates its fair value using its observable market capitalization.
The fair value of each reporting unit, excluding ICRA, was estimated using a discounted cash flow methodology and comparable public company and precedent transaction multiples. The discounted cash flow analysis requires significant estimates, including projections of future operating results and cash flows of each reporting unit that are based on internal budgets and strategic plans, expected long-term growth rates, terminal values, weighted average cost of capital and the effects of external factors and market conditions. Changes in these estimates and assumptions could materially affect the estimated fair value of each reporting unit that could result in an impairment charge to reduce the carrying value of goodwill, which could be material to the Company’s financial position and results of operations. Moody’s allocates newly acquired goodwill to reporting units based on the reporting unit expected to benefit from the acquisition.
The sensitivity analysis on the future cash flows and WACC assumptions described below are as of each reporting unit’s last quantitative goodwill impairment assessment. The following discusses the key assumptions utilized in the discounted cash flow valuation methodology that require significant management judgment:
Future cash flow assumptions - The projections for future cash flows utilized in the models are derived from historical experience and assumptions regarding future growth and profitability of each reporting unit. These projections are consistent with the Company’s operating budget and strategic plan. Beyond the forecasted period, a terminal value was determined using a perpetuity growth rate based on inflation and real GDP growth rates. A sensitivity analysis of the revenue growth rates was performed on all reporting units. For each reporting unit analyzed, a 10% reduction in the revenue growth rates used would not have resulted in its carrying value exceeding its estimated fair value.
MOODY'S 2020 10-K     45

WACC - The WACC is the rate used to discount each reporting unit’s estimated future cash flows. The WACC is calculated based on the proportionate weighting of the cost of debt and equity. The cost of equity is based on a risk-free interest rate and an equity risk factor, which is derived from public companies similar to the reporting unit and which captures the perceived risks and uncertainties associated with the reporting unit’s cash flows. The cost of debt component is calculated as the weighted average cost associated with all of the Company’s outstanding borrowings as of the date of the impairment test and was immaterial to the computation of the WACC. The cost of debt and equity is weighted based on the debt to market capitalization ratio of publicly traded companies with similarities to the reporting unit being tested. The WACC applied in each reporting unit's last quantitative test ranged from 8.5% to 9.0%. Differences in the WACC used between reporting units is primarily due to distinct risks and uncertainties regarding the cash flows of the different reporting units. A sensitivity analysis of the WACC was performed on all reporting units. For each reporting unit analyzed, an increase in the WACC of one percentage point would not result in the carrying value of the reporting unit exceeding its fair value.
Long-lived assets
Long-lived assets, which consist primarily of amortizable intangible assets, operating lease ROU assets and property and equipment, are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Under the first step of the recoverability assessment, Moody's compares the estimated undiscounted future cash flows attributable to the asset or asset group to its carrying value. If the undiscounted future cash flows are greater than the carrying value, no further assessment is required. If the undiscounted future cash flows are less than the carrying value, Moody's proceeds with step two of the assessment. Under step two of this assessment, Moody's is required to determine the fair value of the asset or asset group and recognize an impairment loss if the carrying amount exceeds its fair value. In performing this assessment, Moody's must include assumptions that market participants would use in their estimates of fair value, including the estimated future cash flows and discount rate. Moody's must apply judgment in developing estimated future cash flows and in the determination of market participant assumptions.
Income Taxes
The Company is subject to income taxes in the U.S. and various foreign jurisdictions. The Company’s tax assets and liabilities are affected by the amounts charged for services provided and expenses incurred as well as other tax matters such as intercompany transactions. The Company accounts for income taxes under the asset and liability method in accordance with ASC Topic 740. Therefore, income tax expense is based on reported income before income taxes, and deferred income taxes reflect the effect of temporary differences between the amounts of assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes.
The Company is subject to tax audits in various jurisdictions. The Company regularly assesses the likely outcomes of such audits in order to determine the appropriateness of liabilities for UTPs. The Company classifies interest related to income taxes as a component of interest expense in the Company’s consolidated financial statements and associated penalties, if any, as part of other non-operating expenses.
For UTPs, ASC Topic 740 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. As the determination of liabilities related to UTPs and associated interest and penalties requires significant estimates to be made by the Company, there can be no assurance that the Company will accurately predict the outcomes of these audits, and thus the eventual outcomes could have a material impact on the Company’s operating results or financial condition.
On December 22, 2017, the Tax Act was signed into law, which resulted in significant changes to U.S. corporate tax laws. The Tax Act includes a mandatory one-time deemed repatriation tax (“transition tax”) on previously untaxed accumulated earnings of foreign subsidiaries and reduces the statutory federal corporate income tax rate from 35% to 21%. From enactment of the Tax Act through December 31, 2018, the Company recorded a provision of $236 million related to the transition tax. In addition, the Company has recorded a deferred tax asset of $50 million related to potential foreign tax credits which could be realized if certain UTPs resulted in tax assessments. The transition tax liability reported on the Company’s 2017 and 2018 tax returns is payable over eight years starting in 2018 and will not accrue interest.
Pursuant to the Tax Act being signed into law, all previously undistributed foreign earnings became subject to U.S. tax. In light of U.S. tax reform, the Company has reassessed its capital allocation strategy, including reevaluating its global cash position and revising its plans for repatriating or reinvesting foreign earnings. The Company regularly evaluates in which entities it will indefinitely reinvest earnings outside the U.S. The Company has provided deferred taxes for those entities whose earnings are not considered indefinitely reinvested outside of the U.S.
Revenue Recognition and Costs to Obtain a Contract with a Customer
Revenue is recognized when control of promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
46     MOODY'S 2020 10-K

The discussion below outlines areas of the Company’s revenue recognition process that require significant management judgment and estimates. Refer to Note 2 of the consolidated financial statements for a comprehensive discussion regarding the Company’s accounting policies relating to the recognition of revenue and costs to obtain a contract with a customer.
Determination of performance obligations:
When contracts with customers contain multiple performance obligations, the Company accounts for individual performance obligations separately if they are distinct.
In the Company’s MIS segment, revenue arrangements with multiple elements are generally comprised of two distinct performance obligations; the initial rating and the related monitoring services. Revenue attributed to initial ratings of issued securities is generally recognized when the rating is delivered to the issuer, whereas revenue from monitoring related to MIS’s ratings is recognized ratably over the period in which the monitoring is performed.
In the MA segment, contracts with customers often include promises to transfer multiple products and services to a customer. When arrangements for software, content or SaaS licenses also include related implementation services, the Company may be required to exercise significant judgment in determining the level of integration and interdependency between the promise to grant the software license and the promise to deliver the related implementation services. This determination influences whether the software license is considered distinct and accounted for separately (with revenue generally being recognized at the time the product master or first copy is delivered or transferred to the customer), or not distinct and accounted for together with the implementation services (with revenue being recognized on a percentage-of-completion basis as implementation services are performed).
Allocating consideration to performance obligations:
Management judgment is also required in the determination of the SSP, which is utilized to allocate the transaction price to each distinct performance obligation at contract inception when the contract includes multiple distinct performance obligations.
In the MIS segment, the SSP for both ratings and monitoring services is generally based upon directly observable selling prices where the rating or monitoring service is sold separately.
In the MA segment, for performance obligations where an observable price exists, such as PCS, the observable price is utilized. If an observable price does not currently exist, the Company will utilize management’s best estimate of SSP for that good or service using estimation methods that maximize the use of observable data points.
The SSP in both segments is usually apportioned along the lines of class of customer, nature of product/services, and other attributes related to those products and services. Once SSP is determined for each performance obligation, the transaction price, including any discount, is allocated based on the relative SSP of the separate performance obligations.
Costs to Obtain a Contract with a Customer:
Costs incurred to obtain customer contracts, such as sales commissions, are deferred and recorded within other current assets and other assets when such costs are determined to be incremental to obtaining a contract, would not have been incurred otherwise and the Company expects to recover those costs. These costs are amortized to expense on a systematic basis consistent with the transfer of products or services to the customer for which the asset relates. Depending on the line of business to which the contract relates, this amortization period may be based upon the average economic life of the products sold or average period for which services are provided, inclusive of anticipated contract renewals.
Contingencies
Accounting for contingencies, including those matters described in Note 21 to the consolidated financial statements, is highly subjective and requires the use of judgments and estimates in assessing their magnitude and likely outcome. In many cases, the outcomes of such matters will be determined by third parties, including governmental or judicial bodies. The provisions made in the consolidated financial statements, as well as the related disclosures, represent management’s best estimates of the current status of such matters and their potential outcome based on a review of the facts and in consultation with outside legal counsel where deemed appropriate. The Company regularly reviews contingencies and as new information becomes available may, in the future, adjust its associated liabilities.
For claims, litigation and proceedings and governmental investigations and inquiries not related to income taxes, the Company records liabilities in the consolidated financial statements when it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated and periodically adjusts these as appropriate. When the reasonable estimate of the loss is within a range of amounts, the minimum amount of the range is accrued unless some higher amount within the range is a better estimate than another amount within the range. In instances, when a loss is reasonably possible but uncertainties related to the probable outcome and/or the amount or range of loss, management does not record a liability but discloses the contingency if material.
As additional information becomes available, the Company adjusts its assessments and estimates of such matters accordingly. Moody’s also discloses material pending legal proceedings pursuant to SEC rules and other pending matters as it may determine to be appropriate.
MOODY'S 2020 10-K     47

In view of the inherent difficulty of assessing the potential outcome of legal proceedings, governmental, regulatory and legislative investigations and inquiries, claims and litigation and similar matters and contingencies, particularly when the claimants seek large or indeterminate damages or assert novel legal theories or the matters involve a large number of parties, the Company often cannot predict what the eventual outcome of the pending matters will be or the timing of any resolution of such matters. The Company also may be unable to predict the impact (if any) that any such matters may have on how its business is conducted, on its competitive position or on its financial position, results of operations or cash flows. As the process to resolve any pending matters progresses, management will continue to review the latest information available and assess its ability to predict the outcome of such matters and the effects, if any, on its operations and financial condition and to accrue for and disclose such matters as and when required. However, because such matters are inherently unpredictable and unfavorable developments or resolutions can occur, the ultimate outcome of such matters, including the amount of any loss, may differ from those estimates.
Accounts Receivable Allowances
On January 1, 2020, the Company adopted ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” as more fully described in Note 1 to the consolidated financial statements. As the Company's accounts receivable are short-term in nature, the adoption of this ASU did not have a material impact to the Company's allowance for bad debts or its policies and procedures for determining the allowance.
In order to determine an estimate of expected credit losses, receivables are segmented based on similar risk characteristics including historical credit loss patterns and industry or class of customers to calculate reserve rates. The Company uses an aging method for developing its allowance for credit losses by which receivable balances are grouped based on aging category. A reserve rate is calculated for each aging category which is generally based on historical information, and is adjusted, when necessary, for current conditions (e.g., macroeconomic or industry related) and reasonable and supportable forecasts about the future. The Company also considers customer specific information (e.g., bankruptcy or financial difficulty) when estimating its expected credit losses, as well as the economic environment of the customers, both from an industry and geographic perspective, in evaluating the need for allowances. Expected credit losses are reflected as additions to the accounts receivable allowance. Actual uncollectible account write-offs are recorded against the allowance.
In 2020, Moody's assessment included consideration of the current COVID-19 pandemic and its estimated impact on the Company's accounts receivable allowances. This assessment involved the utilization of significant judgment regarding the severity and duration of the market disruption caused by the pandemic, as well as judgment regarding which industries, classes of customers and geographies would be most significantly impacted.
Pension and Other Retirement Benefits
The expenses, assets and liabilities that Moody’s reports for its Retirement Plans are dependent on many assumptions concerning the outcome of future events and circumstances. These significant assumptions include the following:
future compensation increases based on the Company’s long-term actual experience and future outlook;
long-term expected return on pension plan assets based on historical portfolio results and the expected future average annual return for each major asset class within the plan’s portfolio (which is principally comprised of equity and fixed-income investments); and
discount rates based on current yields on high-grade corporate long-term bonds.
The discount rates used to measure the present value of the Company’s benefit obligation for its Retirement Plans as of December 31, 2020 were derived using a cash flow matching method whereby the Company compares each plan’s projected payment obligations by year with the corresponding yield on the FTSE pension discount curve. The cash flows by plan are then discounted back to present value to determine the discount rate applicable to each plan.
Moody’s major assumptions vary by plan and assumptions used are set forth in Note 15 to the consolidated financial statements. In determining these assumptions, the Company consults with third-party actuaries and other advisors as deemed appropriate. While the Company believes that the assumptions used in its calculations are reasonable, differences in actual experience or changes in assumptions could have a significant effect on the expenses, assets and liabilities related to the Company’s Retirement Plans. Additionally, the Company has updated its mortality assumption by adopting the newly released mortality improvement scale MP-2020 to accompany the Pri2012 mortality tables to reflect the latest information regarding future mortality expectations by the Society of Actuaries.
When actual plan experience differs from the assumptions used, actuarial gains or losses arise. Excluding differences between the expected long-term rate of return assumption and actual returns on plan assets, the Company amortizes, as a component of annual pension expense, total outstanding actuarial gains or losses over the estimated average future working lifetime of active plan participants to the extent that the gain/loss exceeds 10% of the greater of the beginning-of-year projected benefit obligation or the market-related value of plan assets. For Moody’s Retirement Plans, the total actuarial losses as of December 31, 2020 that have not been recognized in annual expense are $152 million, and Moody’s expects to recognize a net periodic expense of $11 million in 2021 related to the amortization of actuarial losses.
For Moody’s funded U.S. pension plan, the differences between the expected long-term rate of return assumption and actual returns could also affect the net periodic pension expense. As permitted under ASC Topic 715, the Company amortizes the
48     MOODY'S 2020 10-K

impact of asset returns over a five-year period for purposes of calculating the market-related value of assets that is used in determining the expected return on assets’ component of annual expense and in calculating the total unrecognized gain or loss subject to amortization. As of December 31, 2020, the Company has an unrecognized asset gain of $49 million, of which $13 million will be recognized in the market-related value of assets that is used to calculate the expected return on assets component of 2021 expense.
The table below shows the estimated effect that a one percentage-point decrease in each of these assumptions will have on Moody’s 2021 income before provision for income taxes. These effects have been calculated using the Company’s current projections of 2021 expenses, assets and liabilities related to Moody’s Retirement Plans, which could change as updated data becomes available.
(dollars in millions)
Assumptions Used for 2021
Estimated Impact on 2021 Income before Provision for Income Taxes (Decrease)/Increase
Weighted Average Discount Rates (1)
2.24%/2.30% $ (11)
Weighted Average Assumed Compensation Growth Rate 3.62  % $
Assumed Long-Term Rate of Return on Pension Assets 5.45  % $ (5)
(1)Weighted average discount rates of 2.24% and 2.30% for pension plans and Other Retirement Plans, respectively.
Based on current projections, the Company estimates that expenses related to Retirement Plans will be approximately $31 million in 2021, an increase compared to the $27 million recognized in 2020.
Leases
The Company’s operating leases do not provide an implicit interest rate. Accordingly, the Company must estimate the secured incremental borrowing rate attributable to the currency in which the lease is denominated in the derivation of operating lease liabilities and related operating lease ROU Assets. This secured incremental borrowing rate is based on the information available at the lease commencement date and is utilized in the determination of the present value of lease payments.
In addition, certain of Moody’s leases have the option to extend the lease beyond the initial term or terminate the lease prior to the end of the term. For these leases, Moody’s may be required to exercise significant judgment to determine when that option is reasonably certain of being exercised, which will impact the lease term and determination of the lease liability and corresponding ROU Asset.
Restructuring
The Company has engaged, and may continue to engage, in restructuring actions, which require management to utilize significant estimates related to expenses for severance and other employee benefit costs, contract termination costs and asset impairments. If the actual amounts differ from these estimates, the amount of the restructuring charge could be impacted. For a full description of Moody’s restructuring actions, refer to Note 11 to the consolidated financial statements.
Other Estimates
In addition, there are other accounting estimates within Moody’s consolidated financial statements, including recoverability of deferred tax assets, valuation of investments in affiliates and the estimated lives of amortizable intangible assets. Management believes the current assumptions and other considerations used to estimate amounts reflected in Moody’s consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in Moody’s consolidated financial statements, the resulting changes could have a material adverse effect on Moody’s consolidated results of operations or financial condition.
See Note 2 to the consolidated financial statements for further information on significant accounting policies that impact Moody’s.
REPORTABLE SEGMENTS
The Company is organized into two reportable segments at December 31, 2020: MIS and MA, which are more fully described in the section entitled “The Company” above and in Note 22 to the consolidated financial statements.
MOODY'S 2020 10-K     49


RESULTS OF OPERATIONS
This section of this Form 10-K generally discusses year ended December 31, 2020 and 2019 financial results and year-to-year comparisons between these years. Discussions related to the year ended December 31, 2018 financial results and year-to-year comparisons between the years ended December 31, 2019  and 2018 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Potential Impact of COVID-19 on the Company's future operating results
The Company is closely monitoring the impact of COVID-19 on all aspects of its business (refer to the section above entitled "COVID-19" for further detail). The operating results discussed below may not be indicative of future results of the Company due to uncertainties relating to the duration and severity of the pandemic and its potential impact on Moody's. The Company remains committed to disciplined cost management through this period of uncertainty.
As of the date of the filing of this annual report on Form 10-K, the Company believes that the most significant risks to its 2021 financial results relating to COVID-19 uncertainties are as follows:
MIS: within the MIS segment, the most notable risks to near-term financial performance may be:
the potential for continued volatility in issuance. The Company observed significant market disruption and a widening of credit spreads late in the first quarter of 2020, followed by strong corporate bond issuance activity during the remainder of 2020. Future market volatility and widening of credit spreads could have a material impact on MIS's near-term operating results;
corporate debt issuance (both investment-grade and speculative-grade) may moderate compared to issuance levels observed in 2020. While issuance was strong in 2020, a portion of the 2020 activity was elevated as a result of corporate issuers bolstering their balance sheets in light of uncertainties regarding the COVID-19 pandemic; and
declines in leveraged loan issuance could result in a decrease in availability of collateral for securitization activity, which could then result in further declines in CLO activity.
MA: within the MA segment, the most notable risks to near-term financial performance may be:
reductions in discretionary spending by MA’s customer base and social distancing measures could result in fewer new sales opportunities being identified and an extension of sales cycles on existing opportunities, particularly related to software sales; and
higher attrition rates and/or lower yields on renewable contracts.
Impact of acquisitions/divestitures on comparative results
Moody’s completed the following acquisitions, which impact the Company's year-over-year comparative results:
Vigeo Eiris on April 12, 2019;
Regulatory DataCorp on February 13, 2020;
Four Twenty Seven on July 22, 2019;
Acquire Media on October 21, 2020;
RiskFirst on July 25, 2019;
ABS Suite on October 1, 2019;
On November 8, 2019, the Company sold its MAKS business to Equistone Partners Europe Limited, a European private equity firm. The operating results of MAKS are reported within the MA segment (and PS LOB) through the November 8, 2019 closing of the transaction. Beginning in 2020, revenue from the MALS unit, which previous to 2020 was reported in the PS LOB, is now reported as part of the RD&A LOB. Prior periods have not been reclassified as the amounts were not material.
Refer to the section entitled "Non-GAAP Financial Measures" of this MD&A for the definitions of how the Company determines certain organic growth measures used in this MD&A that exclude the impact of acquisition/divestiture activity.
50     MOODY'S 2020 10-K

Year ended December 31, 2020 compared with year ended December 31, 2019
Executive Summary
The following table provides an executive summary of key operating results for the year ended December 31, 2020. Following this executive summary is a more detailed discussion of the Company’s operating results as well as a discussion of the operating results of the Company’s reportable segments.
Year Ended December 31,
Financial measure: 2020 2019 % Change Favorable / (Unfavorable)
Insight and Key Drivers of Change Compared to Prior Year
Moody's total revenue $ 5,371  $ 4,829  11  %
— reflects strong growth in both segments
MIS External Revenue $ 3,292  $ 2,875  15  %
— primary driver of growth reflects higher corporate debt issuance (both investment-grade and high-yield) as issuers bolstered liquidity positions in response to COVID-19 uncertainties and issued opportunistically for refinancing needs
MA External Revenue $ 2,079  $ 1,954  %
— strong renewals and new sales of credit research and data feeds, as well as demand for KYC and compliance solutions;
— demand for insurance compliance products along with credit assessment and loan origination solutions in ERS; and
— inorganic growth from acquisitions.
Total operating and SG&A expenses $ 2,704  $ 2,554  (6  %)
— additional compensation expense resulting from hiring activity and merit increases coupled with higher incentive compensation aligned with financial and operating performance;
— higher costs to support strategic initiatives to enhance technology infrastructure to enable automation, innovation and efficiency as well as to support business growth; partially offset by:
— lower travel costs and disciplined expense management in light of the COVID-19 crisis coupled with benefits from the 2018 Restructuring Program
Restructuring $ 50  $ 60  17  %
— charges are pursuant to the Company's
restructuring programs, more fully discussed in Note 11 to the consolidated financial statements
Operating Margin 44.5  % 41.4  % 310BPS
— margin expansion reflects strong revenue growth
partially offset by growth in operating expenses
Adjusted Operating Margin 49.7  % 47.4  % 230BPS
ETR 20.3  % 21.0  % 70BPS
— decrease primarily due to a deferred tax benefit in 2020 resulting from a non-U.S. corporate reorganization
Diluted EPS $ 9.39  $ 7.42  27  %
— increase reflects strong operating income/Adjusted
Operating Income growth as described above
Adjusted Diluted EPS $ 10.15  $ 8.29  22  %
MOODY'S 2020 10-K     51

Moody’s Corporation
Year Ended December 31, % Change Favorable
(Unfavorable)
2020 2019
Revenue:
United States $ 2,955  $ 2,544  16  %
Non-U.S.:
EMEA 1,545  1,446  %
Asia-Pacific 571  551  %
Americas 300  288  %
Total Non-U.S.
2,416  2,285  %
Total 5,371  4,829  11  %
Expenses:
Operating 1,475  1,387  (6  %)
SG&A 1,229  1,167  (5  %)
Restructuring 50  60  17  %
Depreciation and amortization 220  200  (10  %)
Acquisition-Related Expenses   100  %
Loss pursuant to the divestiture of MAKS 9  14  36  %
Total 2,983  2,831  (5  %)
Operating income 2,388  1,998  20  %
Adjusted Operating Income (1)
2,667  2,291  16  %
Interest expense, net (205) (208) %
Other non-operating income, net 46  20  130  %
Non-operating (expense) income, net
(159) (188) 15  %
Net income attributable to Moody’s $ 1,778  $ 1,422  25  %
Diluted weighted average shares outstanding 189.3  191.6  %
Diluted EPS attributable to Moody’s common shareholders $ 9.39  $ 7.42  27  %
Adjusted Diluted EPS (1)
$ 10.15  $ 8.29  22  %
Operating margin 44.5  % 41.4  %
Adjusted Operating Margin (1)
49.7  % 47.4  %
Effective tax rate 20.3  % 21.0  %
(1)Adjusted Operating Income, Adjusted Operating Margin and Adjusted Diluted EPS attributable to Moody’s common shareholders are non-GAAP financial measures. Refer to the section entitled “Non-GAAP Financial Measures” of this Management Discussion and Analysis for further information regarding these measures.

52     MOODY'S 2020 10-K

GLOBAL REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
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Global revenue $542 million
U.S. Revenue $411 million
Non-U.S. Revenue $131 million
The increase in global revenue reflected growth in both reportable segments. Refer to the section entitled “Segment Results” of this MD&A for a more fulsome discussion of the Company’s segment revenue.
Operating Expense $88 million
SG&A Expense $62 million
MCO-20201231_G130.JPG ------------------------------------- MCO-20201231_G131.JPG -----------

Compensation expenses increased $69 million reflecting:
Compensation expenses increased $43 million reflecting:
— hiring activity and salary increases; and
— hiring activity and salary increases partially offset by benefits from the 2018 Restructuring Program; and
— higher incentive compensation accruals aligned with financial and operating performance.
— an increase in incentive compensation aligned with financial and operating performance.
Non-compensation expenses increased $19 million reflecting:
Non-compensation expenses increased $19 million reflecting:
— higher costs to support strategic initiatives to enhance technology infrastructure to enable automation, innovation and efficiency as well as to support business growth;
— higher costs to support the Company’s initiative to enhance technology infrastructure to enable automation, innovation and efficiency; and
partially offset by:
— higher estimates for credit losses of approximately $18 million primarily resulting from the anticipated impact of the COVID-19 crisis on the Company's customers;
— lower travel costs and disciplined expense management in light of the COVID-19 crisis.
partially offset by:
— lower travel costs and disciplined expense management in light of the COVID-19 crisis; and
— a $16 million captive insurance company settlement in 2019.
MOODY'S 2020 10-K     53


Other Expenses
The restructuring charge of $50 million in 2020 primarily relates to:
the non-cash impairment of certain leased real estate assets (ROU Assets and leasehold improvements) pursuant to the rationalization of certain real estate in response to the COVID-19 pandemic; and
severance costs associated with a strategic realignment in the MA segment.
The $60 million restructuring charge in 2019 relates to actions pursuant to the Company’s 2018 Restructuring Program which consisted of relocation of certain functions from high-cost to lower-cost jurisdictions, a reduction of staff, including from acquisitions and pursuant to a review of the business criticality of certain positions, and the rationalization and exit of certain real estate due to consolidation of various business activities.
Further detail on the Company's restructuring programs are more fully discussed in Note 11 to the consolidated financial statements.
The loss pursuant to the divestiture of MAKS in both years relates to the Company's strategic divestiture of this business.
Operating margin 44.5%, up 310 BPS
Adjusted Operating Margin 49.7%, up 230 BPS

Operating margin and Adjusted Operating Margin expansion reflects strong revenue growth partially offset by growth in expenses.

Interest Expense, net $3 million
Other non-operating income $26 million

Primarily reflects: The increase was primarily due to:
— a $17 million benefit from a fair value hedge settled in connection with the early redemption of the 2017 Senior Notes;
— FX gains of approximately $2 million in 2020 compared to $18 million in FX losses in the same period of the prior year.
— a $16 million higher benefit from fair value swaps (more fully discussed in Note 7 to the consolidated financial statements);
partially offset by:
— a combined $24 million prepayment penalty in 2020 on the early redemption of the 2018 Senior Notes and 2017 Senior Notes

ETR 70BPS
The decrease in the ETR is primarily due to a deferred tax benefit resulting from a non-U.S. corporate reorganization.
Diluted EPS $1.97
Adjusted Diluted EPS $1.86

Diluted EPS in 2020 of $9.39 increased $1.97 compared to 2019, with both periods including the aforementioned restructuring charges. The growth in EPS is mainly due to the aforementioned growth in operating income.
Adjusted Diluted EPS of $10.15 in 2020 increased $1.86 compared to 2019 (refer to the section entitled “Non-GAAP Financial Measures” of this MD&A for items excluded in the derivation of Adjusted Diluted EPS). The growth in Adjusted Diluted EPS is primarily due to the aforementioned growth in Adjusted Operating Income.

54     MOODY'S 2020 10-K

Segment Results
Moody’s Investors Service
The table below provides a summary of revenue and operating results, followed by further insight and commentary:
Year Ended December 31, % Change Favorable
(Unfavorable)
2020 2019
Revenue:
Corporate finance (CFG) $ 1,857  $ 1,497  24  %
Structured finance (SFG) 362  427  (15  %)
Financial institutions (FIG) 530  476  11  %
Public, project and infrastructure finance (PPIF) 496  446  11  %
Total ratings revenue 3,245  2,846  14  %
MIS Other 47  29  62  %
Total external revenue 3,292  2,875  15  %
Intersegment royalty 148  134  10  %
Total 3,440  3,009  14  %
Expenses:
Operating and SG&A (external) 1,380  1,265  (9  %)
Operating and SG&A (intersegment) 7  22  %
Restructuring 19  31  39  %
Depreciation and amortization 70  71  %
Total expense 1,476  1,376  (7  %)
Operating income $ 1,964  $ 1,633  20  %
Restructuring 19  31  39  %
Depreciation and amortization 70  71  %
Captive insurance company settlement   10  100  %
Adjusted Operating Income $ 2,053  $ 1,745  18  %
Operating margin 57.1  % 54.3  %
Adjusted Operating Margin 59.7  % 58.0  %


MOODY'S 2020 10-K     55

MOODY'S INVESTORS SERVICE REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
MCO-20201231_G132.JPG MCO-20201231_G133.JPG MCO-20201231_G134.JPG MCO-20201231_G135.JPG

MIS: Global revenue $417 million
U.S. Revenue $347 million
Non-U.S. Revenue $70 million
The increase in global MIS revenue (and in both U.S. and non-U.S. revenue) reflected growth across all LOBs, excluding SFG.

CFG REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
MCO-20201231_G136.JPG MCO-20201231_G137.JPG MCO-20201231_G138.JPG MCO-20201231_G139.JPG

CFG: Global revenue $360 million
U.S. Revenue $323 million
Non-U.S. Revenue $37 million
Global CFG revenue for the years ended December 31, 2020 and 2019 was comprised as follows:
MCO-20201231_G140.JPG
(1) Other includes: recurring monitoring fees of a rated debt obligation and/or entities that issue such obligations as well as fees from programs such as commercial paper, medium term notes, and ICRA corporate finance revenue.

56     MOODY'S 2020 10-K

The increase in CFG revenue of 24% reflected growth both in the U.S. (33%) and internationally (7%), which resulted in a $344 million increase in transaction revenue. The most notable drivers of the CFG revenue growth were:
strong growth in investment-grade rated issuance volumes reflecting:
corporate issuers bolstering their liquidity positions in light of uncertainties regarding the duration and severity of the COVID-19 crisis;
opportunistic issuance for refinancing in light of the current ongoing favorable market conditions.
strong growth in speculative-grade rated issuance volumes despite severe market disruption in this sector in March 2020 relating to the COVID-19 crisis. Subsequent to this disruption in the first quarter of 2020, high-yield market sentiment improved and credit spreads tightened resulting in strong growth in rated issuance volumes; and
benefits from favorable changes in product mix and pricing increases.

SFG REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
MCO-20201231_G141.JPG MCO-20201231_G142.JPG MCO-20201231_G143.JPG MCO-20201231_G144.JPG

SFG: Global revenue $65 million
U.S. Revenue $56 million
Non-U.S. Revenue $9 million
Global SFG revenue for the years ended December 31, 2020 and 2019 was comprised as follows:
MCO-20201231_G145.JPG
The decrease in SFG revenue of 15% reflected declines both in the U.S. (21%) and internationally (6%). Transaction revenue
declined $71 million. The most notable factors contributing to the decline in SFG revenue were:
reduced activity in the CLO asset class resulting from:
challenges in the leveraged loan market resulting in lower loan supply (refer to CFG discussion above);
wider credit spreads through much of the year in response to uncertainties relating to the COVID-19 crisis; and
an increasingly competitive landscape.
declines in U.S. CMBS securitization activity as commercial retail and hotel properties have been negatively impacted by the COVID-19 crisis.
MOODY'S 2020 10-K     57

FIG REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
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FIG: Global revenue $54 million
U.S. Revenue $50 million
Non-U.S. Revenue $4 million
Global FIG revenue for the years ended December 31, 2020 and 2019 was comprised as follows:
MCO-20201231_G150.JPG
Transaction revenue grew by $53 million compared to the same period in the prior year.
The 11% increase in FIG revenue was mainly due to:
growth in U.S. banking and insurance rated issuance volumes as financial institutions and insurers fortified their balance sheets in light of uncertainties relating to the COVID-19 crisis and favorable market conditions;
issuance in advance of anticipated volatility around the U.S. presidential election in the fourth quarter of 2020; and
benefits from favorable changes in product mix and pricing increases.
PPIF REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
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58     MOODY'S 2020 10-K

PPIF: Global revenue $50 million
U.S. Revenue $29 million
Non-U.S. Revenue $21 million
Global PPIF revenue for the years ended December 31, 2020 and 2019 was comprised as follows:
MCO-20201231_G154.JPG
Transaction revenue increased $45 million compared to the same period in the prior year.
The 11% increase in PPIF revenue resulted primarily from:
higher U.S. public finance refunding volumes resulting from continued low benchmark interest rates, including refinancing by way of taxable transactions;
higher infrastructure finance revenue resulting from investment-grade issuers bolstering their balance sheets in light of uncertainties regarding the duration and severity of the COVID-19 crisis; and
benefits from favorable changes in product mix and pricing increases.